I would rather be vaguely right than precisely wrong: A new approach to decision making in the petroleum exploration and production industry

Bratvold, Reidar Brumer; Begg, Steve

doi:10.1306/06040808070

Cited by 19 publications

(8 citation statements)

References 34 publications

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“…Probabilistic methods usually involve Monte Carlo simulation to derive a range of possible outcomes (e.g. Smith, 1970;Baker et al, 1984;Bratvold and Begg, 2008). Deterministic methods often deliver a single YTF value (e.g.…”

Section: Background On Yet-to-findmentioning

confidence: 99%

A Combined Deterministic‐probabilistic Method of Estimating Undiscovered Hydrocarbon Resources

Quirk

Howe

Archer

2017

Journal of Petroleum Geology

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Play analysis is used to delineate areas containing geologically similar discoveries and prospects. The yet‐to‐find (YTF) recoverable resource for a conventional play can be predicted using deterministic scenarios utilizing the fact that discoveries within a part play (or common risk segment) can be fitted to a lognormal distribution. Assuming the part play works, a YTF scenario can be made with estimates of (i) the number of drillable prospects, (ii) the average prospect risk, (iii) the resource size of an upside discovery (based on the evaluation of a favoured prospect), and (iv) a downside resource from an implied P99 volume (based on historical data or calculation). A range of YTF is then developed using low, median and high case scenarios. The value of the different scenarios can be estimated provided a minimum economic field size for a generic prospect is available plus a pre‐drill net present value for an average economic discovery. Useful reality checks of YTF estimations include the historical discovery rate, the areal density of traps in analogue settings, the historical average discovery size and the total estimated recoverable resource per unit area. YTF from prospect inventories using Monte Carlo simulations tend to focus on mature areas and are biased to outcomes where all pre‐drill models are correct, unless the prospect sizes are adjusted to account for discoveries which are smaller than predicted by seismic interpretation. YTF estimates will change as information about the play evolves, meaning that it is important that the calculations are kept relatively simple and easy to adjust as new well and seismic data becomes available.

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Section: Background On Yet-to-findmentioning

confidence: 99%

A Combined Deterministic‐probabilistic Method of Estimating Undiscovered Hydrocarbon Resources

Quirk

Howe

Archer

2017

Journal of Petroleum Geology

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“…In the capital-intensive oil and gas industry, it has been long recognized since decades that many exploration and production (E&P) projects failed to deliver the performance they promised as a result of the underestimation of risks (Bratvold and Begg, 2008). Studies by Merrow (2003) showed that one in eight E&P projects with capital expenditure ranging from $1 million to $3 billion US dollars were disasters.…”

Section: Decision and Risk Analysismentioning

confidence: 99%

“…Decision tree presentations (cf. Koller, 2000;Bratvold and Begg, 2008) are in this context, used to represent and calculate quantitatively the effects of alternative decisions and adjusted workflows.…”

Section: Probabilistic Modelsmentioning

confidence: 99%

Economic Performance and Environmental Assessment

Frick

Wees

Kaltschmitt

et al. 2010

Geothermal Energy Systems

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Besides the technical feasibility of the energy provision from enhanced geothermal system (EGS), its deployment depends on the establishment on the energy market. This means that the characteristics of national and international energy markets need to be understood to improve EGS's classification therein.Energy markets are not driven only by demand and supply. The provision of energy addresses also social and political issues for the present and future generations. On one side, today's living standard is directly linked to the use of energy. And to maintain and improve this living standard energy must be securely available and affordable. On the other side, today's energy provision depletes finite fossil resources and emits substances, which are damaging the local environment as well as the global climate.Sustainable energy markets, avoiding unwanted effects resulting from the provision and the use of energy, therefore need to manage the three dimensions: security of supply, economic affordability, and environmental compatibility (Figure 7.1) and the conflicts resulting thereof. Since different players with varying priorities are involved in the energy markets, the governments have to set an energy-political framework in order to ensure the development of energy markets, which can meet the mentioned sustainability criteria.Against this background, a goal defined in many energy-political frameworks is to increase the share of renewable energies contributing to the mitigation of greenhouse gas emissions and the reduction in the consumption of finite energy resources within the energy system. But the costs for energy provision from renewable energy sources are not yet fully competitive to the prices in the market (even though these prices do not reflect the full lifecycle costs related to the use of fossil energy resources). Furthermore, the integration of renewable energies into the existing structures of the energy system is not always easy to realize. Therefore, promotion measures have been implemented in many countries over the last Geothermal Energy Systems. Edited by Ernst Huenges

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“…This provides additional assurances to the lenders as to whether or not the firm is behaving within normal parameters or not, despite the increased volatility. One of the main reasons that projects do not achieve their intended goal is often uncertainty (Bratvold and Begg, 2008). Studies have shown that uncertainty and volatility in the value of oil has real macroeconomic impacts in American and Canadian markets (Hamilton, 1983;Elder and Serletis, 2009).…”

Section: Introductionmentioning

confidence: 99%

“…This type of flexibility enhances the exploration investment's value by limiting the potential downside losses and preferentially selecting positive outcomes resulting in an asymmetric returns distribution in favor of the initial investment -at least statistically (Bratvold and Begg, 2008). In contrast, commonly used techniques such as Net Present Value (NPV) do not account for this reduction in uncertainty over time and the value of managerial flexibility.…”

Section: Introductionmentioning

confidence: 99%

Linking the Value Assessment of Oil and Gas Firms to Ambidexterity Theory Using a Mixture of Normal Distributions

Casault

Groen

Linton

2015

Oil Gas Sci. Technol. – Rev. IFP Energies nouvelles

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-Oil and gas exploration and production firms have return profiles that are not easily explained by current financial theory -the variation in their market returns is non-Gaussian. In this paper, the nature and underlying reason for these significant deviations from expected behavior are considered. Understanding these differences in financial market behavior is important for a wide range of reasons, including: assessing investments, investor relations, decisions to raise capital, assessment of firm and management performance. We show that using a "thicker tailed" mixture of two normal distributions offers a significantly more accurate model than the traditionally Gaussian approach in describing the behavior of the value of oil and gas firms. This mixture of normal distribution is also more effective in bridging the gap between management theory and practice without the need to introduce complex time-sensitive GARCH and/or jump diffusion dynamics. The mixture distribution is consistent with ambidexterity theory that suggests firms operate in two distinct states driven by the primary focus of the firm: an exploration state with high uncertainty and, an exploitation (or production) state with lower uncertainty. The findings have direct implications on improving the accuracy of real option pricing techniques and futures analysis of risk management. Traditional options pricing models assume that commercial returns from these assets are described by a normal random walk. However, a normal random walk model discounts the possibility of large changes to the marketplace from events such as the discovery of important reserves or the introduction of new technology. The mixture distribution proves to be well suited to inherently describe the unusually large risks and opportunities associated with oil and gas production and exploration. A significance testing study of 554 oil and gas exploration and production firms empirically supports using a mixture distribution grounded in ambidexterity theory to describe the value fluctuations for these firms.Résumé -Élaboration du lien entre l'évaluation de la valeur des entreprises pétrolières et gazières et la théorie de l'ambidextrie avec l'aide d'un mélange de distributions normalesLes entreprises d'exploration et de production pétrolières et gazières ont des profils de rendement qui ne sont pas entièrement expliqués par la théorie financière courante, notamment, la variation de leurs

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I would rather be vaguely right than precisely wrong: A new approach to decision making in the petroleum exploration and production industry

Cited by 19 publications

References 34 publications

A Combined Deterministic‐probabilistic Method of Estimating Undiscovered Hydrocarbon Resources

A Combined Deterministic‐probabilistic Method of Estimating Undiscovered Hydrocarbon Resources

Economic Performance and Environmental Assessment

Linking the Value Assessment of Oil and Gas Firms to Ambidexterity Theory Using a Mixture of Normal Distributions

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