# Decision analysis for petroleum exploration

- Author:
- Newendorp, Paul D.
- Published:
- Aurora, Colo. : Planning Press, [2000]
- Copyright Date:
- ©2000
- Edition:
- 2nd ed. / Paul Newendorp, John Schuyler.
- Physical Description:
- vi, 606 pages : illustrations ; 26 cm
- Additional Creators:
- Schuyler, John

- Contents:
- DECISION ANALYSIS-WHY BOTHER?: Multi-discipline science -- Advantages of decision analysis -- Explicitly recognizes possible outcomes -- Highlights key factors -- Comparing projects with different risk characteristics -- Clearly Communicates judgments about risk -- Accommodates complex investment decisions -- Misconceptions regarding decision analysis -- A final comment -- MEASURES OF PROFITABILITY: Introduction -- The treasury -- The objective of the firm is maximizing shareholder value -- Money in the treasury loses all identity as to its source -- Non-monetary considerations -- Analysis scope -- Characteristics of profitability measures -- The perfect decision criterion -- Popular criteria -- Prospect cash flow example -- Profit -- PAYOUT(PO) -- Strengths -- Weaknesses -- Variants -- Payout calculation for example prospect -- Return on investment (ROI) -- Strengths -- Weaknesses -- Variations -- Return on investment calculation for example prospect -- Another example -- Time-value of money considerations present value (PV) -- Standard PV calculation -- Future value -- Net present value -- Discount rate -- Characteristics of NPV -- Time segments -- Correction to the spreadsheet NPV function -- Cash flow rate and discount rate as functions of time -- Financial calculators -- Mid-period discounting -- Some general comments about compounding and discounting -- Different rates -- Annuities -- Timing of cash flows and interest periods -- Continuous and end-year discounting -- Rate of return (IRR) -- Specific characteristics of the rate of return concept -- Discounted return on investment(DROI) -- Ranking for capital-limited situation -- Discounted return on investment (DROI) calculation for example prospect -- Other measures of value -- Appreciation of equity rate of return -- Percentage gain on investment -- Risk-weighted rate of return -- General comments about measures of profitability -- Rate acceleration investments --

EXPECTED VALUE CONCEPT: Comments about Risk and Uncertainty -- Definitions and expected value calculation -- Meaning and interpretation of expected values -- Characteristics of expected value calculations -- Some additional numerical examples -- Problems of interpretation and application -- Attitudes and opinions -- Some final comments -- A note about the case study that follows -- Blackduck prospect, part I -- DECISION TREE ANALYSIS: Definitions -- Solving a decision tree -- Example -- Advantages of decision tree analysis -- General comments about decision trees -- Blackduck prospect, Part II -- UTILITY THEORY CONCEPTS: Issues involved with utility theory -- Mathematical basis for utility theory -- Applying utility theory to exploration decisions -- Shapes of utility curves -- Practical problems in applying utility theory -- Where Does the Utility Curve Come From? - Deriving the function from questions or history -- Will the concept even work? -- Whose curve is used in a large corporation? -- Will a decision maker's curve change with time? -- Is the decision maker still needed? -- Is there always value in consistency? -- Keeping feelings about risk and money separate -- No repeating investment opportunities -- Different risk policies for different business units -- Different risk policies for different organization levels -- Defining the utility function -- Fit to historical decisions -- Parametric approach -- Theoretical curve -- Exponential utility function -- Example -- Criticisms of the exponential shape -- Application -- Additional possibilities for using utility theory: Utility function as a training aid -- Use of dual criteria --

BASIC PRINCIPLES OF PROBABILITY AND STATISTICS: Probability definitions -- Relative frequency definition of probability -- Classical, or objective definition of probability -- Subjective definition of probability -- Addition theorem -- Multiplication theorem -- Sampling with replacement -- Sampling without replacement -- Examples and illustrations of probability -- An exploration example involving conditional probabilities -- Answers to the roulette questions in chapter 3 -- Probability distributions -- Frequency distributions -- Cumulative frequency distributions -- Parameters of distributions -- Measures of central tendency -- Measures of variability -- Distributions of interest in exploration -- Normal distribution -- Lognormal distribution -- Uniform distribution -- Triangle distribution -- Example -- Binomial distribution -- Multinomial distribution -- Example -- Hypergeometric distribution -- Example -- Bayes' theorem -- Bayes' formula -- PETROLEUM EXPLORATION RISK ANALYSIS METHODS: The basic problem -- Incomplete Understanding -- Not independent trials -- Little data or experience -- Price instability -- Geology as an art -- Risking petroleum exploration -- Subjective probability assessments -- Arbitrary Decision "minimums" to cover uncertainty -- Modifications to rate of return to account for risk -- Allowable dry holes, profit/risk ratios -- Numerical scoring techniques -- Judging probability of discovery -- Geologic risk factors -- Lots of data -- Geologic modeling -- Resource distributions -- A caution about assuming lognormal -- Multi-well drilling programs -- Analyses assuming dependent events -- Another example -- Analyses assuming independent events -- Extending the example with the multinomial distribution -- Three level estimates of risk -- Base case --

RISK AND DECISION ANALYSIS USING SIMULATION: Simulation overview -- Simulation process -- Define the variables (Step 1) -- Develop the deterministic projection model. (Step 2) -- Sort the input variables into two groups (Step 3) -- Define distributions for the random variables (step 4) -- Perform the simulation trials (step 5) -- Calculate emv and preparing graphical displays (step 6) -- Random numbers -- Stopping rules -- Brute force methods -- Standard error of the mean -- Latin hypercube sampling -- Dependency -- Correlation coefficient -- Distribution for the independent variable -- Sampling the distribution for the dependent variable -- Numerical example -- Stepping through the process -- Applications and examples -- General organization of a simulation analysis -- Detailed example -- Logic scheme of the simulation analysis -- Results of the simulation analyses -- Determining IP, reserves and no. of wells -- Field reserves/well reserves -- Field IP Per Well -- Statutory spacing and bounding the x-y plot -- Optimizing the number of wells -- Other applications of simulation -- Using computers to make simulation analyses -- Specifying probability distributions -- On the philosophical defense of simulation -- Two questions -- Henry oilfinder revisited -- The blackduck prospect (part Ill) -- IMPLEMENTING RISK ANALYSIS METHODS: Motivation for using risk analysis -- Organization: Where should the specialists be located? -- Communication -- Education -- Teamwork in developing analysis procedures -- DECISIONS TO PURCHASE IMPERFECT INFORMATION: The general approach to the analysis -- Example No. 1 -- Questions -- The solution -- Example No. 2 -- The problem -- Questions -- The solution -- Summary -- Special problems and open issues: High risk and/or capital constraint -- Discounting-a second look -- Emv maximizing-is it sufficient?. - Subject(s):
- ISBN:
- 0966440110 (acid-free paper)
- Bibliography Note:
- Includes bibliographical references (pages 583-601) and index.

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