Value Change in Oil and Gas Production: II. Additional Information with Variable Cost and Variable Success Probability

Abstract

This paper in the series dealing with development options for producing oil fields considers the effects of uncertainty in parameters influencing the future expected value of the filed worth depending on strategies for field development based on the acquisition of information in relation to business “as is”. Three simple illustrations show how the uncertainty in estimated ranges of parameters for the business “as is” situation, the potential development under acquisition of information, and the combined uncertainty of both scenarios, can be quantified and an informed decision made as to how to proceed based upon the information available and also the uncertainty of that information. In addition, a quantification of the sensitivity of worth to the uncertainty in the parameters is provided so that one can quickly determine where to concentrate effort to narrow the ranges of the most important parameters causing the uncertainty in estimates of worth. This advantage allows one to ignore less important parameters and spend time effort and money on narrowing the ranges of factors determining the major fuzziness in estimates of worth.