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“Simple But Not Simpler”: A Full Cycle Approach to Contend Against Affect Heuristic in Frontier Exploration Decisions
- Publisher: European Association of Geoscientists & Engineers
- Source: Conference Proceedings, 80th EAGE Conference and Exhibition 2018, Jun 2018, Volume 2018, p.1 - 5
Abstract
Summary
The tendency to make poor decisions and ignore odds in favour of the gut feeling constitutes the affect heuristic, one of common biases in explorers’ assessment of prospect uncertainties. A frequently used method for quick look prospect economics screening is to multiply hydrocarbon volumes by mysterious ‘reserves unit value’. While that may appear fit-for-purpose at a first glance it does not assure an acceptable exploration decision quality. We consider a frontier play entry opportunity at an early exploration maturity stage with both mapped and postulated prospects. The development of a first discovery in the play would require some tangible investment in common hub infrastructure. The opportunity is assessed twice: first, using a simple reserves value multiple and, second, by a probabilistic full-cycle discounted cash flow model. The valuation outcomes of the studied case are opposite. Since the full cycle model could mimic the real-life logic of important half-cycle project stage-gates such as making the final investment decision, it supported the play entry opportunity contrary to the ‘market approach’ method. The ability to locate a thin dividing line between the necessary analysis complexity and its excessive complexification can be the decisive factor for correct prospect assessment.
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