The lecture attempts to bridge the gap between petroleum geosciences and oil business economics. There are three major distinctive features which make the evaluation of petroleum exploration projects unique compared to other “standard” economic models.

First, the “monetary value” of an exploration project is the result of conjugate cash-flow scenarios, each associated with a probability defined by the geological knowledge on the Prospect. The Prospects’ Geological Probability (Pg) controls the chance of finding recoverable quantities of hydrocarbons while the quantification of Pg influences the Probability of Success and the Probability of Failure for the discovery and dry-hole scenarios, respectively. The probability weighted cash-flow scenarios result in the Expected Net Present Value (ENPV) of the exploration project.

Second, the cash-flows belonging to each “discovery scenario” are characterized by significant uncertainties related after all to geoscience interpretations. The uncertainty analyses of trap geometries, the gross rock volume, reservoir porosities, saturation and recoverability influences the range of the uncertainty in Prospective Resource estimations, and consequently that of the cash-flows. The uncertainty of cash-flows is incorporated into the exploration project’s Expected Monetary Value (EMV).

Third, the projects’ monetary value reflects the geological knowledge: i.e. the acquisition of new geoscience data may increase the ENPV or the EMV. It is the value of the geological and geophysical information.

Finally, the geological risk diversification via efficient exploration portfolio management shall be discussed.

The VG-talk – besides teaching business economics for geoscientists in articulate and playful manner – is integrating disciplines of Probability Science, Decision Analyses and Geosciences.

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