Understanding common risk analysis problems leads to better E and P decisions

Journal Article · Sat Oct 01 04:00:00 EDT 1994 · World Oil; (United States)

OSTI ID:6782710

Smith, M B ^[1]

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1. Smith (Marvin B.), Black Hawk, CO (United States)

Many petroleum geologists, engineers and managers who have been introduced to petroleum risk analysis doubt that probability theory actually works in practice. Discovery probability estimates for exploration prospects always seem to be more optimistic than after-the-fact results. In general, probability estimates seem to be plucked from the air without any objective basis. Because of subtleties in probability theories, errors may result in applying risk analysis to real problems. Four examples have been selected to illustrate how misunderstanding in applying risk analysis may lead to incorrect decisions. Examples 1 and 2 show how falsely assuming statistical independence distorts probability calculations. Example 1 and 2 show how falsely assuming statistical independence distorts probability calculations. Example 3 discusses problems with related variable using the Monte Carlo method. Example 4 shows how subsurface data yields a probability value that is superior to a simple statistical estimate. The potential mistakes in the following examples would go unnoticed in analyses in most companies. Lack of objectivity and flawed theory would be blamed when fault actually would lies with incorrect application of basic probability principles.

• OSTI ID: 6782710
• Journal Information: World Oil; (United States), Journal Name: World Oil; (United States) Vol. 215:10; ISSN 0043-8790; ISSN WOOIAS
• Country of Publication: United States
• Language: English

Related Subjects

02 PETROLEUM
020200* -- Petroleum-- Reserves
Geology
& Exploration
020700 -- Petroleum-- Economics
Industrial
& Business Aspects
03 NATURAL GAS
030200 -- Natural Gas-- Reserves
Geology
& Exploration
030600 -- Natural Gas-- Economic
Industrial
& Business Aspects
DECISION MAKING
EXPLORATION
GEOLOGIC DEPOSITS
INDUSTRY
MATHEMATICAL MODELS
MINERAL RESOURCES
NATURAL GAS DEPOSITS
NATURAL GAS INDUSTRY
PETROLEUM DEPOSITS
PETROLEUM INDUSTRY
RESOURCES
RISK ASSESSMENT
STATISTICAL MODELS