ABSTRACT
Subsurface underappraisal programs are aimed at reduction of uncertainties which are peculiar to all prospective projects especially in new geological regions and sedimentary basins. Currently exploration and production companies apply different methods which treat a range of uncertainties by applying present value discounting methodic, probability discounting and value of information approaches. Unfortunately, these methods do not take into account exploration and production company’s attitude to financial risk of losing money from wrong decisions. Subsequently incorrect estimation and treatment of existing uncertainty can lead to application of suboptimal development programs or even to opportunity loss. This paper describes a combination of the Value of Information approach with Risk preference theory by application Risk Aversion coefficient to estimate Risk Adjusted Value of Information of the proposed underappraisal program. Moreover, two different cases are considered. These cases are described by equal magnitude of uncertainty while the risk in case 1 is lower than risk in case 2. It is shown below how project risk level influences the Value of Information and thus decision to be taken by the exploration company. This paper reviews the approach of the most suitable exploration well placement by taking into account not only monetary values but also a number of subsurface and abovesurface parameters. It is shown that such multi-variable chart can be a very useful and applicable tool to substantiate and improve decision-making process.
