Chapter 6

Methods of Petroleum
exploration

Initial aim: to establish a viable Petroleum System

Which is The essential elements and processes and
all genetically-related hydrocarbons that occur in
petroleum shows and accumulations whose
provenance is a single pod of active source rock.
Elements
Source Rock Processes
Migration RouteGeneration
Reservoir RockMigration
Accumulation
Seal Rock
Preservation
Trap

and then determine where to drill to

have maximum chance of finding oil and gas

Burial history chart plot of depth vs geological time to

M

TR

Cen.
K

Rock
Unit

Thick
Fm

Overburden

Mesozoic

Seal

Paleozoic

100

Reservoir

200

Source

300

Depth (Km)

400

Lithology

estimate when generation occurred

Generation
2
Placer Fm
George Sh
Top oil window

Boar Ss

Top gas window

Deer Sh
Elk Fm

Critical Moment

Magoon and Dow, 1994

Time of Expulsion and Migration. (Trap must already exist)

Petroleum Systems Events Chart to work

out whether essential elements are present and the timing good
North Slope, Alaska
400

300

Paleozoic

M P P TR

200

Geologic
Time-Scale

100

Mesozoic

Cenozoic

P N

Petroleum
System Events

Source Rock
Reservoir Rock
Seal Rock
Overburden
Trap Formation
Generation, Migration,
and Accumulation

1. Western North Slope

2. East-central North Slope

Timing is critical

Preservation
Critical Moment

Basic Exploration Workflow

1. Regional scale: tools to identify basin and regional structure
2. The seismic method basics, acquisition, processing and
interpretation
3. Well logs basics, acquisition, interpretation
4. Integrated interpretation
establish petroleum system
map structure at relevant levels
geological description
estimate OOIP, OGIP
Estimate EUR (Estimated Ultimate Recovery)
5. Economic analysis

Basic Exploration Workflow

Identify
Opportunities
Acquire
Seismic Data

Interpret
Geological (eg
logs) &
Seismic Data

Capture
Prime Areas

Assess
Prospects

Economic
Analysis

L 5 Seismic Method

Drill
Wildcats

Process
Seismic Data

Courtesy of ExxonMobil

Failure

Success

Confirmation
Well
Uneconomic
Drop
Prospect

Success

To D/P

1. Regional scale:
Tools (surveys) for establishing the
presence of sedimentary basins and
regional structure

Geomagnetic Surveys
Gravimetric surveys
Seismic Surveys

Aero magnetics- Fixed-wing with Wing-tip Sensors

Magnetics generally a
regional tool, of limited use
in petroleum exploration

Variation of magnetic anomaly

due to changing depth of
burial of magnetic rocks
(inclination: 60)
Sedimentary rocks are not
usually magnetic

Geomagnetic
Gradiometer (gravity) system

Total magnetic
intensity
contours over
large
basement fault

Variations in
gravity due to
geological
structure
(a) High values
due to dense
rocks near
surface
(b) Low values
due to light rocks
near surface
8

FALCON is the world's first airborne gravity gradiometer

(AGG) and is the only operating AGG technology developed
specifically for airborne purposes. It measures minute
changes in the earth's gravity to high accuracy and high
spatial resolution using both helicopter and fixed-wing
platforms. Can be used for local structure but generally is a
more regional tool

More mapping tools are available on

land than in the marine environment,
where seismic is the main mapping tool

Surface geology field mapping

Aerial photos
Satellite imagery
Geochemical surveys soil gas sampling, seeps
Seismic surveys

Outcrop

Surface geological map

Satellite image

2. The Seismic Method

Seismic is the most important mapping tool in the
petroleum industry.
It can provide information on all the elements of a
petroleum system, particularly when tied to and calibrated
by well data:

Imaging layers in the earth

regional and detailed structure including viable traps
timing of structure and trap
presence and location of reservoir
presence and location of seal
presence and location of source rocks
paleogeography via seismic stratigraphic interpretation ie
depositional environments through geological time
rock and fluid properties, including direct hydrocarbon
indicators (DHI)

The Seismic reflection method

The Seismic Method recording reflections of sound

waves from layers in the earth to build a subsurface image
Energy
Source

An Explosion!
(or vibrators)

.4 s

Listening Devices

.1
.2
.8
.4
.6
.5
.7
.3
0
0 sss

These are like echoes

Some Energy is Reflected

Most Energy is Transmitted

Some Energy is Reflected

Most Energy is Transmitted

L 5 Seismic Method

.8 s

Courtesy of ExxonMobil

Raw Seismic Data

Time

Device
#1
0.0

Device
#2

For the explosion (sound source) we just

considered ...

0.1
0.2
0.3
0.4
0.5

Listening device #1 records a reflection (of a

sound wave) starting at 0.4 seconds

0.6
0.7
0.8

Listening device #2 records a reflection

starting at 0.8 seconds

To image the subsurface, we use many shots (explosions)

and many receivers (listening devices) arranged in lines either on
land or offshore
L 5 Seismic Method

Courtesy of ExxonMobil

What Causes Reflections?

Any interface between bodies
with different acoustic properties
Acoustic properties define
Impedance (I) , in which
I = velocity * density

Shot

Receiver

Layer 1
Layer 2

Boundary

Small change in impedance small amplitude reflection

Large change in impedance large amplitude reflection

L 6 Seismic Reflections

Courtesy of ExxonMobil

The amplitude of the reflections caused by the changes in acoustic

impedance contains information about the density of and the
velocity of sound waves through each layer of sediments. This can
be a powerful tool to estimate and map reservoir and fluid properties
Shot

Receiver

Seismic Record

Trough

Peak

Layer 1
Layer 1
Layer 2

Impedance
Increase

Layer 2

Layer 2
Layer 3

Layer 3

Layer 3
Layer 4

Layer 4

Impedance
Decrease

Impedance
Increase

Travel Time (2 way) in msec

Impedance = Velocity * Density

Peak over Trough is an
Increase in Impedance

L 6 Seismic Reflections

Courtesy of ExxonMobil

The Seismic Method

When the data is acquired and processed, we have data on and images of
layers in the earth, measured in the Two way Time (TWT) it takes for the sound
waves to travel from the source at the surface to the various layers and back up
to the surface where it is recorded.
This data can be acquired in a grid of intersecting lines which may be ~ 0.5 to 5
km or more apart (2D) or in a matrix of closely spaced recorders that results in a
data set that can be treated as a 3D cube of data
2D is commonly acquired in the initial stages of exploration, as it is much
cheaper than 3D for any particular area. 3D is acquired over discoveries and
fields to better evaluate them, but is increasingly being acquired during the
exploration phase for many plays.
Particular reflectors that have geological significance via calibration to well data
are mapped throughout the dataset and TWT structure contour maps can be
created. Timing of structure can be estimated.
These TWT maps can be converted to depth structure after the seismic
velocity field has been interpreted from the seismic data (Velocity =
distance/time or distance (depth) = VxT). T is TWT/2. Velocity information also
from wells.

Maps of other seismic attributes such as the amplitude (signal strength) of the
reflector can be created and interpreted, as these sometimes yield valuable
information

Final processed data (2D line extracted from 3D cube)

SE

NW

SE

Structure
map of
horizon

Two way
Time
Miocene reef
Carbonate reservoir target

Mapped
horizon

Secondary Objective
GAS
Nam Con Son Fm
Carbonates
1500 mSS

Primary Objective
OIL
Dua Marginal Marine
Sandstones
1950 mSS

Top
Carbonate

Secondary Objective
OIL
Cau Fluvial Sandstones
2250 mSS

Top Dua
Reservoir

2.5km
Oligocene/E Miocene
Clastics Primary Oil
Target

Basement

Top Cau

Final 3D processed data

Stratigraphic trap reefal carbonate buildup on 3D data.
- Seismic structure map overlain by seismic amplitude of the mapped horizon

Seismic Acquisition
A 3D survey is designed based on:
Imaging Objectives: define image area, target depth,
dips, velocity, size/thickness of bodies to be imaged, etc.
Survey Parameters: survey area, fold, offsets,
sampling, shooting direction, etc.
Balance between Data Quality & $$$$$

Land Operations

Vibrators Generate a Disturbance

Geophones Detect Motion
L 5 Seismic Method

Marine Operations

Air Guns Generate a Disturbance

Hydrophones Detect Pressure

Courtesy of ExxonMobil

Marine seismic surveying

The survey vessel tows the seismic source and receiving system (hydrophone array). Seismic waves
travel through the water column into the seafloor and are reflected from layers that have relatively
rapid changes in physical (acoustic) properties. The position of the seismic reflectors is measured as a
function of the time it takes the seismic (sound) wave to travel from the source to the reflector and
back (seismic travel time).
Regular airgun pops and continuous recording while accurately measuring location data allow rapid
collection of data

~$400,000 per day!

Marine 3D Acquisition Technique

- an example

Dual Source - 4 streamer

Configuration
Often now 6 10 streamers
Dual sources
Flip flop
Separation 50 m

Several lines
shot simultaneously
- Gives Acquisition sampling
6.25 m x 25 m

Typical marine 3D data volume

1000 sq km area
8 streamers, each 100 m apart
2 sources, 50 m apart
18.75 m flip flop source interval
Each streamer length 6000 m
streamer group interval 12.5 m
total recording channels 8 x 480 = 3840
Acquisition bin sampling grid 6.25 m x 25 m
Recording 7 seconds of data at 2 ms sampling

Typical marine 3D data volume

Which gives us a field data volume of:
1.34 x 10**7 data samples/shot
10 x 10**12 (terabytes) of data
Processed volume (3D image of the subsurface)
12.5 x 25 m subsurface bin sampling ie a data point
every cube of 12.5m x 25m x ~5m deep in the subsurface
4 ms time sampling
6 x 10**9 (gigabytes) of data
Data reduction after image processing ~ 1.5 x 10**3

Raw Data Marine a record of one shot

L 5 Seismic Method

Courtesy of ExxonMobil

Time taken to reach

each receiver is
plotted directly
beneath that receiver
eg blue and red

Seismic Processing
Data Processing
Stream

Field Record
(marine)
L 5 Seismic Method

Subsurface Image
Courtesy of ExxonMobil

Shot Gather
Source
S1

For Shot 1

Receivers

Direct Arrival
R1

R2

R3

R4

Offset (Distance)

R5

R1

R2

R3

R4

R5

1
2

Reflections
3

In this eg, for each shot, reflections are

recorded in 5 receivers (in a survey, there
may be ~600 receivers)
There are 5 bounce points along interface 3
L 5 Seismic Method

Courtesy of ExxonMobil

2 Way Travel Time

Direct Arrival

Reflection

Common Midpoint (CMP) or Common Depth

Point (CDP) Gather
Sources

For Point A

Receivers

CMP Gather
S5

S4

S3

S2

S1

R1

R2

R3

R4

R5

A
We sort the shot-receiver pairs so that data
from the same bounce point (e.g., at A) is
captured

CMP = common mid point

L 5 Seismic Method

Courtesy of ExxonMobil

Offset Distance

CMP Gather
CMP Gather

The travel times differ since the

path for a near offset trace
is less than the path for a far
offset trace
With the correct velocity,
we can correct for the
difference in travel time for
each trace.

The curvature of this hyperbola is a

function of the average velocity down to
the depth of the reflection
Offset Distance
L 5 Seismic Method

Courtesy of ExxonMobil

With Correct Velocity, Gather is Flat - a Stacked Trace

CMP Gather

Moveout Corrected
Midpoint Gather

Stacked
Trace

We stack (add) several offset

traces (# traces = fold)
The geologic signal will be
additive
The random noise will tend to
cancel
Stacking greatly improves S/N
(signal-to-noise)
We get an estimate of velocity
which can be used to convert
TWT to depth
This is done for every reflector
down the section

Offset Distance
L 5 Seismic Method

10 Fold
Courtesy of ExxonMobil

Positioning Problems when reflectors are dipping, data is

plotted in the wrong place. It is corrected via the migration process
Energy
Source

Bounce Point. This is the

shortest path, but it is assumed
to come from and is plotted
directly below the source. It is
corrected to its right position
through mathematical modelling
process known as migration

0.4 s -

The reflection is displayed beneath the

source-receiver midpoint. This is
The seismic ray hits an inclined surface at 90
incorrect and the data needs to be
and reflects back
migrated to the correct spatial
Courtesy of ExxonMobil
L 5 Seismic Method
position during processing

Seismic Migration
Unmigrated Image

Positioning
Problems Blur
the Image

Migrated Image

Migration reduces
positioning
problems, which
improves the
image
L 5 Seismic Method

Courtesy of ExxonMobil

Land 3D Seismic Survey source and receiver grid

Source Lines
N/S
Receiver Lines
E/W
980
receivers/shot
11655 Vibrator
locations
127 sq km

Land 3D seismic survey Vibroseis source array

Rajasthan sends shock waves into the ground

Cost dependent on terrain.

Expensive: may be >$30,000/sq km
1000 sq km =$30 million

3D IMAGING: Viet Nam

(BIG OIL FIELD!)

Vertical Section

Horizontal Section or slice

Data courtesy of CGGVeritas

Salt

Sediments

Migrations compliments of CGGVeritas

Depth processed Image

Migrations compliments of CGGVeritas

Seismic Interpretation
Mitchum et al., 1977

AAPG1977 reprinted with permission of the AAPG

whose permission is required for further use.

Determine the local geology from the subsurface images

Map faults and other structural features. Produce contour maps

Map unconformities and other major stratal surfaces
Interpret depositional environments
Infer lithofacies from reflection patterns & velocities
Predict ages of stratal units
Examine elements of the HC systems, including fluids, porosity etc

L 5 Seismic Method

Courtesy of ExxonMobil

Resolution of Seismic - it defines units 10s of

meters thick
Predominantly

Shale

Predominantly

Sand

Predominantly

Shale

10 m
L 6 Seismic Reflections

Courtesy of ExxonMobil

What Causes Reflections?

Any interface between bodies
with different acoustic properties
Acoustic properties define
Impedance (I) , in which
I = velocity * density

Shot

Receiver

Layer 1
Layer 2

Boundary

Small change in impedance small amplitude reflection

Large change in impedance large amplitude reflection

L 6 Seismic Reflections

Courtesy of ExxonMobil

Seismic Data & Stratal (bedding) Surfaces

Seismic reflections parallel stratal (bedding) surfaces (boundaries
between depositional beds)
Reflection terminations mark unconformities
Changes in reflection character indicate facies changes

Stratal Surfaces

Unconformities

Facies Changes
Fluvial Incised Valley Fill

Coastal Plain

Foreshore/Upper Shoreface

Lower Shoreface - Offshore

Slope - Basin

Submarine Fan

Estuarine

Condensed Interval

L 6 Seismic Reflections

Courtesy of ExxonMobil

Why Stratal Surfaces?

Recall: Reflections are generated where there is a change in
acoustic properties (I = v)
Consider: Where can there be sharp changes in impedance?
horizontally as lithofacies change? No, gradational
vertically across stratal boundaries? Yes
Brushy Canyon Formation, West Texas

Very Gradational Lateral

Changes in Physical Properties

Can Have Abrupt Vertical

in Physical Properties
L 6 Changes
Seismic Reflections

Courtesy of ExxonMobil

Especially at parasequence Boundaries

PNG Subsurface Structure Kutubu field

Seismic amplitudes can yield information on lithology,

net/gross and porosity regionally and locally

Reservoir
facies

50 km

Amplitudes can reveal information on fluids.

In the Otway Basin, Waarre A Formation Instantaneous Amplitude Map below
shows gas saturation (red and yellow colour, high amplitude)
Other seismic attributes such as AVO (Amplitude Variation with Offset), frequency
and phase can also be useful

3. Recap on logs - what is a well log?

A record of a subsurface property as a function
of depth
Open Hole Logs: measure rock properties
Wireline
Logging While Drilling (LWD)
Cased Hole Logs: measure properties of
producing fluids, casing and formation,
through casing
Production logs
Cement evaluation
Formation Evaluation (Neutron, Sonic,
etc)

Logs commonly used for

complete reservoir evaluation:
Mudlog/lithologic log (lithology, fluid)
Gamma ray (lithology)
Density (porosity)
Neutron (porosity)
Sonic (porosity, velocity)
Resistivity (Sw)
NMR (Nuclear Magnetic Resonance) (k,por,Sw)
Borehole caliper (k if mudcake)
Spontaneous Potential (lith,k)
Image logs eg microresistivity tool FMI
(Formation Micro-Imager) (lithology, dips,
fractures,faults)
Photoelectric absorption (lithology)
Pressure and formation fluid sampling tools
(fluid, k) often a lengthy process
Vertical Seismic Profiler/seismic checkshot
(seismic welltie)
MWD ie Measure While Drilling(drilling
parameters)
Permeability probe in lab (k)
A full logging suite may take 1-2+ days

Interpretation of logs
Interpret lithology
Identify objective reservoir seal pairs
Use to evaluate potential source intervals
Correlate logs to interpret sequence stratigraphy to give
sedimentary facies of important intervals
Interpret rock properties (porosity etc) and fluid saturations
Interpret fluid systems, OWC, GWC, GOC etc
Tie to seismic data
Use to model seismic response for possible rock properties and
fluid types to understand seismic data
Remember the best interpretation is achieved by calibrating to
core

Log analysis
Calculation of Water Saturation Sw (Oil and Gas Saturation = 1-Sw) is an
essential part of defining OOIP and OGIP
The basic relationship used in fluid saturation estimations from logs is the empirical
Archies Law, although many variations and refinements have been developed to
better account for things such as shaley sands.
Archies Law: Sw = n Rw/(Rt.m)
Rw is resistivity of formation water, from sample or calculated from logs
Rt is true formation resistivity (of rocks and fluids)
m is the cementation exponent and is derived from core analysis (commonly ~
2). Related to pore geometry
n is the saturation exponent and is derived from core analysis (commonly ~ 2).
Related to wettability
The Law enables Sw to be calculated from resistivity measured from logs.
(Sw decreases ie) So increases with increasing formation resistivity at any
given/constant

Computed reservoir properties rock properties and gas

saturation

4. Interpretation
Geological description
Depositional facies
The observable attributes of a sedimentary rock body that reflect the depositional
processes or environments that formed it.

Walthers Law of Facies

Facies that succeed each
other vertically without a
time break were
originally deposited
adjacent to each other

Facies

Facies association or model

series of facies everywhere found together
represent deposition of sediment in various parts of a single
depositional environment

Sedimentary structures.
Bed forms are a product of the type and energy of the depositional environment and
these recognised in core or outcrop or interpreted from some logs are used to
interpret facies

Depositional facies interpreted from logs such as these recorded

over fluvio-deltaic sands help predict reservoir distribution and
quality
Grainsize
increasing

Facies
Beach-Foreshore

1ST
ANGLE_OF_REPOSE
CROSS BEDDING

Grainsize increasing

Mid to Upper Shoreface:

Convex-up Hummocks rarely preserved (loosely
termed swaly)

Lower Shoreface: HCS

Hummocky Cross-Stratification

Upper Offshore:
Turbidites

Lower Offshore

59

Muds, shales

A Typical vertical
Shoreface
Sequence
- formed as the beach
progrades (moves
laterally) into the basin
due to continued
sediment supply

Eg of different sedimentary facies that are deposited at the same

time in different locations ie they are equivalent. The change in
facies may occur within the field and they will have different /k
relationships

GRay

GRay

GRay

Datumed Cross Section through

Pohokura Field

Datum: KA-00
TVD

MD

MD
MD

MD

Flooding or
drowning event
Upper shoreface
Lower shoreface

Lagoon/coastal plain

Beach sands such as these will be more continuous than fluvial

sands. Note best quality rock at top (vs at base of fluvial sand)

Typical river dominated delta (constructive delta)

Mississippi. No reworking by wave energy to form beaches.

Delta type ie fluvial,wave or tide dominated, determines facies

distribution

A Typical Submarine Fan Model

drop in sea level

Redhead et al 2000 GCS SEPM

Generally form during a

Example of facies interpretation, which will guide model of

reservoir distribution, within a pay zone.

Correlation of reservoir units in field. Same reservoir zone as prev.

slide. How these are correlated will affect the field sand distribution model

Yolla field.
Correlation of high net/gross
fluvial to nearshore sand
packages deposited during
drops in base water levels
in large scale lacustrine
(lake) environment
Interpretation will affect
sand distribution model

Fluid Contacts can be estimated from pressure data :

eg pressure data through gas pay, Wheatstone-1

Reservoir description - calculate

OOIP, OGIP
1.Estimate the amount of hydrocarbons in place in your prospect/
field
ie Original Oil in Place (OOIP),
Original Gas in Place (OGIP)
Simply:
OOIP = trap Volume x Net/Gross (N/G) x Porosity () x Oil
Saturation (So) x Oil shrinkage (1/Bo)
OGIP = trap Volume x Net/Gross (N/G) x Porosity () x Gas
Saturation (Sg) x Gas Expansion Factor

OOIP = trap Volume x Net/Gross (N/G) x Porosity () x Oil Saturation (S ) x Oil shrinkage (1/B )
o

Trap Volume generally determined by geological and geophysical

mapping but may be determined by pressure data obtained during
production
Net / Gross is the ratio of net effective reservoir (that which will
contribute to production) to gross interval. This is generally
determined by permeability and porosity and is a function of the
environment of deposition. It will vary laterally and vertically
Porosity () is the pore vol/gross vol of reservoir lithology
Oil Saturation (So) is the fraction of the pore space occupied by oil
and = (1- Sw) This is determined by permeability and capillary
pressure and hydrocarbon column and density
Oil shrinkage (1/ Formation Volume Factor or Bo) Oil formation
volume factor ( Bo ) can be defined as ratio of Oil Volume at
reservoir condition to Volume at the surface condition (at 60F and
14.7psi). As pressure decreases when the oil comes to the surface,
gas bubbles out, reducing the volume of the oil)

Estimate range of OOIP, OGIP vs probability

Structure maps for relevant units eg 1) top of massive
sand or 2) several parallel layers of different properties
Facies maps
Net/Gross maps using facies maps
Porosity maps
Range of hydrocarbon contacts

Estimate recovery factor and EUR range (see later

lectures)
Interpret likely reservoir drive mechanism
Model possible development scenario with likely number
of wells and their placement
Run basic scoping model (perhaps a basic simulation
model) to estimate production profile

5. Run economic analysis

Discounted cash flow model using predicted production profile
through time and CAPEX (Capital expenditure) and OPEX
(operating expenditure) schedule, incorporating government take
(tax, royalty, production sharing splits etc) through time to calculate
NPV (net present value)
Assign risk factor to exploration prospect ie chance of
success, based on risk factors of the critical elements of the
Petroleum System, to rank prospects and to estimate EMV
(Expected Monetary Value - see later)
Based on above, decide to drill (or not)

Then
-Prepare well prognosis (predicted tops of formations etc)
-Prepare Drilling and evaluation Programme
-Tender for and award contracts for rigs and services etc
.Drill

Petroleum Economics

Company perspectives

Fiscal
Regime

Corporate
strategy

Macro-economic
Risks

Prospectivity

Investment
Decision

Business
Environment

Political
Risks

Economic analysis in making investment decisions :-

Buying or selling acreage or reserves

Buying or selling companies
Drilling an exploration well
Developing a discovery
Leasing or buying equipment

Investment
Decisions

Politics

Economics

Strategy

Geophysics

Engineering
Geology
Accounting
Petrophysics

Net Cash Flow

Cash Received
less

Cash Spent
equals

Net Cash Flow

Typical net cash flow profile for a development

Gross Revenue

Cash flow

Operating Costs
Country/State
Take
Abandonment
Costs

Net Cash
Flow

Capital Expenditure

Years

Finding Net Present Value (NPV) Note Disc. Pres. V=Future V/(1+i)n
Time
= 0

Net cash flow ($MM)

-200

Discount rate i (%)

End Yr (n):

Discount factor (No)

Present values ($MM)

Time = end year 2

3
4

100

90

80

70

60

50

40

100

10%

10%

10%

10%

10%

10%

10%

10% 10%-

1.000

0.91

0.83

0.75

0.68

0.62

0.56

0.51 0.47

-200
91
74
60
48
37
28
21

Net or Total Value

-47
+112

(This project beats the alternative investment (yielding 10%) by $112MM)

Risk
Not all endeavours have the same level of risk (ie chance of losing all or
part of your investment)
It is therefore important to try to quantify the level of risk
We can then rate the risked monetary outcomes of individual opportunities
to judge the best or worthwhile ones, using tools such as EMV, discussed
next
Eg risking an exploration well multiply independent variables to get overall
risk or chance of success. Watch for high individual risk factors game
breakers
risk factor
chance of adequacy
reservoir
source
seal
trap
migration
Chance of success

0.8 (80%)
0.7
0.7
0.8
0.8
0.25 (ie 0.8x0.7x0.7x0.8x0.8)

Expected Monetary Value a tool to quantify risk in $ mostly used to rank opportunities
- Is the Total of the weighted outcomes (payoffs) associated with
a decision, the weights reflecting the probabilities of the
alternative events that produce the possible payoff
= ( an event's probability of occurrence * gain or loss that will result).
a positive result is good
An example case. An exploration well is estimated to cost $20 million
and have a chance of success of 25%. Economic analysis shows that the
NPV of a development of a successful discovery is $112 million. Estimate
EMV
well
Success 0.25

Failure dry hole 0.75

NPV worth $112 m

NPV cost $20 m

Risked val. $28 m

Risked val. -$15 m

EMV = 28-15= +$13 m

What next after exploration success?

Drill more
wells to
determine
field size

Often surprises