Expected chances of finding

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Reference no: EM138865

Q. You are thinking of investing in a field which may have commercial oil amounts. Depend on the existing data of the field you consider there is a 15% chance that if you drilled immediately you would find a commercial discovery. You also have the option of investing in more information, which would include more sample wells and data acquisition. You believe that there is an equally likely chance that this information will either double expected chances of finding a well, or inform you for certain that the area is not commercial. The additional information would cost $60MM. Drilling for production would cost $100MM. A normal profitable discovery would result in an NPV of $750MM after the original drilling and seismic costs. However, you know that a third of all commercial discoveries are major discoveries resulting in an NPV of $1,000MM after the original drilling and seismic costs.

What you decide to invest in the project? To invest what would you invest in more data acquisition?

Reference no: EM138865

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