{'fraction_non_alphanumeric': 0.02398190045248869, 'fraction_numerical': 0.0, 'mean_word_length': 5.63963963963964, 'pattern_counts': {'":': 0, '<': 0, '<?xml version=': 0, '>': 0, 'https://': 0, 'lorem ipsum': 0, 'www.': 0, 'xml': 0}, 'pii_count': 0, 'substrings_counts': 0, 'word_list_counts': {'cursed_substrings.json': 0, 'profanity_word_list.json': 0, 'sexual_word_list.json': 0, 'zh_pornsignals.json': 0}}
Probability and the petroleum system : Issues for investors in the upstream oil and gas industry

The oil and gas industry is now engaged in a dynamic re-structuring. A combination of globalisation, energy sector reforms, political shifts leading to an opening up of new opportunities, together with an intensive search for replacement of produced hydrocarbon reserves, has presented not only challenges, but also significant opportunities. Upstream investment is a high-risk, high-cost business. Value creation in such an environment demands a detailed understanding of the risks and uncertainties. Cost containment, although a vital component of any investment programme, cannot, by itself, grow the business. Some of the issues that are fundamental to any upstream investment programme include: technical uncertainties (chance of success, estimation of potential reserves sizes); exploration and development costs; and detailed assessment of risk versus return (risked-based evaluations of key economic criteria such as net present value, discounted return on investment, payback and maximum negative cash flow). A working petroleum system consists of a hydrocarbon source rock, suitable geological structures, trapping strata, reservoir rock, and migration pathways from source to traps. Probability-based economic models consistently demonstrate that predicted hydrocarbon reserves size ranges and chance of commercial success have by far the largest effect on net present value estimates. Economic analysis of petroleum systems and associated drilling prospects assumes unbiased, quality technical input. For this reason, third-party technical peer reviews are particularly recommended, to minimise the external and internal organisational biases of buyers and sellers. Portfolio analysis brings consistency to a company’s decision-making processes. Techniques are presented that not only help predict the risks, rewards and costs of the total programme, but also determine the optimum level of equity that the investor should aim for in each project. Where current equity is greater than the modelled risk tolerance of the company, value equivalence can be calculated, and equity reduced by farming out.