This document summarizes an online webinar about exploration valuations and decision analysis presented by Dr. Babak Jafarizadeh. It discusses how exploration involves large monetary bets on geology and outlines historical success rates of exploration wells in Norway. The webinar also covers valuation concepts such as net present value and expected value, and how to evaluate multiple exploration prospects by estimating their joint distributions and using dynamic programming. Finally, it advertises Dr. Jafarizadeh's upcoming online course that will cover these topics in more depth over four days.

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EXPLORATION VALUATIONS AND DECISION
ANALYSIS WEBINAR (ECO 702)
SUN, AUGUST 16, 2020 4:00 PM - 5:00 PM GMT
DR. BABAK JAFARIZADEH
PH.D. IN PETROLEUM INVESTME NT AND DECISION ANALYSIS
Exploration
Valuation
INTRODUCTION TO ANALYSIS
BABAK JAFARIZADEH
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Exploration is
betting on geology
Babak Jafarizadeh EXPLORATION VAL & DA 3
Multimillion-dollar gambles
Data available at www.npd.no
1951 Exploration Wells
1248 Wildcat Wells
523 Discoveries
(Years 1966–2018)
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Data available at www.npd.no
1951 Exploration Wells
1248 Wildcat Wells
523 Discoveries
(Years 1966–2018)
(Success Rate: 42%)
507 Wells
303 Wildcats
96 Discoveries
(Years 1966–1985)
(Success Rate: 32%)
819 Wells
560 Wildcats
(Years 2000–2018)
(Success Rate: 49%)
272 Discoveries
Success Rate has increased,
How about value creation?
Making money grow
Increasing firm size
Increasing stock prices
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In any economic decision, if
Benefits
Babak Jafarizadeh EXPLORATION VAL & DA 7
Costs
We create value.
Expected Benefits Expected Costs
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Exploration is about
placing large bets
Babak Jafarizadeh EXPLORATION VAL & DA 8
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Babak Jafarizadeh EXPLORATION VAL & DA 9
An uncertain investment
Oil
Dry
$ Reward
$ Drilling Cost
COS
1-COS
Drill
Drop
$ 0
Time
Amount($Million,mmboe)
Develop. Cost
Variable OPEX and Taxes
Revenue: 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 × E 𝑆𝑡
Production Profile
Fixed OPEX
Babak Jafarizadeh EXPLORATION VALUATION & DECISION ANALYSIS 10
Net Present Value:
$ Reward
෍
𝑡=0
𝑛
𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤
(1 + 𝑟) 𝑡
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Value vs. Volume
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Most companies are about running a
business. For them, value matters!
Time
Production
Time
Production
Expected Ultimate Recovery
Creating value in follow-up bets
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A Two-Well Problem
α
β
NPVSuccess: $60 Million
NPVFailure: -$35 Million
Chance of Success: 35%
NPVSuccess: $15 Million
NPVFailure: -$20 Million
Chance of Success: 49%
Babak Jafarizadeh EXPLORATION VALUATION & DECISION ANALYSIS 13
Prospect α
Oil
Dry
$60 million
-$35 million
35%
65%
Drill
Drop
$ 0
Oil
Dry
$15 million
-$20 million
49%
51%
Drill
Drop
$ 0
Prospect β
EV: -$2 million EV: -$3 million
Babak Jafarizadeh EXPLORATION VALUATION & DECISION ANALYSIS 14
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Drill α
Drillβ
Success Dry Hole
SuccessDryHole 65%35%
0.231 0.258
0.118 0.393
51%49%
Babak Jafarizadeh EXPLORATION VALUATION & DECISION ANALYSIS 15
Shared geological features
Babak Jafarizadeh EXPLORATION VALUATION & DECISION ANALYSIS 16
Oil
Dry
$75 million
$40 million
66%
65%
Oil
Dry
-$20 million
-$55 million
40%
60%
Oil
Dry
$75 million
-$20 million
47%
53%
Oil
Dry
$40 million
-$55 million
23%
77%
Drill β
Drop
Drill α
Drop
Drill β
Drop
Drill α
Drop
-$20 million0
Drill α
Drill β
Oil
Dry
Oil
Dry
35%
49%
51%
34%
Expected Value:
$2 million
Drop
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Drilling Strategy
α
βDrill
Drill
Stop
Success
Dry Hole
Extensions
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Consider Larger Problems
α
β
γ
δ
𝜌 𝛼,𝛽
ε
𝜌 𝛼,𝜀
𝜌 𝛼,𝛿
𝜌𝜀,𝛿
𝜌𝜀,𝛾
𝜌𝜀,𝛽
𝜌 𝛽,𝛾
𝜌 𝛽,𝛿
𝜌 𝛾,𝛿
Solution: Estimating the Joint Distribution
+ Dynamic Programming
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Solution: Estimating the Joint Distribution
+ Dynamic Programming
Oil Price Uncertainty
Solution: Estimating the Joint Distribution
+ Dynamic Programming
Oil Price Uncertainty
α
β
γ
δ
ε
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Solution: Estimating the Joint Distribution
+ Dynamic Programming
Oil Price Uncertainty
α
β
γ
δ
ε
𝑡1 𝑡2 𝑡3 𝑡4 𝑡5
Solution: Estimating the Joint Distribution
+ Dynamic Programming
Oil Price Uncertainty
α
β
γ
δε
𝑡1 𝑡2 𝑡3 𝑡4 𝑡5
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Solution: Estimating the Joint Distribution
+ Dynamic Programming
Oil Price Uncertainty
α
β
γ
δ
ε
𝑡1 𝑡2 𝑡3 𝑡4 𝑡5
Solution: Estimating the Joint Distribution
+ Dynamic Programming
Oil Price Uncertainty
α β
γ
δε
𝑡1 𝑡2 𝑡3 𝑡4 𝑡5
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Solution: Estimating the Joint Distribution
+ Dynamic Programming
Oil Price Uncertainty
α β γδε
𝑡1 𝑡2 𝑡3 𝑡4 𝑡5
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2020 2021 2023 2024 2025
OilPrice(USD/bbl)
Four Days Online Course on:
EXPLORATION VALUATIONS AND
DECISION ANALYSIS (ECO 702)
DR. BABAK JAFARIZADEH
PH.D. IN PETROLEUM INVESTMENT AND DECISION ANALYSIS
DATE: MON. TO THURS., SEP 7-10, 2020 (3 HRS/DAY):
THE SESSIONS W ILL START AT 16:00 O’CLOCK (GMT)
http://www.petro-teach.com/course-registration-eco-702/
register@petro-teach.com
www.petro-teach.com
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