Modeling Dependence Among Geologic Risks in Sequential Exploration Decisions

Summary Prospects in a common basin are likely to share geologic features. For example, if hydrocarbons are found at one location, they may be more likely to be found at other nearby locations. When making drilling decisions, we should be able to exploit this dependence and use drilling results from one location to make more informed decisions about other nearby prospects. Moreover, we should consider these informational synergies when evaluating multiprospect exploration opportunities. In this paper, we describe an approach for modeling the dependence among prospects and determining an optimal drilling strategy that takes this information into account. We demonstrate this approach using an example involving five prospects. This example demonstrates the value of modeling dependence and the value of learning about individual geologic risk factors (e.g., from doing a postmortem at a failed well) when choosing a drilling strategy.