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Decision Analysis of Exploration Opportunities in the Onshore US at Phillips Petroleum Company

Author

Listed:
  • Michael R. Walls

    (Division of Economics and Business, Colorado School of Mines, Golden, Colorado 80401)

  • G. Thomas Morahan

    (Phillips Petroleum Company, 1300-B Plaza Office Building, Bartlesville, Oklahoma 74004)

  • James S. Dyer

    (Department of Management Science and Information Systems, University of Texas at Austin, Austin, Texas 78712)

Abstract

Petroleum exploration managers must allocate scarce resources across a set of risky and uncertain investment alternatives. We developed a decision analysis software package, DISCOVERY, that provided an exploration division of Phillips Petroleum Company an alternative means of evaluating a mix of risky investments and selecting participation levels consistent with the firm’s risk propensity. Managers at Phillips use the software to (1) evaluate projects with a consistent risk-taking policy, (2) rank projects in terms of overall preference, (3) identify the firm’s appropriate level of participation, and (4) stay within their division budgets. This approach increased management’s awareness of risk and risk tolerance and provided insight into the relative financial risks associated with its available investment opportunities. As a result of this project, the company has developed consistent methods of risk analysis that include companywide analysis of all exploration projects.

Suggested Citation

  • Michael R. Walls & G. Thomas Morahan & James S. Dyer, 1995. "Decision Analysis of Exploration Opportunities in the Onshore US at Phillips Petroleum Company," Interfaces, INFORMS, vol. 25(6), pages 39-56, December.
    • Handle: RePEc:inm:orinte:v:25:y:1995:i:6:p:39-56
    DOI: 10.1287/inte.25.6.39
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    Citations

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    Cited by:

    1. J. Eric Bickel, 2006. "Some Determinants of Corporate Risk Aversion," Decision Analysis, INFORMS, vol. 3(4), pages 233-251, December.
    2. Kun Zan & J. Eric Bickel, 2013. "Components of Portfolio Value of Information," Decision Analysis, INFORMS, vol. 10(2), pages 171-185, June.
    3. Jano-Ito, Marco A. & Crawford-Brown, Douglas, 2017. "Investment decisions considering economic, environmental and social factors: An actors' perspective for the electricity sector of Mexico," Energy, Elsevier, vol. 121(C), pages 92-106.
    4. Walls, Michael R & Clyman, Dana R, 1998. "Risky choice, risk sharing and decision analysis: Implications for managers in the resource sector," Resources Policy, Elsevier, vol. 24(1), pages 49-57, March.
    5. Donald L. Keefer & Craig W. Kirkwood & James L. Corner, 2004. "Perspective on Decision Analysis Applications, 1990–2001," Decision Analysis, INFORMS, vol. 1(1), pages 4-22, March.
    6. James E. Smith, 2004. "Risk Sharing, Fiduciary Duty, and Corporate Risk Attitudes," Decision Analysis, INFORMS, vol. 1(2), pages 114-127, June.
    7. Ali E. Abbas & James E. Matheson & Robert F. Bordley, 2009. "Effective utility functions induced by organizational target-based incentives," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(4), pages 235-251.
    8. Dana R. Clyman & Michael R. Walls & James S. Dyer, 1999. "Too Much of a Good Thing?," Operations Research, INFORMS, vol. 47(6), pages 957-965, December.
    9. Zhou, P. & Ang, B.W. & Poh, K.L., 2006. "Decision analysis in energy and environmental modeling: An update," Energy, Elsevier, vol. 31(14), pages 2604-2622.
    10. Kenneth Chelst, 1998. "Can't See the Forest Because of the Decision Trees: A Critique of Decision Analysis in Survey Texts," Interfaces, INFORMS, vol. 28(2), pages 80-98, April.

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