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When Uncertainty Is Beneficial: Interesting Implications for the Hydrocarbon Discovery Process

Author

Listed:
  • Yigal Gerchak

    (Department of Industrial Engineering, Tel Aviv University, Tel Aviv, 69978, Israel)

  • Qi-Ming He

    (Department of Industrial Engineering, DalTech, Halifax, Nova Scotia, Canada)

  • J. David Fuller

    (Department of Management Sciences, University of Waterloo, Waterloo, Ontario, Canada N2L 3G1)

  • Ekachidd Chungcharoen

    (Department of Industrial and Operations Management, Thammasat University, Bangkok, Thailand)

Abstract

Consider a basin with remaining undiscovered fields, in which both field sizes and their number are uncertain. Assuming that the probability of finding a field is increasing in its size, we show that the expected size of the first remaining field discovered, which is of particular importance, is increasing in the variability of field sizes, and results from a simulation model of exploration illustrate this trend for the first several fields discovered. We also provide simple bounds on the expected size of the first field discovered. It seems that more information (less variability) leads to less value---something unexpected. We explore and explain this seemingly counterintuitive result.

Suggested Citation

  • Yigal Gerchak & Qi-Ming He & J. David Fuller & Ekachidd Chungcharoen, 2002. "When Uncertainty Is Beneficial: Interesting Implications for the Hydrocarbon Discovery Process," Operations Research, INFORMS, vol. 50(6), pages 1068-1072, December.
    • Handle: RePEc:inm:oropre:v:50:y:2002:i:6:p:1068-1072
    DOI: 10.1287/opre.50.6.1068.344
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    References listed on IDEAS

    as
    1. M. Power & J. D. Fuller, 1991. "Predicting the Discoveries and Finding Costs of Natural Gas: the Example of the Scotian Shelf," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 77-94.
    2. John M. Cozzolino, 1972. "Sequential Search for an Unknown Number of Objects of Nonuniform Size," Operations Research, INFORMS, vol. 20(2), pages 293-308, April.
    Full references (including those not matched with items on IDEAS)

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