# Risk: expected value and chance of success

Series Development Geology Reference Manual Methods in Exploration Economics and risk assessment Expected value and chance of success Peter R. Rose Web page PDF file (requires access)

Economic analysis of contemplated oil and gas ventures must be carried out on the assumption that the project is successful, with "success" often being expressed as one of several levels of profitability based on the various ranges in geotechnical and economic parameters that impact project commerciality. However, many exploration ventures do not succeed, and not all development wells and projects succeed either, so the consequences of such failure must be considered in appraising the economic merit of a proposed development venture.

Accordingly, the expected value (EV) of any venture can be expressed as follows:

$\ {\text{EV}}={\text{Probability}}_{{\text{success}}}({\text{Project present value}})~-~$
${\text{Probability}}_{{\text{failure}}}({\text{Cost of failure}})$