Changes

Faced with choosing among several options, the decision rule is to select the option having the highest EV. Remember, one alternative is to invest in a risk-free project having some minimum return (net present value = 0 discounted at a risk-free interest rate). Obviously, when operators choose to participate in ventures having negative expected values, they are "betting against the House."

Faced with choosing among several options, the decision rule is to select the option having the highest EV. Remember, one alternative is to invest in a risk-free project having some minimum return (net present value = 0 discounted at a risk-free interest rate). Obviously, when operators choose to participate in ventures having negative expected values, they are "betting against the House."

In exploratory ventures, cost of failure usually includes dry hole cost, cost of lease bonuses of the condemned leases, and some G & G costs. For development ventures, some substantial additional capital investments may also occur, plus expense items that will have to be written off as well—expenditures that were needed to determine the viability of the project, such as several completed wells, equipment, materials, and supplies.

In exploratory ventures, cost of failure usually includes [[dry hole]] cost, cost of lease bonuses of the condemned leases, and some G & G costs. For development ventures, some substantial additional capital investments may also occur, plus expense items that will have to be written off as well—expenditures that were needed to determine the viability of the project, such as several completed wells, equipment, materials, and supplies.

==Probability of geological success==

==Probability of geological success==