Introduction     Statistics I     Statistics II     Geology     Shallow     Intermediate     Deep

  Geology Test     Example     Interpretation     Answer     Example 2     Interpretation 2     Answer 2

The list below tells you the statistics for OilFinancier. Use this data to determine the best location for drilling a well.

If all surrounding locations to a prospective location have not been drilled, then the chance of striking:

• a shallow well is 19%,
• an intermediate well is 16%,
• a deep well is 9%,
• a dry hole is 56%.

Consider the following sector of an Oil Financier map:

You want to drill a well at location B2. A well at A1 has already been drilled with a known result. This well is diagonal to B2. For interest, locations C1, A3, and C3 are also diagonal to B2.

In this case, the well at C2 has already been drilled with a known result. This well is adjacent to B2. B1, A2, & B3 are also adjacent to B2.

Statistics

One dry hole adjacent to the location:

• Dry 64%
• Shallow 14%
• Intermediate 13%
• Deep 9%

One dry hole diagonal to the location:

• Dry 47%
• Shallow 19%
• Intermediate 22%
• Deep 12%

One shallow well adjacent to the location:

• Dry 33%
• Shallow 55%
• Intermediate 10%
• Deep 2%

How to Use Statistics 1 Let's assume someone else has drilled a shallow oil well adjacent to one of your oil rights. From the above statistics, if you drill a shallow well, you will have a 55% chance of finding oil. It costs $150,000 to drill your well. Your first step is to calculate your NPV. For arguement's sake, we get $250,000 NPV. Next, we need to calculate the expected NPV (or ENPV). Here's where we used the statistics: E = $250,000 × 0.55 − $150,000 × (1 − 0.55) E = $137,500 − $67,500 E = $70,000 The positive E suggests you should drill this well. The magnitude of the positive E indicates the profit potential.

One shallow well diagonal to the location:

• Dry 42%
• Shallow 35%
• Intermediate 19%
• Deep 3%

How to Use Statistics 2 Let's do the same calculation for a shallow producer diagonal to your oil right. Now the chance of success has dropped to 35%. E = $250,000 × 0.35 − $150,000 × (1 − 0.35) E = $87,500 − $97,500 E = −$10,000 E is now negative, so you should look elsewhere to make money.

One intermediate well adjacent to the location:

• Dry 34%
• Shallow 10%
• Intermediate 50%
• Deep 6%

One intermediate well diagonal to the location:

• Dry 58%
• Shallow 20%
• Intermediate 10%
• Deep 12%

One deep well adjacent to the location:

• Dry 28%
• Shallow 4%
• Intermediate 10%
• Deep 58%

One deep well diagonal to the location:

• Dry 40%
• Shallow 7%
• Intermediate 14%
• Deep 39%

Follow these links:

• to learn of the Statistics for locations with two known results
• to learn about Oil Financier Geology

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