Hydrocarbon exploration has world-widely become mature and only remote areas are remaining as new frontiers. This brings forth increase of exploration costs. Under these situation, risk analyses or feasibility studies for new projects, especially for exploration projects, have increased their importance. "ROR" has been popularly used for a long time to judge the profitability of projects. But it assumes a discovery of a certain volume of oil or gas accumulation and does not mention the probability of the success. Another important factor to be considered in selection of projects is a probability of the success or a probability of discovery with more than minimum economical size. Recently, the probability is given in a form of probability distribution. A probability distribution of expected reserves and a feasibility criterion such as ROR are still separately used in many companies.

Here I intend to introduce the concept and the calculation procedure of a new feasibility criterion? "Risked ROR". This combines the success probability and ROR. By using this concept, plural projects are comparable with each other based on single criterion instead of using two criteria. For this purpose, companies only need to prescribe a certain yardstick value of risked ROR as a company policy.


The upstream oil industry is well known as one of the riskiest businesses to invest in as it dominated by uncertainty. Whilst the oil industry has to take into consideration economic risks such as fluctuations in oil prices and foreign exchange rates, uncertainties of exploration and development expenditure, political risks, these risks are not peculiar to the oil sector and are common in many other industries

The largest risk in the upstream oil industry is geological risk which, in comparison with other natural resource development industries, is extremely high. This risk is due to:

  1. oil and natural gas being fluid resources which accumulate after lengthy migration and degeneration of their source materials; and

  2. oil and natural gas accumulating underground, where their presence cannot be confirmed by the naked eye.

In addition to the difficulty in finding "unseen" oil and natural gas accumulations, the huge expenditure required to discover them and to confirm their profitability makes the upstream industry very risky.

Worldwide hydrocarbon exploration has become so mature that exploration has been extended to new frontiers such as:

  1. the deep sea;

  2. remote areas which are difficult to access due to insufficient development infrastructure; and

  3. areas with hazardous environments such as permanent frost, deserts, swamps, etc.

Undoubtedly, works in these areas are expensive, however, these are not the only factors which have increased the costs of exploration; the recent upsurge in economic nationalism and the steep decline of success rates in mature areas have also increased the acquisition costs of the new frontiers.

These tendencies have made it increasingly difficult for minor enterprises to launch projects in new areas and due to this, risk analyses or feasibility studies for new projects, especially for exploration project, have increased in importance.

Until the 1950's, when abundant opportunities for exploration remained and exploration costs were not as high as they presently are, the geological risk—basically whether "oil would be present or not"—was the basis of decisions whether to conduct exploration, rather than the feasibility of recovery based on economic analysis. However, since. the 1960's, decisions on whether to invest in projects have been based on the feasibility of the project as a business.

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