The economic evaluation of drilling prospects requires assessing the degree of risk involved and its impact on reserve estimates. In developed areas, risk can be determined in a fairly straightforward manner. In remote wildcat areas, risk can almost never be adequately identified or quantified. Between these extremes lie complex reservoirs -- reservoirs so heterogeneous that each well drilled could exhibit production characteristics unlike those of its neighbors.

This paper illustrates the use of a risk assessment methodology in a case study of Fruitland coal prospects in the San Juan Basin of New Mexico. This approach could be applied to coalbed methane prospects or any unconventional or highly heterogeneous reservoir with appropriate modification. The utility of this approach is made apparent in a graphical analysis that relates reserves, rate of return and payout time for managerial or financial presentation. This graphical technique and the underlying risk assessment were used to aid a conservative management team in evaluating participation in a multi-well coalbed project.

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