Exploration and production agreements worldwide typically include seismic surveys and exploratory drilling obligations as key contractual provisions. In some jurisdictions, most notably the United States, agreements typically do not include drilling obligations. The lessee holds a right rather than an obligation to drill and, therefore, may relinquish acreage without drilling if the results of seismic surveys or other geological tests prove unfavorable. It is often possible in other jurisdictions to negotiate such a "seismic option" in exchange for less favorable treatment with respect to other contractual provisions such as profit share. An implicit option may also exist to the extent that a reduction in exploratory well commitments can be obtained by offering additional seismic work. In the case of such trade-offs, the ability to quantify the value of the seismic option is a necessity. This paper presents a framework for this valuation.

You can access this article if you purchase or spend a download.