Page 382 - Hydrocarbon Exploration and Production Second Edition
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Risk Analysis                                                         369


                                                                          TRUE     0.3
                                                                 Develop
               Appraisal Cost   10                                          60     50
                                                          30.0%    Decision
                                                 55 MMb             60
                                                            0
                                                                         FALSE     0
                                                                 Do not develop
                                                                            0      0
                                          TRUE  Risk weighted outcome
                                   Appraise
                                             0        108
                                                                          TRUE     0.4
                                                                 Develop
                                                                           100     90
                                                          40.0%    Decision
                                                 101 MMb            100
                                                            0
                                                                         FALSE     0
                                                                 Do not develop
                                                                            0      0
                                                                          TRUE     0.3
                                                                 Develop
                                                                           200     190
                                                          30.0%    Decision
                                                 174 MMb            200
                                                            0
                                                                         FALSE     0
                                                                 Do not develop
                                                                            0      0
                                  EMV of decision
                 Appraise Discovery A
                                      108
                                          FALSE      0
                                   Do nothing
                                             0       0
                                                          30.0%      0
                                                 55 MMb
                                                           40       40
                                          FALSE  Risk weighted outcome
                                   Develop
                                             0        94
                                                          40.0%      0
                                                 101 MMb
                                                           100      100
                                                          30.0%      0
                                                 174 MMb
                                                           140      140
             Fig. 15.3  Value of information calculation using decision tree analysis.
                  15.3. Risk Analysis for Major Capital Investments in
                         Projects
                  Risks can represent potential negative impact or upside opportunity, and are
             identified in order to plan mitigation against those with a potential negative impact
             and to take advantage of upsides identified.
                For major capital projects, it is common to perform risk analysis at several stages
             of the development planning, so that risk items can be identified early and actions
             planned accordingly. A general criticism of the industry is that companies progress
             too far with planning of projects which eventually prove to be unfeasible – early
             identification of this is clearly more efficient. To assist this, a stage-gate process is used
             by many companies.
                The stage-gate process breaks the project into phases, with an approval required
             at each stage before progressing through this ‘gate’ to the next stage. The earlier a
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