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Van Tuyl Lecture: Alexei Milkov, Colorado School of Mines
January 31, 2019 @ 4:00 pm - 5:00 pm
Alexei Milkov, Colorado School of Mines
241 Berthoud, 4-5PM
Topic: Randomness, Serendipity and Luck in Petroleum Exploration
Petroleum explorers often acknowledge the contribution of luck in exploration outcomes. Our survey of 237 current industry practitioners revealed that 90% of them believe that luck plays some role in the outcome of exploration projects. However, luck as a factor in petroleum exploration has never been quantified before, and therefore it remains an abstract concept that is not deeply considered by geoscientists and exploration managers. Luck clearly exists in petroleum exploration, as it contributed to many serendipitously discovered plays and pools. Luck also is a factor in the relative performance of different exploration companies. Looking at companies exploring on the Norwegian Continental Shelf in 1966-2005, we concluded that differences in success rates of individual companies are essentially random. Using a global dataset of 3,258 conventional exploration wells in which 733 companies took 8,096 equity positions in 2008-2017, we calculated that the proportion of variance in geological success rates among the companies is 39% due to luck (25% for commercial success), the rest being related to skill. In frontier plays, luck contribution to the variation in geological and commercial success rates between different companies is 100%. The role of luck is relatively less in emerging (67% for geological success), maturing (38%), and mature (29%) plays. Recognizing that luck is a part of the exploration success equation has numerous implications for exploration strategies, investors, companies, managers and individual explorers. The impact of luck can be reduced only through a sustainable long-term exploration program with numerous independent wells. Explorers should focus on developing their prediction skills rather than obsess about the binary outcomes of each well.