Consider the following decision situation: You need to decide whether or not to drill a wildcat on the Alpha prospect. Alpha is located in a mature area with proven hydrocarbon accumulations and is thought to be an oil prospect.

Prospect analysis is used to determine both how attractive the Alpha prospect is in terms of oil & gas potential and what the risks are that Alpha might turn out to be dry. You also need to consider what is the potential return from an investment in a wildcat well on Alpha. The outputs of your analysis of Alpha are therefore an estimate of the dry hole risk and an estimate of the likely quantities of oil and associated gas. This technical analysis will be complemented with an estimate of the full cycle discounted cash flow that considers both the costs of drilling and the revenues with costs should a possible discovery be transformed into a producing field.

The main data required for the technical analysis of the prospect will include:

• Volumetric parameter estimates used to estimate in-place resources
  
• Recovery rate estimates used to estimate recoverable resources
  
• Risk factor estimates used to estimate the dry hole risk

For an economic analysis of the prospect’s potential, the main data required will include:

• Exploration, development and production (ED&P) activity level and duration estimates
  
• Unit capital expenditure and operating cost estimates
  
• Petroleum price scenario estimates
  
• Fiscal regime parameters