Making sound business decisions in one of the hottest domestic exploration plays, unconventional gas, offers a set of challenges not usually encountered with more traditional opportunities.
Unlike with standard prospect and conventional play risk analysis, geologic chance is not a major issue, and estimates of initial production, decline rates, mechanical efficiency, and success planning dominate the analysis rather than traditional volumetric determinations. The valuation and assessment of unconventional or “continuous resource” opportunities is not feasible using traditional probabilistic, volumetric-based methods.
The evaluation of unconventional resource requires a different approach that must take into consideration uncertainties in rate and rate through time. A fully stochastic business, valuechain model is the best way to assess the potential of an unconventional play. Ideally, this evaluation method includes all significant uncertainties from exploration through the end of production. Such an evaluation method allows for multi-disciplinary and cost input that affords decision makers with the appropriate data to make good decisions.
This comprehensive approach will provide companies with the insight to make correct appraisal and development decisions and allocate the level of capital and resource appropriate for the play and risk tolerance of the company.