Petroleum reserves

Chance of Development: Definition, Estimation, and Use

This paper will examine ways in which Chance of Development (CoD) can be defined better, methods for its estimation, and its appropriate application along with common misuses.

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Chance of Development (CoD) is commonly used as an input to economic assessments and valuations where it is often quoted with little explanation of the framework used. In such circumstances, it may be misleading and overly simplistic to multiply the project net present value (NPV) by a single CoD factor to derive a risked NPV as a proxy for value. This paper will examine ways in which CoD can be defined better, methods for its estimation, and its appropriate application along with common misuses.

Introduction

The Petroleum Resources Management System (PRMS) is an international standard petroleum-reserves-and-resources classification system based on industry best practices and is described in detail in the complete paper. The PRMS encourages the use of subclasses that provide some qualitative assessment of CoD. These subclasses include

  • Development Pending, where project activities are ongoing to justify commercial development in the foreseeable future.
  • Development Unclarified or On Hold, where project activities are on hold or where justification as a commercial development may be subject to a significant delay.
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