In searching for new oil and gas fields, the explorationist is faced with three fundamental questions. First, what are the chances of hydrocarbons being present; second, what is the size of the prize, the prospect; and finally, will it make money?

Contemporary literature in geology is increasingly facing these three fundamental questions. Articles by Peter Rose (AAPG Bulletin, January 1988) and David White (AAPG Bulletin, August 1988) are among the latest additions.

Geologists too often leave the questions regarding financial results to other functionaries who may or may not understand the exploratory process. Significant misconceptions relating to the question of financial results inhibit exploration for new oil and gas fields. Among these misconceptions are:

• A lack of understanding of the difference between a discounted cash flow rate (DCFR) and a return on net assets.
• Not recognizing the need for higher DCFRs for development wells than for prospects.
• Falsely using the concept of "sunk" costs.

The economic outcome from petroleum exploration and development is not easy to calculate; it peers farther into the future than most functions, and it must assess the greatest degree of uncertainty. Yet results can be estimated and will be meaningful if the data base is large enough to provide a reasonable sample for profit calculations.

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