Oil companies respond to the uncertainty and far-ranging opportunities of the oil business by pursuing widely different exploration strategies. Strategy considerations include risk management, selection of exploration area, emphasis on acreage position, science orientation, and methods of testing. To intelligently choose among strategies, the alternatives must be evaluated for their ability to minimize risk and maximize expected return to the company. However, the evaluation of exploration strategies is made difficult by the number of economic and environmental considerations involved.

Cities Service Co. has developed a model to pre-test exploration strategies. The model simulates the actual exploration process and evaluates the outcome. In addition to model design and development, the scope of the project encompasses data analysis, including forecasts of future discovery sizes in the study area (the Permian basin), and analysis of the relation between geologic and geophysical effort and test-well success. The evaluation capabilities of the model include expected values and distributions for reserves, production, and economic indicators such as return on investment and net present value. In addition, the model tracks key inventories to insure feasibility and to monitor nonfinancial implications of a strategy selection.