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In any decision concerned with the strategy and tactics of oil and gas exploration, a key variable is the size of hydrocarbon deposits in barrels of oil or in MCF of gas. The size of pool or field discovered in a particular wildcat venture determines the degree to which the venture is an economic success. Since the pool or field size that will be discovered is almost always unknown before a prospect is drilled, an important question is: What functional form should be used to characterize the probability distribution of field sizes in a petroleum province? By "functional form" we mean a mathematical formula which defines a family of distribution functions.
Two types of functional forms are particularly adapted to use in this context--the Lognormal and Pareto-Levy--for several reasons: (1) because they give a good empirical fit to histograms of reported field sizes in barrels of oil or MCF of gas; (2) because they are in concordance with some concepts of the origin of mineral deposits; (3) because stochastic models of the discovery process built on reasonable assumptions about the process lead to these functional forms; and (4) because the Lognormal distribution in particular is analytically tractable and rich enough to capture most reasonable oilmen's quantitative judgments about reported field size.
The Lognormal distribution is highly suited for use in analysis of exploration decision problems, for a particular Lognormal density function is fully specified by only two numbers.
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