Earth-Science Reviews 150 (2015) 453–476

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Earth-Science Reviews

journal homepage: www.elsevier.com/locate/earscirev

Risk tables for less biased and more consistent estimation of probability
of geological success (PoS) for segments with conventional oil and gas
prospective resources
Alexei V. Milkov 1
Sasol, Johannesburg, South Africa

a r t i c l e i n f o a b s t r a c t

Article history: Oil and gas explorers routinely estimate the probability of success (PoS) of exploration projects, which is used for
Received 17 October 2014 the calculation of risked prospective resources, their expected monetary value, ranking of the prospects and
Received in revised form 15 August 2015 exploration portfolio management. Most often, the estimation of the geological PoS is based on subjective
Accepted 18 August 2015
judgments about probabilities for individual geological risk factors. However, such subjective probabilities are
Available online 24 August 2015
not reliable in the low-validity environments with significant degrees of uncertainty and unpredictability, to
Keywords:
which many exploration projects belong. When explorers assign probabilities for risk factors, they are geared
Exploration by their variably incomplete knowledge and fragmentary experience, use judgmental heuristics under the
Oil influence of cognitive and motivational biases, and are prone to logical fallacies (unless they are aware of these
Gas limitations and account for them in scientifically responsible ways). As a result, assessments of geological PoS
Probability of success tend to be inconsistent across an exploration company, which leads to biased portfolios that fail to deliver on
Risk assessment promise. Recent research and experience from other industries suggest that algorithms are superior to expert
Decision making judgments in low-validity environments. This paper presents a review of relevant literature on the psychology
of decision making and risk assessment methods used in petroleum exploration, and proposes a new algorithm
for geological PoS assessment, realized in the form of systematic risk tables for probabilities of six geological risk
factors (structure, presence of reservoir facies, reservoir deliverability, seal, source presence and maturity, and
migration). The risk tables enable explorers to convert geological information into quantitative probabilities
while counteracting the deficiencies of expert judgment and reducing the effects of biases. The risk tables take
into account both the data-derived and model-derived positive, negative and neutral evidence for each of the
risk factors, utilize the most elementary, fundamental and relevant subsurface information and can be used in
a wide variety of exploration projects. The risk tables shift the focus of geological risk assessment from arguing
about the probability values to a more objective and consistent evaluation of subsurface data and models.
Probabilities are extracted from risk tables in a manner transparent to all involved, including peers, managers
and investors. Implementation of the risk tables will allow explorers to dispassionately and consistently put
high PoS values on relatively low-risk prospects and low PoS values on relatively high-risk prospects, and
would enable managers to make well-informed drilling decisions. The use of risk tables will lead to less biased
prospect inventories, effective portfolio management and better long-term exploration performance.
© 2015 Elsevier B.V. All rights reserved.

Contents

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455
3. Common ways of estimating geological PoS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456

Abbreviations: 2D, two-dimensional seismic; 3D, three-dimensional seismic; CRS maps, common risk segment maps; cCRS maps, composite common risk segment maps; CSEM, con-
trolled source electromagnetic method; DHI, direct hydrocarbon indicator; EMV, expected monetary value; FSD, field size distribution; FVF, formation volume factor; GDE, gross deposi-
tional environment; HC, hydrocarbons; MEFS, minimum economic field size; PoS, probability of success; PoSg, probability of geological success; PoSe, probability of economic (commercial)
success; So, oil saturation; YTF, yet to find hydrocarbon resources.
E-mail address: alexei_milkov@murphyoilcorp.com.
1
Present address: Murphy Oil Corporation, 9805 Katy Freeway, Suite G-200, Houston, TX 77024, United States.

http://dx.doi.org/10.1016/j.earscirev.2015.08.006
0012-8252/© 2015 Elsevier B.V. All rights reserved.
454 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476

3.1. Number of risk factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457

3.2. How probabilities are assigned to risk factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459
4. Common fallacies in estimating geological PoS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459
4.1. Geological and psychological subjectivities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460
4.2. Common individual heuristics, biases and fallacies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460
4.3. Common group biases, heuristics and fallacies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462
4.4. Consistency is the key to portfolio management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462
5. A better solution: risk tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462
5.1. Expert judgment versus an algorithm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462
5.2. Risk tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464
5.2.1. Risk table for probability of structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 466
5.2.2. Risk table for probability of reservoir facies presence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 466
5.2.3. Risk table for probability of reservoir deliverability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 467
5.2.4. Risk table for probability of seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468
5.2.5. Risk table for probability of source rock presence and maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469
5.2.6. Risk table for probability of migration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469
6. Benefits of the implementation of risk tables in an exploration company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 471
7. Validation of risk tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473
8. Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 473
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474

Whenever we can replace human judgment by a formula, we should at are preceded by numerous activities and depend on the results of sub-
least consider it. surface studies and economic evaluations as well as company strategy,
[Daniel Kahneman, 2011] commitments, political factors, and tolerance to risk. In the subsurface
domain, explorers enter frontier or mature basins, find the opportuni-
ties (prospects) and characterize them by performing geological and
1. Introduction geophysical studies first at the basin level, then at the play level and
finally at the prospect level (Fig. 1). Subsurface studies culminate in an
Petroleum exploration companies create or destroy monetary value opportunity list (prospect inventory), in which each prospect is charac-
by drilling and testing wells on subsurface prospects. Drilling decisions terized by prospective resources in the case of discovery (success case)

Fig. 1. The exploration process triangle listing data and products that oil and gas explorers gather, create and evaluate to make an informed drilling decision (significantly modified from
Fraser, 2010). Exploration starts at the basin and play levels where explorers create fundamental understanding of the geology using regional data and integration tools such as gross
depositional environment (GDE) and common risk segment (CRS) maps. Play atlas is a common product of such a regional subsurface evaluation. Explorers then focus on the leads
and prospects within selected high-graded basins and play fairways. The geological probability of success (PoSg) is obtained near the end of the exploration process. Other acronyms
used: FSD — field size distribution, YTF — yet to find hydrocarbon resources, HC — hydrocarbons, DHIs — direct hydrocarbon indicators, cCRS — composite common risk segment
maps, CSEM — controlled source electromagnetic method, MEFS — minimum economic field size, EMV — expected monetary value, PoSe — probability of economic (commercial) success.
 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476
and the probability of making a discovery (probability of success,
or PoS). Subsequent integration with drilling, reservoir engineering,
facilities engineering and economics leads to the assessment of the full-
cycle net present value (NPV) of the discovery and calculation of expected
monetary value (EMV) of the full-cycle project:
EMV ¼ NPV  PoS−ðExploration CostsÞ  ð1−PoSÞ:
When choosing which prospect in the inventory to drill, manage-
ment of an exploration company will select prospects with the highest
EMV and best portfolio fit to maximize the profits and meet specified
investment goals (Grayson, 1960; Newendorp and Schuyler, 2000;
Walls, 2005). Probabilistic assessments of prospective resources and
NPV are preferred to deterministic assessments (Leach, 2006), and so-
phisticated tools exist to facilitate such assessments (Surovtsev et al.,
2012).
Probabilistic estimation of prospective resources in the success case
is a relatively straightforward task, although with many caveats (Rose,
2001a). The objective is to estimate the range of petroleum volumes
that a prospect may contain in the case of a geological (technical)
success, meaning that at least one of the drilled segments in the
prospect contains recoverable petroleum. There are simple standard
equations for the calculation of in-place and recoverable prospective
resources (e.g., Snow et al., 1996). Stochastic simulations (e.g., Monte
Carlo) are commonly used to generate probabilistic distributions of
prospective resource volumes using input ranges and distributions of
reservoir and fluid parameters (Murtha, 1997). Volumetric estimation
is successful when post-drill assessment of the resource volumes is
within the pre-drill range (preferably near the mean values). To achieve
that, explorers should:
1) justify the reservoir and fluid input parameters using data from
nearby petroleum pools, global analogues and models,
2) keep the range of input parameters sufficiently wide (Capen, 1992),
3) use correlations between input parameters (Alexander and Lohr,
1998),
4) reduce biases affecting uncertainty assessments (Rose, 1987), and
5) utilize comprehensive software that allows explorers to input the
reservoir and fluid parameters using various segment models and
probabilistic distributions and stochastically aggregate volumes in
multi-segment prospects (Surovtsev et al., 2012).
Explorers are often over-optimistic in their prediction of prospective
resources (Sluijk and Parker, 1986; Rose, 1987; Hermanrud et al., 1996;
Johns et al., 1998; Bailey et al., 2000). This can be remediated by rigorous
Fig. 2. Uncertainty and risk as defined in this paper.
Adapted from Sykes et al. (2011).
455
assurance of the input parameters and regular tracking (look-backs) of
drilling results (e.g., Alexander and Lohr, 1998).
Assessment of the PoS is a more challenging task. The PoS is derived
from the risk (PoS = 1 − Risk) (Schwade, 1967). However, “risk does
not exist “out there”, …waiting to be measured. Human beings have
invented the concept of “risk” to help them understand and cope with
the dangers and uncertainties of life” (Slovic, 1992, p. 119). Explorers
use the concept of risk to reflect incomplete and uncertain data because
they do not know if the well will make a discovery, and they need to
plan for the possibility of losing money invested in subsurface studies
and drilling. Oil and gas fields occur in the subsurface completely inde-
pendent from the risk, which is in the explorers' minds and is inherently
subjective. In contrast to the prospective resource volumes, there is no
equation to calculate risk and PoS consistently, precisely and accurately.
This is because there is no “correct” PoS value — petroleum accumula-
tion either exists or not. Still, PoS is one of the most critical determinants
of the outcome of an exploration venture (Rose, 1987). Explorers have
to assess and communicate the PoS and managers need to consider it
when making drilling decisions. If they do not, the oil and gas explora-
tion companies will simply go broke in a long-term.
In the first part of this paper, I review and discuss that subjective
expert judgment is the most common way of PoS assessment in the
oil and gas industries and describe how explorers are prone to many
fallacies when they make such judgments. In the second part of the
paper, I present arguments on the superiority of algorithms to expert
judgment in low-validity environments (Kahneman, 2011), to which
most exploration projects belong, and introduce risk tables as a system-
atic way of obtaining probabilities for geological risk factors. A discus-
sion of benefits that risk tables would bring to exploration companies
concludes this paper.
2. Definitions
Different industries use different definitions of “risk”, often equating
it with volatility or uncertainty (Leach, 2006). In this paper, I use risk to
refer to variables that have discreet success or failure outcomes. In ex-
ploration, success is a discovery and failure is a dry well (Newendorp
and Schuyler, 2000). Probability of geological success (PoS = 1 − Risk)
is the probability (chance) of making a discovery (Fig. 2), i.e., finding
petroleum that would freely and sustainably flow into the well from
the penetrated subsurface segment(s) given the actions of a prudent
operator (Rose, 2001a). The flowability (if the petroleum is movable)
can be established via production tests or inferred from measurements
by formation testers or well-log interpretations. The PoS can be
expressed in decimal fraction (Newendorp and Schuyler, 2000;
456 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476
this paper) or as a percentage (Rose, 2001a). There are no specific
prospective resource volumes associated with the geological PoS
(this is different from definitions used by some other companies,
which risk a certain minimum volume, Alexander and Lohr, 1998;
Sykes et al., 2011). Geological PoS values are commonly used to calcu-
late risked prospective volumes and rank prospects.
Uncertainty refers to variables, the values of which we do not know,
and will not know until sometime in the future (or ever, if the
uncertainty is irreducible), but for which we can construct probability
distributions. Uncertainty describes the range of reservoir and fluid
parameters and prospective resource volumes that may be present in
the drilled segments in the success case (discovery). When the geolog-
ical PoS and the probabilistic range of volumes in case of success are
combined, we can calculate PoS for finding any volume (that volume,
or more), including the minimum economic size (economic or commer-
cial PoS) (Harbaugh et al., 1995). The economic PoS is commonly used
to estimate the EMV of the wells, prospects and projects (Johns et al.,
1998; Rose, 2001a).
Segment is a subsurface feature that represents a potential petroleum
pool (Fig. 3). This is the smallest assessment unit. Examples of segments
include individual reservoir units (zones) and compartments. A seg-
ment has to be located within a single play. Play is a continuous portion
of sedimentary basin which contains discovered pools and/or undiscov-
ered segments, leads and prospects with similar characteristics of the
reservoir (age, lithology, depositional environment), petroleum fluid
type (oil, gas/condensate), and trap style (structural, stratigraphic etc.).
Explorers estimate the prospective resource volumes and geological
PoS for a segment (Fig. 4).
Leads and prospects are subsurface features that represent potential
petroleum accumulations (Fig. 3). They are often combinations of several
segments that occur within one common structure and may be, for ex-
ample, a group of compartments separated by faults or a series of stacked
channels vertically separated by intermediate seals. There is a common
understanding in industry that a lead is less defined whereas a prospect
is sufficiently well defined to represent a viable drilling target (System
Petroleum Resource Management, 2007). Here, a lead is a potential
petroleum accumulation that contains segments for which structure
(closure, geometry) is defined by two seismic lines (one in-line and
Fig. 3. Schematic cross-section illustrating a hypothetical prospect Alpha. The prospect
includes four segments (1, 2, 3 and 4) which belong to three proven plays (A, B and C,
play PoS = 1). Segments 3 and 4 are fault compartments in the same reservoir and play.
The exploration well targets segments 1, 2 and 4, but not segment 3. The geological PoS
for the prospect (0.78) is higher than geological PoS values for individual segments, be-
cause some risks for the segments are independent (e.g., stratigraphic trap (structure,
seals) of segment 1 is independent from fault-bounded trap in segment 3). The geological
PoS for the well (0.65) is lower than the geological PoS for the prospect (0.78) because the
well does not target all the segments and because it is not located in the crestal position for
segments 1 and 4.
The figure is adopted from Geoknowldege (2011) with significant modifications.
one cross-line), or based on gravity, magnetic, electromagnetic or
surface/seabed geochemical data/anomalies, or by mapping of the sur-
face. A prospect is a potential petroleum accumulation that contains seg-
ments for which structure is defined on sparse 2D seismic (three or more
lines) or 3D seismic data and there is additional work that needs to be
done to fully understand the geological risks. A drill-ready prospect is a
prospect for which all geological risk factors have been fully understood
and quantified, i.e., no additional data or studies would be able to change
the PoS, or one or more geological risk factors can be further modified,
but the value of information analysis demonstrated that further data ac-
quisition or studies would reduce the EMV (i.e., destroy expected value).
A drill-ready prospect is a viable drilling target. If the lead or prospect
contains only one segment, then it has the same volumes and PoS as
that segment. Volumes and PoS for multi-segment leads and prospects
are not estimated, but are aggregated from the estimates for segments
using stochastic calculators (GeoX, REP etc.) and honoring dependencies
between risk factors for aggregated segments (Wang et al., 2000).
An exploration well may not target all segments within the multi-
segment prospect. In addition, the well may not be located at the struc-
tural crest of the segment where hydrocarbons most likely occur in the
case of success, but in a down-dip position (e.g., if the well was designed
to locate the hydrocarbon/water contact). Both of these scenarios would
result in geological PoS for the well (probability that the well encoun-
ters movable hydrocarbons) which would be lower than the geological
PoS for the prospect (Fig. 3).
Therefore, geological PoS values can be different for the segment,
multi-segment prospect and exploration well. This paper is only con-
cerned with the geological PoS for segments, which serves as an input
parameter for the calculations of geological and economic PoS, risked
volumes and EMV for other evaluation objects that include the segment
(prospect, well, block etc.). PoS for wells, multi-segment prospects
(Delfiner, 2003) and multi-prospect blocks (Wang et al., 2000) is calcu-
lated using stochastic tools, and those calculations are beyond the scope
of this paper.
3. Common ways of estimating geological PoS
Some explorers and managers compare drilling exploration wells to
rolling the dice (e.g., Johns et al., 1998). However, they commit the ludic
fallacy (after ludes, which is Latin for “games”) and mistake the random-
ness of exploration for the tractable randomness of the casino (Taleb,
2012). When gamblers roll the dice, they know what to expect. Each
roll of the dice is independent from the previous roll, and each has a pre-
cise probabilistic distribution of outcomes exactly the same as the other
rolls (Bernstein, 1996). Gamblers deal with a well-defined “closed” sys-
tem (Binns and Corbett, 2012), a ludic domain (Taleb, 2012), to which
the laws and calculus of probability apply, and the probability of each
outcome can be precisely calculated (i.e., a statistical or objective prob-
ability). The petroleum exploration process is different. Explorers know
that the outcome of proper drilling and testing will be a dry well (no pe-
troleum accumulation) or a discovery, but nothing more. They cannot
calculate or scientifically measure the probability of outcome, they can
only estimate it (i.e., an inductive or subjective probability), using
their own mind and their workflows as instruments for the assessment
(Lindley et al., 1979). Furthermore, the probability assessment changes
with each newly drilled well. In under-explored basins, dry wells bring
new information and change the geological PoS for the next well (and
thus dry wells are not a “loss” to explorers). However, if there is no
working petroleum system, there will never be a discovery no matter
how many exploration wells the company drills. Explorer's judgment
cannot be validated based on a single PoS assessment, but can only be
calibrated based on multiple tries (wells). The true value of PoS does
not exist and cannot be known. The business demands that explorers
differentiate the low-risk prospects from the high-risk ones, and they
do that by assigning PoS values to the prospects, using scientific
methods applied to variably complete datasets, expertise and careful
 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476 457

Fig. 4. Typical process of probabilistic (stochastic) assessment of oil volume (stock tank oil initially in place (STOIIP), million stock tank barrels (mmstb)) in a prospective segment.
The volumetric equation is known, but input reservoir and fluid parameters (gross reservoir volume, ratio of net reservoir to the gross reservoir (N/G), porosity (Ø), oil saturation (So)
and formation volume factor (FVF)) in the success case (discovery) are uncertain and therefore are described as probability density (distribution) functions. Success case (discovery)
probabilistic volumes in the segment are calculated stochastically using, in this case, Monte-Carlo simulation with 10,000 runs. The total geological PoS for the segment is estimated by
the explorers. The economic PoS is then calculated based on the risked volumes curve and the estimated minimum economic field size (MEFS).

deliberation. To summarize, the geological PoS is merely a convenience,
another form of language, that helps geoscientists to precisely and ex-
plicitly communicate their subsurface evaluation to other parties (engi-
neers, economists, managers) participating in the drilling decisions
(Grayson, 1960).
At the beginning of petroleum exploration, in the early 1900s, wells
were drilled either randomly or based on surface evidence of petroleum
presence (near seeps and tar pits) and using surface geology and the
early theories about petroleum accumulations (e.g., the anticline theo-
ry) (Menard and Sharman, 1975). Grayson (1960) provided an account
of how different companies used geological evaluations to assist in
drilling decisions in the middle of the 20th century. Some companies
merely asked the geologists to give a qualitative non-systematic geolog-
ical description of the prospect (like, “Boy, that's a wild one” or “We have
a good shot”) and recommend drilling, postponing or rejecting the pros-
pect. Other companies used relative ranking procedures according to the
state of information and perceived potential. A relatively small number
of companies required that geologists communicate their evaluation
with the use of numerical probabilities, e.g., 1 in 4 or 8 to 1. Although ge-
ologists often resisted providing probabilities, these values permitted
companies to compute the EMV, integrate with other decision factors
and assist in guiding the investment decision of the company (Higgins,
1993; Lerche and MacKay, 1999; Ross, 2004).
At present, most companies require that their explorers estimate the
geological PoS for exploration segments and prospects. Human is a
“selective, sequential information processing system with limited
capacity” (Hogarth, 1975, p. 271), cannot simultaneously integrate a
large amount of data, and is forced to split information and process it
in a sequential manner. Explorers realized early on that assessment of
the total geological PoS is a difficult task and decomposed this task
into the assessment of key independent geological risk factors
(Gotautas, 1963) — smaller, manageable units which may be easier to
understand (Johns et al., 1998). Today, the most common way in the
industry to obtain total geological PoS for a segment is by serially mul-
tiplying the probabilities of each independent risk factor (reservoir,
seal etc.) which could cause the segment to fail (Gotautas, 1963; Rose,
2001a). However, there is a significant disagreement between different
authors and exploration companies on two issues:
1) how many risk factors are truly independent and how many and
which ones of them should be multiplied, and
2) how to estimate the probability for each risk factor.
3.1. Number of risk factors
It is commonly accepted that for a segment to contain movable
petroleum, there must be:
1. Structure (closure, geometry, including stratigraphic) that accumu-
lates and contains petroleum;
2. Porous reservoir which is thick and permeable enough to allow the
fluid to flow;
3. Petroleum that was expelled from mature source rocks and then
moved into the reservoir along migration pathways;
4. Seal that keeps the petroleum within the trap.
458 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476

The above are the fundamental principles on which there is a general
agreement (e.g., Magoon and Dow, 1994). Most companies risk the
presence of movable (technically recoverable) petroleum in an accumu-
lation of some minimum size, without specifying any volumes. The
probability of finding any specific volume in the success case is then
derived from the cumulative frequency curve (Fig. 4). Only methodolo-
gies of Unocal in the mid-1990s and ExxonMobil in recent years are
different. In Unocal, explorers estimated the total PoS for a P1 resource
outcome where P1 was the small volume that would be exceeded in
99% of successful outcomes (Alexander and Lohr, 1998). In ExxonMobil,
explorers evaluate risk factors against a given minimum volume, which
may be different in different plays or basins (Sykes et al., 2011).
The number of risk factors multiplied by different authors to obtain
total geological PoS varies from four (Otis and Schneidermann, 1997) to
19 (Lowry et al., 2005). Table 1 summarizes the risk factors used by differ-
ent authors and how the probability values for each geological risk factor
were combined to calculate the total geological PoS. Most authors used 4
to 7 risk factors and serially multiplied them to obtain the total geological
PoS. Several authors evaluated a very large group (up to 50, Watson,
1998) of risk factors and then grouped and combined them to calculate
the total PoS. For example, Rose (2001a) proposed a risk model, which
is widely used in industry, especially among small-to-medium companies
(e.g., in JNOC, Nakanishi, 2000). The model uses five independent geolog-
ical risk (chance) factors, each of which contains several subcomponents:
1) source rocks (quantity/volume, quality/richness (petroleum type),
thermal maturity), 2) timing/migration (timing of closure/trap, timing
of expulsion, effective migration pathways), 3) reservoir rock (pres-
ence, quality, reservoir performance), 4) closure (map reliability and
control, presence, data quality), and 5) containment (seal (top/base/lat-
eral) effectiveness, preservation from spillage/depletion, preservation
from degradation). In total, there are 15 subcomponent risk factors
used in this risk model. Rose (2001a) argues that the subcomponents
are partially depended and recommends using the “weakest link” ap-
proach, i.e., multiply only the lowest probability assigned to subcompo-
nents within each risk factor to obtain the total geological PoS.
However, different companies use the methodology of Rose (2001a) in-
consistently. This may come partially from a poor definition of the sub-
components. For example, the difference between “map reliability” and
“data quality” in the evaluation of the risk for closure is unclear. More
importantly, there is a fundamental methodological problem with
using the “weakest link”. Some subcomponents are actually indepen-
dent and therefore have to be multiplied to estimate the total PoS. For
example, reservoir facies may be present, but the reservoir quality
may be so poor that there would be no free flow of petroleum into the
well. These two risk factors are sufficiently independent and their prob-
abilities should be multiplied in the total PoS calculations. Other compo-
nents need to be evaluated relevant to each other rather than treated as
independent factors, e.g. timing of closure should precede the timing of
charge (rather than expulsion), and should not be independent. In addi-
tion, it can be argued that some subcomponents are not listed under the
appropriate risk factor. Biodegradation is considered under “contain-
ment”. Biodegradation may improve containment of hydrocarbons
due to the fact that more viscous oil with less buoyancy may be trapped
by a poor seal, but high viscosity also increases the risk of reservoir per-
formance (deliverability) by reducing or even completely eliminating
the fluid flow. It is therefore important to consider biodegradation
when evaluating the risk of reservoir performance, which should be
evaluated under the reservoir factor.
The question of how many risk factors to use in total PoS calculations
is important from at least two perspectives. From theoretical perspective,

Table 1
Risk factors considered in different methodologies of estimating the total geological probability of success (PoS).

Authors Company Number of List of geological risk factors How total geological PoS was calculated
risk factors

White (1993)
Goldstein (1994)
Duff and Hall (1996)
Hermanrud et al. (1996)
Snow et al. (1996)
Otis and Schneidermann
(1997)
Alexander and Lohr (1998)
McMaster (1997)
Johns et al. (1998)
Watson (1998)
CCOP (2000)
Wang et al. (2000)
Rose (2001a)
Lowry et al. (2005)
Sykes et al. (2011)
12 (4 groups) Closure volume, seal, timing, reservoir facies thickness, Serial multiplication of 12 factors.
porosity, permeability and continuity, organic quantity
and quality, maturation, migration, preservation,
hydrocarbon quality and concentration, recovery.
Bridge Oil 33 (5 groups) Trap, seal, source, reservoir, likelihood of oil. Least favorable of all factors in each group was carried
into final calculations (“weakest-link” logic). Serial
multiplication of 5 factors.
PetroFina 4 Reservoir, seal, hydrocarbon charge, closure. Serial multiplication of 4 factors.
Statoil 7 Closure, reservoir, porosity, source/migration, timing, Serial multiplication of 7 factors.
trap, recovery.
Conoco 4 Reservoir, trap, seal, source. Used historical success rate for the play and then
multiplied that success rate by four comparison
coefficients (0.5 to 1.5). Then, serial multiplication of 4
risk factors.
Chevron 14 (4 groups) Presence of mature source rock, presence of reservoir Least favorable of all factors in each group was carried
rock, presence of a trap, and play dynamics (timing). into final calculations (“weakest-link” logic). Serial
multiplication of 4 factors.
Unocal 5 Trap, top seal, reservoir rock, source rock, Serial multiplication of 5 factors.
timing/migration.
Amoco 6 Trap (structure), seal, reservoir, porosity, source, Serial multiplication of 6 factors.
migration.
Santos 4 Closure, reservoir, seal, charge. Serial multiplication of 4 factors.
BHP 50 (7 groups) Trap geometry, source, migration and timing, seal, Combined according to specified rules.
Petroleum reservoir, preservation, gas risk, DHIs.
7 Reservoir facies presence, reservoir effectiveness, trap Serial multiplication of 7 factors.
presence/definition, seal effectiveness, presence of
mature source rock, migration effectiveness, retention.
Texaco 4 Structure, seal, reservoir and charge. Serial multiplication of 4 factors.
15 (5 groups) Source rocks, timing/migration, reservoir rock, closure, Least favorable of all factors in each group was carried
containment. into final calculations (“weakest-link” logic). Serial
multiplication of 5 factors.
Origin 19 (5 groups) Closure, reservoir, source, charge and seal Serial multiplication of 19 factors.
ExxonMobil 9 Trap closure, trap seal, reservoir facies presence, reservoir Serial multiplication of 9 factors.
quality, source richness, source maturation, migration
pathways, trap-migration timing, hydrocarbon recovery.
 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476 459

it is vital that only the truly independent risk factors are multiplied and the precise probability value (e.g., “moderate confidence level in data
that none of the risk factors that influence the event (geological success) which indicate good news” can have probability from 0.7 to 0.9, so dif-
are omitted. This is needed to satisfy the mathematical meaning of the ferent explorers or exploration teams can chose different values within
PoS calculation via multiplication (CCOP, Coordinating Committee for that range even if they all identified “moderate confidence level” and
Offshore Prospecting in Asia, 2000). “good news”). Nakanishi and Lang (2001) recognized that problem
From the practical perspective, a larger number of risk factors may and proposed a matrix with precise values (e.g., “moderate confidence
result in lower total PoS, especially when it is prescribed that probability level in data which indicate good news” was equated to probability
for individual risk factors must be below 1.0 (Otis and Schneidermann, 0.625). Third, the original matrix (Rose, 2001a; Sykes et al., 2011)
1997). This has two major implications. First, it is psychologically diffi- assumes that at the low level of confidence (little data or poor quality
cult for the management to approve drilling of prospects with low PoS data), extreme values of probabilities (close to 0.0 and 1.0) are
values. Second, EMV calculations use PoS values, and lower PoS will unacceptable and explorers should chose values about 0.5. However,
lead to lower or even negative EMV. Both of these are not critical issues Lowry et al. (2005) suggested that when the confidence level is low,
if the management understands that PoS values are best used to rank probabilities for some risk factors, such as presence of the structure
prospects and to decide on their fit in the exploration portfolio and and charge, may be much lower than 0.5.
chose to drill first the prospects with higher mean risked volumes or
higher EMV or higher investment efficiency, given that other economic,
strategic, licensing and political issues are not influencing the drilling 4. Common fallacies in estimating geological PoS
decision.
Assignments of probabilities to individual risk factors are most com-
3.2. How probabilities are assigned to risk factors monly based on a subjective expert opinion of one explorer later mod-
ified by subjective opinions of other explorers or/and managers. If five
There is little published information on exactly how specific proba- geoscientists or exploration teams are given exactly the same data for
bility values for each independent risk factor are defined before they a segment and are being asked to estimate the PoS, they will very likely
are multiplied to obtain the total geological PoS. The process seems to give you five different answers. Polson and Curtis (2010) asked four
depend on the size of the company, available expertise and accumulated experts to assess the probability (“best guess” and uncertainty of their
experience. In small and/or less technically advanced companies, own assessment) of a seal being present in the subsurface, using the
assignment of probabilities to individual risk factors is often a formal same data. Their initial individual probabilities varied from 0.2 to 0.85
and quick process performed by a single explorer without carrying out for the “best guess” and from 0.15 to 0.95 when self-estimated uncer-
detailed studies, team discussions or expert peer reviews. It is common- tainties of the assessments are considered. After a group discussion of
ly an after-thought process completed quickly after the segment is the same experts about seal presence, their individual assessments
mapped. In major and/or more technically advanced companies, a narrowed significantly to values of 0.6–0.7 for “best guess” probabilities,
significant amount of time may be spent on risk evaluations. This is and to values 0.3–0.95 when accounting for uncertainties of their as-
performed according to a specified process with the help of various sessments. Using the same data, Polson and Curtis (2015) showed that
tools such as checklists (Schwade, 1967), risk assessment forms there was clear correlation between the experts, indicating that some
(White, 1993), worksheets (Otis and Schneidermann, 1997) and risk individuals may have been uncomfortably influential on the narrowing
matrices (Fugelli and Olsen, 2005; Sykes et al., 2011). Commonly, of results.
probability values for individual risk factors are assigned in discussions In an experiment conducted by this author, seven different explora-
within a multi-disciplinary exploration team. The probability values are tion teams evaluated the same exploration segment in a class setting
then presented to the exploration technical review team and/or the (Table 2). Each team included three or four explorers. Teams #1–5
management, who may further modify those values. had more experienced explorers (average ~ 12 years of experience),
However, there is always one explorer who announces the probabil- and teams #6 and #7 had explorers with less experience (average ~ 6
ity value first. Other explorers and management may modify the prob- years). The teams were asked to evaluate only three risk factors:
ability value later. Most often, these announcements and later changes presence of the reservoir, seal and petroleum charge. Probabilities for
are based on subjective expert opinions (judgments) (Harbaugh et al., these risk factors varied widely: 0.5–0.7 for the reservoir, 0.5–0.9 for
1995). Exploration companies and relevant literature provide relatively the seal and 0.55–0.95 for the charge. The critical risk factor (i.e., the
little guidance on how to come up with the probability for each risk one with lowest probability among all three risk factors) was the
factor. Rose (2001a) describes two tools designed to help an explorer same for only four teams. Moreover, each of the three risk factors was
to estimate probability values. The first tool is a scale that relates subjec- deemed to be critical by at least one of the teams. The total PoS ranged
tive expressions of confidence to probability values. For example, the from 0.30 to 0.53. In a real exploration setting, the range would be even
expression “more likely to be present than absent” equates to probabil- wider, because only three risk factors were assessed in the exercise,
ity from 0.6 to 0.8. Other versions of this tool are presented by Goldstein whereas exploration teams in companies usually use from four to
(1994), Duff and Hall (1996), Otis and Schneidermann (1997) and seven risk factors (see above).
Alexander and Lohr (1998). The second tool is a “chance adequacy
matrix” which suggests different probability values based on confidence
level (data quality and quantity) and conclusions interpreted from Table 2
Probabilities for specific geological risk factors and the total geological probability of
those data (bad news or good news). For example, moderate confidence success (PoS) assessed by seven teams for the same segment using the same data in a class
level in data which indicate good news equates to probability from 0.7 setting.
to 0.9. Similar or modified versions of this matrix are presented by
Team Probability of Probability Probability of Total
Lowry et al. (2005) and Sykes et al. (2011). Both of these tools can be
reservoir of seal petroleum charge geological PoS
used to guide the thinking process about geological risk factors and
#1 0.68 0.78 0.85 0.45
help translate subjective opinions into numerical probability values.
#2 0.70 0.80 0.55 0.30
However, these commonly used tools have at least three shortcomings. #3 0.50 0.90 0.90 0.41
First, they do not contain any geological information and do not provide #4 0.70 0.80 0.95 0.53
specific guidelines of what probabilities to use in a given subsurface sit- #5 0.60 0.85 0.80 0.41
uation (what exactly is “good news” for the risk of reservoir presence?). #6 0.70 0.55 0.85 0.33
#7 0.70 0.50 0.85 0.30
Second, they are too vague and leave significant uncertainty in picking
460 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476
White (1993) described similar experiment when, in a series of
workshops, explorers estimated the PoS for the same segment based
on the same data and produced the range of values from 0.1 to 0.7.
Similar results were obtained from internal exercises at BHP Petroleum
(Watson, 1998).
4.1. Geological and psychological subjectivities
Why individual explorers and exploration teams assign such differ-
ent probabilities to risk factors even when given exactly the same
data? Probability assessments are subjective opinions (judgments),
and research has shown that subjective judgments are inconsistent
and often inaccurate (Baddeley et al., 2004). In situations with uncer-
tainty, humans make judgments under the influence of numerous
factors. Some factors are objective (hard data, laws of probabilities),
some are subjective (knowledge about the subject matter, interpreta-
tions, built or assumed models, our motives), and some influence our
thinking on the subconscious level without us noticing it (heuristics,
biases).
Geoscience is a science that necessarily includes subjective elements
(Curtis, 2012), especially when the dataset is incomplete. Selection and
interpretation of subsurface data as well as subsurface modeling are
subjective. This geological subjectivity that originates from conceptual
and interpretational uncertainties in geological evaluations is unavoid-
able in exploration and in fact is has positive aspects because it allows
explorers to be creative, the science to advance and the exploration
companies to compete. The uncertainty begins with the most funda-
mental input for many geological models — interpretation of seismic
horizons. Rankey and Mitchell (2003) asked six experienced geoscien-
tists to interpret seismic data over a small area with relatively simple
stratigraphy and received back six different horizon interpretations. In
most exploration projects, only one interpretation is carried forward,
and its uncertainty influences the results of numerous other models
(from attribute analysis to maturity modeling), all of which have their
own uncertainties. In addition to the interpretation uncertainty, there
is conceptual uncertainty. Bond et al. (2007, 2012) conducted an exper-
iment in which they asked 445 geoscientists (184 of them claimed to be
experts in structural geology) to interpret a seismic line and determine
the tectonic setting of the subsurface depicted on the line. The seismic
line was a synthetic line created from the 2D geological forward
model, so the “correct answer” (inversion) was known. Only 21% of all
geoscientists and 35% of experts in structural geology correctly deter-
mined the tectonic setting (concept). The tectonic setting is the key
concept that allows geoscientists to interpret what they see in the
seismic data (which otherwise just consists of a cross-section of
estimates of the amplitudes and phases of elastic waves reflected from
different interfaces) to an interpretation of what they mean geologically
(horizons marking bed boundaries, sequence boundaries, maximum
flooding surfaces, faults, etc.). This concept is one of the most funda-
mental components of any subsurface interpretation. Hence, the results
of these experiments indicate that subjectivity is a major driver of
interpretation and hence of estimated geological PoS.
In addition to the geological subjectivity, there is also psychological
subjectivity, because explorers evaluate subsurface information and
come up with probability values under the influence of various heuristics
(experience-based mental shortcuts such as “rule of thumb”, “educated
guess”, “common sense” and intuitive judgment), subconscious cogni-
tive biases (predictable patterns of thought and behavior that emerge
from incorrect processing of the information and lead humans to draw
incorrect conclusions), logical fallacies (Kahneman, 2011; McRaney,
2012) and conscious motivational biases (Merckhofer, 1987). Capen
(1976), Rose (1987, 2001a) and Welsh et al. (2005, 2007) described
the most common biases that affect explorers' assessment of uncer-
tainties (reservoir parameters, resource volumes) as well as their busi-
ness decisions. Below I discuss heuristics, biases and fallacies that are
common when explorers estimate subjective probabilities for geological
risk factors (also summarized in Table 3).
4.2. Common individual heuristics, biases and fallacies
Availability bias describes the tendency to overestimate the probabil-
ity of the events with greater “availability” in memory, which can be
influenced by the events that charged our emotions the most (salient
or unusual events) (Tversky and Kahneman, 1974). Personal education,
training, knowledge, specialization, previous experiences, preconcep-
tions and preconceived notions dictate how easily (if at all) information
comes to an explorer's mind. If an explorer is a seismic interpreter by
background, he/she would likely spend more time thinking about the
probability of structure (closure, geometry) to be present and to polar-
ize risk for this factor (i.e., chose extreme probability values closer to 1.0
or 0.0). He/she may be less likely to think much about the risk of source
rock presence and maturity because she remembers less about the
subject and would tend to assign “toss-up” probability (close to 0.5) to
that risk factor even if the data required to polarize the probability
does exist. An explorer who has heard about biodegradation just briefly
at a petroleum systems course would not decrease the probability of
reservoir deliverability for a shallow cold oil segment as much as the ex-
plorer who spent years hunting for light oil in the play of biodegraded
oil sands (Shuqing et al., 2008). If an explorer has most of his experience
evaluating segments with DHIs offshore Nigeria with a high success
rate, and then is tasked with an evaluation of a new unexplored Arctic
basin, he/she would tend to assign high probability values to DHI-
supported segments in that basin even though none of the DHIs have
been tested or calibrated. The tendency of geoscientists to interpret
the data in a way that fits their dominant expertise and knowledge
was demonstrated in the seismic interpretation experiment of Bond
et al. (2007). An explorer can counteract the availability bias if he/she
deliberately works with people who think differently than him/her
and whose expertise and experiences are different than his/hers
(Dobelli, 2013).
Recency bias is the tendency to weight recent events more than ear-
lier events (it is a sub-class of availability bias). If an explorer just drilled
a dry well, which did not find a reservoir, he/she may be more likely to
assign a lower probability value to the reservoir presence risk factor for
the segment that he/she evaluates at the moment, even if reservoir
failure is common in the play and occurs in most wells. An explorer is
likely to increase the PoS for the evaluated segment after he/she hears
that another exploration company recently made a discovery in the
same play, even though the explorer does not obtain any information
from that discovery well and the success rate for the play remains largely
the same.
The primacy effect (another sub-class of availability bias) is a cogni-
tive bias that results from disproportionate salience of initial stimuli
or observations. For example, an explorer sees a very large anticline
structure on a seismic line. It catches his/her eye, and he/she may be
less critical of the other, and completely independent, elements of the
petroleum system, like reservoir and source rock. That prominent struc-
ture – the salience – receives much more attention than it may deserve.
Indeed, absence is much harder to detect than the presence and what
exists means a lot more than what is missing. Seeing the big structure
may mean more for an explorer than missing the evidence of source
rock presence, even though both of them are critical for the existence
of a petroleum accumulation.
Confirmation bias is the tendency to search for or interpret informa-
tion in a way that confirms one's preconceptions and hypotheses,
independent of their truth (Oswald and Grosjean, 2004). For example,
consider an explorer who has spent a significant amount of time and
effort to develop a geologic model for a segment. The explorer then pre-
sents the segment to the review team and is told that he/she overlooked
one of the risk factors, which may be critical for the segment. He/she
may be likely to search (and find!) data and produce interpretations
 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476
that downplay that newly identified risk factor and support his/her
initially favorable view of the segment, while ignoring evidence that
contradicts his/her preconceived notions.
Conservatism (or regressive bias) is the tendency to underestimate high
values and high probabilities and overestimate low ones (Fischhoff et al.,
1977). Some explorers find it hard to assign probabilities of 1.0 or 0.05 to
individual risk factors, even when favorable or unfavorable evidence for
that factor is abundant and convincing.
Endowment effect is the tendency of people to value the asset more
when they own it than when they do not (Thaler, 1980). Explorers
may assign higher geological PoS to segments in the license blocks
which the company owns and on which they worked for a long
time than to similar segments offered to the company as a farm-in
opportunity.
Expectation bias is the tendency for people to believe data that agree
with their expectations of the outcome and to discard or downgrade the
data that appear in conflict with those expectations (Jeng, 2006). For
example, an explorer evaluates a segment in a promising frontier play
that his/her company wants to access. Because other companies appear
to be very successful in that play, the expectations are high. As a result,
the explorer is likely to assign higher probability to risk factors for
segments in that play, even if the evidence for the specific segment is
rather discouraging.
Optimism bias is the tendency to overestimate favorable or pleasing
outcomes (Baron, 2007). Inspired (and misled) by the “Prospector
Myth”, most explorers are inherently overoptimistic about their
segments, prospects, plays and basins (Rose and Citron, 2000). This
optimism is delusional: the majority of exploration wells fail
(WoodMackenzie, 2012). Just like other humans (Lovallo and
Kahneman, 2003), explorers may misperceive the causes of certain
events (e.g., take credit for discoveries and attribute well failures to ex-
ternal factors) and discount the role of chance and luck. Interestingly,
explorers may also display a pessimism bias when they exaggerate the
likelihood of negative outcomes (Alexander and Lohr, 1998; Johns
et al., 1998).
Overconfidence effect is a bias in which person's subjective confi-
dence in his judgment is excessive (Hoffrage, 2004). Professionals may
be overconfident because they do not recognize the limits of their
professional skills (Kahneman, 2011). Overconfidence effects are docu-
mented for explorers assessing the uncertainty of reservoir parameters
and prospective resources (Rose, 2001a). In geological risk assessment,
the overconfidence may arise from the quality and coherence of the
subsurface story that an explorer creates — the story explaining how
and why an evaluated segment may contain petroleum. When people
construct a simple and coherent story, they will feel confident regard-
less of how well or poorly grounded it is in reality and can lose the
ability to think about the evidence critically (Kahneman, 2011; Silver,
2012). Overconfidence often results from the fact that professionals do
not truly have accountability and do not suffer themselves from their
predictions. The Romans forced the engineers to spend time under the
bridges that they built (Taleb, 2012). In contrast, modern explorers,
especially those working for large companies, are not risking their
well-being when making predictions of geological PoS and prospective
resources. Most explorers would benefit from humility concerning the
limitations of their expertise and knowledge and from some forced
accountability.
Base rate neglect is the tendency of people to overvalue new or
specific information at the expense of the base rate (general statistical)
data (Baron, 2007). Influenced by that bias, explorers may maintain an
inventory of newly identified segments with average total PoS signifi-
cantly exceeding the historical drilling success rate in the play.
Sunk cost fallacy is committed when we let unrecoverable costs in-
fluence our current decision-making (Arkes and Ayton, 1999). Explorers
may assign higher PoS to the segments and prospects on which they
spent significant amount of effort and money, for example, just acquired
an expensive and logistically challenging 3D seismic survey. They may
461
think that all that time and work and money will have been for nothing
and assign to their prospect a PoS higher than is justified by the data and
models. The prior investment becomes a reason to carry on with the
evaluation and drilling, even if they are assessing a poor prospect. The
sunk cost fallacy often operates alongside with effort justification — a
special case of cognitive dissonance, in which humans overvalue the
results of tasks, in which they put a lot of energy (Dobelli, 2013).
The affect heuristic is the tendency to make poor decisions and ignore
odds in favor of the gut feeling (Finucane et al., 2000) When faced with a
new venture opportunity, most explorers would do a loose screening
assessment and develop undocumented assessment of segment attrac-
tiveness frequently called a “gut feel” (Goldstein, 1994). Explorers quite
quickly like or do not like the evaluated segment, and then it may take a
significant amount of data and evidence to change their first impression.
Moreover, when explorers sense a segment as “good”, they commonly
tend to downplay the evidence suggesting that it is risky as well as
exaggerate its prospective resources.
Anchoring bias is the tendency of people to base estimates on any
value they have at hand (Tversky and Kahneman, 1974). Most explorers
are aware that the current industry-average geological success rate of
exploration drilling in the world is around 35% (e.g. WoodMackenzie,
2012). Therefore, many of them think that the average prospect should
have a total PoS of around 0.35 and push their estimation towards that
value (this also may be a result of probability matching heuristic,
Baddeley et al., 2004). There is, however, a fallacy in this logic: 35% is
the average success rate for a very large number of wells drilled by
many companies around the world, and PoS of an individual segment
has nothing to do with that number. Many explorers feel good and
safe when they produce a total geological PoS for their prospect of
around 0.35 — that feeling comes from the realization that they are
likely to be right if a large number of their wells is drilled. However,
they are actually not helping the manager, who needs to distinguish
the good prospects from the bad ones to enable the drilling decisions
and a sequential drilling program and would clearly prefer a prospect
inventory with high and low PoS values rather than the inventory
where all prospects have PoS around 0.35.
Motivational bias is the conscious tendency of people to overestimate
the probability of the events with a positive return to self, and underes-
timate the probability of events with a negative return (Merckhofer,
1987). People with motivational bias have a vested interest in a partic-
ular outcome of the decision. Individual explorers and their managers
may desire to drill a particular exploration well for curiosity reasons,
to prove a point, keep their jobs/assignments, “build an empire” etc.
and may falsify their assessment of the PoS (and prospective volumes),
purposely giving the prospect a better chance to be drilled (Grayson,
1960). After all, they spend significant amount of time and effort evalu-
ating the prospect, fell in love with it and are genuinely interested in
testing their models and predictions. When explorers are interested in
seeing their prospect drilled, they can back-calculate the geological
PoS and the distribution of perspective resources necessary to justify
the project. However, they forget that explorers' job is not to drill
wells, and not even to find oil and gas, but to discover economic petro-
leum accumulations and add value to the company (John, 1992; Rose,
2001a). Company politics often enhance the motivational bias. Every
company has a limited amount of money to drill exploration wells. If
the company has a policy or history of drilling prospects with total
PoS not lower than 0.25, then explorers would be motivated to make
sure that their prospect meets that hurdle. If the company allocates
the drilling budget to different exploration teams based on PoS of
their prospects (or EMV, which is calculated using such PoS), then the
teams will be motivated to come up with a PoS as high as they can get
away with. Explorers use their presentation skills, charisma and connec-
tions to “sell” the prospect. Citron and McMaster (2006) stated that
salesmanship plays a major role in the approval process. As a result,
exploration companies may have biased portfolios in which similar
prospects receive very different valuations, which leads to exploration
462 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476
under-performance in the long-term. The lack of opportunities can also
influence the motivational bias (Mackie, 2007). If the company has only
a small number of poor plays and prospects, the explorers can easily
convince themselves that their prospects are not that bad and should
be drilled.
4.3. Common group biases, heuristics and fallacies
Group discussions within the exploration team, review team and
management help to overcome some of these problems. Individual
assessments of risk are changed by listening to each other, sharing infor-
mation, making persuasive arguments and by cross-examining reasoning
and data. Many brains produce an assessment which is different from and
often better than the assessments of individuals or their average assess-
ment (Phillips, 1999; Polson and Curtis, 2010; Burgman et al., 2011).
There is evidence that consensus assessment of geological PoS values by
several explorers is superior to the assessments by individual explorers
(Rose, 1987; McMaster, 1997). Expert elicitation using the traditional
“one person, one vote” committee, Delphi, Cookie or other methods
(Aspinall, 2010) can help to quantify the uncertainty in risk assessment
by explorers. However, whereas reducing some effects of individual
biases, group discussions can compound individual cognitive biases
(Baddeley et al., 2004) or introduce other group biases (Sniezek, 1992)
caused by social influence. Furthermore, many group decisions in reality
are individual decisions with group input or review (Mackie, 2007).
Anchoring bias shows up again in group discussions: when someone
first verbalizes the probability value, the discussion usually concentrates
on or around that value and the final probability value is insufficiently
adjusted away from that initially announced value (anchor). It is even
worse when the boss first expresses his opinion, which often automat-
ically becomes the opinion of others (McRaney, 2012).
Authority fallacy is committed when people agree with the opinion
of the authority who is either not a subject-matter expert, or is placing
his opinion in the situation when there is no consensus among experts
in the subject matter (Kahneman, 2011). The final PoS may be adjusted
based on the opinion of the CEO who likes or does not like the prospect,
even though the CEO has not evaluated segments himself in the last 20
years. Mackie (2007) identified the imposition of personal intuitions
and biases of VPs and CEOs as the weakest link in the decision-making
in the upstream oil and gas industries.
Herding occurs when group members are led by or influenced by one
individual (Polson and Curtis, 2010). Participants may revise their views
to be consistent with the views of the supposed leading expert rather
than to account for the strongest arguments (Aspinall, 2010). Explorers
with most confident, outspoken and charismatic personalities may
dominate the group and decide the outcome of the group discussions,
whereas the opinions of shy personality types vulnerable to peer and
institutional pressure may be discounted.
The halo effect is a cognitive bias in which people judge other person's
opinions based on their overall impression of the other (Rosenzweig,
2007). If an explorer has a natural charisma, wit and charm, or is very ar-
ticulate, or has connections at the top of the company, or he/she recently
participated in a big discovery, or if he/she was just hired from a very
successful (or big) company — all these personality traits may contribute
to the halo effect. The geological PoS assessment by that explorer with a
halo may be trusted more than the assessment by the other explorers,
even if they are more knowledgeable about that particular segment or
play/basin.
Trust heuristics refer to the tendency of managers to rely on the judg-
ments of individuals that they have learned to trust rather than incorpo-
rating the opinions of everyone working on the task (Mackie, 2007).
There are exploration managers who appear to listen to everyone but
then make a final drilling decision after a chat with a trusted friend-
explorer.
Ad hominem (Latin for “to the person”) fallacy is committed when
people assume that someone is incorrect based on who that person is
or what group he belongs to (McRaney, 2012). Modern exploration
teams are diverse, and we should not dismiss or wrong the opinion of a
person who looks, speaks or behaves differently from his/her colleagues.
Group interaction can radically change the opinions of individual
experts. The consensus that the group achieves can be different from
all individual opinions and from the “average” opinion (Phillips,
1999). The danger is that every expert would be forced to agree with
the consensus value, but no one truly believes in it (Polson and Curtis,
2010). The consensus geological PoS value is just another subjective
value generated by the group under the influence of group biases.
Managers are wise to have more trust in the group PoS value than in
any values generated by individual explorers (McMaster, 1997; Polson
and Curtis, 2010), but should make sure that all group biases listed
above had only minimal influence on the group PoS value.
4.4. Consistency is the key to portfolio management
Exploration is best managed by managing the exploration portfolio
(McMaster, 1997). The portfolio is a list of prospects which has certain
mutual and beneficial dependencies between them and which get drilled
in order to meet investment goals while being aligned with the specified
exploration strategy. The decision that explorers make is most often not
absolute (it is not a question of “to drill or not to drill” because explora-
tion companies have to drill to survive!) but comparative — which pros-
pects in the portfolio to drill. For the portfolio management to succeed,
each prospect must be assessed consistently (Rose and Citron, 2000),
after which they can be compared, contrasted and ranked relative to
each other. This is not easy to achieve in practice, because most explorers
or exploration teams do not work in the portfolio environment and are
susceptible to various biases and logical fallacies as described above.
In the words of Rose (2001b), “bias is the mortal enemy of portfolio man-
agement”, and we should find a better solution to remove or reduce it.
5. A better solution: risk tables
There is a long-standing advice (Grayson, 1960; Schwade, 1967;
Goldstein, 1994) and proclaimed by companies desire (Hermanrud
et al., 1996; Johns et al., 1998; Sykes et al., 2011) to introduce objectivity
and consistency in the risking process. However, companies that contin-
ue to use subjective expert judgment of explorers to estimate geological
PoS are likely to fail at that task. Allowing only the most experienced
explorers to do the risking is not likely to help much as experts in oil
and gas industries appear not to be less susceptible to biases such as an-
choring and overconfidence than less experienced personnel (Welsh
et al., 2005). Training in risk assessment helps to remediate cognitive
biases, but the positive effect of training is largely eroded by the passing
of time (Welsh et al., 2005). Exploration companies may provide regular
risk training, but awareness of the effects of biases does not substantial-
ly improve the quality of judgment and business decisions made by
individuals or organizations (Kahneman et al., 2011). We cannot easily
(or ever?) change the human nature of explorers, but we can build a
bias-avoiding system of geological PoS assessment. I propose that
replacing expert judgment by an algorithm and new risk tables may
be an effective solution for reduction of subjectivity and biases and
may improve the consistency of geological PoS assessment by different
explorers and by exploration teams within the same company.
5.1. Expert judgment versus an algorithm
As discussed above, probabilities for individual geological risk
factors are most commonly estimated using expert judgment, initial-
ly by individual explorers and then in a group. An alternative way to
make a decision under uncertainty is to use algorithms. Kahneman
(2011) classified decision-making environments based on how
learnable and predictable they are. There are high-validity environ-
ments, which are sufficiently regular to be learnable and predictable.
 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476 463

In such environments, the situations can be recognized and remem-
bered, and the moves that people make result in a quick feedback
that can be assessed. Driving around a curve and playing chess are
examples of high-validity environments. There are also zero-
validity environments, where the potential number of situations is
infinite, for which we cannot calculate the probability, and the
outcomes of which we simply do not know. Examples are long-
term forecasts of stock prices and political events. The low-validity
environments are somewhere in between. They are characterized by
a significant degree of uncertainty and unpredictability. Predicting the
winners of a football game and long-term forecasts of weather and
earthquakes are the examples of low-validity environments. In my opin-
ion, predicting success of an exploration well often belongs to this
category.
Kahneman (2011) showed that in low validity environments, people
almost always make better decisions by following a simple algorithm
rather than by using their own judgment. So, what are the problems
with experts? Expertise is a collection of skills, and many profes-
sionals may be experts in some tasks in their domain while remain-
ing novices in the others. When faced with a problem, experts often
suffer from de'formation professionnelle and try to solve it with the
tools and methods normally used in their area of expertise
(Dobelli, 2013). Many experts try to be clever and comprehend in
their minds complex combinations of data and interpretations,
which does not work properly in low-validity environments. As ex-
perts acquire more knowledge, they tend to develop an illusion of
their skills and become overconfident. They also suffer from the ex-
pert motivational bias (Merckhofer, 1987), which occurs when a
person learns that he/she has been designated as expert and decides
that, as an expert, has to appear knowledgeable, be certain and bold in
his/her judgments and cannot admit that he/she “just does not know”.
Studies showed that experts often display inconsistencies when making
summary judgments of complex information — they often give different
answers when asked to evaluate the same information twice
(Kahneman, 2011). An account of geoscientists changing their assess-
ments of the probability of seal and reservoir over time even in the ab-
sence of any new information is presented by Polson and Curtis (2010).
The same experts cannot provide repeated independent judgments as
they are likely to remember previous thoughts and opinions (Lindley
et al., 1979). Years of experience do not make experts better. Bond
et al. (2007) demonstrated in their seismic interpretation experiment
that geoscientists with N15 years of experience are just as likely to pro-
duce an “incorrect” answer as students, although having a Master's and/
or doctorate degree improves interpretational accuracy (Bond et al.,
2012). In spite of social expectations that more highly regarded and
better-credentialed experts would make better judgments, research
has shown that qualifications, track record and experience often are
poor predictors of the performance of scientific experts (Burgman
et al., 2011). To summarize, most experts are less knowledgeable
than they think, inconsistent, unpredictable, irrational, prone to
harmful judgment heuristics, biases and making systematic mis-
takes. Algorithms do not suffer from such problems: they always
return the same answer if given the same input (Kahneman, 2011).
In low-validity environments, including many exploration projects,
simple systematic approach to risk assessment is more effective
than subjective judgment.
Expert judgment can be trusted when two conditions are fulfilled:
1) the environment is sufficiently regular to be predictable (high-validity
environment); and
2) the expert has learned these regularities through prolonged practice
and relatively quick and regular feedback (Kahneman, 2011).

Table 3
Some biases, heuristics and logical fallacies and brief examples of how they may affect individuals and groups assessing geological PoS. See text for the definition of these biases, heuristics
and fallacies, additional examples and references.

Bias/heuristic/fallacy Brief example relevant to the assessment of geological PoS

Individual assessment of the PoS

Affect heuristic Explorer may explain the low geological PoS by his/her “gut feelings” rather than by justifying his/her conclusions with data and models.
Anchoring bias Explorer may assign the total PoS to the segment in a similar way as for the other segments in the play without fully considering what may be different
about this specific segment that he/she currently evaluates.
Availability bias Explorer with background in sedimentology/stratigraphy may see lower probability for reservoir being present than for migration because he/she can
think of many reasons for reservoir absence but is less experienced with the evaluation of petroleum migration.
Base rate neglect Explorer may assign probability of effective seal being present in the evaluated segment to 1.0, even though half of the segments in the play failed due to
the absent seal.
Confirmation bias Explorer may look for evidence supporting his/her assessment of high probability of structure being present and does not look for or downplays the
evidence that structure may be absent.
Conservatism Explorer may not wish to assign the probability of 1.0 to the source rock presence even though the evaluated segment is surrounded by discoveries and
wells in segment's fetch area have petroleum shows.
Endowment effect Explorer may assign higher PoS to segments in his/her asset than to similar segments in a different asset.
Expectation bias Explorer may assign higher PoS to segments in a newly discovered “hot” frontier play, even though the play is still poorly understood and the well data
are limited.
Motivational bias Explorer may consciously assign higher PoS to the segment and makes it look economic so he/she can keep working on this project rather than move to
another, less desirable office location if this project is stopped.
Optimism bias Explorer may be too optimistic about the PoS for the segment in spite of data and models suggesting that the assigned PoS is too high.
Overconfidence Explorer may assign a higher probability to reservoir presence after he/she creates a possible depositional model for reservoirs in the segment, but does
effect not check it against analogues and all the dry wells in the play.
Primacy effect Explorer may assign a higher probability to all risk elements when he/she sees a prominent DHI in the evaluated segment.
Recency bias Explorer may assign a lower probability to the presence of structure because his/her most recent well failed due to lack of structure.
Sunk cost fallacy Explorer may assign high total PoS to segments located on the blocks for which the exploration company paid a very large signing bonuse.

Group assessment of the PoS

Ad hominem fallacy When assessing the PoS, the group members may pay less attention to the arguments of a person from a different cultural background than most
members of the group.
Anchoring bias When one explorer first announces that the probability of reservoir being present is 0.8, it may become difficult for the group to adjust that probability to
a significantly lower value, even though there are good geological reasons for doing that.
Authority fallacy When the CEO of the company think that the segment has a low risk, explorers may find reasons to justify that opinion.
Herding effect When the basin modeler thinks that the risk of migration is low, most other explorers may quickly agree with that view rather than discuss various data
and models on migration.
Halo effect When the recently hired explorer previously worked at one of the most successful exploration companies, his/her opinion on the geological risk may be
trusted more than the opinion of the other explorers in the group.
Trust heuristic When discussing the geological PoS for the segment, an exploration manager may put more weight on the PoS value suggested by the person with whom
he worked for the longest time on many other projects than on the opinion of the other explorers.
464 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476
There are situations in exploration when the expert judgment of an
explorer can be trusted. For example, if an explorer estimates geological
PoS for a segment in the play where
1) there are several nearby discoveries and dry wells;
2) the play is well understood and is relatively predictable, for example,
most of discoveries are supported by DHIs and most dry wells were
drilled in segments lacking DHIs;
3) the explorer worked on that play for a long time, generated and
drilled (both successfully and unsuccessfully) several segments,
and knows how to distinguish the DHIs that associate with discover-
ies from the ones that do not as he/she has made some mistakes in
the past.
When the above conditions are met, this becomes a high-validity
environment in which the explorer is likely to correctly assess geologi-
cal risks using just his/her judgment because he/she had a chance to
develop intuitive expertise. However, most predictions in exploration
are done in low-validity environments, and exploration companies
may be better off by implementing algorithms for risk assessment.
5.2. Risk tables
The only three published usable algorithms for geological PoS
assessment known to the author are the standard enquiries for the
assessment of prospect attributes of Goldstein (1994), guidelines for
Table 4
Risk table for estimating probability of structure (closure, geometry, container) being present.
the estimation of geological chance scores using the risk tranches method
(Duff and Hall, 1996), and the CCOP Guidelines for Risk Assessment of
Petroleum Prospects (CCOP, 2000). Watson (1998) described an
algorithm used at BHP Petroleum (at least in the 1990s), but the exact
details were omitted from his paper.
In 2012, the author developed an algorithm for the estimation of
geological PoS for segments with prospective resources of conventional
oil and gas. The algorithm is realized in the form of risk lookup tables
(similar to the approach presented in CCOP, 2000). There are six
evaluated geological risk factors: presence of structure, reservoir facies,
reservoir deliverability, seal, mature source rocks, and migration.
Numerical values of probability for each of these risk factors can be ob-
tained from Tables 4–9 using qualitative geological descriptions of the
specific segment. The total geological PoS for the segment is calculated
by multiplying probabilities for each of the six geological risk factors.
The risk tables abide by three main broad principles. First, tables are
based on existence/reliability of both data and models, and evidence
from both data and models. The data/model approach clearly separates
and combines what we know (hard data) and what we model (how we
envisage things may work). Positive, negative and neutral evidence for
each risk factor are considered. Data-based evidence is derived from
outcrops, wells and remote (mostly geophysical) data. Model-based
evidence is derived from structural interpretations, maps of gross
depositional environment (GDE), source rock maturity maps and
other relevant subsurface models. The probability of each risk factor is
 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476
Table 5
Risk table for estimating probability of reservoir facies being present. Acronyms used in the table: GDE — gross depositional environment, AVO — amplitude versus offset, DHI — direct
hydrocarbon indicator.
maximum (as high as 1.0) when both data and model are available and
point to positive evidence for that factor and is minimum (as low as
0.05) when both data and model are available and point to negative ev-
idence for that factor. The risk tables also assign probabilities for
conflicting information (e.g., when data evidence disagrees with model
evidence). The approach of combining evidence from both data and
models is similar to the one advocated by Otis and Schneidermann
(1997) and Fugelli and Olsen (2005).
The second principle follows Albert Einstein's suggestions to “make
things as simple as possible, but not simpler”. The subsurface conditions
are extremely complex and all exploration segments are different.
When explorers evaluate a subsurface segment, they build a model
(numerical, conceptual drawing, mental) of why and how that segment
may contain recoverable petroleum. When building the model,
explorers use incomplete and possibly inconsistent geological datasets
limited in space and resolution. Such model carries both the interpreta-
tional uncertainty (Rankey and Mitchell, 2003; Bowden, 2004; Polson
and Curtis, 2010) and the conceptual uncertainty (Bond et al., 2007,
2012). By definition, a model is an imitation of reality, “a simplification,
an abstraction, a selection… inevitably incomplete, incorrect — wrong”
(Sterman, 2002), and certain details may have been excluded. However,
such simplification is not necessarily a bad thing — decision makers
apparently do not improve the quality of their decisions simply because
the amount of information is increased (Bratvold and Begg, 2008). As
Nassim Taleb (2012, p. 210) noted, “people with too much smoke and
465
complicated tricks and methods in their brains start missing elementa-
ry, very elementary things”. The risk tables are designed to include the
most basic, fundamental, relevant and important information about
each geological risk factor while avoiding endless real and perceived
complexities which would make the tables too complicated and fright-
ening for implementation in an exploration company. Still, the risk
tables are designed to be sufficiently comprehensive because, to truly
serve their purpose, they must represent an “epistemic base” (Mokyr,
2002), the repository of knowledge and geological heuristics that
embeds time-tested and up-to-date practical (trials and errors of explo-
ration companies) and theoretical (academic and industry research)
findings about the factors that control petroleum accumulations and
evidence that points to the existence of petroleum accumulations.
The third principle is that the tables should be applicable to seg-
ments in various geological settings and in plays with different levels
of subsurface understanding (from frontier to near-field exploration,
from “company heartlands” to new ventures and farm-ins), and accom-
modate varying availability of data and models. In this way geological
PoS values can be used for ranking exploration segments based on
risked prospective resources and EMV within the entire exploration
company.
A recent global industry study showed that 10% of exploration wells
fail due to lack of structure, 15% due to lack of reservoir or its poor
effectiveness, 30% due to lack of charge, and 45% due to absent or poor
top or/and lateral seal (Laver et al., 2012). The relatively low proportion
466 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476
Table 6
Risk tables for estimating probability of reservoir deliverability (RD) for (A) clastic reservoirs and (B) carbonate reservoirs.
of failures caused by lack of structure and effective reservoir is probably
a result of high quality modern 2D and 3D seismic data and advanced
quantitative interpretation of seismic amplitudes and attributes avail-
able pre-drill for most exploration wells.
Below I describe risk tables (Tables 4–9) for individual geological
risk factors, focusing on justification for probabilities of charge (mature
source rock presence and effective migration) and seal, which apparently
are either more difficult to assess or have historically received less
attention.
5.2.1. Risk table for probability of structure
The objective is to estimate the probability of the mapped structure
(closure, geometry, container, which includes stratigraphic traps) being
present. The assessment is commonly based on the results of seismic in-
terpretation, which includes picking of seismic reflectors, correlation
across fault boundaries and salt or shale domes, tying intersecting
profiles, etc. Explorers start with evaluating seismic data coverage as
described in the data arrows of Table 4. The density of seismic lines
should be sufficient to adequately delineate rock volume and the poten-
tial spill-points of the mapped structure. The probability of structure
decreases (the risk increases) as the density of seismic lines decreases.
However, the probability also depends on the model of the structure.
To build such a model, explorers describe the relief (height) of the
structure relative to the accuracy of the seismic data/interpretation,
structural complexity (accounting for fault-dependent and stratigraphic
traps) and quality of the time/depth conversion. The model further
accounts for the accuracy and reliability of picking seismic reflectors
representing surfaces that bound the mapped structure, quality of
seismic data, seismic correlation/interpretation and proximity of well
ties. After explorers considered and evaluated the data and models rel-
evant to the risking of structure presence, they use Table 4 to transform
qualitative description of the data and models into the probability value
for the presence of the structure.
5.2.2. Risk table for probability of reservoir facies presence
The objective is to estimate the probability of reservoir facies being
present within the mapped segment. The explorer should first collect
relevant regional direct (outcrops, well cores/cuttings) and indirect
(geophysical) data for the play and interpret them in terms of reservoir
presence, age and facies as well as establish spatial relationships
between these parameters. The next step is building the reservoir
presence model. That model is usually the GDE or paleogeographic
map based on plate reconstructions which integrates, describes and
constrains the depositional environment and areal distribution of reser-
voir facies as derived from analysis of rock samples (from outcrops,
cores, cuttings), well logs, evaluation of seismic data (seismic velocities,
amplitudes, facies, seismo-stratigraphy, sequence stratigraphy) and
considerations from analogues (Grant et al., 1996; Fraser, 2010).
Probability of reservoir facies within the segment (Table 5) reflects the
type and accuracy of data available for the region and the geographic
 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476
Table 6 (continued)
distribution of data with respect to the evaluated segment. The impor-
tant factors to consider are distance to the nearest wells with data and
indications for potential changes in seismic facies towards the mapped
segment. Probability of reservoir facies presence also depends on the
geological model developed for reservoir facies. The risk table reflects
that reservoir presence is more difficult to predict in some depositional
environments (e.g., fractured basement) versus others (e.g., shallow ma-
rine “blanket” deposits) (CCOP, Coordinating Committee for Offshore
Prospecting in Asia, 2000).
5.2.3. Risk table for probability of reservoir deliverability
Explorers need to find not only reservoir facies but a reservoir which
freely flows hydrocarbons into the well, i.e. a reservoir that has high
enough permeability/porosity and contains petroleum with low enough
viscosity to ensure fluid mobility. The objective is therefore to estimate
the probability of reservoir deliverability (quality, effectiveness).
Explorers should evaluate all relevant wells in the play for reservoir
presence, facies, depth, porosity, permeability, hydrocarbon saturation,
flow rates as well as establish relationships between these parameters.
The data evaluation should answer the question if the wells adjacent
to the evaluated segment have reservoir deliverability data and if the
reservoir deliverability is good or poor. Good reservoir deliverability
means that the reservoir is sufficiently porous and permeable to flow
the contained fluids of given viscosity without the need of additional
stimulation. Poor reservoir deliverability means that the reservoir
467
cannot flow the contained fluid without additional stimulation
(fracking, steam injection etc.) due to very low porosity and permeabil-
ity or very high viscosity of the fluid. The amount of direct data and
proximity to the mapped segment are critical for the evaluation. It is re-
quired to investigate spatial (areal) and vertical (depth) distribution of
reservoir properties relevant to deliverability and determine the cut-off
values of porosity, permeability and viscosity for an effective reservoir.
It is further required to analyze the key factors controlling reservoir
deliverability in the play (diagenesis/cementation, shaliness, leaching,
fracturing, pressure conditions that may influence the preservation of
porosity and permeability, early petroleum migration, presence of
heavy and viscous oil due to early expulsion, biodegradation or water-
washing etc.).
Reservoir deliverability depends largely on maximum burial depth
and temperature/pressure, mineralogical make-up of the reservoir,
and reservoir fluid (Ajdukiwicz and Lander, 2010). Therefore, explorers
should build models describing and/or predicting temperature history
of the reservoir, sedimentary provenance and mineralogy of the reser-
voir facies, fluid type and quality. These models can be simple, concep-
tual and driven by basic principles and generalizations. Maximum burial
temperature is perhaps the main factor controlling reservoir deliver-
ability, and Table 6A and B allow explorers to use temperature data to
obtain probability values for reservoir deliverability for clastic and
carbonate reservoirs respectively. The temperature cut-off values are
broadly aligned with the results from global studies by Nadeau et al.
468 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476
Table 7
Risk table for estimating probability of seal being present. Acronyms used in the table: SSF — shale smear factor, SGR — shale gauge ratio (see text for details and references).
(2005) and Nadeau and Steen (2007), who demonstrated that the ma-
jority of oil and gas accumulations occur in the temperature interval
60–120 °C (so called “Golden Zone”). However, probability values can
be significantly more polarized when reservoir deliverability is assessed
using integrated datasets and numerical modeling with specialized
modeling software such as Touchstone (Tobin et al., 2010).
5.2.4. Risk table for probability of seal
The objective is to estimate the probability that the mapped seg-
ment trap has efficient sealing units. To estimate the probability
of seal presence, explorers need to evaluate the permeability of geo-
surface(s) enclosing and limiting the reservoir volume, i.e., depositional
surfaces, tectonic surfaces, and surfaces related to facies changes
(Smith, 1966; Milton and Bertram, 1992; Harper and Lundin, 1997).
Sealing effectiveness depends on the nature of these surfaces and the
sealing lithology. The top, bottom and lateral seals should be considered
equally important.
Explorers should start evaluation with the analysis of well and
seismic data that prove the presence of the top seal in the play.
Sealing effectiveness increases from thin to brittle shales, to salt
and anhydrite lithologies (Table 7). Then, all traps may be broken
down into two main groups based on the trapping mechanism
(Milton and Bertram, 1992; CCOP, 2000). The first group includes
one-seal traps with a simple sealing mechanism. These are traps
defined by a sealing top surface with a 4-way closure, such as anti-
clines, sedimentary build-ups (submarine fans, reefs, barrier
banks, etc.), and structures where the fault plane is part of the
sealing top surface (e.g., horst blocks). The second group includes
poly-seal traps, i.e., traps that require either lateral and/or bottom
seal mechanisms in addition to the top seal in order to seal petro-
leum. The risk increases as the number of required seals increases
and as the sealing surfaces become more heterogeneous (onlaps,
subcrops).
Færseth et al. (2007) presented the scheme for risking fault seals,
which is incorporated into the seal risk table (Table 7). In that scheme,
the probability of the seal presence is highest for the juxtaposition seal
(faults juxtapose reservoir sandstone against an impermeable lithology
across a single slip surface). The probability is lower for clay-shale smear
(fault rock is a smear from a thick clay-shale source layer), situations
when petroleum leak windows caused by sand–sand juxtaposition are
possible, and when there are more than one fault planes. The lowest
probability of seal presence is assigned to situations where clean reser-
voir sandstone is self-juxtaposed across a single slip zone at relatively
shallow (b2500 m) burial depth. Numerical values for shale gauge
ratio (SGR = Σ(Shale bed thickness)/Fault throw) of Yielding et al.
(1997) and shale smear factor (SSF = Fault throw / Shale layer thick-
ness) of Lindsay et al. (1993) also can be used as an input for estimation
of the probability of seal presence. Juxtaposition and seal diagrams
 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476 469

Table 8
Risk table for estimating probability of source rock (SR) presence and maturity. Acronyms used in the table: GDE — gross depositional environment, DHI — direct hydrocarbon indicator.
See Peters (1986) for discussion of source rock types I, II, and III and Pepper and Corvi (1995) for discussion of source rock classes (organofacies) A, B, C, D/E, and F.

(Allan, 1989; Knipe, 1997) provide additional means for the evaluation
of fault seal risks.
5.2.5. Risk table for probability of source rock presence and maturity
The objective is to estimate the probability of mature source rock(s) of
required quality being present in the fetch area of the mapped structure.
The source rock type and maturity should support the petroleum phase
(oil, gas, oil leg with a gas cap) used in the segment volumetric model.
The presence of effective source rock is first assessed based on the analysis
of available regional data in the basin such as discoveries, seeps, shows,
outcrops and oil/source rock correlations (Table 8). Valid DHIs
(Rudolph, 2001; Forrest, 2010) increase the probability of mature source
rock presence. In the absence of the direct data, a GDE map describing the
depositional environment of the source rock is necessary in order to pre-
dict its lateral extent, thickness, possible organic facies changes and the
quality (kerogen type, total organic carbon (TOC), hydrogen index (HI)).
In establishing the regionally present and mature source rock(s), it is
necessary to model the maturity of the fetch (drainage) area for the eval-
uated segment. Simplified conceptual models can be used to infer source
rock maturity using source rock organofacies (Pepper and Corvi, 1995)
and inferred temperature history. However, comprehensive numerical
modeling of the maturity using industry standard software (Zetaware,
Petromod, Temis etc.) will help to fully polarize the maturity risk
(Table 8).
5.2.6. Risk table for probability of migration
The objective is to estimate the probability of effective migration of
petroleum from source rock(s) to the mapped segment in the amount
sufficient at least for the technical (geological) success. Explorers should
understand the distribution of carrier beds within which the petroleum
may move into the evaluated segment. Regional sand and silt layers are
the most effective carrier beds. It should be assumed that faults cannot
serve as effective carriers unless proven otherwise. The role of faults
as migration conduits have been debated (Aydin, 2000), and it appears
that fault conductivity depends on the conditions under which faulting
occurred and the rock type. The conditions for effective and quantita-
tively significant migration of petroleum expelled from the source
rocks via faults are generally not favorable due to at least three reasons.
First, the surface area of direct contact between faults and the mature
source rock is commonly small. The majority of expelled petroleum
would migrate vertically through the overlying rocks driven by
the buoyancy (Schowalter, 1979) rather than horizontally towards
faults. Second, source rocks expel petroleum at significant burial depths
(~ 3–6 km). The hydraulic conductivity of fault zones at such depths
under high effective stress is relatively low because of increased me-
chanical compaction and confining pressure, which reduce porosity
and permeability in the fault zones and inhibit the formation of open
fractures (Zhang et al., 2011). Significant burial depths also introduce
widespread diagenesis, which promotes cementation/healing of open
fractures. Third, sections overlaying most source rocks are composed
470 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476
Table 9
Risk table for estimating probability of migration from mature kitchen. Acronym used in the table: DHI — direct hydrocarbon indicator.
largely of shales, siltstones and sandstones, and fractures in such rocks
commonly have zones of low-permeability clay-rich gouge (Yielding
et al., 1997) which are unlikely to serve as conduits. Measurements in-
dicate that deformed samples from fault zones have higher capillary
entry pressure and significantly (by up to three orders of magnitude)
lower permeability than undeformed counterparts outside the fault
zones (Hippler, 1997). All these factors make it unlikely that faults
can create zones of preferential fluid flow and transfer significant
amounts of petroleum from mature source rocks to the traps. Verti-
cal and lateral secondary migration through the overburden driven
by buoyancy (Schowalter, 1979) is likely to be a more efficient
mechanism of petroleum migration from source to trap. Therefore,
the risk tables for migration (Table 9) do not consider migration
within the fault planes. Faults may serve as conduits when they
form under low effective stress (e.g., shallow burial depths or high
overpressure environments) or/and when fractures form in mud-
stones with lower clay content, carbonates or basement rocks. Faults
may therefore play a role in re-migration of previously accumulated
petroleum.
Explorers should check migration pathways for the presence of
pools, shows and indications of thermogenic gas (e.g., using mudlogs
and isotubes). The presence of absence of valid DHIs (Rudolph, 2001;
Forrest, 2010) also can be used to polarize the risk of migration, but
only in the “should see” DHI environment, i.e., where modeling suggests
that oil and gas should be visible on seismic data. Migration modeling is
best done numerically (3D or map-based pseudo-3D, but not 2D) using
industry-standard software (Zetaware, Petromod, Temis etc.). Such
modeling will allow explorers to fully polarize the risks (Table 9).
However, if time and resources for numerical modeling are not
available, simplified basic principles can be used to estimate the proba-
bility of migration. Availability (and risk) of the petroleum charge
depends on the amount of petroleum expelled from the fetch area
(function of source rock area, thickness, organofacies, richness and ma-
turity), migration losses (function of the volume of rock through which
the petroleum migrated, porosity of that rock volume and residual
petroleum saturation, MacGregor and McKenzie, 1986; Mackenzie and
Quigley, 1988) and presence of migration barriers between the fetch
area and the segment.
The reservoir is most likely to be charged when it is located directly
above or below the mature source rock, i.e. in the situation of local
migration. Short migration distance is typical for many giant petroleum
accumulations, such as Ghawar in Saudi Arabia (Jurassic carbonate
reservoirs immediately above Jurassic carbonate source, Afifi, 2005),
East Texas in Texas (Upper Cretaceous clastic reservoirs immediately
below Upper Cretaceous shale source, Halbouty, 1991) and Prudhoe
Bay in Alaska (main Triassic/Permian reservoirs immediately below
Triassic shale source, Jamison et al., 1980). When source and reservoir
are separated by other rocks, vertical and lateral migration from source
to the segment results in migration loses and reduces (often to zero!)
the amount of petroleum available for charge. A recent global study of
petroleum basins clearly indicated that efficiency of petroleum systems
depends on the vertical and lateral distance between the source rocks
and the reservoirs (Biteau et al., 2010).
When source rocks and reservoir in the play are separated by a thick
section of mudstones, migration losses first occur on the way from the
source rock to the first regional carrier bed (Fig. 5). Petroleum migrates
 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476
Fig. 5. Conceptual petroleum migration model illustrating migration losses in the mudstones between the mature source rock and the first regional carrier bed and in the micro-to-small
accumulations and pores of the carrier bed. There are no vertical and horizontal scales in this figure, but it is apparent that longer vertical migration in the mudstones and longer lateral
migration within the carrier bed reduce the probability (increase the risk) of petroleum migration into the segment.
via a series of pulses in the form of stringers (Berg, 1975) along focused
and restricted pathways defined by the balance between driving (buoy-
ancy) and dissipative (capillary) forces (Carruthers, 2003). Migration
continues when all petroleum stringers are interconnected, for which
a continuous supply of petroleum is required (England et al., 1987;
Catalan et al., 1992). When no further petroleum is supplied into the mi-
gration pathways, migration ceases and some petroleum is left in the
pore space. The above principles are well-established for secondary mi-
gration within sandstone/siltstone carrier beds, both theoretically and
in laboratory experiments (see review in Carruthers, 2003). However,
the same principles should apply to secondary migration within the
mudstones. Moreover, migration losses in the mudstones may be signif-
icantly larger than in sandstone/siltstone carrier beds because of higher
capillary entry pressure and larger number of migration dead-ends than
in sandstones/siltstones. The envisioned process of migration from the
source rock through mudstones is depicted in Fig. 5. The amount of pe-
troleum that can migrate from the source rock into the first carrier bed
depends therefore on the amount of expelled petroleum and migration
losses. The source rock may be so lean or have such a low maturity that
all petroleum expelled will be lost within the first several hundred me-
ters above the source rock. For a given amount of expelled petroleum,
mudstone characteristics define the migration losses (Mackenzie and
Quigley, 1988) and how far petroleum may migrate. These characteris-
tics include volume of the mudstone rock through which petroleum mi-
grates, porosity, residual saturation, critical threshold pressure
controlling the column height of stringers and migration (Carruthers,
2003). Migration losses during vertical migration in mudstones may
be significant over a relatively short migration distance. Even for a
world-class mature source rock, more than 50% of expelled petroleum
can be lost in the first kilometer of mudstones above the source rock
where numerous migration pathways originating in the source rock co-
alesce with each other in a dense network of interconnected petroleum-
filled pores. As the thickness and volume of mudstones increase, migra-
tion occurs only along selective focused pathways (Fig. 5), migration
losses increase and the amount of petroleum that can reach the sand-
stone/siltstone carrier beds decreases. Slujik and Nederlof (1984) stud-
ied a worldwide dataset and found that ~97% of petroleum pools have
vertical migration distance less than 3 km and ~70% less than 1 km. Ver-
tical migration distance from source rocks through the mudstones to
the first carrier bed is one of the easiest parameters to estimate, and it
is incorporated into the risk table for migration (Table 9).
471
After petroleum reaches the silt/sand carrier beds, it migrates mostly
laterally driven by buoyancy in the direction of lower hydraulic head.
Migration losses occur in the pore space of carrier beds as well as in
the non-commercial accumulations in micro-to-small closures (often
below seismic resolution) (Fig. 5). In laboratory studies, migration
losses in sandstone carrier beds were found to be insignificant largely
because the residual saturation in pores is relatively small (bulk average
saturation 8–13%) and oil migrates through a relatively small volume
of rock located mostly below the seal (Thomas and Clouse, 1995).
Long-distance lateral migration (up to several hundred kilometers) is
documented in several plays (for example, Late Cretaceous reservoirs
in the Western Canada sedimentary basin, Creaney and Allan, 1990).
The longer the migration distance, the larger number of pores with
residual saturation and micro-to-small accumulations would form and
more significant migration losses would occur. Therefore, the probabil-
ity of effective migration decreases as the migration distance increases.
Slujik and Nederlof (1984) found that ~ 90% of petroleum pools have
lateral migration distance of less than 50 km.
Migration shadows and lateral or vertical barriers on the migration
pathways (large structures, shale or salt domes, intrusions, salt or volcanic
layers, sealing faults etc.) may seriously reduce petroleum migration into
the mapped structure. Trap (structure and seal) must form prior to petro-
leum migration into the trap, and hence timing of such events needs to be
established. If visual analysis of seismic data does not provide enough
information to determine the timing of trap formation, structural restora-
tion (back-stripping) is a useful approach (e.g., Mount et al., 2010).
6. Benefits of the implementation of risk tables in an exploration
company
Implementing risk tables will bring significant benefits to a petro-
leum exploration company. Many of these have been highlighted by
Goldstein (1994) in the discussion of his algorithm (a checklist) for
the geological PoS assessment. Still, implementation of risk tables in a
company may not be an obvious and straightforward task. In conversa-
tions with the author, several explorers put forward certain arguments
against the risk tables, which are addressed in this section.
In contrast to intermediate tools such as the scale of subjective
expression of confidence and chance adequacy matrix (Rose, 2001a),
the risk tables contain geological information. They establish a direct
linkage between explorers' evaluation of subsurface situation and
472 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476
probabilities of geological risk factors. The selected probabilities for each
geological risk factor are precise, which reduces the dispersion of the as-
sessment of the total PoS.
The risk tables ensure a systematic, repeatable, auditable procedure
of risk assessment, in which no geological risk factors have been skipped
or forgotten and no relevant criteria have been neglected. They correct
for the dominant/persistent expertise in the team. The risk tables force
explorers to go through the evaluation process dispassionately and
systematically and answer specific questions most relevant to the
assessment of the geological risks. This enhances the overall quality
of the geological assessments of the segment by the proper use of or
deliberate search for relevant subsurface information. The risk tables
serve as a checklist, making sure that:
1) no risk factor is skipped or overlooked,
2) knowledge and expertise of explorers is applied consistently well,
3) explorers are not carried away in the heat and enthusiasm of the
moment driven by human emotions and inadequacies;
4) the critical risk factors are quickly identified, providing an opportu-
nity to focus on them early on.
Positive impact of checklists has been documented in other indus-
tries such as aviation, health care and finances (Gawande, 2011), and I
believe that exploration will gain from implementation of checklists in
geological risking. By capturing all the information available, explorers
ensure that the probability assessment is not “wrong” (Hogarth, 1975).
The principles on which the risk tables are built should be obvious
to all stakeholders (assessors, reviewers, management, investors). The
process and the selection of probabilities from the risk tables are
transparent and the results of geological PoS assessment are auditable.
The risk tables significantly reduce the subjectivity of geological PoS as-
sessment. The psychological subjectivity that originates from emotions,
believes, the gut feel and all the heuristics, cognitive and motivational
biases and logical fallacies that affect explorers is now largely removed
from the announcement of probability values. The explorers that use
risk tables have less opportunity to hide or downplay certain geological
risks, even when they have vested interest and really want to drill a
prospect for some reason (curiosity, bonus etc.). When using the risk
tables, the focus of the risk discussion is no longer on the probability
values, but on geology. During the formal exploration technical reviews
(risk discussions), peers and managers should review the interpreta-
tions, validate the techniques that geoscientists use (e.g., evolutionary
sketches, Bond et al., 2012), check the calibrations, and make sure that
the inputs used in risk tables for PoS assessment are justified. When
data and models have been discussed and agreed, the probability values
are just extracted from the risk tables. The remaining subjectivity now
associates with data collection and model building (i.e., unavoidable
geological subjectivity) rather than with the announcement of probabil-
ities. In addition, there is subjectivity in the assignment of the specific
probability values in each cell of each risk table. While this assignment
is done in a systematic way as explained in Section 5.2, the subjectivity
in this assignment is unavoidable. Still, the risk tables remove the psy-
chology from the geological PoS assessment, while leaving geology in it.
By removing biases and ensuring a systematic assessment process, the
risk tables should boost internal consistency between risk assessments
performed by different exploration teams. This is especially important
for medium-to-large companies working on several basins and multiple
plays in different operating units/offices. When all explorers in such com-
panies use the same risk tables in risking sessions, the managers can be
more confident that the segment evaluated in one play by one team really
has a lower (or higher) total geological PoS than the segment in another
play evaluated by a different team. This will enable an efficient exploration
portfolio management at company level. However, to achieve consistency
across a company, the risk tables must be used completely, systematically
and routinely in a highly disciplined manner. Partial adherence would
lead to an inconsistent exploration portfolio that would fail to deliver on
promise in the long-term.
Some explorers may have an attitude that the risk tables are
mechanical and rigid, painstaking and not much fun. The hero explorer
(wildcatter, oil-finder, visionary) from the “Prospector Myth” (Rose and
Citron, 2000) does not use procedures and protocols — he/she dares, in-
novates, improvises, struggles and finally succeeds. Many professionals
are extremely proud of their skills, resist the demystification of exper-
tise (Kahneman, 2011) and may be offended by the notion that they
can be replaced by an algorithm. However, the risk tables are not
intended to replace expertise with an algorithm, but rather to provide
a logical and systematic approach to risking. Detailed and focused sub-
surface mapping and sequence interpretations, innovative play and seg-
ment concepts, careful validation of DHIs, sophisticated basin models
etc. depend on the knowledge, experience, expertise, talent and genius
of explorers. These are inputs for the risk tables — the probability as-
sessment cannot be done till the relevant subsurface data are collected
and interpreted and models are built, calibrated and interrogated. And
that is where explorers should have creative freedom and be daring,
innovative, optimistic, enthusiastic and visionary — but not in the
obtaining probability values, which is better left to the algorithm in
risk tables. The key to long-term exploration success is to develop and
harvest the exploration genius of individuals and teams while adhering
to a systematic and disciplined process of geological PoS assessment,
volumetric assessment and portfolio management.
When using the risk tables, the most important practical problem
the explorers face is obtaining input data. If the risk tables do not
work, i.e. if they fail to discriminate the low-risk segments from the
high-risk segments, it is not the fault of the approach, but the fault
of the inputs. The “garbage in, garbage out” principle still applies.
Explorers may misinterpret the data, fail to recognize the available
clues, bias their judgment of the geological situation. They may exclude
important stakeholders (other explorers experienced in the play or
specialists) in the preparation of the inputs and as a result fail to compile
the comprehensive dataset and fail to build the best possible model
accounting for all data and uncertainties. Peer-assists and formal explo-
ration technical reviews serve to assure that does not happen in the
company.
Some explorers may feel that the risk tables are restrictive and do
not allow description of all nuances of the local geology. They are cor-
rect. Subsurface is extremely complex, each segment is unique, and no
algorithm is going to fully describe subsurface variability. Risk tables
capture only the most elementary and fundamental principles of our
current understanding of how petroleum pools form. They are designed
to not be perfect, but rather to provide fast and frugal (Gigerenzer and
Todd, 1999) geological heuristics that enable explorers to make good
geological PoS assessments despite limited knowledge, time, data etc.
As such, the risk tables should be used as guidelines for risk assessment,
not as a bible. If explorers justify with data and models that the segment
has a probability value somewhere between two cells in the risk tables,
they should use such intermediate probability value. If there are good
arguments that certain enquiries are not applicable to the basin of
interest, then the enquiries should be modified. The key is to discuss,
justify, agree with the review team and document the thinking behind
proposed deviations from the risk tables. Still, the initial experience in
Sasol showed that geological PoS for most segments from a variety of
conventional oil and gas plays can be readily estimated using the
current version of the risk tables. Obviously, all attempts by explorers
to change the numbers just because they have a good feel about a
certain segment but cannot place that “feel” within the evaluation
framework set by the tables must be firmly stopped.
The risk tables incorporate the current understanding of most funda-
mental and accepted principles of how petroleum accumulations form.
They help explorers to get the basics right, which is absolutely central
to great exploration performance. The amount and complexity of
multidisciplinary data that an explorer needs to gather and integrate
to thoroughly evaluate a segment is enormous. It is very easy to get
lost in the complexity and uncertainty of data and interpretations,
 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476 473

especially when the explorer is not an expert in all subsurface subjects

(and most of us are not!) or a particular expertise is lacking in a small
exploration team/company.
In spite of focusing on the basics and being practical, the risk tables
are quite comprehensive and describe a very large number of subsur-
face situations. In the process of risk assessment, explorers go through
six tables, make 75 qualitative inquiries, choose from 223 probability
values, and calculate the total geological PoS in one of the ~1.7 billion
possible ways. Still, the risk tables are a simple tool to use. After
exploration teams understand and accept the principles behind the
risk tables, they find that it is both easier and faster to estimate the
probabilities using the risk tables than following the currently more
common in industry process of group discussion without such guide-
lines. Experience in Sasol shows that the total PoS for a segment
can be obtained in group risking sessions in around 30 minutes after
having all the input information compiled. The risking sessions are no
longer heated emotional debates about the probability values, but are
geology-based conversations about the data and models available —
the relevant probability values are then just picked from the risk tables.
In companies that implement risk tables, explorers would see risk
assessment as a simple, clear job which they know how to execute to
a very high standard. Simplicity leads to great and consistent execution
Fig. 6. Comparison of total geological PoS values estimated using industry traditional
(Hartley, 2012), which is one of the keys to long-term exploration
assessment approaches and using the risk tables.
success.
The estimated total geological PoS value reflects just the current ex-
plorers' view of the geological risks for the segment. The geological risk The risk tables can help to find a common ground in the PoS assess-
cannot be reduced via appropriate and skilful actions, it can only be ment, and turn the discussion from opinions and emotions back to
assessed and polarized (discriminated, made extreme). The PoS value geology.
for a segment can decrease or increase as the amount and quality of
the data increase, evaluation continues and perception of the subsurface 7. Validation of risk tables
evolves. Explorers using the risk tables obtain a clear idea of what needs
to be done to further polarize the probabilities. This is one of the most The best measures of the success of the risking scheme are that
desirable attributes of risk assessment (Kaufman, 1996). For example,
1) success of the drilling program corresponds to the average PoS
building a 3D numerical basin model would generally move probability
values for the evaluated segments/prospects (Alexander and Lohr,
of migration closer to the more definitive values around 1.0 or 0.05
1998); and
(unless results from the model are inconsistent with the data) whereas
2) segments/prospects with low PoS mostly turn out to be dry and
less accurate conceptual modeling based on the distance of lateral and
segments/prospects with high PoS mostly turn out to be discoveries
vertical migration provides probabilities further away from those ex-
(McMaster, 1997), over a sufficiently large drilling program (30+
tremes (Table 9). Such polarization is required to mature the segment,
wells).
to turn a lead into a prospect and a prospect into a drill-ready prospect.
A good prospect inventory should distinguish between the drill-ready At the time of writing the risk tables have not been tested and tried
prospects for which PoS values are fully polarized and prospects for extensively enough to demonstrate that the long-term exploration
which PoS values can still change through more detailed subsurface performance is in line with the predicted performance. Instead, Fig. 6
evaluation. shows the comparison of the total geological PoS values for 57 oil and
In a company that implements risk tables, explorers would build gas segments, estimated independently by the author using the risk ta-
credibility and gain management's confidence by demonstrating that bles and by five other companies. These companies used their internal
their risk assessment is transparent, consistent and rigorous. Risk tables risk assessment methodologies, details of which are not known to the
turn the subsurface data (all those seismic wiggles and hydrogen author. The segments were located in six different emerging and mature
indices) into the information (PoS values) against which the strategic offshore basins with proven petroleum systems along the passive mar-
decisions can be discussed. Managers understand where the PoS values gins of Africa and Australia. This comparison suggests that geological
come from and do not have to rely so much on their trusted expert PoS values estimated using the risk tables are broadly similar to those
advisers, who are, as we have seen above, are fallible in most explora- estimated using traditional industry methods. It is not known from
tion settings. Because risking becomes a transparent, consistent and this comparison if geological PoS values from risk tables are better
reliable process that works regardless of who performs it, managers than those from traditional methods, but they are all internally consis-
have flexibility about which explorers do the risking. After gaining tent, which is one of the main objectives of the PoS assessment. It is
faith in the risking process, managers would start acting purely based quite possible that the proposed algorithm would not deliver the pre-
on rational quantitative assessments rather than delusional optimism dicted average success rate for many wells. Experience gathered during
(Lovallo and Kahneman, 2003), habit, instinct, intuition or imitation of an extensive global drilling program can, however, be used to calibrate
others (Simpson et al., 2000). By comparing the consistently derived and adjust the risk tables and improve their predictive ability.
geological PoS values for different prospects, managers would make
better choices of drill locations and ultimately gain sustainable compet- 8. Conclusions
itive advantage in the exploration game.
The risk tables may be valuable in farm-in and farm-out discus- Explorers evaluating a subsurface segment have a daunting task. The
sions. Geological PoS values generated by different companies can object of their evaluation – a pool of petroleum – may not exist at all, or,
be quite different. Sellers usually see their prospects as less risky if it does exist, is uncertain. They use methods of geology, which is not
than buyers, in line with the endowment effect discussed above. an exact, but an interpretive and historical science (Frodeman, 1995).
474 A.V. Milkov / Earth-Science Reviews 150 (2015) 453–476
Fig. 7. Geological (A) and commercial (economic, B) success ratio as a function of the
number of drilled exploration and appraisal wells for top 34 oil and gas exploration
companies over the 10-year period (2002–2011). Companies drilling the largest number
of the wells approach industry-average success ratios.
The data are from WoodMackenzie (2012) (data for one company are excluded because of
unusually large number of drilled wells).
Explorers use subjective probabilities in the search for oil and gas, and
subconscious biases and heuristics play games with the minds of
explorers without them even noticing it. If all that was not enough,
business context creates various constraints (time, funds, availability
and quality of data and tools etc.) and stimulates conscious (motivational)
and group biases. It is no wonder that most exploration projects fail!
However, as an industry, we are doing better than ever: the exploration
technical success rate increased from around 20% in 1950s (Grayson,
1960) to around 35% at present (WoodMackenzie, 2012). Explorers
constantly enhance and expand their toolkit to find oil and gas, applying
technologies mostly from physics, mathematics and chemistry. Further
improvements in exploration performance can be expected if we reduce
the psychological weaknesses and inadequacies that impact explorers'
assessment of geological risks.
Traditionally and commonly in industry, explorers estimate geolog-
ical PoS using their expert opinions. However, most exploration is done
in hard-to-predict low-validity environments, where experts are prone
to overconfidence and inconsistent judgments. Inconsistent assessment
of geological PoS within an exploration company leads to a biased
prospect inventory, sub-optimal drilling decisions and poor long-term
exploration performance. The limitations of the subjective probability
often go unrecognized by many who employ it and make decisions
based on its use (Megill, 1984). Algorithms are an alternative way to
subjective judgments, and their superiority in low-validity environ-
ments has been proven in many situations and industries (Gawande,
2011; Kahneman, 2011). Risk tables discussed in this paper represent
such an algorithm for estimation of geological PoS. They are designed
to cover the basic and most important data and models that explorers
should analyze to estimate the probability of six geological risk factors
(structure, reservoir facies presence, reservoir deliverability, seal,
mature source rocks and migration). The risk tables emphasize the
quality of the risk assessment process, make it more transparent and
more auditable. They force explorers to systematically collect and
evaluate data and models relevant to risk factors. Probability values
obtained from the risk tables are based on specific geological informa-
tion and are precise (although the subjectivity still exists in how the
specific values are assigned to cells in risk tables). Segments with
varying subsurface knowledge from new ventures and frontier basins to
company “heartlands” and infrastructure-led projects can be evaluated
in a consistent manner. While leading to standardization, the risk tables
allow enough flexibility in the PoS assessment. Most importantly,
the risk tables allow the exploration company to outmaneuver human
weaknesses of explorers. They remove psychology and influence of per-
sonalities from the definition of probability values and restrict subjectivity
to the gathering and interpretation of data and to the construction,
calibration and analysis of subsurface models. The risk tables are thus
compatible with explorers' abilities to evaluate subsurface but counteract
their deficiencies in expert probability judgment.
Implementation of the risk tables alone obviously is not going to pro-
pel the company into the position of industry-best explorer. There are
more ingredients in the success recipe. Exploration companies with
geological and commercial success ratios above industry average tend
to focus on a small number of the right plays (e.g. emerging oil plays
in Africa in 2000–2012, Petroleum Review, 2012). Exploration compa-
nies with success ratio below industry average tend to focus on a
small number of the wrong plays (e.g., mature gas plays in Australia
and South-East Asia in 2000–2012). Drilling a large number of wells
all around the world reduces company's chances to be very successful
or very unsuccessful. The more wells the company drills, the more likely
it is to achieve the industry average success ratio (Fig. 7). This fact is in
line with the law of small numbers and De Moivre's equation (Wainer,
2009), and confirms that luck plays an important role in exploration
(Mauboussin, 2012). However, explorers enable exploration success
by skillfully choosing the right plays and by steering the company
away from drilling poor prospects. Risk tables should be used close to
the end of an exploration process (Fig. 1) and they can help explorers
to put high PoS values on the really good segments and low PoS values
on the poor ones. They dramatically improve the consistency of PoS
assessment within an exploration company and enable managers to
make the best possible investment decisions within the prospect inven-
tory the company has at any given moment. Furthermore, the risk tables
help to identify the biases or gaps in the exploration portfolio and direct
the new venture work to fill such gaps.
Acknowledgments
I acknowledge all Sasol (D. Garrad, J. Kusiak, R. Paterson) and industry
(A. Lewis, N. Tkacheva, J. Moffatt, M. Scherer) colleagues who provided
ideas and feedback for this article through many stimulating discussions.
I would like to thank the reviewers (Dr. Steve Bergman, Dr. Andrew Curtis
and Dr. Martin Cassidy) for their valuable suggestions. I am thankful to
Sasol for the permission to publish.
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