Exploration geophysicists and geologists are familiar with the process of risk assessment and economic evaluation of oil and gas prospects. Many asset teams are required to conduct individual portfolio management exercises when competing for company resources.

In the broader world of finance and economics, real options theory has developed into a sophisticated tool for evaluating and managing large investment portfolios of mixed assets with different risk characteristics. Although examples of option-based analysis have been documented in the oil and gas industry, many applications only address downstream operations. However, the influence and application of real options analysis throughout the entire E&P...

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