A major problem facing exploration management is the rigorous assessment of risk before a drilling program is initiated. In order to judge the merits of a group of prospects it is necessary, either formally or informally, to estimate likely reserve volumes that might be discovered, together with the probability that the reserves are actually present. From this, future revenues that the prospects may generate can be compared with costs to develop the reserves and the decision whether or not to drill can be based on economic criteria.

The methodology of prospect appraisal described here involves a formal analysis of reserves and risk, based on Bayesian principles. Data needed for the analyses are routinely available, and the procedures described are amenable to hand calculations. Results of analyses of 119 prospects are included to demonstrate the predictive capability of the model presented.