Decision Making in the Oil and Gas Industry: From Blissful Ignorance to Uncertainty-Induced Confusion

Abstract

Abstract The battle against deterministic forecasts and financial valuations in the oil and gas industry appears to have been won, as evidenced by the plethora of papers, conference sessions, and forums focused on uncertainty quantification or profit prediction. Yet, decision makers are still not sure what they should do. Rather than basing important decisions on a single number, they now find themselves buried under a mountain of probability distributions. Uncertainty quantification seems to have confused more than it has enlightened. In this paper, we present the findings of a survey of oil and gas professionals that addressed the following two questions: To what degree has uncertainty quantification improved in the oil and gas industry over the last five years? Has this improvement translated into improved decision making? Uncertainty quantification is not an end unto itself; removing or even reducing uncertainty is not the goal. Rather, the objective is to make a good decision, which in many cases requires the assessment of the relevant uncertainties. The oil and gas industry seems to have lost sight of this goal in its good-faith effort to provide decision makers with a richer understanding of the possible outcomes flowing from major decisions. The industry implicitly believes that uncertainty is reduced simply by modeling it and that making good decisions merely requires more information. To counter this, we present a decision-focused uncertainty quantification framework, which we hope, in combination with our survey results, will aid in the innovation of better decision-making tools and methodologies.