OVER-OPTIMISM OF OIL AND GAS PROPERTY EVALUATION: A REVIEW
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Abstract
Oil & gas exploration and production is associated with a lot of uncertainties and risks but it is surprising that even with the potential negative outcomes, the value of petroleum assets are usually overly optimistic and over-confident. This over-confidence usually arises during evaluation of the assets. It has been deduced from intense research that most of the over-optimism results from either human bias, error from evaluation models or both.In this paper, the possible causes of the over-optimism in oil property evaluation and the possible effects on both technical and economic decisions are highlighted and discussed. Improper evaluation of oil and gas assets in the past has made some oil and gas companies to write down their assets which has attracted legal actions and fines.Thus, this research work is of great importance to oil and gas companies as it will help prevent over-optimism in evaluating their assets and also stresses the need to employ standard tools and procedures while making economic valuation.
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