A Binomial Approach to Selecting Optimum Working Interest: Corporate Risk and Corporate Confidence II. Uncertain Assessments and Resolution of Worth

This second paper in the series explores the influence of uncertain values for costs, success probability and net present value on the assessment of optimum working interest (OWI) and corporate confidence probability in an exploration project based on the binomial definition of working interest in relation to corporate confidence. It is shown that one obtains a distribution range of optimum working interest together with the relative contributions of each of the uncertain parameters to the range of OWI and also on the corporate confidence. In this way one can determine which of the uncertain parameters to attempt to define better in order to minimize the range of uncertainty on either the optimum working interest or the corporate confidence should one choose to do so. The decision of whether to pursue such a narrowing of the uncertainty ranges depends on whether a corporation is prepared to accept the range of outcomes as not worthy of such improvement or whether the corporation thinks the range of uncertainty of, say, the optimum working interest is so large that a concerted effort should be made to improve uncertain parameter ranges. Numerical illustrations are give to show how the procedure works in practise.