Lognormal field size distributions as a consequence of economic truncation

Abstract

The assumption of lognormal (parent) field size distributions has for a long time been applied to resource appraisal and evaluation of exploration strategy by the petroleum industry. However, frequency distributions estimated with observed data and used to justify this hypotheses are conditional. Examination of various observed field size distributions across basins and over time shows that such distributions should be regarded as the end result of an economic filtering process. Commercial discoveries depend on oil and gas prices and field development costs. Some new fields are eliminated due to location, depths, or water depths. This filtering process is called economic truncation. Economic truncation may occur when predictions of a discovery process are passed through an economic appraisal model. We demonstrate that (1) economic resource appraisals, (2) forecasts of levels of petroleum industry activity, and (3) expected benefits of developing and implementing cost reducing technology are sensitive to assumptions made about the nature of that portion of (parent) field size distribution subject to economic truncation. ?? 1985 Plenum Publishing Corporation.