(A)Use @RISK Distributions to Generate the Three Random Variables and Derive

question 21

Essay

(A)Use @RISK distributions to generate the three random variables and derive a distribution for the amount of reserves.What is the amount we can expect to recover from this field?
(B)The production output is a product of three very different types of input distributions.What does the output distribution look like? What are the implications of the shape of this distribution?
(C)What is the standard deviation of the recoverable reserves? What are the 5th and 95th percentiles of this distribution? What does this imply about the uncertainty in estimating the amount of recoverable reserves?
(D)Suppose you think oil price is normally distributed with a mean of $65 per barrel and a standard deviation of $10.How much revenue do you expect the field produce (ignore discounting)?
(E)Finally,your engineer is uncertain about costs to drill wells to develop the field,but she thinks the most likely cost will be $1.7Bn,although it could be as much as $3Bn or as little as $1Bn.What is your expected profit from the field?
(F)What is the chance that you will loose money? Is this a risky venture?

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Definitions:

Id

In Freudian psychoanalytic theory, the part of the psyche that is the source of instinctual impulses and demands for immediate satisfaction of primitive needs.

Pleasure Principle

A psychoanalytic concept that describes the instinctual seeking of pleasure and avoidance of pain in order to satisfy biological and psychological needs.

Personality

A combination of features that delineates an individual's unique character.

Psychoanalytic Theory

A body of theories developed by Sigmund Freud that emphasizes the role of unconscious processes and experiences in early childhood on later personality and behavior.