Technology application focuses upon acquiring knowledge to reduce the uncertainty surrounding large capital investments in exploration and production. In practice, the industry makes incremental investments that exploit the increasing knowledge base for the asset, such as an exploration lease or a newly discovered field. Reservoir characterization reduces the uncertainty surrounding the development of a field by gathering and interpreting data from many interrogatory tools. The acquistion of that knowledge cannot be valued readily by traditional discounted cash flow (DCF) analysis and this has caused considerable problems for both the suppliers and users of technology. A new financial tool called Real options analysis is evolving which estimates the value of acquiring a knowledge base or developing a new technology. The value recognized by Real options reflects management's flexibility to reduce the uncertainties inherent in discovering and producing hydrocarbons.
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