Managing Uncertainty: the difference between Investing & Gambling
The last week of September had me doing three industry presentations that all shared a common theme, “uncertainty”. Today’s blog will focus on the presentation Uncertainty Considerations for Development Planning Type Curves. Uncertainty extends through the reservoir, drilling, completions & operations and is compounded by commodity prices. What is certain is that shareholders have little tolerance for production shortfalls. The following image show the reduction in stock price of 8 companies in 2017 that occurred following the announcement of production shortfalls. Figure 1: Stock price reactions to production shortfalls I could have easily showed you several companies who hit their production targets and maintained or increased their stock price. While it’s not important to know who these companies are, it is important to know that there are best practices that can help protect you from targeting statistically unachievable results and falling short of your production promises. Wait a minute, isn’t that called “sandbagging”? “Sandbag is a tactic used to hide or limit expectations… in order to produce greater than anticipated results” according to Investopedia. A disciplined approach to characterizing, understanding and managing uncertainty is a strategy to mitigate your downside and is consistent with the practices of “investing”. “Gambling” typically...