Optimal drilling strategies for oil exploration with a generalized action space

Abstract EN

In this paper, the oil exploration model of Benkherouf and Bather is generalized as follows.

We assume that an oil company has a single area in which to drill and that this area contains an unknown number of oilfields represented by a prior n.

The discovery of oilfields is governed by a probability law, which is a function of the number of undiscovered sources.

Drilling a well costs c and the value of a field is fixed at v.

Rewards are additive and discounted by a factor 0, O<0< 1.

On the basis of the history of successful and unsuccessful drillings, the decision maker is faced with a number of options namely: retire with no reward or choose a number k, 1

We prove that the optimal value of the return is greater for n than n\ where n is greater than n’ in monotone likelihood ratio.

We also find the optimal drilling strategies in some special cases.