Forecasting Parallels of Resources and Investment Industries

There are significant, and increasingly recognised, parallels between the risk management techniques of the resources industry (particularly the petroleum exploration sector) and the financial industry. Both industries face the same challenges - forecasting the size of project future returns and associated probability.

It comes down to determining the type of distribution controlling the possible results, thereby extracting the probability of achieving at least a given return.

Both industries have interesting simularities, and differences, in how they go about the forecasting. Over the last 10 years, a number of authors have recognised that combining the better elements of each industry can produce a more reliable result.

One of the best applications of financial concepts [the ‘Efficient Frontier’] to petroleum exploration is discussed in Ball & Savage. Click on ‘Publications’ in left-hand-side tool bar, then find PDF article ‘Notes on Exploration and Production Portfolio Optimization,’ from Sam L. Savage, Ball & Savage Associates, 1999.