CONDITION I

C. With Prior Test

70%

70 MM

A. Drilling
30%
63,4 MM

D. Without Prior
Test

Expected
Commercial
Area

48 MM

B. Selling

70%

E.With Prior Test

49 MM

35,65 MM

30%

F. Without Prior
Test
4,5 MM

NPV Drilling > NPV Selling,

63,4 MM
> 35,65 MM

CHOOSE : DRILLING

CONDITION II

C. With Prior Test

70%

70 MM

A. Drilling
30%
63,4 MM

D. Without Prior
Test

Expected
Commercial
Area

48 MM

B. Selling

70%

E.With Prior Test

49 MM

35,65
79,3 MM
MM

30%

F. Without Prior
Test
4,5
45 MM
MM

NPV Selling > NPV Drilling,

79,3 MM
> 63,4 MM

CHOOSE : SELLING

80%

G.Success

h Prior Test
20%

0 MM

Without Prior
Test
48 MM

55%

H. Fail

I.Success

45%
J. Fail

ith Prior Test

49 MM

80%

K. Success

20%
L. Fail

Without Prior
Test

55%

M.Sucess

4,5 MM
45%
N. Fail

80%

G.Success

h Prior Test
20%

0 MM

Without Prior
Test
48 MM

55%

H. Fail

I.Success

45%
J. Fail

ith Prior Test

49 MM

80%

K. Success

20%
L. Fail

Without Prior
Test

100%
55%

M.Sucess

4,5
45 MM
MM
45%
0%
N. Fail

cess

ail

cess

Fail

100 MM

Calculation :

NPV Node C :

DRILLING WITH PRIOR TEST

= (0,8 x 100 MM) + (0,2 x (-50 MM))
=70 MM

NPV Node D :

DRILLING WITHOUT PRIOR TEST

= (0,55 x 120 MM) + (0,45 x (-40 MM
=48 MM

NPV Node E :

SELLING WITH PRIOR TEST

= (0,8 x 65 MM) + (0,2 x (-15 MM))
=49 MM

NPV Node E :

SELLING WITHOUT PRIOR TEST

= (0,55 x 45 MM) + (0,45 x (-45 MM))
=4,5 MM

-50 MM

120 MM

-40 MM

65 MM

-15 MM

45 MM
Note : At Condition I,
-45 MM

cess

ail

cess

Fail

100 MM

Calculation :

NPV Node C :

DRILLING WITH PRIOR TEST

= (0,8 x 100 MM) + (0,2 x (-50 MM))
=70 MM

NPV Node D :

DRILLING WITHOUT PRIOR TEST

= (0,55 x 120 MM) + (0,45 x (-40 MM
=48 MM

NPV Node E :

SELLING WITH PRIOR TEST

= (0,8 x 65 MM) + (0,2 x (-15 MM))
=49 MM

NPV Node E :

SELLING WITHOUT PRIOR TEST

= (1 x 45 MM) + (0 x (-45 MM))
=45 MM

-50 MM

120 MM

-40 MM

65 MM

-15 MM

45 MM
Note : At Condition I,
-45 MM

RILLING WITH PRIOR TEST

= (0,8 x 100 MM) + (0,2 x (-50 MM))

RILLING WITHOUT PRIOR TEST

= (0,55 x 120 MM) + (0,45 x (-40 MM))

Then,

NPV Node A :

DRILLING
= (0,7 x 70 MM) + (0,3 x 48 MM)
=63,4 MM

ELLING WITH PRIOR TEST

= (0,8 x 65 MM) + (0,2 x (-15 MM))

ELLING WITHOUT PRIOR TEST

= (0,55 x 45 MM) + (0,45 x (-45 MM))

Then,

NPV Node B :

SELLING
= (0,7 x 49 MM) + (0,3 x 4,5 MM)
=35,65 MM

ote : At Condition I,
Here I assumed that the value of NPV Selling Without Prior Test
NPV Without Prior Test
Success
Fail
45 MM
-45 MM

RILLING WITH PRIOR TEST

= (0,8 x 100 MM) + (0,2 x (-50 MM))

RILLING WITHOUT PRIOR TEST

= (0,55 x 120 MM) + (0,45 x (-40 MM))

Then,

NPV Node A :

DRILLING
= (0,7 x 70 MM) + (0,3 x 48 MM)
=63,4 MM

ELLING WITH PRIOR TEST

= (0,8 x 65 MM) + (0,2 x (-15 MM))

ELLING WITHOUT PRIOR TEST

= (1 x 45 MM) + (0 x (-45 MM))

Then,

NPV Node B :

SELLING
= (0,7 x 49 MM) + (0,3 x 4,5 MM)
=79,3 MM

ote : At Condition I,
Here I assumed that the value of NPV Selling Without Prior Test & the probability
NPV Without Prior Test
Success
Fail
45 MM
-45 MM
Probability Of Success
Success
100%

Fail
0%

Because, NPV Drilling

Program is higher than NPV
Selling, then we choose
Drilling Program.

Because, NPV Selling is

higher than NPV Drilling
Program, then we choose to
sale.