Case Name :      Pinkley’s Prospect

Authors :           Gary Clendenen, John O’Neill, Jason Clendenen

Source :             North American Case Research Association (NACRA)

Case ID :            NA0154

Discipline :        Finance

Case Length :    15 pages

Solution sample availability : YES

Plagiarism : NO (100% Original work)

A small oil and gas operator must make a decision about whether to drill in a particular location for oil. After significant geological research, the operator has narrowed the possible outcomes to four possible scenarios, one of which was a dry hole (no oil), and provided his best estimate of their respective likelihoods. Evaluating the prospect requires making long term estimates of both the rate of decline in oil production from the prospective formation and the likely price of crude oil over the coming two to three decades. The second of these was required since drilling expenses occur in the first year or two, but revenues from the wells was generated as oil was produced over decades. To help students frame the issue of future oil prices, the cases discussed issues related to the future global supply of, and demand for, oil.