Abstract
Due to the remoteness and broadness of underground reservoirs, direct and accurate reservoir characterization is difficult, if not impossible, and evaluation outcomes usually suffer from some degree of uncertainty. For proper management of resource development, rational decisions need to be made under uncertainties, which require adequate information-gathering activities. To judge whether the expected improvement in management is worth the cost of information gathering, the concept of value of information (VOI) is of use. The present paper introduces and discusses the methodology of VOI analyses in the context of resource development. A motivating problem with discrete probabilities is used to illustrate the concept of VOI. It is demonstrated that information is not always of value. This concept is then extended to continuous distributions in terms of random variables and probabilities. The effects of prior uncertainty, information reliability and net present values on the VOI are examined. VOI analyses provide quantitative insights into the value of information-gathering activities and therefore can be an objective means to impartially justify decision making under uncertainties.
