Optimism Trap: The Dangers of a ‘Can’t Miss’ Mindset

_ When optimism fuels exploration, drillers pursuing the next billion-barrel discovery could burn through millions in capital only to find a marginal field. That optimism—believing a specific prospect is a winner—can harm a company’s portfolio. The flip side, uncertainty about a reservoir’s depth, is yet another factor that can affect outcomes. There are ways to avoid overconfidence and optimism regarding a prospect’s potential, and calling in an impartial outside voice can help rein in overly bullish resource estimates. Data can be used to neutrally assess a prospect’s potential and to reduce uncertainty about the reservoir’s location. Optimism or Geology? Optimistic and overconfident biases in pre-drill exploration and production forecasts can affect a company’s bottom line, Luciano Costa, consultant geologist at Petrobras, said while presenting at the 2025 SEG/AAPG International Meeting for Applied Geoscience & Energy (IMAGE) in Houston. Optimism is defined as average outcomes lower than the average forecast, while overconfidence is when actual outcomes fall systematically outside the prediction range. An 80% confidence interval is often defined by the P10–P90 range. Research has shown post-drill outcomes can be as many as 10 to 100 times smaller than pre-drill forecasts, he said. “Prospect evaluators generate expectations with very high values in scenarios characterized by optimistic biases. This expectation causes distortion in the decision-making process based on Expected Monetary Value (EMV),” Costa and fellow abstract author Lucas Soares of Petrobras wrote in “Assessing Prospective Resource Uncertainty: The Hidden Cost of Optimistic Bias.” Such bias artificially inflates factors used to calculate a prospect’s EMV, including the likelihood of commercial success and the value of potential discoveries, they wrote. Both optimism and overconfidence can hurt a portfolio’s value and lead to overexpenditure or suboptimal allocation of money. Both are also so persistent that it raises the question of just how much such biases could negatively affect the portfolio, Costa said. To answer that question, the authors simulated making decisions on wildcat and appraisal opportunities based on varying levels of optimistic bias and rating the opportunity results based on the value of discovery minus the exploration cost. Typically, projects are considered clearly attractive, marginal, or clearly unattractive based on EMV criteria, but optimistic bias can artificially elevate marginal prospects to the category of clearly attractive (Fig. 1). Costa said this leads companies to drill lower-quality prospects without realizing the projected monetary return, which reduces the portfolio’s value. “What is an unbiased, and what is an optimistic perspective of a prospect?” he asked. He offered an unbiased example where the expectation would be to recover 100 million bbl in a situation where a commercial find would be about 60 million bbl. “The chance of commerciality of this discovery, given that the discovery is technically feasible, is 60%,” he said. An optimistic view might be the expectation of finding 300 million bbl based on the same minimum commercial find size, he said. “Now we have a 94% chance of commerciality. So, the optimistic perspective really changed the way we see the prospect,” Costa said. “More interesting here is that the discovery will be the same—whatever the assessment you have. In this case, the discovery is about 8 million bbl, and it’s P45 in the unbiased assessment and P88 in the optimistic case.”