0. Tomsk and Riccarton Exploration plc [TREX] is drilling towards a deep target, overlain by a thick sequence of shales. In 30 percent of adjacent wells, isolated, over-pressured sands have been encountered in this lithological unit. TREX has identified three possible strategies with respect to completing this section of the well: - The Safe Strategy involves setting an intermediate string of casing to just above the predicted high pressure zone. This would allow mud weight to be increased safely in the event that high pressure was encountered. The cost of running this casing would be $400,000 plus three days of rig time. - The Gamble Strategy involves simply drilling ahead and hoping that the high pressure zones are not present. In the event that high pressure was encountered, increased mud weight might lead to lost circulation at the top of the long open-hole section. In such circumstance, the cost of regaining control of the well is estimated to be $1 million plus 10 days of rig time. This cost includes the intermediate casing, which would have to be set, to enable the well to reach its geological target. - The Information Strategy involves suspending drilling to allow a suite of logs to be run as a basis for predicting pressure gradient ahead of the bit. Running the logs would cost $100,000 and would take two days of rig time. Depending on the result of this logging program, TREX would either set casing or drill ahead as appropriate. 1. Construct a decision tree to represent the logic of this problem and to incorporate the relevant information, including costs and probabilities. 2. Assuming rig days cost $50,000, compute the expected cost for each of the three decision options and advise TREX on its optimum strategy for this well (i.e. the strategy that would have least expected cost). (8 points) 0. Tomsk and Riccarton Exploration plc [TREX] is drilling towards a deep target, overlain by a thick sequence of shales. In 30 percent of adjacent wells, isolated, over-pressured sands have been encountered in this lithological unit. TREX has identified three possible strategies with respect to completing this section of the well: - The Safe Strategy involves setting an intermediate string of casing to just above the predicted high pressure zone. This would allow mud weight to be increased safely in the event that high pressure was encountered. The cost of running this casing would be $400,000 plus three days of rig time. - The Gamble Strategy involves simply drilling ahead and hoping that the high pressure zones are not present. In the event that high pressure was encountered, increased mud weight might lead to lost circulation at the top of the long open-hole section. In such circumstance, the cost of regaining control of the well is estimated to be $1 million plus 10 days of rig time. This cost includes the intermediate casing, which would have to be set, to enable the well to reach its geological target. - The Information Strategy involves suspending drilling to allow a suite of logs to be run as a basis for predicting pressure gradient ahead of the bit. Running the logs would cost $100,000 and would take two days of rig time. Depending on the result of this logging program, TREX would either set casing or drill ahead as appropriate. 1. Construct a decision tree to represent the logic of this problem and to incorporate the relevant information, including costs and probabilities. 2. Assuming rig days cost $50,000, compute the expected cost for each of the three decision options and advise TREX on its optimum strategy for this well (i.e. the strategy that would have least expected cost). (8 points)