Am I biased? Of course not, no-way, never….But, in reality, Yes, I am! Being an explorer, searching for hidden resources of oil and gas, I look out for a positive info to ease-out my prospect generation process and de-risking my prospects. I know there’s a hidden force influencing my thinking process leading to take decisions, i.e., a mental shortcut that may end up as costly mistakes! That’s the compelling power of cognitive bias in oil and gas exploration.

In simple words, bias is a human’s natural tendency to lean in favor or against something, which could either be a person, food, philosophy, or idea. The point of concern is not that the biases exist, they substantially affect the way we make our decisions and act, accordingly.

This article is not intended to serve as a research paper, but discusses the financial, emotional, and reputational tolls we often pay in the business, as well as in our lives where we take other shortcuts to overcome everyday issues. Also, this article doesn’t suggest a solution to the psychological processes involved in decision making, but how critical thinking can help see the other side of the coin.

1. Introduction: What is Cognitive Bias?

Thinking differently is a psychological parameter. Whether we realize or not, we all have our own style of thinking; even following a known figure, such as a philosopher or a scientist or an industry laureate, is also a way to think and mould our approach accordingly, which may provide a justification or psychological satisfaction but may also lead to a disaster if practically implemented.

The term Cognitive Bias was introduced in 1970, by two psychologists, Amos Tversky and Daniel Kahneman, to describe people’s flawed thinking patterns in response to judgement and decision problems, during their research program, ‘The Heuristics and Biases’, where they investigated how people make decisions under limited resources and/or information, e.g. which food to eat or which house to buy. They concluded that due to limitations, people developed a tendency to rely on heuristics (or quick mental shortcuts) to make decisions.

2. Types of Cognitive Bias

Psychologists have grouped bias in two types, i.e., Conscious and Unconscious. Cognitive bias is described under unconscious bias

Let’s first try to understand what this ‘Thinking Trap’ of Cognitive Bias is:

Cognitive bias is a mental shortcut that influences our thinking and decision-making, leading us to process information in a selective and subjective manner, in a way we want to see things happening, which often result in inaccurate or irrational judgments. This is how we are trapped in our own nest!

Psychologists and other researchers have identified over 180 types of cognitive bias.

Without going into details, I’m listing only a very few which, I think, affect our business; I wouldn’t be surprised if they all are affecting us in one way or another, simultaneously or altogether!

• Confirmation Bias: This happens when people look for information that supports their beliefs and ignore information that contradicts them. A classic example is the political and religious affiliation in our country (Pakistan). We don’t even watch News channels supporting other political party.
• Hindsight bias: Contrary to the confirmation bias, hindsight bias is the belief that the event happened was predicted in the past. In other words, it is our natural response to past events in which we believed that we knew it would happen.
• Overconfidence Bias: This is when people believe they know more than they actually do. This is the most common and most dangerous bias for any business or other activity outside.
• Anchoring Bias: This occurs when people rely too heavily on the first piece of information they get (the ‘anchor’) when making decisions.
• Availability Heuristic: This is the mental shortcut, when we take decisions on information that is most readily available, rather than all possible information

Researchers have highlighted that cognitive biases contribute to a loss of $30 billion/year in the oil and gas industry.

3. Cognitive Bias in Oil and Gas Exploration

As stated above, bias is humans’ natural tendency which is not necessarily harmful, but making decisions under its effect may lead to unpleasant outcomes.

3.1. Use and Misuse

In oil and gas exploration, often quick decisions are required. In such instances, cognitive bias can help experts make faster decisions by relying on past experiences, based on perceived subsurface reservoir models or operational experiences in similar environments. It may sometime lead to simplifying complex information, e.g. a certain kind of seismic amplitudes indicating a distinct reservoir quality, and in quick-decision scenarios same principal may be considered valid and justifiable, which is not always correct.

In some cases, experts might ignore data contradicting their initial beliefs, leading to poor decisions. For instance, low velocity shales and high porosity reservoirs may generate similar amplitudes, but the perceived geological model may give weightage to incorrect interpretation and, in such cases, a wrong decision may be made.

3.2. Pros and Cons

Looking at the same scenarios from Pros & Cons perspective, quick decisions are often economically favorable and delays in operations generally lead to erosion of economic value. Therefore, irrespective of outcome, cognitive bias of an experienced team makes the decision process efficient.

On the other hand, experts’ cognitive bias can introduce chances of errors which may cause significant financial losses to investors. For instance, initial over-estimation of subsurface resources would require significantly oversized facility, which will ruin the economics if production ceases earlier than expected life, due to subsurface geological surprises.

4. Real-Life Examples of Cognitive Bias in Oil and Gas Exploration

With growing awareness about the role of cognitive bias in real world, several incidents have been analyzed to understand the thinking patterns of people when they are faced with assessing risk and making decisions under different situations. This does not imply that cognitive bias is the only reason behind a good or bad decision, but the mental approach which contributes in decision making, while using technical information together with experience, leading to certain outcomes.

A few examples are briefly discussed here, only to illustrate how cognitive biases can significantly impact decision-making in high-stake business environment of oil and gas exploration and production. The references provided, from Google, substantiate these points with detailed accounts and analyses from reputable sources.

1. BP’s Deep Water Horizon (DWH)
2. Shell’s Arctic Exploration Initiative
3. RIL’s Dhirubhai Gas Field, India

This should be noted that cognitive bias is not main reason of behind these instances, but reflecting the mental approach which could have contributed

4.1. BP’s Deep Water Horizon Incident

In April 2010, BP’s Macondo Well blowout in the Gulf of Mexico killed 11 people and spilled around 5 mmbbl oil in the waters which continued the flow for almost around three months. Investigations were carried out and the U.S. Bureau of Ocean Energy Management, Regulation and Enforcement issued the final assessment report of the event, Maritime Executive and other consulting agencies also submitted their analyses which highlighted DWH as a key example of cognitive (confirmation) bias.

According to these reports/analyses, the main reasons included: dismissal of Well Test Results which indicated well instability, Operator’s cost and time-saving strategy, and decisions believing that the well was not at risk and the operations were continued despite anomalous pressure test results. DWH oil spill had hit BP with a hard financial blow of over $20 billion!

4.2. Shell’s Arctic Exploration

Shell’s launched its Arctic Exploration program in 2007, but after a series of technical, environmental and legal setbacks, it decided to exit from Alaska. This failure represents another important event where cognitive biases could have played significant role, possibly including status quo, overconfidence and optimism. These biases could have mislead decision-making processes, which ultimately resulted in pulling out from Alaska, with a financial loss of $7 billion.

On its exit from Alaska, Shell cited ‘disappointing results from the well it drilled’ off the coast of Alaska as well as the high costs of such exploration and the challenges of seeking future U.S. permits. Detailed reports/analyses and articles are available on Google and other search engines, e.g. Knowledge at Wharton, ​​ Grist, Reuters, National Geographic and many others.

The main reasons behind Shell’s failure in conducting its exploration program may include: status quo, being the first in such hostile frontiers, with overconfidence in its technological and environmental capabilities in underestimating challenges/risks associated with technical and logistic difficulties due to Alaska’s extreme weather conditions and tough environmental regulations particularly after BP’s Deepwater Horizon Incident in 2010, and overestimation of exploration rewards while underestimating the potential threat of frequent storms jeopardizing operations.

4.3. RIL’s Dhirubhai Gas Field, India

RIL’s Dhirubhai Offshore Gas Field in the Bay of Bengal (India), discovered in 2003, initially estimated a little over 10 TCF of Gas reserves. The field was developed accordingly and started production in 2009. In 2012, RIL officially announced reserves cut by 70% and the field ceased production in 2020 after recovering only around 3 TCF. With their continued efforts, they resumed production with new wells and now they have planned to increase production to 1 bcf/day and to extend the field life for next 40 years.

Unlike the disasters stated above, Dhirubhai field development serves an example of positive outcomes of cognitive bias, where knowledge, confirmation and technological biases contributed to take bold decisions to continue with field development till maximum recovery.

5. Pakistan Offshore Bid Round 2024

Recently, the exploration regulatory authority of Pakistan, The Directorate General Petroleum Concessions (DGPC), announced ‘Pakistan Offshore Bid Round 2024’, in which 12 Blocks are being offered for bidding; 6 Blocks in less than 200m water depth, 2 Blocks in less than 1000m water depth and 4 Blocks in over 1000m water depth.

5.1. My Cognitive Bias(?) On Offshore Bid Round 2024

Although I’m not biased about Government’s exploration efforts in Pakistan’s Offshore, but tendency pushes me down to it. If you are interested, let’s see how I look at it.

Offshore Indus is considered a prolific basin containing 10 to 40 TCF of Gas Reserves, as highlighted in the brochure. Unfortunately, we have only two hard data points indicating the existence of an effective petroleum system; one is Pakcan-1 in Pakistan and the other is KD-1 in India, just across the Maritime Boundary. From the map provided in the brochure, it makes sense to put more weight on areas around the wells with significant shows and encouraging test results.

My mind instantly took the shortcut, focusing on areas closer to the discovery on the Indian side of the basin! And why not? A larger area in our offshore adjacent to KD-1 is still untested, even after KD-1 discovery in India, which dates back to 1984.

But, factually, I’m a bit puzzled to find what new information we are provided with, to consider any of these blocks attractive for competitive bidding? Indians discovered oil in KD-1 in 1984, Pakcan-1 tested Gas in 1985, but what next? Pakcan-1 was noncommercial with 3.5 mmscfd gas from Miocene reservoir, whereas KD-1 tested only 172 bopd, from Eocene carbonates. Even after 40 years of these tests, both sides across the Maritime Boundary could not produce a drop of oil or blob of gas.

To me the answer is simple, both sides did not find a commercially exploitable pool. Pakistan did not find any significant gas shows in any other well except Pakcan-1 and the wells drilled around it were all dry. On the other hand, across the Maritime Boundary, India claims 1 TCF of Gas reserves in In Kutch Basin, after drilling more or less 30 wells in the Kutch Basin (at least until 2008).

All other wells shown near KD-1, in DGPC’s brochure, were dry with minor shows only. Most of these wells drilled through the Cretaceous formations, but probably ended within the marly section above the sandstone reservoirs. Unfortunately further details are either not available on the net or are not accessible.

But, is it possible to commercially or economically exploit 1 TCF of gas from wells with around 50-100m water depth, even if these reserves are associated with one offshore field and with technological brilliance KD-1 type of well’s potential is enhanced to 1000 bopd? If I’m not wrong, India is yet to find investors to produce this gas from Kutch Basin and the local operators are demanding a better price from regulators!

Coming back to Pakistan’s offshore bid round and cutting it short, the solution to our sensitive position on offshore exploration, this bid round is not justified until unless a pilot project closer to shoreline is executed as an effort towards establishing an effective petroleum system within the Eocene to Lower Cretaceous sequences. For such a pilot project, the area closer to shoreline can yield desirable results as moving further South-SW of the shelf edge expands the basin where Paleocene and older strata get deeper and deeper.

Without ay concerted effort, any adventure with current source rock information is most likely to fail either as dry or noncommercial value. Attracting foreign investment, especially major players, is almost impossible considering the high risk coupled with very high cost of exploration.

Under our current economic complexion with ever rising circular debt, even our local investors will find it difficult, if not impossible, to invest in these offshore blocks. Political instability is another problem to consider along with cognitive bias!

6. Philosophical Quotes and Cognitive Bias

As in Oil and Gas Exploration or any other business, life outside the offices is also influenced by cognitive bias, where we tend to get advantage of Philosophical quotes from famous thinkers, in order to justify our opinions or decisions.

Philosophy has gifted humanity with a treasure of gems in the form of philosophical quotes. From the thoughtful pronouncements of Socrates to the witticism of Oscar Wilde, these gems fuel countless debates, inspire our social media posts, and adorn our coffee mugs. But, are we truly receiving the wisdom through these quotes, or are we simply surrendering to the attraction of the author’s name?

6.1. Critical Thinking

I strongly believe that philosophical quotes give new dimensions and support to our thinking process. But, using these quotes without any bias, i.e. hiding the author’s name, can add a more balanced and comprehensive perspective. This helps in developing the habit of ‘Critical Thinking’ which supports examining a particular situation with multiple viewpoints.

Critical thinking in everyday life is logical thinking; but for an explorationist, it is ‘geo-logical’ thinking!

6.2. The Prestige of Words: Cognitive Bias Vs Critical Thinking

Almost daily, we read numerous quotes attributed to famous philosophers and scientists. These quotes often carry significant weight, influencing our thoughts and actions. I call it ‘the prestige of words’. However, an interesting phenomenon arises when we consider the impact of cognitive bias on our reception of these quotes.

So, what if the same profound words came from an unknown source? Would they still hold the same value? The prestige of words is linked with the prestige of author’s name which drives our acceptance of philosophical ideas. This bias is particularly strong when it comes to quotes from renowned philosophers and scientists. The names of Socrates, Avicenna, Aristotle, Einstein, Oscar, Hawking and many others, carry an aura of intellectual authority that prompts us to accept their words as inherently valuable and true. Challenging this bias opens new dimensions for critical thinking and argumentation, if we are ready to challenge it.

6.3. Philosophical Quotes: With and Without Cognitive Bias:

People might choose quotes that support their existing beliefs, while ignoring others that might challenge them.

Consider Einstein’s quote, ‘We cannot solve our problems using the same thinking we used when we created them’. With Einstein’s name associated with these prestigious words, the depth automatically becomes an attribute of this pronouncement. This statement emphasizes the need for innovative thinking and paradigm shifts.

Einstein made my thinking process efficient. I now understand, without much effort, that climate change cannot be effectively addressed using the same industrial practices that contributed to it. New, sustainable approaches are necessary.

It also helped me understand that the vulnerability caused by our reliance on Gas, as an ‘inexhaustible resource’ in Pakistan (Moin Raza Khan), cannot be overturned; for our current energy fix, we need a paradigm shift primarily to coal and also to some other renewable energy systems.

Now, imagine if this quote is attributed to an ordinary person, Khan; depth will be replaced by debatable rigidity that dismissing past thinking or foot-steps might not be the best approach! At times, minor fixes or taking the advantage of learning from past experiences may resolve the issues seamlessly. For instance, our constitution could have created some problems; minor amendments may be made to rectify them. Remember, we are humans, we are not perfect, we are improvisers!

This approach disregards Einstein’s viewpoint behind his majestic words, but gives us a liberty to think critically and logically. Put it in simple words, tweaking an existing mapping parameter can efficiently generate a better common risk segment (CRS) map, without redefining the entire input parameters. Viewpoints can differ with the context of the problems, logically, but not philosophically. One can rightfully disagree with my viewpoint, being an ordinary writer I don’t claim any prestige with my words.

6.4. Few More Examples With And Without Cognitive Bias

The famous American business and management consultant, Peter Drucker, once said, ‘The best way to predict the future is to create it’. This quote has the power to reinforce one’s strategy of aggressive expansion in business, without realizing potential risks. This over-ambitious philosophy apparently seems tickling an explorer’s mind.

Likewise, a very famous quote by a Roman Poet, Virgil (Vergilius Maro), ‘Fortune favors the bold ‘ has the potential to pump overconfidence in many, without questioning its relevance or accuracy. Undoubtedly it is a wonderful motivational statement, but practically one cannot start fighting with terrorists only because he/she followed Virgil and assumed the courage to face militants all alone. Here, Critical thinking should be applied, because ‘bullets do not favor ediots’.

Socrates, one of the biggest names in philosophy, said, ‘The unexamined life is not worth living’. Here, the impact of autocracy could be substantial, but this quote clearly indicates Socrates’ biased perspective with his distinctive viewpoint. Delinking Socrates name from this quote will make it a highly controversial statement. Personally, when I start examining my life, regrets arise, otherwise I’m enjoying a happy and satisfied life. I don’t put my coffee beans in a wet container (past), but use them with fresh milk to make my morning more awakening.

Let’s consider another quote, by Sir Winston Churchill, ‘Success is not final, failure is not fatal: it is the courage to continue that counts’. An oil company’s project completion report may take the advantage of this quote to motivate its investors to justify continued investment despite repeated failures, but I would not put my coffee beans in a wet container, again and again.

Try another example, by removing Stephen Hawking’s name from his quote, ‘The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge’. For me, without autocracy, with a slight modification, ‘The greatest enemy of knowledge is ignorance’ would serve the purpose. 

I’m biased, in fact obsessed, with my contextual viewpoint: Right or wrong is not the concern, this is the game of perspectives!

7. Conclusion

Cognitive bias plays a significant role in oil and gas exploration, both positively and negatively. It can streamline decision-making and simplify complex information, but it can also lead to errors and financial losses. Similarly, when using philosophical quotes, biases can affect the perspective presented and the overall message. In real life, being aware of cognitive biases and striving for a balanced approach can help develop a more comprehensive understanding to take calculated decisions.

By understanding and mitigating the impact of cognitive biases, professionals in the oil and gas industry, or in any other field, can make more informed and effective decisions.

Thanks for reading; Cheers

Frequently Asked Questions