One of the commonest ways of measuring the value expected to be created through an exploration program is to calculate the expected monetary value of the exploration prospects covered by the program. In its simplest form, this can be calculated as:

EMV = ValueSuccess x ProbabilitySuccess – CostExploration x ProbabilityFailure

At the exploration stage the investor is interested in its expected value from the project – i.e. the balance between the risk (that it incurs the costs and fails to make a discovery) and reward (the After Take NPV from a successful development).

This is known as Expected Monetary Value (EMV) and a simple example of the calculation is given below:

Probability of success = 20%; NPV @12.5% = 100; Probability of failure = 80%; Cost of failure = (20); EMV = 4

EMV = (Probability of Success x NPV @ 12.5%)-(Probability of Failure x Cost of Failure)