HIPCO, a petroleum oil company, has to decide whether to dig an oil well or not to dig at a site that has been leased to it. Preliminary analysis indicates that a well dug may be Dry (D) or Wet (W) or Gushing (G) with respective probabilities of 0.5, 0.3 and 0.2. The Cost drilling is Rs 1,400 million. The present value of the expected revenues from a wet well is estimated at Rs 2700 million and from gushing well Rs 5800 million.

HIPCO can also undertake a seismic test, prior to drilling at a cost of Rs 100 Million. Such a test will indicate that well site has an open structure (O) or closed structure (C). The following probabilities are given:

Open Structure                                   0.510

Closed Structure                                 0.490

Dry given Open Structure                   0.686

Wet given Open Structure                  0.235

Gushing given Open Structure           0.079

Dry given Closed Structure                0.306

Wet given Closed Structure               0.367

Gushing given Closed Structure        0.327

Using Decision-tree analyses recommend the optimal decision policy that HIPCO should adopt?

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