Instilling Realism in Production Forecasting Decreases Chances of Underperformance
- Adam Wilson (JPT Editorial Manager)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- September 2013
- Document Type
- Journal Paper
- 114 - 117
- 2013. Society of Petroleum Engineers
- 3 in the last 30 days
- 80 since 2007
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This article, written by Editorial Manager Adam Wilson, contains highlights of paper SPE 155443, "Instilling Realism in Production Forecasting: Dos and Don'ts," by Avnish K. Rajvanshi, SPE, Robert Gmelig Meyling, and Danny ten Haaf, SPE, Petroleum Development Oman, prepared for the 2012 SPE Annual Technical Conference and Exhibition, San Antonio, Texas, USA, 8-10 October. The paper has not been peer reviewed.
Across the exploration-and-production (E&P) industry, several projects were found to underperform compared to the promises made at the time of project approval. Investment decisions on upstream projects rely, to a large extent, on the robustness of the predicted ultimate recovery and production forecast associated with the chosen development concept. The challenge for the E&P industry is to ensure that project approvals are based on realistic forecasts. This paper is intended to increase awareness among the forecasters and the decision makers about pitfalls associated with production forecasting.
Recently, an industry benchmarking consortium concluded the sixth of a series of long-term production-attainment studies, which reviewed the production profiles of 59 major development projects from different hydrocarbon-producing regions. For the majority of projects, the forecasted production was not achieved.
Long-term production forecasts drive company strategies, portfolio choices, sales contracts, and shareholder promises. Too-optimistic forecasts result in underdelivery of projects, with often far-reaching consequences. Too-pessimistic forecasts, on the other hand, may lead to undervaluation of assets.
The value of an E&P company is determined by the projects in its portfolio. Some projects in the portfolio are mature, with a high likelihood of progressing to the execution phase. Some projects are immature, with a possibility of not reaching the execution stage (Fig. 1). For each project, it is important to have a realistic expectation of costs and production because this is the basis for business decisions. In addition, for immature projects, it is equally important to estimate the likelihood that they will be executed. At the portfolio level, this probability of maturation will lead to an appropriate expectation of expenditure and production and will facilitate the making of higher-level business decisions. Fig. 2 shows how to combine realistic forecasting at the individual-project level and at the portfolio level.
Pitfalls of Production Forecasting
Despite considerable efforts to prepare production forecasts, gaps between the forecast and the actual production are found in the majority of cases. Analysis of these gaps for a large number of E&P projects led to the following generic issues.
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