Chance of Development: Definition, Estimation, and Use
- Chris Carpenter (JPT Technology Editor)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- December 2015
- Document Type
- Journal Paper
- 57 - 59
- 2015. Society of Petroleum Engineers
- 2 in the last 30 days
- 93 since 2007
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This article, written by JPT Technology Editor Chris Carpenter, contains highlights of paper SPE 170747, “Chance of Development: What Is It? Can We Estimate It? How Should We Use It?,” by Doug Peacock, SPE, and Tracey Jennings, SPE, Gaffney, Cline & Associates, prepared for the 2014 SPE Annual Technical Conference and Exhibition, Amsterdam, 27–29 October. The paper has not been peer reviewed.
Chance of Development (CoD) is commonly used as an input to economic assessments and valuations where it is often quoted with little explanation of the framework used. In such circumstances, it may be misleading and overly simplistic to multiply the project net present value (NPV) by a single CoD factor to derive a risked NPV as a proxy for value. This paper will examine ways in which CoD can be defined better, methods for its estimation, and its appropriate application along with common misuses.
The Petroleum Resources Management System (PRMS) is an international standard petroleum-reserves-and-resources classification system based on industry best practices and is described in detail in the complete paper. The PRMS encourages the use of subclasses that provide some qualitative assessment of CoD. These subclasses include
- Development Pending, where project activities are ongoing to justify commercial development in the foreseeable future.
- Development Unclarified or On Hold, where project activities are on hold or where justification as a commercial development may be subject to a significant delay. This subclass refers to quite different situations; Unclarified typically refers to internal decisions, whereas On Hold is more related to external factors.
- Development Not Viable, where there are no current plans to acquire additional data because of limited production potential.
The PRMS also allows Contingent Resources to be further divided according to economic status.
- Marginal Contingent Resources are technically feasible projects that are either currently economic or projected to be economic under reasonably forecasted improvements in commercial conditions but are not currently committed for development because of one or more contingencies.
- Sub-Marginal Contingent Resources are those associated with discoveries for which analysis indicates that technically feasible development projects would not be economic or other contingencies would not be satisfied under current or reasonably forecasted improvements in commercial conditions. If evaluations are incomplete, it may also be possible for economic status to be undetermined. Thus, Marginal Contingent Resources would typically have a higher CoD than Sub-Marginal Contingent Resources.
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