Application of Stochastic Analysis in Project Economics
- M. A. Mian (Saudi Aramco)
- Document ID
- Society of Petroleum Engineers
- SPE Reservoir Evaluation & Engineering
- Publication Date
- September 2020
- Document Type
- Journal Paper
- 2020.Society of Petroleum Engineers
- stochastic analysis, deterministic economics, Monte Carlo simulation, field development economics
- 3 in the last 30 days
- 8 since 2007
- Show more detail
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|SPE Non-Member Price:||USD 35.00|
The oil and gas industry has come a long way by shifting from the deterministic methods of economic evaluations to probabilistic/stochastic methods. The time is right as the uncertainties keep on increasing and more sophisticated methods/calculations are required for decision-making. The industry is under pressure to maintain its key performance indicator of reserves-to-annual production ratio. New discoveries are becoming scarce, and the size of the discoveries keep on going down. The economics of many discoveries are marginal, and they will require prudent evaluation, planning, and synergies for viable development.
The industry has done a good job in advancing technology, but it is behind in commercial aspects of the business. Due to this lack of expertise, the industry adopts methods and calculations presented by financial/statistical/stock analysts. Although these methods and calculations may suit other industries, they are not directly applicable to the oil and gas industry. Using these methods, without adjusting them to the oil and gas industry’s environment could be damaging to decision-making. Use of methods that are not directly suited to our industry becomes merely an academic exercise and does not add value. In fact, they may have negative impacts on the perceived profitability and result in suboptimal investment decisions and portfolios.
This article shows one such method that is sometimes used by strategists, economists, and planners. The findings in this article will definitely raise concerns and make us think twice about adopting methods from other disciplines without deep scrutiny. The article provides recommendations to alleviate shortcomings in some of the methods applied.
|File Size||494 KB||Number of Pages||8|
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