Simulation Analysis for Integrated Evaluation of Technical and Commercial Risk
- D.S. Gutleber (Amoco Exploration and Production) | E.M. Heiberger (Amoco Exploration and Production) | T.D. Morris (Amoco Exploration and Production)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- December 1995
- Document Type
- Journal Paper
- 1,062 - 1,067
- 1995. Society of Petroleum Engineers
- 4.2.5 Offshore Pipelines, 4.2 Pipelines, Flowlines and Risers, 5.7.5 Economic Evaluations, 4.6 Natural Gas, 5.1 Reservoir Characterisation, 4.5 Offshore Facilities and Subsea Systems, 7.2.1 Risk, Uncertainty and Risk Assessment, 5.5 Reservoir Simulation, 5.4.1 Waterflooding, 5.6.3 Deterministic Methods, 7.1.9 Project Economic Analysis, 1.6 Drilling Operations, 3 Production and Well Operations, 7.1.10 Field Economic Analysis
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Decisions to invest in oil and gas field acquisitions or participatinginterests often are based on the perceived ability to enhance the economicvalue of the underlying asset. The realization of value, however, is a functionof numerous outcomes which, in combination, may or may not meet economicexpectations. Common industry evaluation practice entails estimating mostlikely reservoir results, development plans and costs, prices and other factorswithin an economic framework. The risk of the opportunity is then assessedthrough sensitivities to key variables such as rates and reserves or costs,often through multipliers. Such an approach fails to explicitly acknowledge theuncertainties of the project or integrate the variables such that they interactas a system. The lack of understanding of the project volatility becomes morecritical when the deal structure is negotiable and could be used to reduce theeconomic volatility.
A multidisciplinary approach integrating reservoir engineering, operationsand drilling, and deal structuring with Monte Carlo simulation modeling canovercome weaknesses of deterministic analysis and significantly enhanceinvestment decisions. This paper discusses the use of spreadsheets and MonteCarlo simulation to generate probabilistic outcomes for key technical andeconomic parameters to ultimately identify the economic volatility and value ofpotential deal concepts for a significant opportunity. The approach differsfrom a simple risk analysis for an individual well by incorporating detailed,full-field simulations that vary the reservoir parameters, capital andoperating cost assumptions, and schedules on timing in the framework of variousdeal structures.
A host country government offered a bid tender for participation by amultinational company to improve reservoir performance in a giant offshore oilfield. The field was technically challenging to evaluate given its reservoircomplexity, size (producing several hundred thousand BOPD), and complexinfrastructure (several hundred wells, numerous wellhead platforms and processfacilities and many miles of subsea pipelines). The proposed evaluation wasfurther complicated by the unique nature of the bid terms stipulated under thetender and the competitive pressure. Initially, a deterministic technicalevaluation was undertaken by creating a black oil reservoir simulation model toidentify future reservoir performance established from a single proposeddevelopment plan. While this deterministic solution quantified the magnitude ofthe opportunity, it failed to define the uncertainty of the reservoirperformance and capital requirements needed to understand the volatility of theproject economics. Monte Carlo simulation provided a tool to acknowledge thetechnical uncertainties that would drive changes in the project economics.Integration of the technical and economic models provided the means to devise adeal structure that could hedge the contractor's risk and could be attractiveto both the contractor and government under a wide range of outcomes.
The risk assessment model was constructed in a PC-based spreadsheet with acommercially purchased add-in feature that performed the Monte Carlo simulationand captured the probabilistic outcomes. It was designed to be a dynamic toolthat could estimate production performance with associated capital andoperating costs to ultimately yield an economic analysis (see Figure 1).
|File Size||2 MB||Number of Pages||6|