Oil Field Development

Author
Crystal Ball

Summary
Oil companies need to assess new fields or prospects where very little hard data exists. Based on seismic data, analysts can estimate the probability distribution of the reserve size. With little actual data available, your discovery team wants to quantify and optimize the Net Present Value (NPV) of this asset. In the process, you will optimize the number of wells to drill, the size of the processing facility, and the plateau rate of the field. Keywords: oil field, development, optimization, NPV, reserves, production profile

Discussion
You can simplify this analysis by representing the production profile by three phases: (1) Build up: The period when you drill wells to gain enough production to fill the facilities. (2) Plateau: After reaching the desired production rate (plateau), the period when you continue production at that rate as long as the reservoir pressure is constant and until you produce a certain fraction of the reserves. In the early stages of development, you can only estimate this fraction, and production above a certain rate influences plateau duration. (3) Decline: The period when production rates, P, decline by the same proportion in each time step, leading to an exponential function: P(t) = P(0) exp(-c*t), where t is the time since the plateau phase began and c is some constant. With only estimates for the total Stock Tank Oil Initially In Place (STOIIP = reserve size) and percent recovery amounts, the objective is to select a production rate, a facility size, and well numbers to maximize some financial measure. In this example, the measure used is the P10 of the NPV distribution. In other words, the oil company wants to optimize an NPV value which they are 90% confident of achieving or exceeding. As described, the problem is neither trivial nor overly complex. A high plateau rate doesnt lose any reserves, but it does increase costs with extra wells and larger facilities. However, facility costs per unit decrease with a larger throughput, so choosing the largest allowed rate and selecting a facility and number of wells to match might be appropriate.

Using Crystal Ball

Crystal Ball enhances your Excel model by allowing you to create probability distributions that describe the uncertainty surrounding specific input variables. This model includes five probability distributions, referred to in Crystal Ball as "assumptions." These five assumptions describe the uncertainty around the STOIIP, Recovery, Well rate, Discount factor, and Well cost input variables. Each assumption cell is colored green and is marked by an Excel note (mouse over the cell to view the note). To view the details of an assumption, highlight the cell and either select Define Assumption from the Define menu or click on the Define Assumption button on the Crystal Ball toolbar.

Using Crystal Ball, cont.

Using Crystal Ball, cont.

This model also includes a Crystal Ball forecast, shown in light blue. Forecasts are equations, or outputs, that you want to analyze after a simulation. During a simulation, Crystal Ball saves the values in the forecast cells and displays them in a forecast chart, which is a histogram of the simulated values. In this example, you want to analyze the Net Present value (NPV). To view a forecast with Crystal Ball, highlight the cell and either select Define Forecast from the Define menu or click on the Define Forecast button on the toolbar. When you run a simulation, Crystal Ball generates a random number for each assumption (based on how the assumption has been defined) and places that new value in the cell. Excel then recalculates the model. You can test this by selecting Single Step from the Run menu or clicking on the Single Step button on the toolbar. After you run a simulation, you will see the NPV forecast chart. What is the mean NPV? What is your certainty of achieving or exceeding the original NPV estimate of $258.89 million? What about your certainty of breaking even? To view which of the assumptions had the greatest impact on the forecast, use a sensitivity chart. Which variables most affect the NPV result? Would more research help to reduce the uncertainty around one or more assumptions?

Using OptQuest
Now that you have run at least one simulation, you can begin to address optimization using OptQuest. In this model, you want to optimize the number of wells to drill, the size of the processing facility, and the plateau rate of the field, while maximizing your NPV forecast around the 10th percentile (P10) value. OptQuest requires decision variables, which are model variables over which you have control. The three decision variables defined in this model are Well to drill, Facility size, and Plateau rate. Your previous simulation used static values for each of these variables, but in reality, these are decisions that, when made properly, can lead you to a higher NPV, even with the inherent uncertainty around the five input variables (the assumptions). Each decision variable is colored yellow and is marked by an Excel note (mouse over the cell to view the note). To view the details of a decision variable, highlight the cell and either select Define Decision from the Define menu or click on the Define Decision button on the Crystal Ball toolbar. Start OptQuest from the Run menu and use the OptQuest Wizard to view the settings for the optimization. The problem has no constraints and one objective: to maximize Gross Profit around the P10. Run the optimization. For each optimization, OptQuest selects a new value within the defined range of each decision variable (e.g., drill 28 wells) and runs a Crystal Ball simulation (e.g., 2000 trials). OptQuest then saves the NPV P10 value. OptQuest then runs another simulation on a new decision variable value. OptQuest repeats this process, constantly searching for the best Gross Profit that also agrees with your requirement. As OptQuest runs, it uses multiple metaheuristic methods and techniques to analyze past results and improve the quality and speed of its process. You can watch OptQuest's progress through the performance graph, which shows a flattened line as it converges to an optimal result.

Using OptQuest, cont.

What is the best combination of the three decisions that results in the highest P10 for NPV? Once OptQuest is finished, you can copy the optimal results back to your spreadsheet through the Copy Best Solution to Spreadsheet command in the Edit menu. Your spreadsheet now displays the optimal solution, and Crystal Ball displays the forecast chart for the simulation from the best

Best Solution to Spreadsheet command in the Edit menu. Your spreadsheet now displays the optimal solution, and Crystal Ball displays the forecast chart for the simulation from the best optimization. You can use OptQuest's Solution Analysis tool to review the other combinations of decision variables that resulted in high NPV forecasts.

Using the Decision Table Tool

The Crystal Ball User Manual uses this example to describe the operation of the Decision Table tool. To run the tool, select Run > Tools > Decision Table and follow the three-step process. Suggested settings for testing NPV: Step 1 = Select NPV as the forecast Step 2 = Move Wells to drill and Facility size to the Chosen Decision Variables list Step 3 = Number of values to test for Wells To Drill is 6, Number of values to test for Facility Size is 7, Number of trials per simulation is 500, Show only target forecast After Step 3, the tool will create a new workbook with the Decision Table results (42 simulations in this case), which you can analyze using the chart buttons on the upper left of the table.

Copyright Information
Copyright 2004, 2008, Oracle and/or its affiliates. All rights reserved. Oracle is a registered trademark of Oracle Corporation and/or its affiliates. Other names may be trademarks of their respective owners.

Oil Field Development

Input Variables STOIIP Recovery Time to plateau Well rate Wells to drill Minimum rate Discount factor Well cost Facility size Oil margin Plateau ends at Plateau rate is Calculated values Reserves Max plateau rate Plateau rate Build up production Plateau production Plateau ends at Decline factor Production life Discounted Reserves Well Costs Facilities Costs NPV 1500.00 42.0 2.00 10.00 25 10.00 10.00 10.00 250.00 2.00 65.0 10.0 mmbbls % years mbd mbd % $mm mbd $/bbl % of reserves % of reserves annually

Oil Production Profile

Abbreviations Used mmbbls: million barrels mbd: thousand barrels per day $mm: million dollars $/bbl: dollars per barrel

630.00 172.60 172.60 63.00 346.50 7.50 0.2692 18.08 379.45 250.00 250.00 258.89

mmbbls mbd mbd mmbbls mmbbls years years mmbbls $mm $mm $mm

Facilities Costs Output (mbd) Cost ($mm) 50 70 100 130 150 180 200 220 250 250 300 270 350 280

Objective: maximize 10th percentile

Calculated Production Profile Annualized Annual Year Rate Production (mbd) (mmb) 1 57.53 21.00 2 115.07 42.00

Cumulative Cumulative Oil Discounted Oil (mmb) (mmb) 21.00 21.00 63.00 59.18

Note: production decline rate is exponential with the exponent calculated to produce remaining reserves.

3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41

172.60 172.60 172.60 172.60 172.60 167.05 132.27 101.06 77.21 58.99 45.07 34.43 26.31 20.10 15.36 11.73 0.83 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

63.00 63.00 63.00 63.00 63.00 60.97 48.28 36.89 28.18 21.53 16.45 12.57 9.60 7.34 5.61 4.28 0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

126.00 189.00 252.00 315.00 378.00 438.97 487.25 524.14 552.32 573.85 590.30 602.87 612.47 619.81 625.41 629.70 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00

111.25 158.58 201.61 240.73 276.29 307.58 330.10 345.74 356.61 364.16 369.40 373.04 375.57 377.32 378.54 379.39 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45

42 43 44 45 46 47 48 49 50

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00 630.00

379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45 379.45

al with the exponent