Reservoir Management

Uncertainty Reduction and The

Value of Data

DELIVERING KNOWLEDGE. DEVELOPING COMPETENCE.

1 2008 PetroSkills LLC, All Rights Reserved
 Appraisal And The Value of Data
Why Appraise?
To Increase Value
To make the earliest possible sound decision
To identify how you can maximize income
To minimize expenditure
To avoid loss/to avoid poor investments
To optimize the development scheme
What do you appraise for?
How much do you do?
What is the value of the data?
How do you know when you have finished?

Reservoir Management
Uncertainty Reduction and the Value of Data
3.3.2
2008 PetroSkills LLC, All Rights Reserved
 What Do You Appraise For?
The things that are causing you the most uncertainty
the parameter that has the largest contribution to variance.

Mean Reserves
Reservoir A 15 MMBO
Reservoir B 5 MMBO

If I need 19.5 MMBO to make this redevelopment an economic

success, which reservoir is the biggest contributor to the fields
reserves and is the most important to making the project a success?

What is the chance I am going to make an economic venture?

If this is not good enough, where should I focus my appraisal?

Reservoir Management
Uncertainty Reduction and the Value of Data
3.3.3
2008 PetroSkills LLC, All Rights Reserved
 What Do You Appraise For?
The things that are causing you the most uncertainty
the parameter that has the largest contribution to variance.

Mean Reserves Standard Variance

Deviation (STD DEV)^2
Reservoir A 15 MMBO 1 MMBO 1
Reservoir B 5 MMBO 2 MMBO 4
Total Field 20 MMBO 5

If I need 19.5 MMBO to make this redevelopment an economic

success,which reservoir is the biggest contributor to the uncertainty
in the fields reserves and is the most important to be appraised?

Reservoir Management
Uncertainty Reduction and the Value of Data
3.3.4
2008 PetroSkills LLC, All Rights Reserved
 What Do You Appraise For?
What is the chance I am going to make an uneconomic venture?
Forecast: Field Total

10,000 Trials Frequency Chart 142 Outliers

.025 248

.019 186
45%
.012 124

.006 62

.000 0

15.23 18.01 20.78 23.55 26.32

Certainty is 45.44% from -Infinity to 19.50

If this is too high, where should I focus my appraisal?

80% of the uncertainty (total variance) comes from Reservoir B.
Appraise there to lower your uncertainty.

Reservoir Management
Uncertainty Reduction and the Value of Data
3.3.5
2008 PetroSkills LLC, All Rights Reserved
 General Procedure
Identify what is contributing to uncertainty

Calculate your uncertainty

If you cant live with this much uncertainty:

Allocate the contribution to Variance to each Parameter
Identify tools that can be used to investigate the parameters that
contribute the most to the uncertainty
Determine what you would do if the Appraisal came in high, low
or as expected (would your course of action change?)
Would this information be worth the cost in helping you make an
investment decision?

Reservoir Management
Uncertainty Reduction and the Value of Data
3.3.6
2008 PetroSkills LLC, All Rights Reserved
 Specific Examples
Hard to describe, but for example:
If my concern was the productive area of the field and I felt 3D
seismic would address the concern best,
I need to ask
If the field was as small as I can reasonably expect
What would I do?

If the field was as large as I can reasonably expect

What would I do?

If finding out that the field was small would cause me to walk away
and avoid a bad investment, and if finding out that the field was
large would allow me to more aggressively (more quickly) pursue
a larger redevelopment, maybe the 3D seismic has value.
How do I know if it is worth the cost?

Reservoir Management
Uncertainty Reduction and the Value of Data
3.3.7
2008 PetroSkills LLC, All Rights Reserved
 Specific Examples
What is the value if I dont do any appraisal?
Probability that the field is small * the NPV (Loss)
of making the development only to find out that it
is small,
Plus
Probability that the field is large * the NPV
(reduced) of pursuing the development plan of our
base case only to find out that it is not optimal
either,
Plus
Probability that the field size is just right * the NPV
of making the development according to our base
case.

Reservoir Management
Uncertainty Reduction and the Value of Data
3.3.8
2008 PetroSkills LLC, All Rights Reserved
 Specific Examples
What is the value if I do my appraisal?
Probability that the field is small * Zero (No Loss)
since I will not pursue development if I find out that
it is small,
Plus
Probability that the field is large * the NPV
(optimized) of pursuing the aggressive
development plan since I know that it is large,
Plus
Probability that the field is just right * the NPV of
making the development according to our base
case.

Reservoir Management
Uncertainty Reduction and the Value of Data
3.3.9
2008 PetroSkills LLC, All Rights Reserved
 Specific Examples
If the value with appraisal less the value without
appraisal exceeds the cost of the appraisal, the
appraisal is worthwhile.
OR
If the reduced chance of failure is more
acceptable, it might be worth it on a business
decision making basis even though it might not
fit an NPV calculation.

Reservoir Management
Uncertainty Reduction and the Value of Data
3.3.10
2008 PetroSkills LLC, All Rights Reserved
 When Have You Finished Appraising?
When the next most valuable piece of appraisal data
does not enable you to make a decision.
When the cost of appraisal exceeds the expected worth
of the opportunity.
When you could sell the opportunity for more than the
expected worth less the cost of the appraisal.
When it is less expensive, or of more value, to live with
the uncertainty and deal with the consequences.

Reservoir Management
Uncertainty Reduction and the Value of Data
3.3.11
2008 PetroSkills LLC, All Rights Reserved
 Appraisal Questions to be Asked
Do I need this information to make a decision?
If I had this information, could I decide or would I also need
other information?
Can I live with my uncertainty and just plan on dealing with
the possible outcomes of the chance I take?
If I had this information, could I increase my revenues or
reduce my costs?
Is the potential value of this opportunity significantly reduced
due to the costs of the appraisal?

Reservoir Management
Uncertainty Reduction and the Value of Data
3.3.12
2008 PetroSkills LLC, All Rights Reserved