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Unformatted text preview: sume some correlation between hydrocarbon saturation, porosity and recovery efficiency. The Monte Carlo simulation is then run
using, for example, Crystal Ball™ or @risk™, and the end result is a new distribution
curve of the range of possible recoverable reserve sizes and the probability of any
particular one occurring. Some analysts refer to the range of possible recoverable
reserves as “geological uncertainty” (Simpson et al., 1999). A further sensitivity
analysis can then be carried out so that the key reservoir parameters in this case can be
120 From the resulting distribution, the geologist reads off values of the possible
recoverable reserves and the chances of their occurrence, for input to the economic
model. These values need to be representative of the whole distribution and so it is
good practice to use the p10, p50 and p90 values since these represent the highest,
mid and lowest reserve cases.
Then the economists for each reserve case, with input from other spets as
necessary, build the economic model. This involves generating “most likely” predictions of drilling, capital and operating and abandonment expenditures,
production volumes, oil price and exchange rate. Probability distributions are then
assigned to each variable. The dependencies between any parameters are also modelled. Section 5.4 indicated that these tasks are particularly difficult because of
the lack of prescription in the literature. The Monte Carlo simulation is run, again
using @risk™ or Crystal Ball™, and the result is a probability distribution of the
range of possible NPVs and the probability of any particular one occurring.
Sensitivity analysis can then be used to identify the key parameters in this case.
Using influence diagrams as necessary, decision trees can then be drawn up for each
reserve case. The organisation’s decision-makers ought to be involved in this process.
This ensures that the analysts capture the decision-makers beliefs and preferences in
the analysis. Combining the chance of success estimate generated in the second step
with the NPV prediction for each reserve case, an EMV for each reserve case can be
produced. Option theory, which perhaps most easily applied using Buckley’s (2000)
advanced decision tree, can then be used to allow analysts and decision-makers to
assess the impact on the EMV of future events.
Variations of the approach could be used for development decisions, any production
decisions and for the decision of when to abandon production and how to
decommission the facilities. For example, when organisations are considering developing a field, the question of whether there are any hydrocarbons present is
omitted, since exploration and appraisal wells have already established their presence.
They focus instead on whether there are enough hydrocarbons present for the prospect
to be commercially viable. In the language of Simpson et al. (1999) and Watson
121 (1998), the organisation is now interested in “commercial risk” and “commercial
uncertainty” as opposed to “geological risk” and “geological uncertainty” (This will
be discussed further in Section 6.2 of Chap...
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- Summer '14
- The Land