1999 a further sensitivity analysis can then be

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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 identified. 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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