Page 204 - Hydrocarbon Exploration and Production Second Edition

CHA P T E R 8

Field Appraisal

Introduction and Commercial Application: The objective of performing appraisal
activities on discovered accumulations is to reduce the uncertainty in the
description of the hydrocarbon reservoir, and to provide information with which
to make a decision on the next action. The next action may be, for example, to
undertake more appraisal, to commence development, to stop activities or to sell
the discovery. In any case, the appraisal activity should lead to a decision which
yields a greater value than the outcome of a decision made in the absence of the
information from the appraisal. The improvement in the value of the action, given
the appraisal information, should be greater than the cost of the appraisal activities,
otherwise the appraisal effort is not worthwhile.
Appraisal activity should be prioritised in terms of the amount of reduction of
uncertainty it provides, and its impact on the value derived from the subsequent
action.
The objective of appraisal activity is not necessarily to prove more hydrocarbons.
For example, appraisal activity which determines that a discovery is non-
commercial should be considered as worthwhile, since it saves a financial
loss which would have been incurred if development had taken place without
appraisal.
This section will consider the role of appraisal in the field life cycle, the main
sources of uncertainty in the description of the reservoir and the appraisal
techniques used to reduce this uncertainty. The value of the appraisal activity will be
compared with its cost to determine whether such activity is justified.

8.1. The Role of Appraisal in the Field Life Cycle

Appraisal activity, if performed, is the step in the field life cycle between the
discovery of a hydrocarbon accumulation and its development. The role of appraisal
is to provide cost-effective information with which the subsequent decision can be
made. Cost effective means that the value of the decision with the appraisal
information is greater than the value of the decision without the information. If the
appraisal activity does not add more value than its cost, then it is not worth doing.
This can be represented by a simple flow diagram (Figure 8.1), in which the
cost of appraisal is $A, the profit (net present value, NPV) of the development with
the appraisal information is $(D2 A), and the profit of the development without
the appraisal information is $D1.
The appraisal activity is only worthwhile if the value of the outcome with the
appraisal information is greater than the value of the outcome without the

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