Page 381 - Hydrocarbon Exploration and Production Second Edition

368 Summary of Risk Analysis Techniques in Exploration and Appraisal

30.0% 0.048
49 MMstb
Exploration cost 5 -20 -25
16.0% Risk weighted outcome
find oil
0 89
40.0% 0.064
156 MMstb
100 95
30.0% 0.048
406 MMstb
200 195
TRUE Risk weighted outcome
explore
-5 16.04
30.0% 0.030
104 Bcf
-20 -25
10.0% Risk weighted outcome
find gas
0 55
40.0% 0.040
325 Bcf
60 55
30.0% 0.030
811 Bcf
140 135
74.0% 0.740
find water
0 -5
EMV of decision
explore prospect A
16.04
FALSE 0
do nothing
0 0
Figure 15.2 EMVcalculation for an exploration prospect using decision tree analysis.
During the appraisal phase the key driver is to efficiently reduce uncertainty by
data gathering in order to size the development facilities appropriately. Data gathering
typically involves shooting seismic, drilling wells and performing production tests.
The value of information (VoI) represents the maximum value of the appraisal data
and is equal to the value of the project with the information less the value of the
project without the information. Again, a decision tree is a convenient way to
estimate the VoI. With this in mind an appraisal programme can be designed to
reduce uncertainty in the key parameters.
In the above example, the exploration prospect introduced in Figure 15.2 has
in fact found oil, and the question now is whether to immediately develop
the discovery, or to first appraise. Three discrete reserves values have been taken
from the reserves distribution, being the p90, p50 and p10. These have been
weighted 30, 40, 30% respectively. The values of the corresponding projects are
enhanced after appraisal by right-sizing the facilities ($60, 100 and 200 million if
right-sized, as opposed to $40, 100 and 140 million if developed using a facility
designed only for the p50 volume). The cost of appraisal has been set at $10 million.
With this appraisal cost it is favourable to appraise and then tailor the facility
size rather than developing with a single facility size and only after production
finding out the true value of reserves. A sensitivity analysis can be performed
to determine the maximum cost of appraisal before it would be better to just
commit to development without knowing the true reserves size. This cost would
be the maximum VoI, and spending more than this on the appraisal information
cannot be justified. In this example the maximum VoI is $24 million (Figures 15.3
and 15.4).