Page 131 - Well Logging and Formation Evaluation

Value of Information 121

If the facilities were to be right-sized for 75MMbbl, the NPV would be
$700 million. The estimated additional monetary value (DEMV) of
running the NMR logs can be calculated by:

+
-
DEMV = ( 0.3*700 0.7*500 0.5)
+
- ( 0.3*650 0.7*500) = $14.5M. (8.1)
Obviously in this case the decision to run the NMR logs is expected to make
a profit. However, note that the decision to run the NMR logs has not gained
you 25MMbbl oil, which might have a value of $500 million. It has only
allowed you to make decisions that have made you develop the field more
efficiently. Most of the extra 25MMbbl would have been produced anyway.
Up until now you have also assumed that the tool always leads you to
the right result. Consider instead the situation in which you run the tools
but have a confidence of only R (expressed as a fraction) that they will
give you the right answer. Here you have opened up the possibility of
building facilities for a 75-MMbbl field that is only in fact a 50-MMbbl
one. In this event, say you make only an NPV of $400 million. These data
may be put in the form of a decision tree (Figure 8.2).

Prob NPV
Reserves: 75 MMbbl 0.3 700
Yes (fac designed for
75)
50 MMbbl
Reliable 0.7 500
result? (fac designed for
50)
Yes
–0.5 No Reserves: 75 MMbbl 0.3 650
Log (fac designed for
50)
NMR?
50 MMbbl 0.7 400
(fac designed for
No 75)

Reserves: 75 MMbbl
0.3 650
(fac designed for
50)
50 MMbbl
0.7 500
(fac designed for
50)
Figure 8.2 Decision Tree