Page 133 - Well Logging and Formation Evaluation

Value of Information 123

or research campaigns. The mathematical concepts in the probability
theory concerned with value of information (VOI) are discussed in
Appendix 4.
Generally speaking, early in the life of a field the EMV of correct infor-
mation is very high. However, the negative EMV of information
that is misleading may be generally even higher. This is because the loss
in NPV arising from making your facilities too small is much less than
the cost of making them too large—the former will most likely only
cause deferment, while the latter will see unused capacity that is just
lost capital. On top of that, you had to pay for the information in the first
place.
Late in the life of a field, the situation is completely different. You may
be largely stuck with the facilities you have, so finding out that your
STOIIP is 75MMbbl instead of 50MMbbl will not lead to any major
change in your development—you will just make more money than you
originally expected to. Likewise, if you find out that your STOIIP is less,
there is nothing you can do about it. In essence, the value of the infor-
mation becomes much smaller, while the acquisition cost remains the
same. Hence, whereas in the initial example the cost of the logs was effec-
tively negligible but the reliability was the crucial issue, at the end of field
life the cost may be a major factor but the impact of unreliable data is rel-
atively less.
The golden rules for deciding whether a course of data acquisition is
justified may be summarized thus:

• When considering the potential economic benefits from the data, you
have to consider the whole field economics, and crucially what differ-
ent decisions will be made as a result of the outcome, and what their
impact will be.
• Remember that “finding” additional hydrocarbons does not necessarily
have an economic value equal to the spot price of those hydrocarbons.
• You must factor in the probability that the information will lead you to
make the wrong decision as well as the right one.
• Remember that there is always the option to acquire the data but to
choose not to act on it if you consider it to be unreliable or if it just
confirms what you already assumed. Certain data (e.g., virgin forma-
tion pressures) can be acquired only at an early stage in the field devel-
opment, so it is sometimes better to acquire them even if their impact
cannot immediately be assessed.