Staged development of a marginal oil field under technical and marketuncertainty: The olympus case

Staged development of a marginal oil field under technical and marketuncertainty: The olympus case

Decision making

Uncertainty analysis

Planning

Crude oil price

Petroleum reservoir engineering

Commerce

Petroleum prospecting

Oil field development

Oil well production

Oil well drilling

Cost benefit analysis

Infill drilling

Along with the maturation of main oil exploration and production (E&P) areas in the world, the industryhas started to seek for new investment opportunities that have been considered unattractive so far. Amongsuch opportunities might be small oil fields, whose low resource base makes the development marginal interms of value. Such discoveries remain risky due to lower benefit-cost ratios and geological uncertaintythat cannot be reduced so that the downside risk is eliminated. Nevertheless, they still can be attractiveinvestment opportunities if the decision making process captures available operational flexibilities andopportunities to gather additional information allowing to tune the development plan during the course ofa project. This can allow to mitigate downside risks associated with the reservoir uncertainty. In order tocapture additional flexibilities and account for a possibility to change the course of the project within theinvestment valuation, the decision maker demands more advanced tools than a static discounted cash flow(DCF) approach, traditionally used in the industry. In this study, we analyze an opportunity to phase the drilling strategy into two stages as a tool that allowsto optimize the field development under technical, cost and market uncertainties. We demonstrate how thedecision maker can use additional information generated during the initial stage of the project in order toimprove the future development plan by optimizing the decision to drill optional production wells. Usingan algorithm based on the least-squares Monte Carlo (LSM) approach, we consider the waiting option toexpand the production. We identify additional value created by the staged development strategy for a smalloffshore oil field, applying the methodology developed in Fedorov et al. (2020) to the synthetic benchmarkmodel Olympus. We also extend the modelling approach of Fedorov et al. (2020) by accounting for costuncertainty within the LSM algorithm. The underlying reservoir model allows us to realistically account for the effect of the decision to postponedrilling of the optional wells, on the field production. Our findings in this paper confirm the results ofFedorov et al. (2020), where an analytical modelling approach was used to account for reservoir uncertaintyand forecast oil field production. Based on the Olympus case, we show that in case of staged development,the decision maker is able to increase the investment value due to the flexibility to avoid drilling additional wells in case of unfavourable oil price and/or production scenarios. Our conclusion, therefore, is that thestaged development has a potential to be applied when the technical uncertainty represents high risk forthe project economy. 2020 Society of Petroleum Engineers (SPE). All rights reserved.

SPE Annual Technical Conference and Exhibition 2020, ATCE 2020, October 26, 2020 - October 29, 2020

2020

Fedorov, Semyon

Hagspiel, Verena

Lerdahl, Thomas

Idris, Abdulrahman

Ghahfarokhi, Ashkan Jahanbani

conferencePaper

10.2118/201300-MS