Petroleum Economics Risk & Volumetrics

Cairo University Ali Gadallah

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Volumetric Calculation
STOOIP = BRV**N/G*(1-Sw)/FVF
STOOIP: Oil Initially in Place, Stock Tank Barrel BRV: Bulk Rock Volume, Reservoir Barrels : Porosity, effective N/G: Ratio of Net Pay to Gross Mapped thickness Sw: Water Saturation FVF: Formation Volume Factor@ initial Reservoir Conditions
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Estimated Reserves
EUR = STOOIP * RF EUR : Estimated Ultimate Recovery RF : Recovery Factor

Estimated Reserves

Proven Reserves Probable Reserves Possible Reserves

Risk Analysis

Learning Objectives
At the end of the lecture, you should be able to:
Define risk and uncertainty List methods to assess risk List categories of uncertainty

What is Risk Analysis?

What is Risk Analysis?

Risk analysis is an attempt to quantify the unknown by forecasting or predicting the range of possible outcomes for an event so the chance of loss my be managed. (Wiggins) This definition contains two parts which must be understood The chance of loss The range of possible outcomes

Risk Definition
chance of something going wrong: the danger that injury, damage, or loss will occur hazard: somebody or something likely to cause injury, damage, or loss insurance chance of loss to insurer: the probability of loss to an insurer, or the amount that an insurer is in danger of losing finance possibility of investment loss: the possibility of loss in an investment or speculation statistical odds of danger: the statistical chance of danger from something, especially from the failure of an engineered system

Benefit of Risk Assessment & Risk Management

studying or testing whether the benefits of a procedure, process, or treatment outweigh the risks involved

analysis of possible loss: the profession or technique of determining, minimizing, and preventing accidental loss in a business, e.g. by taking safety measures and buying insurance

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Risk and Uncertainty

1. Risk the chance of injury, damage, or loss; the degree of loss, the amount of possible loss. (Websters)
Uncertainty the quality or state of being uncertain, lack of certainty, doubt. (Websters) Being unsettled or in doubt or dependent on chance; "the uncertainty of the outcome"; "the precariousness of his income" doubt: the state of being unsure of something

2.

LACK OF CONFIDENCE
The Probability Between X ----------------Y, given the knowledge known on the subject elements
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Involved Parties - Uncertainty

Technical Uncertainty Economic Uncertainty

Political Uncertainty

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Risk and Uncertainty

Examples

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Spain the Wheel

A wheel has ten stops numbered 1 through 10

When the wheel stops on 4, you win $100, if not you pay $10.

What is the uncertainty?

What is the risk?

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Household Budget
A monthly budget has been developed for the various household categories such as rent, food, utilities, etc. Now you generally know much the rent will be and budget accordingly!
- What is the uncertainty?
- What is the risk?

You also budget $120 for the electric bill.

- What is the uncertainty? - What is the risk?

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Risk Analysis

In Relation to Exploration Prospects

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Exploration Prospect
Estimate the various costs and expenses associated with the prospect and the potential benefits (Value of the asset, reserves). Develop a schedule of investments, expenses, and production. Each of these variables are uncertain as they represent an upcoming event. Historical data can be used to quantify a range of values for each variable but the exact value of each variable is unknown.
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Exploration Prospect
The amount by which each parameter is underestimated or overestimated represents the risk of the prospect. If we underestimate the costs, we may be short of cash for other projects. If we overestimate, we may have lost the opportunity to participate in other investments. If we overestimate reserves or the production schedule, then we may have forgone better investment opportunities.
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Risk Analysis
Risk is the potential loss or gain and its consequences associated with an estimate of some future unknown event. Describing the range of possible outcomes and their consequences is the objective of risk analysis. (Murtha)

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Why Do Risk Analysis?

Risk analysis is a future oriented activity. We try to forecast or predict events to come. We attempt to quantify uncertainty. Why? To compare alternatives!

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Investment Example
If we invest $10,000 in a bank certificate of deposit, we know exactly what kind of interest it will pay and we will get our initial investment back. That same $10,000 investment in the stock market carries uncertainty. The stocks we purchase could increase or decrease in value. The uncertainty is the range of values that stock could possess at the end of a particular time period. The risk is we could lose all or part of our initial investment.

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Oil and Gas Investment

Investing in most oil and gas projects is risky. There is a degree of uncertainty associated with the outcome of each project. The risk is the potential loss one might experience after assessing the uncertainty of the various outcomes and their resulting value.

Uncertainty is quantified using probability and statistics.

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Categories of Uncertainty
Technical uncertainty. Economic uncertainty.

Political uncertainty.

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Approaches to Risk Analysis

Generally approached from a disciplinary perspective Explorationist
- Uncertainty with finding hydrocarbons

Drilling engineers
- Uncertainty with drilling costs - Uncertainty with lost circulation, stuck pipe, blowouts

Reservoir and production engineers

- Uncertainty with reserves, production rates, decline rates - Uncertainty with operating costs, product prices

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Method to Assess Risk

Deterministic methods single value results Probabilistic methods distribution of values

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Deterministic Methods
Most likely estimate single value results. Scenario approach look at several possible outcomes (worst case, most likely case, best case). Risk adjusted (expected value) approach sum of the various scenarios multiplied by their probability of success. Sensitivity analysis looks at ranges of variables and possible outcomes when one variable at a time is allowed to change.

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Probabilistic Methods
Random variable methods each parameter is treated as a random variable. Monte Carlo Simulation common random variable method.

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