The Value & Substance of Case Studies

To calculate the expected benefit across a portfolio of mature oil and gas properties we need to look at the value of appraisal information or loss function associated with the development. (Jahn, F., Cook, M. and Graham, M., Hydrocarbon Exploration and Production, Elsevier, 7th Edition, 1998). The loss function measures the cost of either under-developing the field (loss of upside value) or over-developing the field. In the latter case, this will occur if the development infrastructure is based on the P50 resource outcome whereas a lower actual outcome results. Over a portfolio of investments, the loss function is generally assumed to be quadratic with target the expected (mean) outcome of the investment. That is,

For case studies page

where

For case study page = loss function

For case studies page = project dependent constant

For case studies page = actual reserves and

For case studies page = expected reserves (mean)

The constant, K, can be calculated from the expected loss at, say, the P90 level, giving

Thus, if the P10 - P90 range is reduced by 8%, then the expected loss for each outcome will decrease by the ratio

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That is, a 15% reduction in loss which is equivalent to a 15% increase in project value.

In the field example quoted above, published at the 2005 International Petroleum Technology Conference, use of MCMC compared to conventional methods of estimation reduced the P10 - P90 oil in place range from 36.2 MMbbl to 33.9 MMbbl, a change of 9%. SSL believe this reduction in P10 - P90 range is typical of those likely to be achieved routinely using the SRE; thereby leading to increase in value of 15% across a portfolio of investments.