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The research presented in this project is about how to make a decision in phases of the field life cycle. Making a good decision is extremly important, because it will make profit, reduce the risk and uncertainty, it is safe for people and enviromenet. There are many factors that impact to the decison such as the data of discovery, exploration, appraisal, the reserves can recover from the reservoir, the economic of exploration, appraisal, and development; and the affect to enviroment. Decison maker need to analysis each factors and their risks an uncertainties to choose the best choice for the project. In this project, we present four problems. Firstly, the study indentifies what is decision analysis, the tools are used to make decision, and sensitive analysis. Secondly, we present the technique fators that influence making decision – reserves. Thirdly, we analyze economic factors impact to the decision in oil filed, especially the exploration and appraisal phase. And the last, we introduce the EIA report.
VIETNAM NATIONAL UNIVERSITY, HO CHI MINH CITY HO CHI MINH CITY UNIVIERSITY OF TECHNOLOGY FACULTY OF GEOLOGY & PETROLEUM ENGINEERING Petroleum Project MAKING DECISION IN OIL FIELD LIFE CYCLE Advisor Assoc Prof Dr Tran Van Xuan Students Nguyen The Vinh 31204550 Bui Nhat Thinh 31203602 Project Committee : HCMC, 1/2016 ACKNOWLEDGEMENT Petroleum Project Making Decision In Oil Field Life Cycle This project consumed huge amount of work, research and dedication Still, implementation would not have been possible if we did not have a support of many individuals Therefore we would like to extend our sincere gratitude to all of them First of all we are sincerely grateful to Assoc Prof Dr Tran Van Xuan for provision of expertise, and technical support in the implementation Without his superior knowledge ,experience and uncountable enthusiasm, the paper would like in quality of outcomes, and thus his support has been vital We also give our thanks to Department for assistance with lots of precious document which moderated this paper and in that line improved the manuscript significantly Nevertheless, we express our gratitude toward our families and my friends for their kindness and encouragement which help us in completion of this project ABSTRACT 22 Petroleum Project Making Decision In Oil Field Life Cycle The research presented in this project is about how to make a decision in phases of the field life cycle Making a good decision is extremly important, because it will make profit, reduce the risk and uncertainty, it is safe for people and enviromenet There are many factors that impact to the decison such as the data of discovery, exploration, appraisal, the reserves can recover from the reservoir, the economic of exploration, appraisal, and development; and the affect to enviroment Decison maker need to analysis each factors and their risks an uncertainties to choose the best choice for the project In this project, we present four problems Firstly, the study indentifies what is decision analysis, the tools are used to make decision, and sensitive analysis Secondly, we present the technique fators that influence making decision – reserves Thirdly, we analyze economic factors impact to the decision in oil filed, especially the exploration and appraisal phase And the last, we introduce the EIA report 33 Petroleum Project Making Decision In Oil Field Life Cycle CONTENTS LIST OF TABLES 44 Petroleum Project Making Decision In Oil Field Life Cycle LIST OF FIGURES ABBREVIATION AV Annual Value DA Desicion Analysis EV Expected Value EMV Expected Monetary Value GIIP Gas Initial In Place MMstb Million Stock Tank Barrel OPEX Operating Expenditure POS Probability of success RF Recovery Factor UR Ultimate Recovery CAPEX Capital Expenditure DCF Discounted Cash Flow EVPI Expected Value of Perfect Information FV Future Value HCIIP Hydrocarbon Initially In Place NPV Net Present Value PDF Probability Density Function PV Present value STOIIP Stock Tank Oil In place 55 Petroleum Project Making Decision In Oil Field Life Cycle 66 Petroleum Project Making Decision In Oil Field Life Cycle CHAPTER DECISION ANALYSIS 1.1 Decision Analysis (DA) 1.1.1 Definition of Decision Analysis (DA) The historical origins of decision analysis can be partially traced to mathematical studies of probabilities in the 17th and 18th centuries by Pascal, Laplace, and Bernoulli However, the applications of these concepts in business and general management appeared only after the Second World War (Covello and Mumpower, 1985; Bernstein, 1996) The problem involving decision-making under conditions of risk and uncertainty has been notorious from the beginnings of the oil industry Early attempts to define risk were informal Decision Analysis a methodology based on a probabilistic framework which facilitates high-quality, logical discussions, leading to clear and compelling actions Decision analysis is a scientific and practical method for making important decisions It was introduced in the 1960s Decision analysis involves identification, clear representation, and formal assessment of important aspects of a decision and then determination of the best decision by applying the maximum expected value criterion Decision analysis is suitable for a wide range of operations management decisions where uncertainty is present Among them are capacity planning, product design, equipment selection, and location planning 1.1.2 Reasons to use Decision Analysis DA is a prescriptive approach, based on Decision Science, aimed at helping people to deal effectively and consistently with difficult decisions Carefully applying DA techniques will lead to better decisions and better outcomes DA is an information source, providing insight about the situation, uncertainty, objectives and trade-offs.which should help the decision-maker arrive at a compelling to avoid procrastination and “paralysis by analysis” 1.1.3 Procedure of DA Determine the goal or objective, e.g., maximize expected profit or net present value, or minimize expect cost 77 Petroleum Project Making Decision In Oil Field Life Cycle Develop a list of possible alternatives for the decision in order to achieve the goal Identify possible future conditions or states of nature for each random variable (e.g.,demand will be low, medium, or high; the equipment will or will not fail; the competitor will or will not introduce a new product) that will affect the goal Determine or estimate the payoff (or value) associated with each alternative for every possible future condition Estimate the likelihood of each possible future condition for each random variable Evaluate the alternatives according to the goal or decision criterion, and select the best alternative 1.1.4 Advantages of DA - DA has many advantages , such as its comprehensiveness and vitality as a model of the decision and its ability to place a dollar value on uncertainty - DA offers the operations research profession the opportunity to extend its scope beyond its traditional primary concern with repetitively verifiable operations - DA encourages meaningful communication among the members of the enterprise because it provides a common language in which to discuss decision problems Thus, engineer and marketing planners with quite different jargons can appreciate one another’s contributions to a decision This is the most important advantage of DA 1.1.5 Ability of a good decision maker - Separating the actual problem from its symptoms - Clearly articulating the problem to others - Knowing the timing and sequence of decisions which must be made - Knowing what objectives the decision is designed to achieve, & their relative importance - Using limited information and managing uncertainty effectively - Understanding the true risk and consequences - Identifying opportunities and creating alternatives 88 Petroleum Project Making Decision In Oil Field Life Cycle - Dealing with complexity and ambiguity 1.1.6 Apppplication of DA in life Decision analysis is widely used in business and government decision making Following is a non-exhaustive list of most common applications: Business - Airline and hotel yield management - Oil exploration - Quality assurance and control - Reliability and maintenance - Crop protection - Credit and loan portfolio management - Project selection - New product development - New venture launching Government - Emergency management - Environmental risk management - Choice of new energy sources - Research and development programs Common - Medical diagnosis and treatment - Bidding and negotiation - Litigation 99 Petroleum Project 1.2 Making Decision In Oil Field Life Cycle Decision analysis tool 1.2.1 Decision tree A decision tree is a graphical representation of the decision variables, random variables and their probabilities, and the payoffs The term gets its name from the tree like appearance of the diagram Decision trees are particularly useful for analyzing situations that involve sequential or multistage decisions For instance, a manager may initially decide to build a small facility but she has to allow for the possibility that demand may be higher than anticipated In this case, the manager may plan to make a subsequent decision on whether to expand or build an additional facility A decision tree is composed of a number of nodes that have branches emanating from them Square nodes denote decision points, and circular nodes denote chance events Read the tree from left to right Branches leaving square nodes represent alternatives; branches leaving circular nodes represent the states of nature After a decision tree has been drawn and necessary data are determined, it is analyzed from right to left; that is, starting with the last decision that might be made it is “rolled” back For each decision, choose the alternative that will yield the greatest return (or the lowest cost) For each chance node, calculate the expected value of the payoffs of its states of nature If chance events follow a decision, choose the alternative that has the highest expected value (or lowest expected cost) The dollar amounts at the branch ends indicate the estimated payoffs if the sequence of decisions and chance events occurs For example, if the initial decision is to build a small facility and it turns out that demand is low, the payoff will be $40 (thousand) Similarly, if a small facility is built, and demand turns out high, and a later decision is made to expand, the payoff will be $55 The figures in parentheses on branches leaving the chance nodes indicate the probabilities of those states of nature Hence, the probability of low demand is 0.4, and the probability of high 1010 Petroleum Project Making Decision In Oil Field Life Cycle Figure 3.8 Decision tree for appraisal If no appraisal was performed, and the development was started based, say, on the medium case STOIIP of 48 MMstb, then the actual STOIIP would not be found until the facilities were built and the early development wells were drilled If it turned out that the STOIIP was only 20 MMstb, then the project would lose $40 million, because the facilities were oversized If the STOIIP is actually 48 MMstb, then the NPV is assumed to be the same as for the medium case after appraisal If the STOIIP was actually 100 MMstb, then the NPV of +$40 million is lower than for the case after appraisal (+$66 million) since the facilities are too small to handle the extra production potential In the example, development without appraisal leads to an NPV which is the weighted average of the outcomes: $m (-40+6+40) / = + $2 million Development after appraisal allows the decision not to develop in the case of the low STOIIP, and the weighted average of the outcomes is $m (0+6+66) / = + $ 24 million 4848 Petroleum Project Making Decision In Oil Field Life Cycle Value of appraisal information = Value of outcome with appraisal information – value of outcome without appraisal information = $24 million - $2 million = $22 milllion In this example, it would therefore be justifiable to spend up to $22 million on appraisal activity which would distinguish between the high, medium, and low STOIIP cases If it would cost more than $22 million to determine this, then it would be better to go ahead without the appraisal Figure 3.9 Rolled-back decision tree 3.5 Summary of risk analysis techniques in Exploration and Appraisal In the exploration phase, the key uncertainties are the presence of a petroleum system through which hydrocarbons could be accumulated in a reservoir, and the volume of those hydrocarbons, if present These two uncertainties are combined into a risked volume by multiplying together the POS and the volumetric range, often represented by an expectation curve Probabily of success (POS) Volume of Recoverable Hydrocarbons 4949 Petroleum Project Making Decision In Oil Field Life Cycle POS = p(source) x p(migration) x p(sealed trap) x p(reservoir) x p(timing) Reserves = gross rock volume (GRV) x net to gross (N/G) x porosity x hydrocarbon saturation x shrinkage x recovery factor Risked reserves = POS x reserves The cost of exploration is $5 million, and the NPVs of a p90, p50, p10 oil and gas discovery are $-20, 100, 200 and -20, 60, 140 million respectively The value of finding water is of course zero Each leaf on the end of the branches which follow exploration includes the cost of exploration, and the p90, p50, plO values have been weighted at 30, 40, 30% respectively The POS for oil is estimated at 16% and the POS for gas 10%, so the POS of finding neither is 74% The EMV of the prospect is $16.04 million, assuming the exploration cost of $5 million 5050 Petroleum Project Making Decision In Oil Field Life Cycle Figure 3.10 EMV calculation for an exploration prospect using decision tree analysis During the appraisal phase the key driver is to efficiently reduce uncertainty by data gathering in order to size the development facilities appropriately Data gathering typically involves shooting seismic, drilling wells and performing production tests The value of information (VoI) represents the maximum value of the appraisal data and is equal to the value of the project with the information less the value of the project without the information Again, a decision tree is a convenient way to estimate the VoI With this in mind an appraisal programme can be designed to reduce uncertainty in the key parameters The values of the corresponding projects are enhanced after appraisal by rightsizing the facilities ($60, 100 and 200 million if right-sized, as opposed to $40, 100 and 140 million if developed using a facility designed only for the p50 volume) The cost of appraisal has been set at $10 million With this appraisal cost it is favourable to appraise and then tailor the facility size rather than developing with a single facility size and only after production finding out the true value of reserves A sensitivity analysis can be performed to determine the maximum cost of appraisal before it would be better to just commit to development without knowing the true 5151 Petroleum Project Making Decision In Oil Field Life Cycle reserves size This cost would be the maximum VoI, and spending more than this on the appraisal information cannot be justified In this example the maximum Vol is $24 million Figure 3.11 Value of information calculation using decision tree analysis 5252 Petroleum Project Making Decision In Oil Field Life Cycle CHAPTER ENVIROMENTAL IMPACT ASSESSMENT 4.1 EIA definition EIA is commonly a legal procedure in which a project developer is required to provide enviromental information to a consenting body so that this information can be used for better informed decision making Usually also involves publication and public comment/ disclosure (consultation) It is a tool to indentify potential envioroment impacts of a proposed project assess how significant (important) these impact are and recommend appropriate migigation, management and monitoring measures to prevent or reduce impacts to acceptable levels EIA is a process and a tool to aid decison- making EIA outcomes are typically used to manage subsequent phases of project design, construction and operation An EIA may have to include concerns such as - protection of sites of special interest (e.g nature reserves, archaeological sites) noise control in built-up areas air emission effluent and waste disposal pollution control visual impact traffic (rig transport and supply) emergency response (e.g fire, spills) 5353 Petroleum Project Making Decision In Oil Field Life Cycle Figure 4.1 Application of an EIA The objective of an EIA is to document the potential physical, biological, social and health effects of a planned activity (Figure 4.1) They include the following: - to determine the baseline ecological conditions of the study area; to determine the environmental sensitivities prevalent in the area; to identify, evaluate, and predict the impact of the project on the ecological, socio-economic and cultural settings with adequate interfacing and project interaction; 5454 Petroleum Project - - Making Decision In Oil Field Life Cycle to identify health hazards that may result from the different phases of the project and evaluate local population exposure to these hazards to develop control strategies with a view to mitigating and ameliorating significant impacts that the projects would have on the totality of measurable environmental characteristics; to develop a cost effective Environmental Management Plan (EMP) for the impacts identified This will enable decision makers to determine whether an activity is acceptable and if not, identify possible alternatives Typically, EIAs will be carried out for - seismic exploration and appraisal drilling development drilling and facilities installation production operations decommissioning and abandonment An EIA commences with a baseline study which describes and inventorises the natural initial flora, fauna, the aquatic life, land and seabed conditions prior to any activity The duration of an EIA depends on the size and type of area under study, and the previous work done, but may typically take at least months However, to establish a valid database may require monitoring over several seasons (years) The EIA is often a ‘critical path item’ and should not be omitted from the planning schedule The results of the assessment are documented in an environmental impact statement (EIS), which discusses the beneficial and adverse impacts considered to result from the activity The report is one component of the information upon which project approval depends A final decision can be made with due regard being paid to the likely consequences of adopting a particular course of action, and where necessary by introducing appropriate monitoring and mitigation programs 5555 Petroleum Project Making Decision In Oil Field Life Cycle 4.2 EIA process Figure 4.2 General EIA process The EIA is a ‘before project’ audit However, baseline studies may be required again later on in the project, for instance to help refine impact predictions Baseline studies can account for a significant part of the overall EIA cost since they require extensive field studies Certain key stages in the EIA process have been adopted by many countries These broad stages reflect what is considered to be good practice within environmental assessment and include Screening: undertaken to decide which projects should be subject to environ- mental assessment Screening may be partly determined by local EIA 5656 Petroleum Project Making Decision In Oil Field Life Cycle regulations Criteria used include threshold, size of project and sensitivity of the environment Scoping: identifies, at an early stage, the most significant issues to be included in the EIA Many early EIAs were criticised because they were encyclopaedic and included irrelevant information Consideration of alternatives: seeks to ensure that the proposer has considered other feasible options including location, scales, processes, layouts, operating conditions and the ‘no action’ option Project description: includes a clarification of the purpose and rationale of the project EIA preparation: is the scientific and objective analysis of the scale, significance and importance of impacts identified Various methods have been developed, in relation to baseline studies; impact identification; prediction; evaluation and mitigation, to execute this task Public consultation and participation: aims to assure the quality, comprehensiveness and effectiveness of the EIA, as well as to ensure that the public’s views are adequately taken into consideration in the decisionmaking process EIS presentation: a vital step in the process, the documentation serves to communicate the findings of the EIA process to interested parties Review: involves a systematic appraisal by a government agency or independent review panel Decision-making on the project involves a consideration by the relevant authority of the EIS (including consultation responses) together with any material considerations Monitoring: is normally adopted as a mechanism to check that any conditions imposed on the project are being enforced or to check the quality of the affected environment Auditing: follows on from monitoring Auditing is being developed to test the scientific accuracy of impact predictions and as a check on environmental management practices It can involve comparing actual outcomes with predicted outcomes, and can be used to assess the quality of predictions and the effectiveness of mitigation It provides vital feedback into the EIA process 5757 Petroleum Project Making Decision In Oil Field Life Cycle 4.3 Predict Impacts Decision maker are not experts – they need to understand what we are telling them when we describe an impact; to understand how importatn the predicted impact is so that they can give it the right weight in their decison - Describing what will be affected (from the baseline) And how the nature of the change The size of the change (how much - mg/m3; ha; % of population) Its geographical extent and distribution (where, how far) Its timing and duration (when, how long for, howoften) The probability and consequences (“risk”) of unplanned / non-routine events (accidents, natural disasters etc) occurring The likelihood of uncertain effects (impacts where we don’t know / are not sure) occurring Assumptions and limitations and any resulting uncertainty about the prediction (ranges, +/- x%, confidence limits) Approaches to predicting impact Use standards and norms as the starting point for evaluation where available: - - - Does it cause legal or accepted environmental standards to be exceeded - e.g air, water or soil quality, noise levels - or make a substantial contribution to the likelihood of exceedence Does it adversely affect protected areas or features, or valuable resources nature conservation areas, rare or protected species, protected landscapes, historic features, high quality agricultural land, important sources of water supply Does it conflict with established government policy e.g to reduce C02 emissions, recycle waste, regenerate deprived urban areas, protect human rights The decision-maker needs to know more than just “Is it significant?” - They need to know how much weight to give to the impact in making the decision How important it is to impose conditions to control the impact? Breach of a mandatory standard is illegal - So what about impacts that don’t reach that level 5858 Petroleum Project - Making Decision In Oil Field Life Cycle Are they still significant? How significant? What about non-statutory guidelines? The EIA must present a judgment about the significance of impacts Essential to explain how significance is evaluated, i.e evaluation criteria Where there are no standards a good approach is to consider the magnitude of the impact and the value or sensitivity of the affected resource or receptor Impact Type - Direct, secondary, indirect, cumulative or residual Impact Magnitude Impact Nature - Negative, positive or neutral Impact Duration Temporary, short-term, long-term or permanent Impact Extent - Local, regional or global Impact prediction takes into account any mitigation or control measures that are part of the Project design Additional mitigation measures aimed at further reducing predicted impacts are proposed where necessary or appropriate CONCLUSION 5959 Petroleum Project Making Decision In Oil Field Life Cycle In this project, we introduced three main problems that the decision maker will encouter when they want to make a good desicion The first problem is technical factor, we mentioned the reserves of reservoir, and express uncertainty though PDF and expected curves With each reserve, 1P, 2P or 3P, has probabilities respectively The decision makers base on that probabilities to determine which reserves will be choose to appraisal or development The second problem is economic factor We presented the important of project cashflow Depend on the project cashflow, the decision makers calculate the EMV and NPV of the project ad make a decision tree to present all the chance for each phase And the last problem is the enviromental factor Depend on the natural conditions of the country, the regulations of the goverment, the impacts of exploration and production to enviroment and so on the decision maker introduce the EIA report to make sure that the petroleum activities will work fortunately and control the pollution REFERENCE 6060 Petroleum Project Making Decision In Oil Field Life Cycle CHAPTER [1] McGraw Hill Education, Decision Analysis [2] Steve Begg (2013), Decision making and risk analysis [3] Fiona Macmillan (2000), Risk, Uncertainty and Investment DecisionMaking in the Upstream Oil and Gas Industry [4] Howard, R.A (2004) Speaking of Decisions: Precise Decision Language Decision Analysis CHAPTER [1] Frank Jahn, Mark Cook, and Mark Graham (1998), Hydrocarbon exploration and production 2ndediton [2] Reserves estimation From AAPG , http://wiki.aapg.org/Reserves_estimation [3] Larry W Lake, Editor-in-Chief, Edward D Holstein, editor , Petroleum Engineering Handbook Volume V [4] Oil reserves , https://en.wikipedia.org/wiki/Oil_reserves CHAPTER [1] Frank Jahn, Mark Cook, and Mark Graham (1998), Hydrocarbon exploration and production 2ndediton [2] Larry W Lake, Editor-in-Chief , H.R Warner J.R, editior, Petroleum Engineering Handbook Volume VI [3] Economic evaluation, http://www.mhnederlof.nl/economics.html#pv [4] Expected Monetary Value and Value at Risk, https://www.e-education.psu.edu/eme801/node/578 [5] Net present value, https://en.wikipedia.org/wiki/Net_present_value CHAPTER 6161 Petroleum Project Making Decision In Oil Field Life Cycle [1] Frank Jahn, Mark Cook, and Mark Graham (1998), Hydrocarbon exploration and production 2ndediton [2]Craig.A Reid Partner (2014), Enviromental Impact Assessment (EIA) for Oil & Gas and Power Project 6262 [...]... economic 3333 Petroleum Project Making Decision In Oil Field Life Cycle In this section, we will introduce some basic principles of petroleum economic that incluence making decision 3.1.1 Capex and Opex Capital Expenditure (CAPEX) These include the costs of development installations, such as building roads to the site, drilling and completing wells, construction of pipelines, etc This is also referred... time more work involved in maintaining and controlling production operations 3.1.2 Present Value (PV) Present Value is used in order to compare the profitability of various projects for decision making The concept of "present value" or "discounted money" is based on the reasoning that money earned at a certain moment may be re-invested at a certain amount of interest, or put into a savings account Present... one or more decision variables Influence diagrams are more concise than decision trees because they do not show the alternatives branches coming out of the decision nodes and the states of nature branches coming out of the chance nodes Constructing and validating an influence diagram improves communication and consensus building at the beginning of the decision modelling process The following is an example... can be accounted for by using this method One general equation is: 2525 Petroleum Project Making Decision In Oil Field Life Cycle Change in pore volume = Change in oil volume + change in free gas volume + change in water volume Where Change in pore volume = Change in oil volume Change in gas volume = = Change in water volume = − NBoi S wi NBoi cw P − We + W p Bw cf P (1 − Swi ) (1 − Swi ) NBoi − (N... value; for intermediate values of P2 alternative C is best; and for higher values of P2 alternative A is best 1616 Petroleum Project Making Decision In Oil Field Life Cycle Figure 1.4 Sensitivity analysis of 3 alternatives - From the graph, we can see that alternative B is best from the point P2 = 0 to the point where the alternative B line intersects the alternative C line To find that point, solve...Petroleum Project demand is Making Decision In Oil Field Life Cycle 0.6 Payoffs in parentheses indicate losses Figure 1.1 Decision tree fot a facility building Analyze the decisions ( Figure 1.1) from right to left: 1 Determine which alternative would be selected for each possible second decision For a small facility with high demand, there are two choices: do nothing, or expand Because expand has... production at any point in time can also be estimated This method relies on historical production data to extrapolate future production performance 2727 Petroleum Project Making Decision In Oil Field Life Cycle Figure 2.4 Production history curves Figure 2.5 Semi-log plot of rate of production versus time 2828 Petroleum Project Making Decision In Oil Field Life Cycle Figure 2.6 Relationship of decline behavior... payoff, which is influenced by the total cost and revenue 1212 Petroleum Project Making Decision In Oil Field Life Cycle Figure 1.2 Influence Diagram of introducing a new product 1.3 Expected Value (EV) 1.3.1 Calculation Expected Value (EV) The expected value for an uncertain alternative is calculated by multiplying each possible outcome of the uncertain alternative by its probability, and summing the results... these: EVPI = $12.2 − $10.5 = $1.7 EVPI indicates the upper limit on the amount the decision maker should be willing to spend to obtain information Thus, if the cost exceeds EVPI, the decision maker would be better off not spending additional money and simply going with the alternative that has the highest expected payoff 1515 Petroleum Project Making Decision In Oil Field Life Cycle 1.4 Sensitivity analysis... for UR is shown in Figure 2.7 For convenience, the probability axis may be split into three equal sectors in order to be able to represent the curve by just three points Each point represents the average value of reserves within the sector Again for convenience, the three values correspond to chosen cumulative probabilities (85, 50 and 15%) 3030 Petroleum Project Making Decision In Oil Field Life Cycle