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Selecting the right upstream investments ensures company growth and prosperity, and in today's
climate of uncertainty a thorough evaluation of exploration and production opportunities is becoming
increasingly crucial to commercial success.
Most discoveries are in hostile environments where risks are higher and costs increase. Therefore a
complete integrated assessment is vital at the early identification phase of a project if maximum value
is to be generated. Complex geological and reservoir data must be converted into the realistic
production profiles and cost-effective development options essential to the business decision process.
Combined with economic assessment and risk management strategies, these factors have a big
influence on successful managerial and investment decisions (Fig. 1).
Value creation
Value creation is a problem-solving approach based on creative and positive thinking; it provides the
best development solution at minimal cost and can be carried out by a multidiscipline team of
exploration and production specialists working simultaneously.
Innovative thinking and ingenuity are the principal concepts in creating value; geared towards the
development of optimized solutions, they permit the team to create a large number of options efficiently
and in a very short time.
To create added value in E&P opportunities an integrated team should be established as early as
possible in the evaluation process to consider the five main aspects of opportunity evaluation, namely:
1.
Subsurface analysis.
2.
Reservoir engineering
3.
4.
5.
Risk management.
The scope for enhancing the value of a project is at its greatest during the early phases of a
development (Fig. 2), and by concentrating on the "value zone" organizations can then be confident
that the best development options are selected at the minimum cost.
Establishing the subsurface geometry of a hydrocarbon accumulation is the task of the geophysicist
and geologist. Based on mapping of seismic data (2D, or preferably 3D), a geological threedimensional image of the subsurface is produced. Sophisticated conversion methods of time to depth
and calibration with well data are used to generate a graph representing the area versus depth of the
reservoir.
The estimation of pore space effectively available for hydrocarbons is the result of close co-operation
between geophysicist, geologist, and petrophysicist. The direct visualization of hydrocarbons in the
subsurface, based on seismic amplitude studies and geological modeling, has been made possible
with the help of powerful workstations. With the additional assistance of the latest wireline logging
techniques, a reliable range of estimated pore space values can be generated.
The results of the various subsurface evaluation techniques are interpreted in a probabilistic manner.
The outcome ranges, like bulk rock volumes, porosity distributions, recovery, and so on, are used in a
so-called Monte Carlo simulation to produce an expectation curve of reserves. The ultimate objective
of integrated subsurface evaluation is to reduce risk and to increase the probability of success.
Reservoir considerations
The determination of oil and/or gas in place, recovery factors, numbers of wells, and the estimation of
a production profile are the activities of reservoir engineers. Their objective is to devise a development
plan that will permit optimum recovery of hydrocarbons at minimum cost.
Using a reservoir model, oil and gas production forecasts are generated, from which the economist can
produce cash flow models and financial forecasts; these provide the basis for the income stream
during economic modeling.
To ensure that the reservoir yields the maximum amount of oil and gas possible it is important that the
most appropriate production and development techniques are employed. Selecting a development
scheme involves both technical and economic considerations. Profitability will be calculated over many
years, and as a consequence it will be necessary to predict future reservoir production-an uncertain
and complicated process.
The development and production of a reservoir is very complex and dependent on, among others,
factors such as number of wells, permeability, viscosity, reservoir continuity, and secondary recovery
techniques. The production profile will be based on these variables and any enhanced or tertiary
recovery techniques; several simulations will need to be completed so that a number of hypothetical
production scenarios can be established and compared.
Water Inj
Depletion
As an example, Fig. 3 displays some of the results that could be experienced from an offshore field
with an OOIP of 750 million st-tk bbl. Using reservoir simulation, the production profiles have been
plotted for high quality crude (with and without water injection) and heavy oil.
The reservoir has a 50% chance of being a non-associated gas bearing structure, and consequently a
gas-production scenario has been included assuming that the field will supply gas under a gas
purchase agreement. These production models provide the basis for the sizing and costing of surface
and operational facilities.
Facilities and their costs
The oil and gas reserves now being discovered and developed are often in "frontier" areas, remote
locations, or greater depths offshore. The technology and strategies employed to develop such fields
must be cost efficient in order to maximize potential.
Expenditure on a project is at its lowest during the exploration and appraisal stage, and facility
optimization in the "value zone" can lead to reduced capital and operating costs. It can be seen from
Fig. 4 that capital expenditure is very low during the pre-project phase but the opportunity to reduce
costs is very high (Fig. 5). During this period it is important to identify and consider all the technically
feasible schemes based on the following:
During the above process many cost estimates have to be produced to facilitate the selection of the
best development. For illustration purposes and based on the production profiles, the capital costs in
Fig. 6 represent the order of magnitude investments required to develop the shallow-water offshore
fields in West Africa.
Under a depletion scenario the cost would be around $450 million with an incremental sum of $300
million required for water injection facilities and wells. In comparison, the capital cost for the heavy oil
and gas production developments are estimated at $600 million and $400 million, respectively.
It can be deduced from the results that, depending on assumptions, the possible range of cost
outcomes can vary dramatically, and this must be clearly understood during the early evaluation
phase. The preparation of cost estimates requires a complete knowledge of the technical issues
surrounding the project and a lack of understanding on this issue could easily cause rejection of an
otherwise attractive project.
Enhancing economic value
Within most companies there is constant competition for funds among various parties; selecting the
best investments is the job of management and can lead to company growth and prosperity.
Increased government regulation has resulted in higher costs, which in turn has a negative impact on
project economics. Governments are taking a greater share of oil and gas revenue and issue directives
that affect a variety of areas including lease sales, pollution control, pipeline approval, and price
regulation. Intangible factors such as legal or political conditions, environmental considerations, and
Integration of subsurface data with technology, economic analysis, and risk assessment will generate
effective plans for optimum development, and it is important to carry out this integrated evaluation at
an early stage.
As the field is developed expenditure rises steeply and the possibility of making changes to
development and production plans is greatly reduced. To put it simply, an integrated evaluation at the
pre-project phase is the key to optimizing value and commercial success in exploration and production
ventures.
The authors
Clive W. Duerden is a consultant engineer specializing in conceptual and cost engineering,
project controls, and risk evaluation on exploration and production projects. He has worked
in a consulting role for BP, Conoco, and Shell International and has gained more than 20
years' experience with upstream and pipeline oil and gas developments. He holds a BSc
degree in mechanical engineering from Salford University. E-mail: cwd@petroventures.com