As part of the business cycle every manager needs a clear understanding of the risks he is taking. This paper presents a brief overview of the main contributions made in the exploration and production stages, followed by a summary of the main trends in the context of an exhaustible resource. From the projected cash flows and required investments, the annual rate of return and other project economic indicators can be extracted to. Introduction reservoir engineering requires to manage sources of uncertainty that can be classified in two. Belhaj, has 30 years of combined petroleum industry and academic experience with key qualifications in drilling engineering, well completion, reservoir engineering, reservoir simulation, modeling fractured reservoirs, well stimulation, sand production control technology, and petroleum economics and risk analysis. Uncertainty quantification and risk analysis for petroleum. Handling risk and uncertainty in petroleum exploration and. Risk analysis, prospect evaluation and exploration economics. Behind the application of this theory lies an analysis of human behavior in relation to risk, as possibly being riskaverse, riskneutral or riskseeking. Risk, uncertainty and decisionmaking in the upstream oil.
Presented at the spe asia pacific oil and gas conference, kuala lumpur, malaysia, 2022 march 1995. Paul newendorp began his career in 1959 as a petroleum engineer. In our latest podcast interview, malcolm explains why the society chose risk as its 2017 theme, and how risk and. Gouveia worked in a variety of technical and managerial assignments in exploration, production and reservoir engineering, strategic. It is therefore not surprising that project feasibility and economic analysis. Improving our ability to quantify and characterize geothermal resource risk and uncertainty would, ideally, lead to more successful projects.
The utility expected value of a project is given by. Demirmen 1 asserts that the types of development risks that need to be. Suslick and others published uncertainty and risk analysis in petroleum exploration and production find, read and cite all the research you need on researchgate. In 1968, he developed a twoweek short course on petroleum exploration economics and risk analysis. Uncertainty and risk in petroleum exploration and development. Petroleum economics plays a vital role in the oil and gas industry and it lies at the heart of all decisionmaking. Each year, oil and gas companies lose 10 percent of their assets worldwide.
Current practice in investment appraisal in the upstream oil and gas industry 126 6. Evaluating for uncertainty generates a range of values for the projects metrics although the output may not adequately describe the ranges of possible outcomes for the project. Keywords uncertainty, risk analysis, decision analysis, portfolio. Several techniques of assessing the uncertainty in predicting and forecasting reserve estimation have. Risk and volume assessments form the basis for decisions to drill a well or not, and as such form the link between subsurface evaluation and the business aspects of the petroleum industry. Our main concern is the impact uncertainty has on petroleum investment.
Risk analysis applied to petroleum exploration and production. Applications of risk analysis in petroleum exploration and. This course deals with estimation under uncertainty through probabilistic estimation. Project risk, uncertainty, and decision analysis training. Methods of exploration and production of petroleum resources. Understand uncertainties surrounding the petroleum industry and consequently the magnitude of the risk taken to invest in this vibrant industry. So, if you want to want to mitigate the effects of risk and uncertainty the first requirement is to make sure all these people are involved. However, uncertainty and risk analysis are becoming more popular as new hardware and software advances appear, contributing in an important manner to clarify the range and the impacts of new discoveries as well as development and production assets. During the past decades, there have been some significant improvements in risk analysis applied to petroleum exploration and production. Our approach data integration, risk assessment and quantification of uncertainty are key issues in petroleum exploration and development. The series was kicked off in january by geological society president malcolm brown, who gave a talk entitled risk and uncertainty in exploration for oil and gas.
This is an update of the 1975 bestselling text, which became the standard reference in the field. Technological advancements have helped with breaking challenging barriers and developing wellestablished production strategies in a way that risk analysis and decisions have become vital components of this process. Kirkwoodrisk analysis and petroleum explorationimplementation and interpretation. This book is a guide to the basic economics of petroleum. Uncertainty and risk analysis in petroleum exploration and production. Risks associated with the exploration and production of.
It impacts from the bp oil spill, ei224330, july 2010, idc energy insights. During this course, participants will learn multiple approaches to modeling decisions for oil and gas projects. Oil and gas exploration is a high risk, high cost and high reward industry. Exploration drilling for oil and gas involves numerous risks including the risk of dry holes or failure to find commercial quantities of hydrocarbons.
Production curve optimization is also necessary to ensure that maximum recovery is achieved for every well and reservoir. Handling risk and uncertainty in petroleum exploration and asset management. This special issue is dedicated to show some contributions and developments of risk analysis applied to petroleum exploration, field appraisal and development, production forecast under uncertainty, decision. The emphasis here is on the establishment of a workflow, preparation and description of the focal database representative of the real field scenario. Uncertainty and risk analysis in petroleum exploration and. Geophysics, geology, petrophysics, reservoir engineering, production engineering, economics, business strategy they are all involved. Risk infers that there is some material implication in the outcome. Risk analysis american association of petroleum geologists. Upon completion of this uncertainty, risk, and decision analysis in the petroleum industry programme at universiti teknologi petronas, participants will be able.
The costs of drilling, completing and operating wells have margins of uncertainty, and drilling operations may be unsuccessful as a result of a variety of factors, including unexpected drilling. Probability weighting of reserve estimates 238 risk capacity 241 exploration and production probabilistic analysis 243 failure 244 value of success 245 the model 247 central limit theorem 249 timing risks 249. He later earned ms and phd in petroleum engineering from u. Planning for risk and uncertainty in oil exploration. This cd reprint of the special edition of the october 2008 aapg bulletin comprises 11 papers on the subject of managing risk and uncertainty in exploration and asset. Suslick unicamp, institute of geosciences and center of. How can we manage risk and subsurface uncertainty in. Methods 12 cd risk analysis and management of petroleum. Evaluation of exploration projects and decision trees. The most common uncertainties are related to geological features such as structures, seals, and faults. Geological risk and uncertainty in oil exploration answers this need by identifying the various uncertainties associated with basin analysis and incorporating this information into.
It is well known and documented that exploration of hydrocarbons is inherently a highrisk activity given a large number of uncertainties that may be present at any particular stage. Traditional methods of economicfinancial analysis are based on the discounted. Uncertainty and risk analysis in petroleum exploration and production saul b. And the widespread adoption of standardized risk analysis methods during the 1990s brought badly needed discipline to petroleum exploration. This course will also highlight a proven process and technology for decision analysis, which is used by companies worldwide. Our 2017 london lecture series is now well underway, with several of the talks relating to the 2017 year of risk. Optimize exploration and production from mature fields. Often the uncertainties are considered subliminally. The articles discuss some of the latest technologies, modeling approaches, philosophies, and. The 10 articles that follow in this thematic set cover risk and uncertainty across all stages of field life and from individual fields to portfolios. As the level of information increases, these uncertainties are mitigated and consequently the importance of the uncertainties related to the recovery factor increases. Investment analysis has become more complex and more critical for corporate success with the high volatility in energy markets as well as an increased number of exploration and development projects in challenging technical, political and operating environments. Taylor encyclopedia of life support systems eolss 3. Decisionmaking process under uncertainty in international.
This special issue is dedicated to show some contributions and developments of risk analysis applied to petroleum exploration, field appraisal and development, production forecast under uncertainty, decisionmaking process, portfolio management, and real options approach. Petroleum exploration and production is a high risk petroleum exploration and. Introduction to risk analysis and risk discount rate. It is also that uncertainty that makes these considerations ideal candidates for using risk analysis methods. Risk matrix for exploration portfolio analysis and management. Planning for risk and uncertainty in oil exploration sciencedirect. Decisionmaking process in a petroleum field devel opment is complex due to the interdependence of uncertainties, oil recovery and production strategy. Geotechnical estimates under uncertainty risk analysis. Risk analysis applied to petroleum exploration and. V methods of exploration and production of petroleum resources ione l. Risk and uncertainty are important factors in petroleum engineering, which must be analysed and emphasised especially in the areas of exploration and reserves estimation1. Suslick and others published uncertainty and risk analysis in petroleum exploration and production find, read and cite all.
Uncertainty and risk evaluation during the exploration. By the mid1980s, most wellinformed major international petroleum firms that were engaged in exploration recognized that, globally, the average size of new discoveries was diminishing. On the other hand, economic evaluations contain uncertainties. Exploration geologic risk assessment and prospect evaluation.
Describe a simple system of classification for factors, giving rise to investment risk. Performing prudent investment evaluation becomes even more critical in the lower crude oil price environment andor development of marginal fieldprojects. This special issue is dedicated to show some contributions and developments of risk analysis applied to petroleum exploration, field appraisal and development, production forecast under uncertainty, decisionmaking process, portfolio management, and real. This course explains how risks and volumes can be assessed in a realistic manner, based on a sound understanding of the geological details of the prospect as. Effective decisions that minimize risk exposure while maximizing project value result from a proper understanding of risk and uncertainty in petroleum exploration and asset managment across all stages of field life. Petroleum exploration and production is a high risk petroleum exploration and production is a high risk business venture due to the inherent degree of uncertainty. Although there is profuse literature on decision making, risk, and uncertainty in petroleum exploration and production, to the best of our knowledge there is a clear lack of approaches for the. Risk analysis is a method of quantifying the effects of uncertainty on decision outcomes. Risk and uncertainty can be related at times, however sometimes uncertainty carries no material risk. There is a strong need in the geothermal sector to reduce risk and uncertainty, especially in the exploration stage. Geologic concepts are uncertain with respect to structure, reservoir seal, and hydrocarbon charge. Pdf uncertainty and risk analysis in petroleum exploration and.
Vi risk and uncertainty 2280 certainty, uncertainty and risk 214. The best decision to be made in investments under risk and uncertainty is defined with the aid of the utilityfunction through the utility expected value uev maximization criteria. Chapter 6 petroleum economics uncertainty and risk. This is highly evident in the oil exploration and production projects which are associated with numerous risk and uncertainties. We focus on identifying the key manageable parameters. During the past decades, there have been some significant improvements in uncertainty and risk analysis applied to petroleum exploration and pro duction. This special issue is dedicated to show some contributions.
Probability of success, analysis of economic risk in oil exploration. Portfolio analysis, like risk analysis, attempts to assess projects based upon the expected return on investment and its perceived risk and uncertainty. Decision analysis for petroleum exploration, second. During the exploration phase, major uncertainties are related to volumes in place and economics. Applications of risk analysis in petroleum exploration and production operations. Substantial investments are required for gas and oil exploration and production projects. Exploration and production of hydrocarbons in this paper encompass all the activities, such as. Uncertainty, risk, and decision analysis in the petroleum. Impact of ringfencing and the state participation in the decisionmaking process. Risk and uncertainty in petroleum exploration kraken. The art and science of identifying, analyzing and responding to risk factors throughout the life of a project. Application of risk and decision analysis petrowiki. Risk and uncertainty in exploration for oil and gas. This book introduces the reader to ways of applying risk and decision analysis to the analysis of investment decisions under uncertainty in petroleum exploration.
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