The key objective of an appraisal strategy for an oil or gas discovery is to optimize the value of a future development and to gauge the timing of a significant investment. Defining an appraisal strategy is characterized by making impactful choices based on very limited data.
Managers in oil and gas companies will have to decide on trade-offs dealing with a range of possible discovered volumes and uncertain hydrocarbon types. Variables such as recovery factors, production rates, lifecycle cost assumptions, product pricing and access to markets also play a key role in determining the value of a discovery. Furthermore, agreements need to be reached regarding the appraisal program with partners, regulators, suppliers and sometimes NGOs. Managers will have to rapidly present a plan based on incomplete data and seek alignment for multi-million to multi-billion US$ investment decisions covering appraisal campaigns, funding solutions, possible equity changes, etc.
Challenges when defining an appraisal strategy
How do managers find the right balance between minimizing appraisal costs and time whilst acquiring sufficient data to make the right development decisions? The technical team will propose a data acquisition plan to narrow down subsurface uncertainties, sometimes supported by a value of information (VOI) exercise, but it is difficult to establish the true value of each appraisal component.
A good way to start is to separate the uncertainties into 2 groups:
1. Uncertainties regarding range of recoverable volumes.This can be divided further into:
• measurement uncertainties such as porosity or hydrocarbon saturations, and
• uncertainties reflecting subsurface concepts such as an additional fault block, a different assumption on pressure support or compartmentalization or deeper hydrocarbon contact
2. Uncertainties of project and lifecycle cost, timing, product prices and commercial aspects.
The most informative way to display these uncertainties is by using ‘Tornado charts’ showing both the volumetric uncertainties as well as these other project uncertainties, see below.
To rank appraisal objectives is an often competitive multi-disciplinary challenge where:
• explorationists focus on the size of the discovery
• development geologists focus on reservoir prediction between wells
• petroleum engineers focus on permeability, connectivity and reservoir energy
• well engineers focus on pressures and drilling challenges
• engineers focus on rates, costs, hydrocarbon compositions and BS&W developments
• economists look at optimising value combining all of the above with product value, tax and time
A common approach is to look at feasible development concepts by considering a number of “typical” development concepts for the high, mid and low case recoverable volumes and estimate the NPV for these notional plans. Examples are “lowest costs”, “maximize ultimate recovery” or “maximize value” concepts. Making the step from these conceptual developments towards the ranking of appraisal objectives through reduction of uncertainties is often not straightforward.
A better approach to determine most important appraisal objectives is to construct a Volumes vs. Value chart shown below. This works best when the development concepts are defined as a staircase with modular elements.
The range of recoverable volumes is displayed along the horizontal axis with the NPV at the desired discount rate along the vertical axis. In this chart the mid case NPV’s are calculated for the full range of recoverable volumes for the modular development and are expressed conceptually by the green, red and blue dashed lines. The black dashed lines represent the low and high case NPV for the most attractive development choices along the recoverable volume range and highlight the relevant impact of these uncertainties based on costs, product price and time assumptions.
This chart provides a good insight into what volumetric uncertainties ranges are really important for the choice of development concept (indicated by the orange arrows) and thereby allows for a better definition and ranking of the key appraisal objectives.
A better Result
The approach described above will lead to a more focused and more cost effective appraisal strategy. This is fully embedded in the ValVestris decision support approach and builds on the learnings gained from maturing >100 projects from discovery to development contained in ValVestris’ knowledge management system ‘iVal’. The global experience of the team members combined with the integrated nature of the ValVestris support process ensures the best possible deployment of these learnings.