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Nov 02, 2022 243 likes •625 views

Primary funding is provided by The SPE Foundation through member donations and a contribution from Offshore Europe The Society is grateful to those companies that allow their professionals to serve as lecturers Additional support provided by

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Primary funding is provided by

The SPE Foundation through member donations and a contribution from Offshore Europe

The Society is grateful to those companies that allow their professionals to serve as lecturers Additional support provided by AIME

Society of Petroleum Engineers Distinguished Lecturer Program

www.spe.org/dl

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\30 min preso-Naylor.Pete9.pptx

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Society of Petroleum Engineers Distinguished Lecturer Program

www.spe.org/dl

Pete Naylor

Making better Appraisal & Development Decisions Using Decision Risk Analysis & Value of Information

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a wholly owned subsidiary of Shell

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SLIDE 3

Aims of this presentation

  • To introduce Decision Risk Analysis (DRA)
  • To provide an understanding of ‘value of

information’ (VOI) analysis

– When? – Why? – How?

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What is Decision Risk Analysis?

  • A structured process to help stakeholders
  • ptimise their decision making in the face of

risks & uncertainties

  • Involves a combination of

– Facilitation – Modelling

  • Term first used by Ron Howard in 1966

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What is Decision Risk Analysis?

  • A structured process to help stakeholders
  • ptimise their decision making in the face of

risks & uncertainties

  • Involves a combination of

– Facilitation – Modelling

  • Term first used by Ron Howard in 1966

Why is DRA not used more widely?

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SLIDE 6

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Barriers to using DRA

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SLIDE 7

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 50 100 150 200 250

Market cap growth factor

(from 2002 to 2012)

Market capitalisation $US bn

(in December 2002)

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How can you deliver superior performance…?

Best in class

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SLIDE 8

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A great answer to the wrong question is useless Secure consensus amongst stakeholders Too complex for intuition? Eg: early production vs NPV If there is only

  • ne choice then

there is no decision Allow for risks & uncertainties correctly

…focus on delivering Decision Quality

Commit- ment to action Achievable alternatives Appropriate frame Useful information Clear values & trade-offs Sound reasoning

Decision Quality

Matheson & Matheson 1998

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SLIDE 9

A range of decision making approaches are available

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  • Voting
  • Threat/benefit log
  • Weighted ranking
  • Absolute ranking
  • Probability x impact ranking
  • Cost/schedule risking
  • Value of information analysis
  • Fully integrated asset modelling
  • Value of information analysis

Increasing effort

Quantitative Qualitative

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When might VOI analysis be valuable?

  • Facing multiple decision options
  • Outcomes are uncertain
  • Opportunity to acquire additional information
  • Information costs money and/or time

Is the additional information worth the cost?

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Why might VOI analysis be valuable?

  • The additional information might reduce

future uncertainties

  • The best decision option might change in

the light of the new information If no decisions change, think carefully about acquiring the new information

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Key questions

  • How much does the information cost?

– Acquisition, analysis, delay to development

  • How reliable is the information?

– Will the measurement fail? – False results (imperfect information)?

  • How useful is the information?

– How significant is the parameter(s)? – What difference will the information make?

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How do I undertake a VOI analysis?

  • Case example

– Should an appraisal well be drilled in the North Extension? – Should the North Extension be developed?

  • A new user took < two hours to learn the

software & complete this analysis

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Influence diagram

Lays out the components of the frame

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Res- erves NPV PI Actual GIIP RF Actual hydrocarbon presence

Value Chance Decision KEY

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Decision tree

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Reserves = Presence * GIIP * Recovery Factor Base case: Yes + Nominal + Nominal

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Base case: reserves for North Extension

This should not be the basis of your business case

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Base case = 78MMboe

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Risk profile: reserves for North Extension

Illustrates the range of possible reserves Expected value = 40MMboe Probability of no hydrocarbons is (1-0.65) = 0.35

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Base case = 78MMboe

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Influence diagram

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Res- erves NPV PI Actual GIIP RF Actual hydrocarbon presence

Value Chance Decision KEY

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Influence diagram extended to include appraisal

Measured HCP depends on actual state of nature Conditional probabilities

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Res- erves Appraisal cost Develop- ment cost NPV per boe NPV PI Actual GIIP RF Actual hydrocarbon presence Measured hydrocarbon presence Measured GIIP Initial decision Sanction develop- ment?

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Conditional probabilities: hydrocarbon presence with perfect information

Captures the reliability of the measurement

Yes 1 No Yes Measured hydrocarbon presence Yes No 1 No Measured hydrocarbon presence Actual hydrocarbon presence

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.35 .65 5

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Conditional probabilities: hydrocarbon presence with imperfect information

Captures the reliability of the measurement

Yes .8 No .2 Yes Measured hydrocarbon presence Yes .05 No .95 No Measured hydrocarbon presence Actual hydrocarbon presence

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.35 .65 5

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Conditional probabilities: hydrocarbon presence with no information

Captures the reliability of the measurement

Yes .65 No .35 Yes Measured hydrocarbon presence Yes .65 No .35 No Measured hydrocarbon presence Actual hydrocarbon presence

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.35 .65 5

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Influence diagram

Conditional probabilities

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Res- erves Appraisal cost Develop- ment cost NPV per boe NPV PI Actual GIIP RF Actual hydrocarbon presence Measured hydrocarbon presence Measured GIIP Initial decision Sanction develop- ment?

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Influence diagram extended to include economics

Which decision options give the best NPV? Net Present Value = Reserves*(OpsNPV/boe)-capex

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Res- erves Appraisal cost Develop- ment cost NPV per boe NPV PI Actual GIIP RF Actual hydrocarbon presence Measured hydrocarbon presence Measured GIIP Initial decision Sanction develop- ment? Appraisal capex Develop- ment capex Opera- tional NPV per boe

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Decision tree

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Low NPV Nominal NPV High NPV Low Nominal High RF Yes No Actual GIIP s Actual hydrocarbon presence n p-

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Decision tree extended to include appraisal

Captures the time order of events

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Low NPV Nominal NPV High NPV Low Nominal High RF Yes No Actual GIIP Yes No Actual hydrocarbon presence Low Nominal High Sanction develop- ment? Yes No Measured GIIP Appraise Measured hydrocarbon presence Low NPV Nominal NPV High NPV Low Nominal High Yes No Yes No Develop Yes NPV No NPV Walk_away Initial decision

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NPV risk profile: develop now

Illustrates the range of possible NPVs Expected value = $60MM

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Develop @ $300MM & find no hydro- carbons

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NPV risk profile: appraise, no information

Spend $40MM on appraisal but get no information

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NPV decreased by $40MM

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NPV risk profile: appraise, perfect information

With perfect information only develop when net gain

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NPV risk profile: appraise, imperfect information

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Risk appetite: which choice would you make if appraisal cost $80MM?

What NPV would you sacrifice to avoid downside?

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Two-way rainbow diagram

Green is where appraisal gives highest expected NPV

Develop now Appraise now Walk away

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Summary: Decision Risk Analysis

  • DRA can help you
  • ptimise not just

satisfy

  • Select an appropriate

decision making approach

  • Focus on delivering

decision quality

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Commit- ment to action Achievable alternatives Appropriate frame Useful information Clear values & trade-offs Sound reasoning

Decision Quality

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Summary: Value of Information (1)

  • When?

– Facing a number of decision options – Outcomes are uncertain – Opportunity to acquire additional information – Information costs money or time

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Summary: Value of Information (2)

  • Why?

– Additional information might reduce future uncertainties – Best decision option might change with new information

  • How?

– Invest two hours and get a Decision Analyst to show you how

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Legal notice

“No representation or warranty, express or implied, is or will be made in relation to the accuracy or completeness of the information in this presentation and no responsibility or liability is or will be accepted by BG Group plc or any of its respective subsidiaries, affiliates and associated companies (or by any of their respective officers, employees or agents) in relation to it.”

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Society of Petroleum Engineers Distinguished Lecturer Program

www.spe.org/dl

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