Professional Documents
Culture Documents
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Reference Materials …
• SPE/WPC/AAPG/SPEE Petroleum Resources
Management System
• 2001 Guidelines for Evaluation of Reserves/
Resources
• Standards Pertaining to the Estimating and Auditing
of Oil and Gas Reserves Information
• SPE Oil and Gas Reserves Committee (OGRC)
Mapping Subcommittee Final Report, December
2005
Welcome
Introductions:
• Manage Resources
• Consistency
• Reporting
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Issues to be covered
• Resource Assessment Framework:
• The Project [SPE-PRMS 1.2]
• Commerciality [SPE-PRMS 2.1.2]
• Classification and Categorization [SPE-PRMS 2.0]
• Terminology – PR, CR and 3P vs. CR [SPE-PRMS 2.1.3]
• Incremental Projects [SPE-PRMS 2.3]
• Unconventional Resources [SPE-PRMS 2.4]
• Commercial Evaluations [SPE-PRMS 3.1]
• Economic Limit, Fuel Gas, PSCs, Entitlement, Contract Limit
• Estimating Methods [SPE-PRMS 4.0]
• Deterministic and Probabilistic,
• Volumetric, DCA, Simulation
• Aggregation
• Portfolio Optimisation and Management
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[SPE-PRMS 1.1]
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SPE PRMS
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SPE PRMS
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Risk Measures
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Chance of Discovery/Commerciality?
Probability of success?
% chance of “success”
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Rules of thumb …
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HIGH
Multiple wells 0.1 – 0.3 0.8 – 1.0
Good quality seismic (mainly 3D)
Petroleum system well understood
CONFIDENCE
MODERATE
Some wells 0.2 – 0.3 0.5 – 0.7 0.7 – 0.9
Variable quality seismic (mainly 2D)
Knowledge of petroleum system
LOW
Regional knowledge; trendology 0.3 – 0.4 0.3 – 0.5 0.4 – 0.6
Evaluation uses analogues
Multiple, intersecting faults – Some fault seal concerns Simple fault pattern – fault
fault leakage seal
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Uncertainty
• Can be assessed either:
• Probabilistically … full range of uncertainty calculated
statistically, either by Monte Carlo simulation, or by the
Parametric method, or
• Deterministically, through evaluation of discrete cases to
represent low, best and high cases
• In principle, low should approximate P90 (ie 90% chance
that actual value will equal or exceed estimate), best
should approximate P50, and high should approximate
P10
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SPE PRMS
The Project
R&U Concepts
Classification and Categorization, on the basis of the
Project and R&U
Commercial Considerations
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30
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[SPE-PRMS 1.1]
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Note that “Probable” is an abstract concept that does not exist as a separate
entity in nature. We can estimate “Proved, 1P” and “Proved plus Probable,
2P”, but can only derive “Probable” by subtraction (ie 2P-1P)
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40
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100
100
100
100
100
100
10-50
0-15
N/A
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CoDev
CoC
CoDisc
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And …
[SPE-PRMS 2.1.3.3]
ECONOMIC STATUS
Marginal Contingent Resources – technically feasible
projects either currently economic or projected to be so
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Field A B C Total
Proved 30.1 3.3 4.6 38.2
Probable 10.5 1.1 3.2 14.7
Contingent 21.7 6.6 1.4 29.5
Total 61.5 10.9 9.3 82.0
And …
Estimated Resource Review
Area X Y Z Total
Proved 30.1 3.3 4.6 38.2
Probable 10.5 1.1 3.2 14.7
Low Risk 35.2 7.6 44.2 87.1
Exploitatio
n
Enhanced 40.4 0 123.5 170.0
Exploration
Total 126.5 9.0 175.3 310.4
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SPE PRMS
The Project
R&U Concepts
Classification and Categorization
Commercial Considerations
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50
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Contract Limit
120
100
80
40
20
Economic Limit
0
1 3 5 7 9 11 13 15 17
Time (years)
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Example, Company A
• Has had, for many years, a single licence to produce fields
in country O
• Licence due to expire in 2016, but cordial discussions
ongoing to extend
• A decides, internally, that up to 2006 (i.e. 10 years from
expiry), it has reasonable expectation of extension, and so
books post-2016 production as reserves
• At year end 2006, with discussions still ongoing, it re-
classifies country O volumes as contingent resources
• Is this correct? What effect should this have on investment
community from 2005 to 2006?
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CR versus 3P …
• There is sometimes unnecessary confusion as to whether a
project has Contingent Resources or 3P Reserves
• Confusion is unnecessary, because the criteria that a Project
has to satisfy to become a Reserve are clear, and generally
hinge on “commerciality” … if the project is commercial, it is
a Reserve, if not, it isn’t
• The confusion arises from an old (misguided) onshore US
practice of assessing Proved, Probable and Possible
Reserves independently, called the incremental or risk-based
method.
• PRMS makes this clear … but, question, does it work for
unconventionals?
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Aggregation 2 …
• In general, Reserves, Contingent Resources and
Prospective Resources should not be aggregated with each
other, as there are significant differences in Chance of
Commerciality between them
• The same argument is true, of course, for the subclasses of
CRs … in theory, each CR project should be risked,
individually, before a total CR for a region, or corporate, is
calculated
• We are not (yet) good at risking CRs so, aware of these
shortcomings, we sum unrisked CRs within each
subcategory
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60
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Reserves are …
• Those quantities anticipated to be commercially
recoverable by application of development projects to
known accumulations from a given date forward under
defined conditions
• They must satisfy 4 criteria:
• Discovered
• Recoverable (by the project, within contractual limits)
• Commercial
• Remaining
• Reserves are a subset of Resources
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Commerciality means …
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SEC
See http://www.sec.gov/rules/final/2008/33-8995.pdf
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70
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Reasonable Certainty
• If deterministic methods are used, it means there is a high
degree of confidence that the quantities will be recovered.
• If probabilistic methods are used, there should be at least a
90% probability that the quantities recovered will equal or
exceed the estimate.
• High degree of confidence means it is much more likely to
be achieved than not and, as new data are acquired and
evaluated, a “reasonably certain” EUR is much more likely to
increase or remain constant than to decrease.
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Reliable Technology
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(from www.eia.doe.gov/)
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See SPE Oil and Gas Reserves Committee, Final Report of the
Mapping Subcommittee, 2005
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UNFC to SPE-PRMS
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The overall classification is identical and the reserves definitions are very similar to those of
the SPE-PRMS.
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Estimation Methods
• Probabilistic vs Deterministic
• Tools … analogues, volumetrics, DCA, material balance
and simulation
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Deterministic vs Probabilistic
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Deterministic Calculation
- Proved
• Commercial Producibility
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Deterministic Calculation
- Common Abbreviations
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Deterministic Calculation
1P 2P 3P
Area (sq kms) 40 50 70
Thickness (m) 15 20 25
Porosity (%) 12 15 18
Oil saturation (%) 65 70 75
FVF 1.30 1.20 1.10
Rf (%) 25 30 40
RESERVES (MMBbl) 57 165 540
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Probabilistic Calculation
- Mathematical Basis
• Uncertainty in each parameter defined by
distribution
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Reserves Distribution
- Probability Density Function
K080 V5-39
90
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Input Parameters
LOW ML HIGH
Area (sq kms) 40 50 70
Thickness (m) 15 20 25
Porosity (%) 12 15 18
Oil saturation (%) 65 70 75
FVF 1.30 1.20 1.10
Rf (%) 25 30 40
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Output
(MMBbls)
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Probabilistic P(90)
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Deterministic Low
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• Easy to audit
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binary issue
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Uncertainty
• Can be assessed either:
• Probabilistically … full range of uncertainty calculated
statistically, either by Monte Carlo simulation, or by the
Parametric method, or
• Deterministically, through evaluation of discrete cases to
represent low, best and high cases
• In principle, low should approximate P90 (ie 90% chance
that actual value will equal or exceed estimate), best
should approximate P50, and high should approximate
P10
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Uncertainty - Examples
time
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Sources of Uncertainty
“Reserve Information is imprecise due to the inherent
uncertainties in, and the limited nature of, the database upon
which the estimating and auditing of Reserve Information is
predicated”
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Statfjord-New Forecast
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What we
observe at
in wells …
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Analogues
UKCS Oil Production
Selected Fields
8000
7000
6000
Rate (bpd)
5000
4000
3000
2000
1000
0
1986 1988 1990 1992 1994 1996 1998 2000
Year
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110
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Estimating Procedures …
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1300 1 5 00
1400
1200
2 0
30 15
12 W
C
C O
GO
20
15
C
W
O
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OWC?
HWC – Hydrocarbon Water Contact
For water contact can use seismic or
pressure gradient derived levels
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.750 750
.500 500
Recoverable
.250 250
Resources
0 0
MBO
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Input Distributions …
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120
Decline Curves
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History History
Forecast 1 Forecast 1
Trend 1 Trend 1
Forecast 2 Forecast 2
Trend 2 Trend 2
Oil Rate
Oil Rate
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1 b d i t b
Forecast
Trend
Oil Rate
qi - initial production rate at (t = 0) qi
b - hyperbolic exponent qt
di - nominal decline factor
qi 1
1 1 b d i t b
1
Nt (2)
d i 1 b
di - major parameter determined from historical data and used in the forecast
b - varies between 0 and 1, (determines the shape of the decline at late times),
two special cases: b 0 (exponential decline) b 1 (harmonic decline)
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Exponential Decline
Equation: qt qi e dit when b0 (3)
qt t (4)
Exponential decline is also referred to as constant decline function: e di t
qt
qi qt (5)
Similarly the cumulative oil produced is expressed Nt
as: di
Equation (3) can be expressed as: ln qt ln qi d i t (6)
In logarithmic expression, equation (6) can be rewritten as: log10 qt log10 qi Ci d i t (7)
Equations (7 and 8) are straight line expression that forms the basis of exponential decline analysis
Notes:
Exponential declines are used for 1P reserve estimates (high confidence case)
Exponential trends declines rapidly at late times as a result of the small value of hyperbolic exponent.
Straight line trends on plots of oil rates vs. cumulative production (linear axes – equation 8) and oil rate vs.
time (semi-logarithmic axes – equation 7) are commonly used for analysing exponential declines
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Harmonic Decline
qi
Equation: qt when b 1 (9)
1 d i t
qi qi (10)
Integrating equation (9), with respect to time to yield N t: Nt ln
d i qt
di
Equation (10) can be rearranged to give: ln qt ln qi Nt (11)
qi
Ci d i N t (12)
In logarithmic expression, equation (11) can be rewritten as: log 10 qt log 10 qi
qi
Equation (12) is a straight line expression when oil rate is plotted against cumulative production on
semi-logarithmic axes
Notes:
Harmonic declines are used for 3P reserve estimates (low confidence case)
Harmonic declines exhibit elongated tail at late times as a result of the high value (approaching 1) of the
hyperbolic exponent.
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Hyperbolic Decline
Hyperbolic declines results when 0 b 1 there are no straight line trends associated with this plot
The ratio between the rate at the start of a time step and the rate at the start of the preceding time step is a
declining function of t.
. The degree of conservatism of a hyperbolic function is inversely proportional to the value of b. Low values of b
gives more conservative forecast than high values of b and are more likely to be used to support proved reserves
Diagnostic Plots
The easiest trend for the human eye to identify is a straight line, as such when doing DCA straight line trends are
often as diagnostic plots.
A preference for straight lines trends limits prospective analyses to either exponential or harmonic decline since there
are no simple plots that result in straight lines for hyperbolic functions.
Straight line trends on logarithmic scales are effective in creating the illusion of a straight line which can
oftentimes be misleading, logarithmic scales also tend to “de-sensitize” data which may lead to an erroneous
selection of a representative decline trend.
For the purpose of reserves reporting, the use of straight line plots is strongly recommended.
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Diagnostic Plots
1. Oil rate vs. Time (linear-axes)
It is rare to use this plot for the purpose of DCA because
downtimes create gaps in the historical data.
Oil Rate
It is essential that this plot should include information such smooth transition
as historical production rates, the trend(s) fitted into the
license
historical data, the forecast(s) and truncation points. expiry
economic
Points to consider when using this plot for quality control rate
are;
Date
Transition from history into forecast
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Diagnostic Plots
2. Oil rate vs. Time (Semi-logarithmic axes)
transition
Downtimes exists as gaps in the historical
data, it also suffers from the limitations
discussed previously on logarithmic plots.
economic
This plot can be used to support other History
rate license
types of plots, its is advised that this plot Forecast
expiry
should not be used solely as the analytical Trend
tool in DCA
. Date
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Diagnostic Plots
3. Oil rate vs. Cumulative production (linear-axes)
This is one of the simplest and most useful plots for
DCA.
History
It reduces (but does not totally eliminate) the adverse Forecast
downtime
effects of downtime experienced with rate vs. time plots. Trend
point
Oil Rate
determining whether to use “calendar-day rates” or
“producing-day” rates. smooth
transition
For the vast majority of oil wells, this plot is very useful Economic
and is strongly recommended that this plot should be rate
made whenever DCA is being done.
license
In this plot as well as other plots the influence of Cumulative Oil Produced expiry
hyperbolic exponent b becomes more pronounced later
on while early on, the curve is dominated by the nominal
decline factor di.
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Diagnostic Plots
Downtime
Straight line trends on this plot results in highly point
optimistic reserves (3P). History Forecast
Smooth
This plot is rarely used for the determination of 1P transition
reserves unless compelling arguments can be
Oil Rate
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Diagnostic Plots
5. Water cut vs. Cumulative production (linear axes)
This is the classic plot for a well whose oil
production rate is declining as a consequence of
increasing water-cut. Common in mature active
water-floods or natural aquifer influx. 8.0 1.0
Wcut (Frac)
Smooth
Transition
Extrapolation of a water-cut trend can lead to 6.0 Economic
0.8
Liquid Rate
established. This plot should therefore be used as 0.6
the primary analysis tool when the water cut has 4.0 Actual Liq Rate
reached high values. 0.4 Forecast Liq Rate
Actual WCut
Forecast WCut
This plot is only recommended when it is 2.0
Trend
0.2
established that water-cut development is the History Forecast
License
expiry
cause of declining oil rates.
0.0 0.0
A major limitation of this plot is that it does not Cumulative Oil Produced
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Diagnostic Plots
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Oil Rate(Mstb/d)
such water cut diagnostic 12.0 Actual Liq Rate 0.8
Actual WCut
Wcut (Frac)
plots are unsuitable 9.0
QL (Mstb/d)
9.0 0.6
6.0
3.0
decline trend 3.0 0.2
0.0
0.0 0.0
0 20 40 60 80 100
Same initial oil rates were 0 20 40 60 80 100 Np (MMstb)
History
15
History
Since no straight line trends 1P Forecast 1P
1P Trend 12 2P
are hyperbolic, 2P forecasts
Oil Rate (Mstb/d)
10.0 3P
were determined as the
Oil Rate
9
Date
2P: 20.3 MMstb Np (MMstb)
3P: 26.4 MMstb 3P Plot, Log Qo vs. Np 1P, 2P and 3P Forecasts till
2050
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1P Trend
Oil Rate (Mstb/d)
QL (Mstb/d)
Same initial oil rates were Low water cut Good decline trend; 1P Plot, Qo vs. Np
used for all the profiles, thus 10.0
all the profiles start at the 1.5
History
same point 3P Forecast History
1.2 1P
3P Trend
2P
Oil Rate (Mstb/d)
1.0
Oil Rate (Mstb/d)
3P
Economic cut-off rate of 50 0.9
0.0
0.0
Reserves at 2050 are: 0 2 4 6 8
Jan-70 Jan-90 Jan-10 Jan-30 Jan-50
Date
Np (MMstb)
1P: 1.5 MMstb
2P: 1.8 MMstb 3P Plot, Log Qo vs. Np 1P, 2P and 3P Forecasts till economic cut
3P: 2.1 MMstb off rate of 50 stb/d is reached
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Wcut (Frac)
QL (Mstb/d)
1P Trend
0.2
1.0
decline trend
0.0
0 5 10 15 20 25 30 35
Np (MMstb) 0 10 20 30 40
Np (MMstb)
3.0
136
10.00
0.6
4.0
plots 3.0
0.4
1.00
Actual Liq Rate
Actual Liq Rate
plots)
Trend
0.0 0.0
0.01
0 5 10 15 20
Comparison of reserves
0 5 10 15 20 25
Np (MMbbls) Np (MMbbls)
1P Forecast 3P Trend
2P 3.6 2.6
Oil Rate (Mstb/d)
1P Trend
4.0
3P 4.2 3.5
3.0 1.0
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Wcut (Frac)
are also observed on the oil
QL (Mstb/d)
3.0 0.6
plots
1.00 Actual Liq Rate
2.0 0.4 Forecast Liq Rate
Actual Liq Rate Actual WOR
Forecast Liq Rate 0.10 Forecast WOR
1.0 0.2 Trend
plots) Np (MMbbls)
Np (MMbbls)
Comparison of reserves
(MMstb) at license expiry 5.0 100.0
History
for the two methods are:
History
3P Forecast
4.0 1P Forecast
3P Trend
1P Trend
Oil Rate (Mstb/d)
0.1
0.0 0 1 2 3 4 5 6
WCut plot reserves are 0 1 2 3 4 5 6 Np (MMstb)
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Typical examples of DCA plots 1P (Qg vs. Gp)
History
1P Forecast
Gas Fields: 60
1P Trend
Gas Rate (MMscf/d)
Well 1
40
Res. Bscf 10
1P 15
2P 38
3P 61
1
100 130 160 190 220 250
Gp (Bscf)
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250 History
1P Forecast
This example is from a North Sea gas field 200
is: Cumulative gas produced (Gp in Bscf) vs. Gas rate 100
(Qg in MMscf/d).
50
Refer to the provided spreadsheet for full analysis 3P (Qg vs. Gp)
History
3P Forecast
3P Trend
The table below shows the calculated 1P, 2P and 3P 100
Res. Bscf
10
1P 59
2P 134
3P 213 1
0 200 400 600 800
Gp (Bscf)
140
30
reserves.
Gas Rate (MMscf/d)
Res. Bscf
10
1P 4.3
2P 13.6
3P 22.9 1
0 10 20 30 40 50 60
Gp (Bscf)
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Conclusions
DCA is the most widely used tool in reserves estimation and production
forecasting
Since the basic assumption underlying all DCA is that whatever governs
decline in the past will continue in the future, this assumption may not be
valid if DCA is carried out at the reservoir or field level especially is there
is changing well count.
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Volumetric Reservoir
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Pi / Zi
P / Z
Gi GP
148
Pi/Zi
= (BGABD – BGI)/ BGABD
• Once an abandonment pressure has been decided a
recovery factor can be derived.
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Reservoir Pressure
P / Z at End of Plateau
Abandonment
Reservoir Pressure
GP
GPP GR G
Where GP = Cumulative Gas Production
GR = Gas Reserves
GPP = Reserves Produced on Plateau
P = Reservoir Pressure
Z = Gas Deviation Factor
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Production
Rate/Year
TIME
Build Up Period - Affected by drilling rate and number of
wells to achieve plateau.
Plateau Production period - Affected by sales contract.
Decline Phase - Once wells are unable to meet/maintain
plateau rate.
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Effects of compression on
Recovery factor
Reservoir Pressure
P / Z Without Compression
P1
Reservoir Pressure
P2
With Compression
GP
GR1 GR2 G
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PABD
GP
GR1 GR2 G
156
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Summary
• What class?
• Reasonable production
history, or not?
Volumetrics / Analogue
• Deterministic or
• Probabilistic?
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Commercial considerations
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Contract Drivers
• Ownership of resources
• In the ground/at wellhead
• At point of fiscalization/export
• Not at all
• Payment
• Disposal of hydrocarbons
• Cash
• Economic drivers
• Fully exposed to price risk
• Driven through amount of investment ("cost plus")
• Operational freedom
• All decision made by investor
• State as partner/approver of spending decisions
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Ownership of In ground or at
Resources wellhead At export Not at all
Cash
Payment Hydrocarbon Hydrocarbon
fees/buyback
sales sales
arrangement
Economic Investment/fixed
Drivers Price Investment returns
NOC, if it exists,
Govt. may be carried Generally carried
Participation or "heads up" through PSC Similar to PSC
partner structure
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Concession Agreement
• Concessionaire has exclusive right to explore for and exploit
petroleum at its own risk
• Concessionaire owns production and can freely dispose of it
(though it may have an obligation to supply the local market or
be subject to government prices)
• Payments to host government:
• Royalties (cash or kind)
• Taxes (hydrocarbon, corporation)
• Rentals, bonuses
• The equipment and installations used for petroleum operations
usually belong to the Concessionaire
• May revert to State at cessation of activities
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Association Contract
• A variant on Concession or PSC
166
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"Buy-back" Contracts
• Developed for the introduction of private capital into the Iranian
oil sector
• Contractor funds all investments and develops field; NIOC assumes
operations post-development
• Short-term contract (7-8 yrs)
• Costs and profit remunerated via production from specified
maximum
• Provides a "guaranteed" rate of return - subject to reservoir and
cost performance
• Do not work in practice for exploration. Up until recently no
guarantee of link to development, and even now only partial
• Is a Risk Service contract, with contractor collecting returns in
oil of equivalent value
• Guarantees export market
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Case study
Ormen Lange
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0 10 20 km
LEGEND
Gas Field
Gas Pipeline
Proposed Pipeline
License Block
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Ormen Lange
• 40km x 12km
• Nearly 500 sq kms but has only four 20cm holes
in it!
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172
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Ormen Lange
Reserves Status
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Ormen Lange
What is the Issue?
Gross 1P % of NPD MMbbl
Reserve Gross 1P
Mean Mean O.E./1%
NPD 2,500 NA NA 25.0
Shell Pre - 1,503 60.1 15.0
Shell Post - 528 21.1 5.3
Hydro - 1,859 74.4 18.6
BP - 2,021 80.8 20.2
Statoil - 625 25.0 6.2
NOTE: Table from Company Press Releases, Exxon have not released
a statement on their Ormen Lange reserves position. All companies
have stated they are not changing their position at present (March ’04)
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Ormen Lange
Available Data
• Well
• 4 wells drilled between 1997-2002
• 6305/5-1 Wildcat, 1997 – PA Gas Discovery
• 6305/7-1 Appraisal, 1998 – PA G/C Discovery. DST Gas
• 6305/8-1 Appraisal, 2000 – PA G/C Discovery
• 6305/4-1 Appraisal, 2002 – PA Gas Discovery. DST Gas
• All encountered gas
• 2 wells encountered condensate
• 1 well encountered oil leg
• Average well depth 10,000 ft TD
• Seismic
• 3D seismic covering the fields structural closure
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Why did Shell downgrade?
“Shell has cut its estimates of Ormen Lange
reserves because it used 3D seismic data as the
basis for estimating volumes between well control
points. This is not sufficient according to the SEC’s
strict guidelines...”
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Ormen Lange
Comments from the Majors?
• Comments from the Press, March 2004..
• Shell
• “Shell will reduce its proven reserves from this field from 256 million
to 90 million boe...” Press
• Hydro
• “Norsk Hydro has not made any changes to the 336 million boe
reserves number it has placed with the SEC…” Press
• BP
• “BP is about four times as optimistic, with about 20 million boe
booked as proved per one percent..” Press
• “We are completely confident of the reserves we have booked…are
the standard set forth in the SEC regulations.” BP Press Statement
178
0 10 20 km
LEGEND
Proved Developed + Undeveloped
Other Reserves and/or Resources
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179
0 10 20 km
LEGEND
Existing well reserves
Offset locations
Other Reserves and/or Resources
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Process Summary
Portfolio Management …
Strategy Formulation
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C ha nce
V a lu e
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High
Estimate
3C
Estimated Ultimate Recovery
3P
Range
Best
of
Estimate
Uncertainty 2C 2P
Field
Abandonment
1P
1C
Low
Estimate
Time (years)
HYDROCARBON VOLUMETRICS
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Volumetric Formula
Hydrocarbons in place Uncertainty
STRATEGIC PLANNING
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Strategy Development
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PORTFOLIO OPTIMISATION
Portfolio Optimisation??
• Portfolio optimisation
• An analytical / quantitative approach to
strategy formulation
• “Value” of an asset is its incremental
value to the portfolio
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Each point is
a possible
portfolio
Risk Measure
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“Base Business”
Do nothing case
Time (Years)
M o n te C a rlo
E c o n o m ics
Portfolio generation
IN OUT IN OUT
Objective (maximise or
minimise for eg prod rate Time
or NPV, or exposure)
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Summary …
Sophisticated portfolio analysis techniques can optimize and
identify strengths and weaknesses in current portfolio and hence
contribute significantly to portfolio management
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205
206
Thank You
103