596 Pet.Sci.

(2013)10:596-602
'2,V

Modeling optimal oil production paths under risk

service contracts
Luo Dongkun and Zhao Xu
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Abstract:'XHWRWKHULJRURXV¿VFDOWHUPVDQGKXJHSRWHQWLDOULVNRIULVNVHUYLFHFRQWUDFWVRSWLPL]LQJ
RLOSURGXFWLRQSDWKVLVRQHRIWKHPDLQFKDOOHQJHVLQGHVLJQLQJRLO¿HOGGHYHORSPHQWSODQV,QWKLVSDSHU
DQRLOSURGXFWLRQSDWKRSWLPL]DWLRQPRGHOLVGHYHORSHGWRPD[LPL]HHFRQRPLFEHQH¿WVZLWKLQFRQVWUDLQWV
of technology factors and oil contracts. This analysis describes the effects of risk service contract terms on
SDUDPHWHUVRILQSXWVDQGRXWSXWVDQGTXDQWL¿HVWKHUHODWLRQVKLSVEHWZHHQSURGXFWLRQDQGSURGXFWLRQWLPH
revenues, investment and costs. An oil service development and production project is illustrated in which
the optimal production path under its own geological conditions and contract terms is calculated. The
LQÀXHQFHVRIRLOSULFHVHUYLFHIHHVSHUEDUUHODQGRSHUDWLQJFRVWVRQWKHRSWLPDOSURGXFWLRQKDYHEHHQ
examined by sensitivity analysis. The results show that the oil price has the largest impact on the optimal
production, which is negatively related to oil price and positively related to service fees per barrel and
operating costs.

Key words: Risk service contract, optimal production path, nonlinear programming, service fees per
barrel, sensitivity analysis

1 Introduction
An oil contract and its fiscal terms are the legal
documents of a host country government and they determine
the control level of the government on oil resources and
how to distribute the benefits between the government and
ULVNV0HDQZKLOHWKH,2&UHFRYHUVWKHFRVWVIURPWKHVDOHV
revenue and obtains service fees in an agreed proportion
(Wang, 2007). Rigorous fiscal terms, high bonuses, service
fee ceilings, government participation, and service fees
controlled by RIDFWRUV$FFUXHGQHWHDUQLQJV$FFUXHGWRWDO
expenditure) and performance factors, limit the income level
LQWHUQDWLRQDORLOFRPSDQLHV,2&=KRXDQG=KHQJ DQGH[FHVVUHWXUQWRWKH,2&FDXVHGE\LQFUHDVHVRIRXWSXW
2LOFRQWUDFWVUHÀHFWWKHLQWHUQDWLRQDORLOFRRSHUDWLRQPRGHV and oil price (Wood Mackenzie, 2010). The potential risks
5R\DOW\WD[FRQWUDFWVSURGXFWLRQVKDULQJFRQWUDFWVDQGULVN DQGEHQH¿WVIRU,2&DUHXQHTXDOXQGHUULVNVHUYLFHFRQWUDFWV
VHUYLFHFRQWUDFWVDUHZLGHO\XVHGZRUOGZLGH'DQLHO
Although the countries and areas using risk service contracts
DUH PXFK OHVV WKDQ WKRVH XVLQJ UR\DOW\WD[ FRQWUDFWV DQG
production sharing contracts in volume terms, the risk service
contracts are mainly used in the oil producing countries with
very large reserves in the Middle East and South America.
The number of countries using risk service contracts has
EHHQLQFUHDVLQJLQUHFHQW\HDUVHVSHFLDOO\DIWHU,UDT
and Ecuador etc. abandoned previous production sharing
contracts and turned to risk service contracts, thus this mode
Therefore in this paper, we investigate optimal production
SDWKVWRPD[LPL]HWKHUHWXUQVIRUWKH,2&ZKLFKLVKHOSIXOWR
LQFUHDVHWKHLQYHVWPHQWEHQH¿WVDQGUHGXFHULVNV
Along with the risk service contracts being commonly
XVHG LQ ,UDT DQG FRXQWULHV LQ 6RXWK$PHULFD VFKRODUV DUH
paying more attention to this type of contract. Guo and
Han (2009) analyzed the change from production sharing
FRQWUDFWVWRULVNVHUYLFHFRQWUDFWVLQ,UDTLQWKHODVWWZHQW\
years, and compared the characteristics of the two types of
contracts. Hao et al (2011) studied risk service contracts and
of contact is gradually preferred by host countries (Guo
et al, 2010). The most important features of risk service
contracts are that the governments of host countries own
the exclusive operating rights on the contractual block and
VHOOLQJULJKWVIRUWKHSURGXFHGFUXGHRLO+RZHYHUWKH,2&
provides all the funds and technical services in the process
of exploration, development and production and bears all the
WKH UHYHQXHV GLVWULEXWLRQ V\VWHP LQ ,UDT /LX HW DO 
investigated the nationalization of oil resources in Ecuador,
and analyzed its risk service contract. Su and Yu (2012)
GHVFULEHG WKH LQYHVWPHQW HQYLURQPHQW LQ9HQH]XHOD DQG
DQDO\]HGWKHVHUYLFHFRQWUDFWVIRUROGRLO¿HOGVDQGPDUJLQDO
fields. Ebrahimi and Khouzani (2003) made a comparison
between service contracts and buy-back contracts. Reiter and
%ROOLQJGLVFXVVHGWKHLQÀXHQFHVRISURGXFWLRQVKDULQJ
*Corresponding author. email: zx_1210d@hotmail.com
contracts and risk service contracts on reserves reporting.
5HFHLYHG-XQH
For production optimization, Rao (2000) established
Pet.Sci.(2013)10:596-602 597

a dynamic non-linear programming (NLP) model with Correspondingly, the expense disbursement and service
minimum discounted present value of overall economic
cost as the objective, and applied it in upstream investment
LQ ,QGLD DQG ILQDOO\ REWDLQHG WKH RSWLPDO SURGXFWLRQ
programming. Ravagnani et al (2012) developed the
RSWLPDOH[WUDFWLRQVWUDWHJLHVXQGHUUR\DOW\WD[FRQWUDFWVDQG
SURGXFWLRQVKDULQJFRQWUDFWVLQ%UD]LODQGJRWWKHRSWLPDO
well numbers, production and contractor takes. Helmi-Oskoui
UHYHQXHVZLOOFKDQJHVRGRHVWKHQHWSUHVHQWYDOXH139
(YHQIRUWKHVDPHFRQWUDFWW\SHWKHVSHFL¿FWHUPVLQGLIIHUHQW
FRXQWULHV ZLOO YDU\ %XW DOO WKH LVVXHV FDQ EH VXPPDUL]HG
as who provides the funds and how to distribute the profits
(Luo and Yan, 2010). Consequently, the economic target of
production optimization under risk service contracts does not
depend on the type of contract or one particular term, but on
HWDOGHULYHGWKHSUR¿WPD[LPL]LQJWLPHSDWKRIMRLQW the combined effects of contract terms.
production of oil and gas to determine optimal extraction
rates using average reservoir data as well as expected prices 3 Approach
and costs. Gao et al (2009) modeled the economically optimal
Obtaining an optimal oil production path is an
dynamic oil production decisions for a stylized oilfield
optimization control process, in which the influence of
UHVHPEOLQJWKHODUJHVWGHYHORSHG¿HOGLQ6DXGL$UDELDEDVHG
technical measures and contract terms on inputs and outputs
RQWKHIXQFWLRQVRIÀXLGSUHVVXUHIRUPDWLRQFKDUDFWHULVWLFV
of the project should be comprehensively considered, and the
water injection, new wells etc.
maximum economic benefit should be regarded as the goal
,QWKLVSDSHUZHGHVLJQDQRSWLPDOSURGXFWLRQSDWKRQWKH
for preparing a reasonable production plan for the contract
basis of oil exploitation and economic rules with restriction
duration. The dynamic nonlinear programming model is
of risk service contracts. This procedure quantifies the
HVWDEOLVKHGZLWKWKHPD[LPXPQHWSUHVHQWYDOXH139IRU
relationship between production and input-output parameters.
WKH ,2& EHLQJ VHW DV WKH REMHFWLYH IXQFWLRQ HQJLQHHULQJ
A method for prediction of production in the decline phase via
technical measures and contract terms as linear or non-linear
production rate and stable periods is developed. Meanwhile,
FRQVWUDLQWV7KH139PRGHOLVFRPSRVHGRIFDVKLQÀRZDQG
WKHLQÀXHQFHRIRLOSULFHVHUYLFHIHHVSHUEDUUHODQGRSHUDWLQJ
RXWÀRZRI,2&ZKLFKDUHRSWLPL]HGZLWKWKHSURGXFWLRQDVD
costs on the optimal production is examined.
variable. So the functions between production and revenues,
$QDO\VLVRILQÀXHQFHIDFWRUV investment and costs should be constructed.

Production optimization under risk service contracts is 3.1 Revenues function

affected by three factors: innate geological conditions of 7KH UHYHQXHV RI WKH ,2& FRQVLVW RI FRVW UHFRYHU\ DQG
the oil reservoir, technology factors and oil contracts. The service fees under risk service contracts. The cost recovery
geological factors of oil reservoirs consist of the structural ceiling is set based on a percentage of total revenues, and
IHDWXUHVGLVWULEXWLRQDQGSK\VLFDOSURSHUWLHVÀXLGSURSHUWLHV unrecovered costs can be carried forward and the excess cost
DQGW\SHVHWF<XDQG/L7KH\DUHWKHIRXQGDWLRQIRU
SUHSDUDWLRQRIDQRLO¿HOGGHYHORSPHQWSODQEHFDXVHWKHSODQ
taken in programming and used for reservoir development to
VRPHH[WHQWUHÀHFWVWKHDFFXPXODWHGGHYHORSPHQWH[SHULHQFH
of reservoirs with similar geological features (Li et al, 2005).
recovery forms the profits of National oil company (NOC).
The service fees are computed from the product of production
RU LQFUHPHQWDO SURGXFWLRQ DQG WKH ELGGLQJ SDUDPHWHUʊ
service fees per barrel, which changes with the sliding scales
including R factor, production, accumulated production etc.
The technological factors include development scheme,
partition and combination of layer series, well patterns
and spacing, drilling and production technology and water
injection method etc. They play essential roles in optimizing
inputs and outputs of development projects. Among the
technology factors, well spacing density is the key factor
which influences production. The denser the well patterns,
the more the production wells are, and the higher the control
degree of water flooding is, and thus, a higher production
FDQEHREWDLQHG%XWZKHQWKHQXPEHURIZHOOVLVH[FHVVLYH
the recoverable reserves controlled by one single well will
7KHUHYHQXHVRIWKH,2&DUHFDOFXODWHGDV(T
Rc qt ˜ RFBR ˜ x  Cr (1)
where RcGHQRWHVWKHUHYHQXHVRI,2&qt is the production at
the year “t”; RFBR represents the service fees per barrel; x is
WKHSDUWLFLSDWLRQUDWHRI,2&Cr represents the recoverable
costs, consisting of operating costs, capitalized costs such as
exploration, development investment and other costs.
Every oilfield has a unique production profile, but its
production has to go through a build-up, plateau production
decrease, and the development cost of oil per barrel will
significantly increase. Finally, the economic benefits will
decrease instead (Li, 2006).
7KHRLOFRQWUDFWLVWKHOHJDOEDVLVZKLFKGH¿QHVWKHULJKWV
and obligations among parties to the contract in exploration
DQG GHFOLQH SKDVH %UDGOH\ DQG:RRG  3URGXFWLRQ
in build-up and plateau phases depends on the designed
capacity, which is determined by proved geological reserves
and production rate; production in the decline phase is related
to production on the plateau and the decline rate (Poston
and production, and the criterion for capital expenditure and
LQFRPHGLVWULEXWLRQ7KHHIIHFWRIRLOFRQWUDFWVRQWKHEHQH¿WV
of contractors varies with different production paths. Since
WKH¿VFDOWHUPVOLNHWD[HVDQGVHUYLFHIHHVHWFDUHGHWHUPLQHG
by sliding scales in risk service contracts, production variation
will make the sliding scales step in different tranches.
DQG3RH5XWKDQG&OHYHODQG7KHKLJKHUWKH
production on the plateau, the bigger the decline rate is and
the shorter the plateau production period is, and vice versa.
The formulation on relationship between peak production
and production in the decline phase can be deduced from the
primitive method of the Weng model (Fan et al, 2007; Weng,
 Pet.Sci.(2013)10:596-602

 1 12  cV
t
qt
'N ˜ V
˜ ˜ ¦ >a ˜ t(bi 1)u12  k ˜ H ( i1)u12k @ (4)
t 12 k 1
­
° N ˜ V ˜ T , t  T1 ; where ǻ1 represents the incremental reserves; qt
GHQRWHVWKH
°° 1
incremental production at the year “t”; V
LVWKHSURGXFWLRQ
qt ® N ˜ V , t  T2 ;
° 12
rate of incremental reserves.
° N ˜ V ˜ 1 ˜ ¦ [ a ˜ t(bi 1)u12  k ˜ e  cVt( i1)u12k ], t  T3 For the incremental production with the effects of
°̄ 12 k 1 increasing recoverable reserves and production rate, the new
(2) production in decline is shown as Eq. (5),
1 12  cV

t( i 1)u12k
where N denotes the proved geological reserves; V is the qt

 N  'N  ˜ V
˜ ˜ ¦ > a ˜ t(bi 1)u12  k ˜ H @ (5)
production rate in the plateau phase; T1 is the build-up phase;
T 2 is the plateau phase; T 3 is the decline phase; t (i-1)×12+k
represents the decline phase, month; i is the forecast time,
in which i PHDQVWKH¿UVW\HDUDQGi=2 means the second
year and so on; a, b, c are the coefficients of this declining
production forecast model.
The decline rate of base oil is specified in risk service
contracts, in which the service fees are calculated based on
12 k 1
with qt" the total annual production at the year “t”; V" the new
production rate.
3.2 Investment function
An oilfield with bigger production capacity means that
the initial well spacing density is denser, and the adjustment
scope in the later period is smaller, and also the times of
incremental production. And the yield at this decline rate
can be achieved by normal operation of the NOC. So the
incremental production equals to total production minus the
basic oil.
'qt qt  q0 ˜ (1  D0 )t
ZLWKǻqt the incremental production at the year “t”; q0 the
production in plateau with the basic well pattern; D 0 the
decline rate of base oil.
For a developed oilfield with a basic well pattern, the
incremental production is obtained from increasing the well
density and adjustment, which can increase recoverable
reserves or production rate, with a single effect or two
superimposing effects (Yang and Zhang, 2006). Adding
recoverable reserves means enhancing oil recovery, and
increasing production rate only accelerates the development
GHQVL¿FDWLRQDUHOHVVDQGYLFHYHUVD6RORZDQG:DQ
The development investment includes the investment in
production wells and ground engineering. The investment
in production wells is equal to the well numbers multiplied
by the investment per well, which can be calculated as
(3) the quotient of annual production per well divided by the
product of geological reserves and production rate. The
ground engineering includes gathering and transportation,
water injection and matching construction. The investments
in gathering and transportation, water injection and power
supply etc. are related to the capacity, which can be calculated
by the product of unit capacity investment quota and the
capacity. The investment of road construction etc. unrelated
to the capacity is constant.
id ˜ (1  k z )
It (  ig ) ˜ N ˜ V  I g 0 (6)
tD ˜ q0
)LJ,QJHQHUDOWKHSXUSRVHRIRLOVHUYLFHSURMHFWVSDLG
on incremental production is to enhance oil recovery, so the
effect of adding recoverable reserves should be included.
Production
I: Production profile in original well
pattern (base oil)
II: Production profile with the effects of
adding recoverable reserves
III: Production profile with the effects
of both increasing recoverable reserves
II III
I and production rate
where It denotes the development investment at the year “t”;
kz is the injector-producer ratio; id represents the average
investment in a single production well; tĮ is the number of
producing days in one year; q0 denotes average stable daily
production per well; ig is the unit capacity investment; Ig0
UHSUHVHQWVWKH¿[HGLQYHVWPHQW
'XH WR WKH IDFW WKDW WKH SULPDU\ JURXQG FRQVWUXFWLRQ
can be used for incremental production capacity, the new
investment is for the capacity that exceeds the original, and
the incremental investment only includes that related to the
additional capacity.
id ˜   k z

It
  ig  ˜ 'N ˜ V
(7)
tD ˜ q0
where I t
 LV WKH LQFUHPHQWDO GHYHORSPHQW LQYHVWPHQW K z
denotes the new injector-producer ratio.
Time
3.3 Operating cost function
Fig. 16FKHPDWLFLOOXVWUDWLRQRISURGXFWLRQSUR¿OHVZLWKLQFUHDVLQJ
well numbers and adjustment The operating cost is incurred over the process of
operating and maintaining various kinds of oil and gas wells
The incremental production with the effect of adding as well as related equipment facilities, and it synthetically
recoverable reserves forms new production decline curves, reflects the resource quality, level of exploration and
Pet.Sci.(2013)10:596-602
development, effectiveness of technology and operating
management (Kaiser, 2006). The operating cost can be
predicted by the cost driver method, in which the cost drivers
mainly include oil well numbers and oil production, and the
fee quota can be determined referring to the cost data of the
same or similar blocks, taking into account the factors like
location, exploitation method, ground processes, physical
properties of reservoir, and single well production etc. (Luo
599
oilfield will reach its economic limit sooner. Therefore, the
production threshold should be in the optimization model as a
constraint.
Since reserves deplete and difficulty of exploitation
increases in the later period, revenues may not recover costs
XQGHUFRQWLQXHGRSHUDWLRQVRRYHUDOOEHQH¿WVZLOOGHWHULRUDWH
7KHHFRQRPLFOLPLWRIDQRLO¿HOGLVGH¿QHGDVWKHWLPHZKHQ
WKHRSHUDWLQJFRVWRIWKHRLO¿HOGLVHTXDOWRWKHLQFRPHXQGHU
and Zhao, 2012). The prediction model of the operating cost SURGXFWLRQ .DLVHU DQG<X  ,W LV DVVXPHG WKDW DQ
can be written as: RLO¿HOGZLOOFHDVHSURGXFWLRQDWLWVHFRQRPLFOLPLWDQGWKXV
the economic limit is determined as:
Ct cq ˜ qt  cn ˜ nt  
Ct qt ˜ p ˜ f (9)
where C t is the annual operating cost at the year “t”; c n
represents the operating cost of single well; cq denotes the The production threshold is:
operating cost per unit of oil production; nt is the number of cn ˜ nt
wells at year “t”. qt
The operating cost of a single well includes labor expense,
cq  p ˜ f (10)
material and fuel cost, downhole operating cost, well logging
and testing cost per well. The operating cost per unit of 3.5 Production optimization model
production consists of light ends fee, transportation cost, and 7KH,2&QHHGVWRVHDUFKIRUWKHRSWLPDOSURGXFWLRQSDWK
oil processing fee etc. (Ge and Guo, 2004). WR PD[LPL]H WKH G\QDPLF EHQHILWV²139 LQ WKH FRQWUDFW
duration. According to the forecasting methods above, both
3.4 Economic limits WKH LQSXW DQG RXWSXW SDUDPHWHUV RI WKH ,2& DUH H[SUHVVHG
After the well spacing is reduced, the production rate as functions of oil production. The optimization model is
will increase, and the production will decline faster, so the established as follows:
T
MaxNPV ( qt ) {¦ ( Rt  Ct  TAX t  Rgt ) u (1  i0 )  t  I t u (1  i0 )  t }
t 0

s.t. 0  qt d qmax ˜ tD

cn ˜ nt
qt t
cq  p ˜ f

N !0
where TAXt is the income tax at the year “t”, which is levied
on a proportion of service fees; i0 denotes the benchmark
discounted rate. The host country defines the production
ceiling of each block in the oil contract to prevent destructive
exploitation. So the production in the plateau phase should
be less than the production ceiling, where qmax is the ceiling
of daily production provided in the contract. The production
in the decline phase should be higher than the production
threshold. Meanwhile, the geological reserves should be more
than 0. Consequently, the production sequence here is the
optimal production path.
4 Application
This paper takes as an example of oil development
SURMHFWV LQ ,UDT IRU ZKLFK VHUYLFH GHYHORSPHQW DQG
million dollars. Half of the sales revenues are paid for service
DQG WKH RWKHU EHORQJ WR WKH JRYHUQPHQW ,I WKH KDOI RI WKH
revenues is less than the sum of recoverable costs and service
fees, unrecoverable costs and unpaid service fees can be
carried forward without interest; if the former is more than
the latter, the surplus belongs to the government. The service
IHHVDUHGLVWULEXWHGEHWZHHQJRYHUQPHQWDQG,2&DFFRUGLQJ
to RIDFWRULQ7DEOHODQGWKDWEHORQJLQJWR,2&LVVXEMHFWWR
income taxes at 35 percent rate. Other parameters are shown
in Table 2.
Table 1 Sliding scale R factor for service fees
R factor 6HUYLFHIHHVSHUEDUUHO86'
<1.0 5)%
1.0-1.25 î5)%
SURGXFWLRQ FRQWUDFWV 6'3& ZHUH VLJQHG 7KH FRQWUDFW
duration is 20 years. The government participates in 25 1.25-1.5 î5)%
SHUFHQW DQG ,2& WDNHV  SHUFHQW ,2& SURYLGHV WKH WRWDO 1.5-2.0 î5)%
funds for development and production, and recovers costs
>2.0 î5)%
and gets service fees from sales. The signature bonus is 1
600 Pet.Sci.(2013)10:596-602

Table 2 Some parameters used for this example

Parameters 9DOXHV Units

6
Proved geological reserves N 900×10 %DUUHOV

Operating cost per unit of oil production cq 4 'ROODUVEDUUHO

Operating cost of single well cn 20 'ROODUVZHOO

Unit capacity investment of ground engineering ig 30 'ROODUVEDUUHO

6
Fixed investment of ground engineering Ig0 50×10 'ROODUV
6
Single well investment ik 3×10 'ROODUVZHOO

,QMHFWRUSURGXFHUUDWLRkz 1:1 

Average stable daily production per well q0 2000 %DUUHOV

Producing days in one year tĮ 300 'D\V

,QFRPHWD[UDWHtax 35 

Oil price p 60 'ROODUVEDUUHO

'LVFRXQWUDWHi0 10 

RIDFWRU $FFUXHGQHWHDUQLQJV$FFUXHGWRWDOH[SHQGLWXUH each factor on the optimal production. A sensitivity analysis

where accrued net earnings include accrued cost recovery was performed to determine the main factors causing the
DQGVHUYLFHIHHVRIWKH,2&DQGWKHDFFUXHGWRWDOH[SHQGLWXUH most variability in the model. The procedure is to calculate
means the costs consisting of development investment and the benchmark value of each input variable, and then to
operating costs etc. change, respectively, the benchmark value of each input
The annual production in the decline phase can be YDULDEOH E\   ZKHQ WKH RWKHU LQSXW YDULDEOHV
predicted by the Weng model, in which the parameters are are kept unchanged, and then to study how the optimal
HVWLPDWHGE\DQDORJ\ZLWKGDWDIURPVLPLODU¿HOGV production changes with the changes in each input variable
1 12 (Fig. 3) (Fu and Tong, 2005). As can be seen, oil price is the
0.3V ˜t( i 1)u12 k
qt N ˜V ˜ ˜ ¦  ˜ t(i0.075
1)u12  k ˜ H (11) most sensitive variable, and has negative effects on optimal
12 k 1 production, that is to say, the optimal production decreases as
The incremental proven geological reserves are 1×10 the price increases. The operating costs and service fees per
barrels, and the incremental reserves were put into production barrel throw positive impacts on the optimal production.
at the end of the initial plateau phase. The extreme value of Oil price, service fees per barrel and operating costs,
SURGXFWLRQ UDWH LV FDOFXODWHG DV 7KHUHIRUH ZLWKLQ ZKLFKDUHFKDQJHGE\DQGDUHSOXJJHGLQWRWKH
constraints of the ceiling production and production threshold, model to get the optimal production rate and the maximum
WKHRSWLPDOSURGXFWLRQUDWHLVDQG139LVî9 139UHIHUULQJWR)LJ$VZHFDQVHHRLOSULFHLVQHJDWLYHO\
dollars (Fig. 2). related to the optimal production rate and its corresponding
139 DQG DV RLO SULFH LQFUHDVHV WKH RSWLPDO SURGXFWLRQ
2500 UDWH GHFUHDVHV VR GRHV WKH 139 VHUYLFH IHHV SHU EDUUHO
2000 and operating costs are positively correlated to the optimal
1500 SURGXFWLRQUDWHDQG139
NPA, million dollars

1000
3.00%
500
Optimal production rate

0
2.80%
1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% 2.6%
-500
2.60%
-1000

-1500
2.40%
-2000 Production rate
2.20%
-2500
2.20%
Fig. 2&KDQJHRI139DWGLIIHUHQWSURGXFWLRQUDWHV
-15% -10% -5% 0% 5% 10% 15%

Oil price, operating cost and service fees per barrel are Change rates of sensitive factors
the sensitive variables in the optimization model. Sensitivity Oil price Service fees per barrel Operating costs
DQDO\VLVLVLQWURGXFHGWRGHVFULEHWKHLQÀXHQFHRIFKDQJHVRI
Fig. 3,QÀXHQFHVRIVHQVLWLYHIDFWRUVRQWKHRSWLPDOSURGXFWLRQ
Pet.Sci.(2013)10:596-602 601

2500 'DQLHO-,QWHUQDWLRQDO3HWUROHXP)LVFDO6\VWHPVDQG3URGXFWLRQ6KDULQJ
&RQWUDFWV7XOVD3HQQ:HOO%RRNV
(EUDKLPL61DQG.KRX]DQL6$7KHFRQWUDFWXDOIRUPRI,UDQ¶VEX\
back contracts in comparison with production sharing and service
NPV

2000 FRQWUDFW 63(  SUHVHQWHG DW WK 0LGGOH (DVW 2LO 6KRZ 
&RQIHUHQFHKHOGLQ%DKUDLQ-XQH
)DQ -: +H ' /LX ) HW DO 5HVHDUFK RQ UHODWLRQVKLS RI UDWH RI RLO
production with stable production period and decline rate in fresh
1500 GHYHORSLQJ]RQH)DXOW%ORFN2LODQG*DV)LHOG
-15% -10% -5% 0% 5% 10% 15% (in Chinese)
Change rates of sensitive factors
)X- -DQG7RQJ<+7HFKQLFDO(FRQRPLFVRI,QGXVWU\%HLMLQJ7KH
Press of Tsinghua University. 2005 (in Chinese)
Oil price Service fees per barrel Operating costs Gao W Y, Hartley R P and Sickles C R. Optimal dynamic production
IURPDODUJHRLO¿HOGLQ6DXGL$UDELD(PSLULFDO(FRQRPLFV
Fig. 4,QÀXHQFHVRIVHQVLWLYHIDFWRUVRQFRUUHVSRQGLQJ139RIRSWLPDO

production
*H$ - DQG *XR 37KHRU\ DQG 3UDFWLFH RI ,QWHUQDWLRQDO 2LO DQG *DV
5 Conclusions
,Q WKLV SDSHU WDNLQJ FKDUDFWHULVWLFV RI ULVN VHUYLFH
contracts into account, a model for deciding the optimal
production path for an oil field has been developed. The
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Petroleum University (Social Science Edition). 2010. 3(5): 13-16 (in
Chinese)
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description of the influence of risk service contract terms RIFRQWUDFWFKDQJH,QWHUQDWLRQDO(FRQRPLF&RRSHUDWLRQ
on input and output parameters and the analysis of the LQ&KLQHVH
relationship among production and production time, revenues, +DR+:DQJ3DQG:DQJ=$QDO\VLVRIFRQWUDFWPRGHDQG¿VFDOWHUPV
investment and costs are absorbed in this model. This study IRURLOFRRSHUDWLRQLQ,UDT)ULHQGVRI$FFRXQWLQJ
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analyses the impact of the variation of production in the
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whole oilfield lifecycle on economic benefits, integrally
petroleum resources: an empirical approach. Resources and Energy.
optimizes the inputs and outputs of oilfield development 
project, which can avoid the deviation resulting from simply .DLV HU 0 - +\GURFDUERQ SURGXFWLRQ FRVW IXQFWLRQV LQ WKH *XOI RI
FDOFXODWLQJWKHHFRQRPLFEHQH¿WVDWDFHUWDLQVWDJH Mexico. Energy. 2006. 31(12): 1726-1747
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is illustrated for example, and the optimal production path $SSOLHG(QHUJ\
under its resource condition and contract terms has been /L-7KH&KRLFHDQG$SSUDLVDORI5HVHUYRLU([SORUDWLRQ5DWHVLQ&KLQD
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and operating costs on the optimal production have been
examined by sensitivity analysis. The results show that the
oil price has the most impact on the optimal production, and
the optimal production is negatively related to oil price and
positively related to service fees per barrel and operating
costs. The analysis of the relationship between contract terms
and production in this paper is very helpful for companies
to negotiate some elastic terms in this type of contracts.
Simultaneously, the research on production paths provides
crucial information for companies to choose development
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27(5): 29-32 (in Chinese)
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Petroleum Economics. 2012. (3): 40-44 (in Chinese)
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strategies and rationalize distribution of resources.
Acknowledgements
Funding for this work was provided by the Major Project
from the National Social Science Foundation of China
through research on replacement strategies for overseas
oil and gas resources based on the perspective of China’s
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wish to thank the anonymous reviewers of this manuscript for
their elaborate work.
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