A Decision Making Strategy for the Appraisal of Newly Discovered Oil Fields
Abstract/Contents
- Abstract
- This paper attacks the problem of management decision-making as it relates to newly discovered oil fields. At anytime after discovery the decision-maker has three basic choices:a) Declare the field to be non-commercial under existing physical and economic conditions. b)Declare the field to be commercial and suitable for additional development, if necessary.c) Do more seismic work, appraisal well drilling, and other exploratory work before deciding whether the field is commercial or non-commercial. A basic strategy for selection among these three alternatives is developed. This strategy indicates the best choices in any sequence of decisions. The development of a strategy leading to reasonable final decisions is necessary because they will result in economic gains or losses depending upon the true size of the oil field.Further appraisal drilling would reduce the chance of making an incorrect terminal decision but would cost money. Moreover, if a field has declared non commercial where it should have been declared commercial, a two-year delay in its development, for example, would result in a 40% loss in its present day discounted value, assuming a 30% discount cash flow rate of return. Significantly, where spacing is wide or where large tracts of land are involved, the use of a decision making strategy is much more important then in densely drilled areas.The method of analysis discussed in this paper requires the determination of parameters necessary for the application of modern statistical decision theory. The main parameters are optimum development well spacing interval, minimum size of oil field necessary for commercial production, and relation of economics to true oil field size. These parameters are based on time value cash flow and reservoir engineering analyses. Bayesian probability theory and the minimization of expected opportunity loss criterion are used to solve the sequential sampling decision model. The solution is represented by a "decision tree." It depicts the best choice as of the time decision is made and at times following subsequent predictable events.This paper contributes new techniques to: (a) Estimate optimum development well-spacing intervals (b) Compare the true cost and profit of producing oil from different fields (c) Rank the relative attractiveness of different potential target reservoirs (d) Estimate the minimum size of oil field necessary to pay out field and pipeline investments (e) Locate appraisal wells such that the expected value of the information is maximized (f) Compare the true cost and profit of producing oil from different fields.
Description
| Type of resource | text |
|---|---|
| Date created | June 1964 |
Creators/Contributors
| Author | Lazier, Bruce Earl |
|---|---|
| Primary advisor | Miller, Frank G. |
| Degree granting institution | Stanford University, Department of Petroleum Engineering |
Subjects
| Subject | School of Earth Energy & Environmental Sciences |
|---|---|
| Genre | Thesis |
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Preferred citation
- Preferred Citation
- Lazier, Bruce Earl. (1964). A Decision Making Strategy for the Appraisal of Newly Discovered Oil Fields. Stanford Digital Repository. Available at: https://purl.stanford.edu/hp908jn9255
Collection
Master's Theses, Doerr School of Sustainability
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