Reduce Risk or Increase Certainty to your E&p Operations? Utilization of Risk Assessment to Optimize the Decisionmaking

Oil & Gas exploration deals with many unknowns, with high risk and uncertainty an inherent part. The management of risk in oil and gas exploration has always been a difficult subject, and it is even more important in these days of high capital investment.

What tools are most used amongst the various Oil and gas companies to analyze risk and make more informed, lucrative decisions?

A large variation of software and methodologies are available in the industry. However most methodologies use Monte Carlo technique combined with other software systems like MS Excel spreadsheet for optimization and forecasting. With little effort, you can apply these advanced analytical techniques to your upstream or downstream spreadsheets to create more accurate reserve forecasts and financial and operational predictions.

Woodside, BP, Shell, Santos, BHP Billington Petroleum and Nexus Energy use these techniques to add insight when performing probabilistic reserves analysis, planning capital projects, preparing drilling AFE's, evaluating exploration opportunities, as well as estimating reserves and predicting petrochemical prices.

The use of Monte Carlo simulation tools in the petroleum industry is now common among the more sophisticated hydrocarbon exploration and production organizations. Several companies have been using risk assessment and portfolio management with a probabilistic assessment approach of their prospect inventory, resource and reserves volumes for along time.

Key features in risk assessment that is of interest to the oil and gas industry

The features of interest are Sensitivity and tornado analysis, correlation, historical data fitting and optimization.

The sensitivity analysis and tornado analysis are two separate methods that help you to understand which of the uncertain inputs (e.g., the recovery factor or the price of oil) drive the uncertainty in your models.

Correlation lets you link uncertain inputs and account for their positive or negative dependencies.

If historical data does exist, the data fitting feature will compare the data to the distribution algorithms and calculate the best possible fit and parameters for your data.

Optimization helps determine optimal decision choices to maximize or minimize your goals (for example to maximize the return on a portfolio of assets, and to determine the optimal number of well to drill), and to solve the efficient frontier runs multiple optimizations to determine the best balance of risk and reward for a particular problem or portfolio.

Some tools are more popular at the moment than others, but utilization of f.inst Crystal Ball technology is a tool chosen by more than 85% of the Fortune 500 companies.

Using Monte Carlo Analysis as a Risk Management Tool

Many managers understand that probabilistic methods can give more reliable project time and cost estimates than deterministic alternatives. Less people realize that by highlighting the key drivers of success, such methods can add extra value and enable a proactive approach to risk.

Using the risk assessment technology or other types of technology in Portfolio Optimization applied to Acquisition Evaluation is another aspect of usage which appeals to some companies.

Several lessons are learnt in building a portfolio model of petroleum assets by utilizing the crystal ball technology.

Perform Portfolio optimization with Risk Assessment to Exploration & Production Projects is another area of interest for oil and gas companies.

Apply risk management in the portfolio optimization with risk assessment to exploration & production projects could prove essential and important of course. However studies aimed to maximize the worth of the company while accounting, investigating and analyzing the inherent uncertainties and requirements could prove difficult unless you are having some order in your data foundations.

Several areas within the oil and gas industry have proved to be beneficiary to the use of risk assessment.

For the international or smaller independent oil and gas companies it has proven important to do the Analysis of productive properties for acquisition , also an analysis of trading issues and of wide variations in project to project costs.

Another area of interest would be the analysis of new ventures coming up and needs rapid clarification of its value and risks associated with them.

Within operational environments the assessment of the probability of drilling a successful well would prove to be imperative to save cost and reduce time delays and effective use of resources.

On the financial side of operations there has been use for it in doing a cash flow forecasting and interest rate analysis, as well as a cost estimation for chemical consumption with associated risks.

On the long term planning cycle we have areas such as determining the lifecycle of current capital investments.

When it comes to maintenance in operations we need to determine the optimum replacement rates for offshore equipment.

Within marketing sector there is a need for developing pricing views for marketing gas at all major trading hubs.

Other areas would be such as;

Economic evaluation of oil and gas exploration prospects and exploration portfolios and cconomical optimization for investment and replacement questions in Electricity and Gas distribution networks.

Performing an error analysis of petrophysical evaluations or do an estimate the possible reserve sizes of unproved oil and gas prospects prior to drilling.

Evaluating the inherent risk in achieving financial targets for acquisitions and to figure out commercial terms for service offerings and forecast the liquidity availability.

On the reserve and asset management side we can do stochastic oil and gas volumetric reserves estimates together with geologic estimations of oil in place and risk analysis. This together with a portifolio optimization and perform risk Analysis on Petroleum exploration and Development Projects.

Below i list several other areas of interest where risk assessment could prove valuable and would certainly bring value to the table to the management and the discipline leaders and contributors.

Give the clients cost and schedule risk profiles

Improve the accuracy of cost estimates of single well exploration

Model utilisation trends

Predict petrochemical prices, supply/demand volumes, imports, exports, operating rates for plants

Optimising employee incentive programs

Preparation of project budgets

Reserves determination

Risk Analysis on Petroleum exploration and Development Projects

Risk and sensitivity on proposed capital projects

Risk-based analysis of major project capital expenditures in the oil sands industry

Risk-based analysis of oil and gas exploration and development opportunities

Sales and market clearing price forecasting

Tech portfolio management and asset allocation

Use CB Predictor to analyse historical trends in production costs