Abstract
Development of the oilfields today contains significant complexity owing to competing technical, commercial, and risk requirements, requiring smart investments to yield positive returns. Tougher capital allocation and sustained low prices expose reservoirs' challenges, countries' risk and contractual issues bringing into a spotlight shortcomings of the decision-oriented process used by shareholders. The current paper presents a balanced approach to reduce overconfidence and bias in decision-making, strengthen financial position to meet new investment thresholds, and maximize the value from existing operations to sustain the ventures through a turbulent time.
The overall methodology represents a structural process for option evaluation and selection, providing end-users with the unified toolbox including visualized framework, recommendations, decision trees and diagrams. The proposed method 1) balances intuition and rules of thumb with conventional capital-budgeting methods and quantitative modeling, 2) supports an investment decision process focusing on implications of different sets of decisions, 3) applies probability theory with emphasis on the concept of expected value (EV), 4) detects areas to reduce risk and develop economic opportunity cost of capital, 5) finally, helps to form an understanding of different project variables, their interdependencies and influence on the overall result.
The case study suggests that the initial set of decisions required an evaluation of 100 alternatives with hours of manpower and computer runs per outcome. By pairing down some of the constraints, we were able to generate a solution with 35 outcomes. This data was used to build technical scenarios and screen options in terms of economic attractiveness and ability to sanction. The 5 workable solutions with the highest ability to deliver value were scrutinized to select a development option. Further simulation has advised on specific areas that should be progressed to optimize the selected strategy, resulting in a reduction of upfront expenditures by 20% from the initial threshold and potential to deliver financially 43% of NPV growth, making a protracted and laborious process much simplified and rational.
The novelty of the concept is in its ability to tackle complex disparate issues by being a holistic and balanced in nature as well as equally efficient at different stages of a project. This allows an early focus on areas that have a genuinely significant impact on project commerciality. The findings will stimulate new progress - streamlining of proposed practice is key to drive robust engineering decisions in petroleum industry and enhance the value of decision process making it more flexible and accurate, and thus more attractive.