Abstract
This case study is on a satellite close to a large gas and condensate field in the North Sea. At present one well has been drilled. The discovery well will be recompleted as a producer and one or two more producers are envisaged. These could be drilled straightaway or scheduled sequentially, in which case a revision of the project will be carried out. This paper presents a new way of sequentially updating the technical parameters (e.g. size of reserves, productivity of wells, etc) in response to new well information and incorporates this into a real option evaluation of the whole project.
The production scenario is that the project is stopped as soon as the costs exceed the revenue. Two different models (Black and Scholes and a mean reverting model) have been used to describe fluctuations in the oil price on which the gas price is indexed. Monte Carlo simulations have been used to evaluate the three development options (1 or 2 extra wells, drilled immediately or sequentially) for both price models.