Abstract
The upstream oil industry lives in the world of Value of Information (VoI) or Real Options (RO) decisions, although many find the evaluation of these types of decisions difficult and/or cumbersome, at best. A shortage of time and calculation complexity are the common arguments used to negate a consistent decision approach to daily decisions spanning from reprocessing seismic, to selecting a development concept, to optimizing the completion technology for a given field. However, with the rapid advance of oilfield technology, and the higher cost of many oilfield decisions, the frequency, and importance, of embedded decisions (exercised after acquiring information) has increased tremendously.
This paper reviews the concepts associated with valuing information and introduces a practical methodology to both "frame" (set up) and value the acquisition of information and embedded decisions. The proposed methodology combines some classic and new decision analysis problem framing tools, Bayesian theory, and a few pragmatic steps - rigorously applied, to result in a repeatable approach, which organizations can readily adopt and disseminate.
The authors propose that both a pragmatic methodology and a sound understanding of the "anatomy", or pattern, of value of information decisions in the oil industry are vital to promoting efficiency and accuracy in asset management. For too long, our industry has claimed to understand how to value information, and embedded decisions, but lacked the consistent use of the methodologies discussed in any widespread and practical manner. Hence, the objective of this paper is to describe a pragmatic approach to evaluate upstream Value of Information ("VoI") or Real Option decisions - and share an illustrative example, using the proposed methodology. The case described will demonstrate the non-intuitive nature of these types of decisions, when taken without the use of some form of decision structure. It will also illustrate the benefit of both problem framing tools and practical decision analysis rigor to promote the right conversations and insights to information decisions.
