Production development in a frontier area subject to adverse environmental conditions-–deep and/or stormy water far from shore or remote arctic regions--will generally require a massive capital investment. The magnitude of this expenditure, per se, will provide sufficient incentive to optimize the design of the production system before making a decision. However, owing to political and economic pressures, the development decision-–to commit to the implementation of a specified design--will usually be required at a time when estimates of reserves, well productivities, prices and costs are quite uncertain. It will be necessary, therefore, to account explicitly for the uncertainty in the decision-making process.
In this paper, a realistic procedure that allows the development decision to be approached in a consistent, rational manner is presented in detail; e.g.,
Quantification of the uncertainty associated with the Individual parameters--particularly, reserve and well-productivity estimates.
Determination of the optimal design parameters for a particular level of reserves based on the specified economic criterion.
Specification of the optimal level of reserves to be used to establish the final design which stipulates the capital investment, number of wells and maximum production rate (facility capacity).
Evaluation of the expected value of the economic criterion specified for decisionmaking purposes-–and characterization of the uncertainty involved.
To illustrate the use of the suggested procedure, several numerical examples are included-–and, some heuristic simplifications are indicated. The examples are structured to show the significant effect of the tax regime on the development decision.