Evaluation and exploitation engineers are often provided with a numerical simulation study as part of the technical support for an economic evaluation of an oil and gas property. Simulation involves many specialized techniques which many people may not be familiar with. Based on experience in a corporate reserves group, exploitation and as a simulation engineer, a procedure has been developed which will aid in assessing the applicability of simulation results to an economic evaluation. The procedure consists of:
consistency checks;
identifying the critical issues;
evaluating the simulation technique; and,
report review.
Some of the more common techniques, which are unique to numerical modelling are explained. Simulation has some potential limitations. Those most likely to affect an evaluation are highlighted. This procedure has proven to be time effective. Simulationresults may complement the evaluation process, however, they cannot replace an experienced evaluations engineer's judgment. In the majority of cases the evaluation engineer will have to makeome adjustment to the "reserves" predicted in a simulation report. In particular, risk and economic limits must be assessed in a financial reserves evaluation. This article has been split into two parts. Part I covers the Introduction, Consistency Checks and Identifying the Critical Issues. Part 2 covers Evaluating the Simulation Technique, Report Review, and Conclusions. Objectives
The basic objectives of a simulation engineer and an evaluations engineer are normally completely different:
A typical simulation study objective is to identify the single best method of depleting a pool. A unique recovery factor, representing the simulation engineer's "best estimate," will be assigned to different production scenarios. The highest recovery factor indicates the best methodology to be implemented. Such a study has been instituted for technical reasons and will often be used to justify projects and/or for governmentubmissions. The results are primarily comparative in nature. The results of such a study may or may not include economic considerations.
The evaluations engineer seeks to establish a dollar value for a property. Economic limits must be incorporated into every estimate. He must also categorize uncertainty by assigning proven, probable and possible reserves. A single value must be determined for each category.
This difference in objectives can result in the simulation engineer and the evaluations engineer having completely different concepts of reserve definitions. Unfortunately many of the different parties have historically used the same term-proven reserves. There were, however, significant differences in the wording between those defined by technical societies, governments and those required for financial reporting. Several years ago one of the most common technical definitions involved "neither pessimism or optimism." To eliminate confusion, the technical definition has now been replaced by the financial definitions ("reasonable certainty"). Nevertheless one will likely encounter a report with"technical proven reserves" which really represents proven eserves plus some portion of probable reserves.
In summary, it will be necessary, in the majority of situations, to adjust the recoveries and reserves from a simulation report to meet financial purposes. Furthermore, the evaluations engineer will likely have to articulately explain these differences.
