Oil Field Development Problem Statement

Oil companies need to assess new fields or prospects where very little hard data exists. Based on seismic data, analysts can estimate the probability distribution of the reserve size. With little actual data available, the discovery team wants to quantify and optimize the Net Present Value (NPV) of this asset. You can simplify this analysis by representing the production profile by three phases, shown in Table 10.

Table 10. Oil production phases

Phase	Description
Build up	The period when you drill wells to gain enough production to fill the facilities.
Plateau	After reaching the desired production rate (plateau), the period when you continue production at that rate as long as the reservoir pressure is constant and until you produce a certain fraction of the reserves. In the early stages of development, you can only estimate this fraction, and production greater than a certain rate influences plateau duration.
Decline	The period when production rates, P, decline by the same proportion in each time step, leading to an exponential function: P(t) = P(0) exp(-c*t) where t is the time since the plateau phase ended and c is some constant.

Phase

Description

Build up

The period when you drill wells to gain enough production to fill the facilities.

Plateau

After reaching the desired production rate (plateau), the period when you continue production at that rate as long as the reservoir pressure is constant and until you produce a certain fraction of the reserves. In the early stages of development, you can only estimate this fraction, and production greater than a certain rate influences plateau duration.

Decline

The period when production rates, P, decline by the same proportion in each time step, leading to an exponential function:

P(t) = P(0) exp(-c*t)

where t is the time since the plateau phase ended and c is some constant.

With only estimates for the total Stock Tank Oil Initially In Place (STOIIP = reserve size) and percent recovery amounts, the objective is to select a production rate, a facility size, and well numbers to maximize some financial measure. In this example the measure used is the 10th percentile (P90) of the NPV distribution. In other words the oil company wants to optimize an NPV value which they are 90% confident of achieving or exceeding.

As described, the problem is neither trivial nor overly complex. A high plateau rate doesn’t lose any reserves, but it does increase costs with extra wells and larger facilities. However, facility costs per unit decrease with a larger throughput, so choosing the largest allowed rate and selecting a facility and number of wells to match might be appropriate.