8 - Maximizing Oil Field Profit in the Face of Uncertainty

Abstract

One of the important aspects in oil field development is to assess the likely present-day worth and the number of wells needed to achieve maximum profit. This chapter illustrates an example to describe how to evaluate that goal in the light of uncertainties on selling price, discount factor, field reserves, producibility, acreage, oil sand thickness, fixed development costs, well development costs, and lifting costs. The assessment of oil field well spacing examined in the chapter uses Nind's formula for PDW. This formula makes three explicit assumptions: ultimate oil recovery is independent of well spacing, the average well has a production rate declining exponentially in time, and the economic limit is approximated well by zero. Nind's formula also makes the implicit assumption that all wells go into production at the same time. These assumptions provide a simple formula for assessing PDW in terms of the number of wells. More complex models of production can be invoked. The advantage of having available a method for assessing not only the range of uncertainty in the potential worth of oil field development but also which factors have the largest relative importance in influencing uncertainties of PDWmax, ONW, m, n-, and n+, is the relative risk of particular oil fields and what needs to be done to narrow the range of uncertainty, if necessary, are assessable.