There is Value in Operational Flexibility: An Intelligent Well Application

Abstract

Abstract Intelligent well completion technology provides a broad spectrum of value generating functionality for oil and gas field operations, all derived from the ability to monitor and control fluid production and injection by zone in real-time. A major barrier to intelligent well technology adoption has been the lack of method to quantitatively define the value associated with various applications of the technology. Most companies often use a Net Present Value (NPV) analysis to quantify and rank project proposals. Due to the nature of intelligent well technology, NPV analysis is not applicable to a wide range of applications and invariably underestimates the value associated with the technology. Operators intuitively understand the benefits of the technology, but are unable to represent it with conventional NPV valuation techniques, and thus are unable to justify intelligent well completion deployment against more conventional, better-understood, but lower valued, completion technology. An approach has been developed to define and solve the intelligent well valuation problem using mathematical techniques from the financial community called Real Options analysis, specifically, the concept of Flexibility Options. It quantifies the option value derived from the flexibility offered by the application of intelligent well technology enabling the ability to monitor and respond to reservoir uncertainties as it is manifested throughout the field life cycle. Case study has been developed using well data from field in the Gulf of Mexico region incorporating the level of smartness, the associated system reliability, and the projected reservoir performances to quantify the flexibility option value offered through the implementation of intelligent well over conventional completion technology. This paper will support the conclusions that application of field proven intelligent well technology can increase asset value. The case study use intelligent well critical variables to quantify the value of operating flexibility derived from implementing intelligent well technology. However, some important points should be considered. Firstly, equipment reliability is vital in the valuation. Secondly, economic justification including option value is required to assess the business case in face of reservoir uncertainties. Thirdly, the relationship between resolving reservoir uncertainty, system reliability and functionality must be understood to realize "The right level of Smartness…"