Valuation of Technology and Information for Reservoir Risk Management

Abstract

Abstract Reservoir risk management involves optimizing assets given inherent reservoir uncertainties and minimizing risk by reducing these uncertainties. The decision to implement any reservoir management technology is usually based on a cost-benefit analysis. Consequently, the correct valuation of valueadding technology (often based on net present value) becomes a significant part of a reservoir management process. A crucial underlying factor in such an analysis is the uncertainty in the reservoir model and its properties, and in the financial variables associated with the asset. The former includes, for example, uncertainty in properties such as reservoir geometry or permeability in the reservoir, while the latter refers to uncertainty in financial parameters such as discount rate or hydrocarbon price. This paper discusses techniques for valuation of technology and information related to reservoir risk management. For demonstration purposes, these techniques are applied to valuation of real-time control and monitoring technologies in a reservoir with multiple uncertainties in its physical properties. Because of the presence of these uncertainties, value quantification requires a stochastic optimization of the reservoir production strategy, where the objective function includes a risk-aversion factor. By applying these techniques one can generate a decision-making table that shows the benefit of implementing a technology at various confidence levels. One can then further extend the analysis to estimate the added value to the reservoir if the uncertainties were to be reduced (or even eliminated) by implementing appropriate monitoring technologies. This process enables quantification of the value of information and is useful in designing monitoring strategies. Such techniques are applicable in cost-benefit analysis and other decision-making activities for both a deterministic and a stochastic approach to reservoir management. They can therefore be used as tools for the valuation, pricing, and marketing of technology.