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How can performance prediction studies help oil and gas companies have a more stable operation?

Many oil and gas operators are facing challenging circumstances in regards to their economic stability. Even equipped with high-technology, extremely experienced oil and gas engineers as well as large capital resources, these companies often cannot escape the unremarkable truth: future performance contains uncertainty. This uncertainty can be reduced by implementing performance prediction studies.

Recent news has highlighted undesirable circumstances experienced by oil exploration and production companies and their investors where return on investments are not being realised as anticipated.

When developing an oil and gas field and investing in the large array of associated assets, a large number of uncertainties surround its operations:

  • What is the potential production of my field? How many wells do I need to have to make this project feasible?
  • What are my low, medium and high cases of production capacity? Is my project economically feasible for all these scenarios?
  • What is the influence of oil price on my project? Are there any other major risks to the project, such as (commissioning issues, political stability, labour markets, drilling and well performance?
  • What is the projects long term plan?

RAM analysis is a powerful methodology to analyse, understand therefore reduce the uncertainty related oil and gas projects. By running a RAM study, organisations can potentially test a large number of scenarios and understand the impact of each one of them. Armed with that evidence, informed decision can be made; ensuring investment that is supported by economic feasibility.

RAM studies have traditionally been used to asses engineering aspects of projects, addressing equipment redundancy and plant orientation for maintainability. However, RAM studies are now driving comprehensive evaluation of the financial aspects of the project. Analyses investigating cumulative cost of a product over asset life cycles, Capital Expenditures (CAPEX), Operational Expenditures (OPEX), Risk Expenditures (RISKEX) and statistical costs related to unscheduled or unforeseen events to the project and cash income are being performed. This informs the company and its investors of what could happen, and what is likely to happen and sets realistic expectations.

Operators and Investors understand this multi-verse view of the world. We all know we might miss the bus on our way to work in the morning, or there might be a fire alarm during a scheduled video conference. We live in a world where we pretty much know what is going to happen tomorrow… but you never really know. The difficult thing is visualising the complexities of this reality for a large oil and gas production investment. Thankfully, we’ve got computers to help.

With simulation tools that consider the broad spectrum of unknowns we can think about different well production scenarios. Then we can look at different plant design and maintenance options to optimise production. Running this through a Monte carlo simulator we can imagine possible futures where we had good years and bad years to view an average of how we can expect our asset to perform. Only when we’ve done this can we see the range of return on investments that are possible.

By looking at the schematic below, what option would you choose if you were, the asset owner, the operator or third party investor?

Big thanks to Colin Hickey for his contribution to the text.

Investment options based on a large number of factors

 


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