Development appraisal

This Hydrocarbon Exploration and Production is going to take you through all of the major stages In the life of an oil or gas field from exploration, through appraisal, development planning, production, and finally to decommissioning. 

Keywords exploration, appraisal, feasibility, development planning, production profile, production, abandonment, project economics, cash flow... 

The purpose of development appraisal is therefore to reduce the uncertainties, in particular those related to the producible volumes contained within the structure. Consequently, the purpose of appraisal in the context of field development is not to find additional volumes of oil or gas A more detailed description of field appraisal is provided in Section 6.0. 

It is important to realise that knowledge of depositional processes and features in a given reservoir will be vital for the correct siting of the optimum number of appraisal and development wells, the sizing of facilities and the definition of a reservoir management policy. 

The range of uncertainty in the UR may be too large to commit to a particular development plan, and field appraisal may be required to reduce the uncertainty and allow a more suitable development plan to be formed. Unless the range of uncertainty is quantified using statistical techniques and representations, the need for appraisal cannot be determined. Statistical methods are used to express ranges of values of STOMP, GIIP, UR, and reserves. 

The purpose of this exercise is to identify what parameters need to be further investigated if the current range of uncertainty in reserves is too great to commit to a development. In this example, the engineer may recommend more appraisal wells or better definition seismic to reduce the uncertainty in the reservoir area and the net-to-gross ratio, plus a more detailed study of the development mechanism to refine the understanding of the recovery factor. Afluid properties study to reduce uncertainty in (linked to the shrinkage... 

Introduction and Commercial Application JUe objective of performing appraisal activities on discovered accumulations is to reduce the uncertainty in the description of the hydrocarbon reservoir, and to provide information with which to make a decision on the next action. The next action may be, for example, to undertake more appraisal, to commence development, to stop activities, or to sell the prospect. In any case, the appraisal activity should lead to a decision which yields a greater value than the outcome of a decision made in the absence of the information from the appraisal. The improvement in the value of the action, given the appraisal information, should be greater than the cost of the appraisal activities, otherwise the appraisal effort is not worthwhile. 

The objective of appraisal activity is not necessarily to prove more hydrocarbons. For example, appraisal activity which determines that a discovery is non-commercial should be considered as worthwhile, since it saves a financial loss which would have been incurred if development had taken place without appraisal. 

Appraisal activity, if performed, is the step in the field life cycle between the discovery of a hydrocarbon accumulation and its development. The role of appraisal is to provide cost-effective information with which the subsequent decision can be made. Cost effective means that the value of the decision with the appraisal information is greater than the value of the decision without the information. If the appraisal activity does not add more value than its cost, then it is not worth doing. This can be represented by a simple flow diagram, in which the cost of appraisal is A, the profit (net present value) of the development with the appraisal information is (D2-A), and the profit of the development without the appraisal information is D1. 

In other words, the cost of the appraisal must be less than the improvement in the value of the development which it provides. It is often necessary to assume outcomes of the appraisal In order to estimate the value of the development with these outcomes. 

Seismic surveys are traditionally an exploration and appraisal tool. However, 3-D seismic is now being used more widely as a development tool, i.e. applied for assisting in selecting well locations, and even in identifying remaining oil in a mature field. This was discussed in Section 2.0. Seismic data acquired at the appraisal stage of the field life is therefore likely to find further use during the development period. 

It is worth noting that if field development using horizontal wells is under consideration, then horizontal appraisal wells will help to gather representative data and determine the benefits of this technique, which is further discussed in Section 9.3. 

If no appraisal was performed, and the development was started based, say, on the medium case STOMP of 48 MMstb, then the actual STOMP would not be found until the facilities were built and the early development wells were drilled. If it turned out that the STOMP was only 20 MMstb, then the project would lose 40 million, because the facilities were oversized. If the STOMP is actually 48 MMstb, then the NPV is assumed to be the same as for the medium case after appraisal. If the STOMP was actually 100 MMstb, then the NPV of + 40 million is lower than for the case after appraisal (+ 66 million) since the facilities are too small to handle the extra production potential. 

In the example, development without appraisal leads to an NPV which is the weighted average of the outcomes m (-40+6+40) / 3 = + 2 million. Development after appraisal allows the decision not to develop in the case of the low STOMP, and the weighted average of then outcomes is m (0+6+66) / 3 = + 24 million. 

The prediction of the size and permeability of the aquifer is usually difficult, since there is typically little data collected in the water column exploration and appraisal wells are usually targeted at locating oil. Hence the prediction of aquifer response often remains a major uncertainty during reservoir development planning. In order to see the reaction of an aquifer, it is necessary to produce from the oil column, and measure the response in terms of reservoir pressure and fluid contact movement use is made of the material balance technique to determine the contribution to pressure support made by the aquifer. Typically 5% of the STOMP must be produced to measure the response this may take a number of years. 

The amount of detail input, and the type of simulation model depend upon the issues to be investigated, and the amount of data available. At the exploration and appraisal stage it would be unusual to create a simulation model, since the lack of data make simpler methods cheaper and as reliable. Simulation models are typically constructed at the field development planning stage of a field life, and are continually updated and increased in detail as more information becomes available. 

Analytical models using classical reservoir engineering techniques such as material balance, aquifer modelling and displacement calculations can be used in combination with field and laboratory data to estimate recovery factors for specific situations. These methods are most applicable when there is limited data, time and resources, and would be sufficient for most exploration and early appraisal decisions. However, when the development planning stage is reached, it is becoming common practice to build a reservoir simulation model, which allows more sensitivities to be considered in a shorter time frame. The typical sorts of questions addressed by reservoir simulations are listed in Section 8.5. 

The number of injectors required may be estimated in a similar manner, but it is unlikely that the exploration and appraisal activities will have included injectivity tests, of say water injection into the water column of the reservoir. In this case, an estimate must be made of the injection potential, based on an assessment of reservoir quality in the water column, which may be reduced by the effects of compaction and diagenesis. Development plans based on water injection or natural aquifer drive often suffer from lack of data from the water bearing part of the reservoir, since appraisal activity to establish the reservoir properties in the water column is frequently overlooked. In the absence of any data, a range of assumptions of injectivity should be generated, to yield a range of number of wells required. If this range introduces large uncertainties into the development plan, then appraisal effort to reduce this uncertainty may be justified. 

Petroleum economics provides the tools with which to quantify and assess the financial risks involved in field exploration, appraisal and development, and allows a consistent approach with which alternative investments can be compared. The techniques are applied to advise management on the attractiveness of such investment opportunities, to assist in selecting the best options, and to determine how to maximise the value of existing assets. 

While tax and royalty fiscal systems are common, another prevalent form of fiscal system is the Production Sharing Contract, in which the investor (e.g. oil company) enters into an agreement with the host government to explore and potentially appraise and develop an area. The investor is a contractor to the host government, who retains the title of any produced hydrocarbons. 

Typically, the contractor carries the cost of exploration, appraisal and development, later claiming these costs form a tranche of the produced oil or gas ( cost oil ). If the cost oil allowance is insufficient to cover the annual costs (capex and opex), excess costs are usually deferred to the following year. After the deduction of royalty (if applicable) the remaining volume of production (called profit oil ) is then split between the contractor and the host government. The contractor will usually pay tax on the contractor s share of the profit oil. In diagrammatic form the split of production for a typical PSC is shown in Figure 13.11. 

PSCs are agreed with a schedule for exploration, appraisal and development, and production periods. During these times the terms of the PSC are usually fixed, thus reducing some of the uncertainties associated with tax and royalty systems where the royalty and tax rates may vary over the field lifetime. 

Petroleum economics is used at exploration, appraisal and development stages of the field life, to help to make the following typical decisions ... 

At the development planning stage, a reservoir mode/will have been constructed and used to determine the optimum method of recovering the hydrocarbons from the reservoir. The criteria for the optimum solution will most likely have been based on profitability and safety. The model Is Initially based upon a limited data set (perhaps a seismic survey, and say five exploration and appraisal wells) and will therefore be an approximation of the true description of the field. As development drilling and production commence, further data is collected and used to update both the geological model (the description of the structure, environment of deposition, diagenesis and fluid distribution) and the reservoir model (the description of the reservoir under dynamic conditions). 

One particular common piece of legislation worth noting is the requirement for an Environmental Impact Assessment (EIA) to be performed prior to any appraisal or development activity. An EIA is used to determine what impact an activity would have on the natural environment (flora, fauna, local population), and will be used to modify the activity plan until no negative impact is foreseen. More details of the EIA are given in Section 4.0. 

The laboratories with sufficient scientific and technical potential may be accredited on the right to develop and/or expert appraisal of the procedures of testing and render their services to external firms. 

Years of development have led to a standardized system for objective evaluation of fabric hand (129). This, the Kawabata evaluation system (KES), consists of four basic testing machines a tensile and shear tester, a bending tester, a compression tester, and a surface tester for measuring friction and surface roughness. To complete the evaluation, fabric weight and thickness are determined. The measurements result in 16 different hand parameters or characteristic values, which have been correlated to appraisals of fabric hand by panels of experts (121). Translation formulas have also been developed based on required levels of each hand property for specific end uses (129). The properties include stiffness, smoothness, and fullness levels as well as the total hand value. In more recent years, abundant research has been documented concerning hand assessment (130—133). 

The overall objective of research under way as of ca 1997 is to develop a system of sale by description for fine and medium wools whereby the buyer is presented only with measured data on the principal characteristics of the raw wool, as well as an assessment of the less important characteristics by an independent skilled appraiser (8). A scheme for assessing the risk of the presence of colored fiber content in greasy wool has been proposed which depends on production parameters and on the age and sex of the sheep (5). Instmmentation and computer algorithms for the measurement of style and handle... 

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