03-1 Risk Feb08

Reservoir Management
Risk and Uncertainty Assessment
DELIVERING KNOWLEDGE. DEVELOPING COMPETENCE.

1 2008 PetroSkills LLC, All Rights Reserved
Assessing Risk and Uncertainty Means:
Identifying critical success factors

(before we encounter critical failures) and
Assessing the probability that one or more
events might happen
(before we are surprised by an occurrence that could
have been foreseen.)
Assessing Risk and Uncertainty
3.1.2
2008 PetroSkills LLC, All Rights Reserved
We Can Then Decide To:
1. Recognize and take the Risk

(all business has some degree of risk)
2. Appraise to try to reduce the Risk
(study the situation in more detail)
3. Prepare contingency plans in case a
catastrophe happens
(Be Prepared, the Boy Scouts motto)
3.1.3
When would one
Accept the risk and take the chance?
Appraise a certain situation?
Prepare contingency plans?
3.1.4
Accept the Risk and take the Chance
When the odds are low and you feel lucky
When the cost of appraisal is too high
When the risks can not be appraised or
mitigated by planning
When you fail to recognize the risk
3.1.5
Appraise A Certain Situation
When Appraisal would truly address the issue

When you feel Appraisal would be successful
When Appraisal is cost effective
Doesnt consume the projects value in terms of
cash outlay or time delay.
3.1.6
Better to Prepare Contingency Plans
When Appraisal would be too costly, the delays
would be too long, or the Appraisal is not likely to
work
When it is less costly to plan for mitigation of
downside rather than conduct an Appraisal
When taking the risk is unacceptable
Contingency plans are of the form of
If, then we will!
If the first infill well confirms the fluid contacts,
then we will start water injection.
3.1.7
Is The Risk Worth Taking?
We can use simple risk weighted NPV:
Risked NPV = POS*NPVsuccess + (1- POS)*NPVfailure
If the Risked NPV is positive, we may take the
risk.
But, if the probability of failure is too high to be
acceptable (even with a positive NPV) one
may decide the risk is unacceptable.
The fear of failure can be larger than the joy of
success.
3.1.8
Are Contingency Plans The Way To Go?
A good Contingency Plan reduces the downside

impacts if an unwanted outcome should occur.
If the risk weighted NPV of the Contingency Plan

exceeds the NPV of taking the risk (without
Contingency Planning costs and Benefits), the
Contingency Plan is more worthwhile than
taking the risk.
3.1.9
The Hardest Part
Identifying All of the Potential Risks:

Reservoir Engineering
Petrophysics
Geology
Geophysics
Well Performance
Processing / Marketing
Regulatory / Governmental
3.1.10
Potential Risks
Reservoir Engineering
Drive Mechanisms properly understood and
defined?
Drives changing with time, does the past equal the
future?
Reservoir fluid behavior understood?
Fluid contacts (original and present) defined? Vary
by fault block? Stratigraphic discontinuities?
Flow barriers? Compartments
3.1.11
Potential Risks
Petrophysics
Porosity, permeability and water saturation
properly described?
Lateral and vertical variations correctly mapped?
Alternative possibilities?
Geology
Layering? Shale mapping? Sub-seismic faults
Alternative depositional environments?
Alternative isopach interpretations?
3.1.12
Potential Risks
Geophysics
Correct time depth conversion?
Correct processing? Alternatives
Alternative picks and correlations
Tied to well data?
Influence of faults or changes in the shallow rocks?
Well Performance
Sand control, asphaltene & scale formation
Unanticipated fluid problems emulsions, corrosion
Expensive well equipment required corrosion resistant steel?
Needing more lift than planned (opcost and capex)?
Required wellbore replacement
Shallow corrosion
Restrictions or collapse over certain intervals
3.1.13
Potential Risks
Processing / Marketing
Sales requirements under new contracts?
Point of sales delivery capacity and quality changed
Future prices
Regulatory / Governmental
(Could be most problematic)
Unplanned permitting requirements?
Changing taxes and royalty takes?
Unknown regulations?
Inflexible regulations?
Political changes or delays for political purposes
Windows of opportunity that might close
3.1.14
Define The Probabilities
Must define the probabilities to calculate the expected NPV
Uncomfortable for most people, but it must be done.
Consider the probabilities independent of the impact
Reduces our tendency to minimize the negatives and emphasize the
positives
Can consider the probabilities as a range and see if it makes a difference.
This concern has a 10 20% chance of occurring. (Does it matter if it is
10 or 20? If so, can I better define it?)
Can set it as a scoping parameter:
According to my economics, I can live with this if it is less than a 4%
probability.
Do I think it has less than a 4% chance of occurring? If not, I need to
appraise, prepare a Contingency Plan, or be ready to drop this opportunity
as just being too risky.
3.1.15
Qualitative Assessment of
Uncertainty and Impact
The critical (fatal)
issues are listed in the
(H)
right hand corner as
identified by the bold
line
The important issues
Impact
(M)
are listed within the
square area as
identified by the dashed
line
(L)
(L) (M) (H)

Probability
3.1.16
What Did We Miss?
The biggest risks are those things we just didnt think
of.
Involving everyone throughout the process can avoid
the I could have told you that would happen
syndrome.
Both are minimized by:
Involving and listening to differing opinions from a broad
spectrum of people
Spending time on the effort to identify the risks
Keeping an open mind
Forcing ourselves to talk about things that make us
uncomfortable we often minimize in our minds
unfavorable outcomes.
3.1.17

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Reservoir Management

Risk and Uncertainty Assessment

DELIVERING KNOWLEDGE. DEVELOPING COMPETENCE.

Identifying critical success factors

1. Recognize and take the Risk

Accept the risk and take the chance?

Appraise a certain situation?

Prepare contingency plans?

When Appraisal would truly address the issue

A good Contingency Plan reduces the downside

If the risk weighted NPV of the Contingency Plan

Identifying All of the Potential Risks:

(L) (M) (H)

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