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The Summary of Subsurface Risk Management Project Zein Wijaya, KBK - Reservoir July, 10 2007

Subsurface Risk Management

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Risk Management

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Page 1: Subsurface Risk Management

The Summary of Subsurface Risk ManagementProject

Zein Wijaya, KBK - Reservoir

July, 10 2007

Budhis
Migas Indonesia
Page 2: Subsurface Risk Management

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Risk Management General Concept

(Definition and Theory)

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Introduction

“If you can’t manage risk, you can’t control it. And if youcan’t control it you can’t manage it. That means you’re just gambling and hoping to get lucky.”

(Hooten [2000])

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Definition

The art of risk management is to identify risks specific to an organisation and to respond to them in an appropriate way.

Risk management is a formal process that enables the identification, assessment, planning and management of risks.

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Typical organisation Structure which allows risk management to be focused at different level

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The Concept of Risk

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Risk and Uncertainty (Merna, 1996)

“A decision is said to be subject to risk when there is a range of possible outcomes and when known probabilities can be attached to the outcome.”

“Uncertainty exists when there is more that one possible outcome to a course of action but the probability of each outcome is not known.”

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Typical Risk Parameters

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How to define and measure the risk

• Defining ‘bad’ by identifying the objectives of an organisation and the resources that are threatened.

• Identifying scenarios whose occurrence can threaten the resources of value.

• Measure the severity or magnitude of impacts.

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Risk and Uncertainties (Lifton and Shaifer – 1982)

“The uncertainty associated with estimates of outcomes.”

“Uncertainty is used to describe the situation when it is not

possible to attach a probability to the likelihood of

occurrence of an event. Uncertainty causes rift between

good decision and good outcome. The distinguishing factor

between risk and uncertainty is that risk is taken to have

quantifiable attributes, and its place in a calculus of

probabilities, whereas uncertainty does not.”

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Type of Uncertainties

Basically There are two types of uncertainties;

Uncertainty arising from a situation of a pure chance; is known as ‘aleatory uncertainty’

Uncertainty arising from a problem situation where the resolution will depend upon the exercise of judgement; is known as ‘epistemic uncertainty’.

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Risk – Uncertainty Continuum (Raferty – 1994)

A broad definition of project risk is:“The implications of the existence of significantuncertainty about the level of project performanceachievable.” (Chapman and Ward [1997])

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Hazards

People often confuse the concepts of hazard and risk since they

are used interchangeably as if they have the same meaning.

This is untrue, however, but to add to the confusion different

industries often define the concepts differently.

A common definition is:

“A hazard is a condition that can cause injury, or death,

damage to or loss of equipment or property, or

environmental harm.”

A hazard can be the result of a system or component failure but

this is not always the case; a hazard can exist without anything

failing.

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Subsurface Risk Assessment Tool

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Why do we need to improve subsurface Assessment ?

Economic performance is driven by reserves

Reliable subsurface assessments are important to project value

Actual Realized Value, NPV10

Appropriation Request, NPV10

Value Erosion

Reserves / Production

OPEXCAPEX

OtherPrices

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Appraisal Strategy Impacts Production Attainment

Conservative

Fully characterize reservoir properties and fluids

Minimize risks

Moderate

Balance appraisal cost, schedule, and asset risks

Focus appraisal on critical risk areas

Aggressive

Minimize appraisal costs and duration

Manage asset risks

Frequently an “acceleration”or “cost minimization”strategy

Conclusions:• Conservative appraisals do not add much value over moderate appraisals• Moderate appraisals should be adequate to define uncertainty and assess development alternatives

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Level of Confidence Matrix:New Project Outcomes

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Subsurface Assessment – 5 Steps Process

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Step 1 – Choose Assessment Method

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Subsurface Assessment Method

There are several methods to do subsurface assessment and predict reservoir performance:

1. Analogy

2. Empirical Methods

3. Decline Curves

4. Analytical Models

5. Reservoir Simulation

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Example Subsurface Assessment Method

Analogy Empirical Decline Curve

Analytical (Material Balance Model)

ReservoirSimulation

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Uncertainty Identification Tools

Identify uncertainties:

Brainstorming

Force field diagrams

Influence diagrams

Force Field Diagrams Influence Diagrams

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Assess Uncertainty Ranges (Tornado Diagram)

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Step 3 – Estimate Uncertainty Ranges

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Estimate Uncertainty Range (MontecarloSimulation – Crystal Ball & @RISK)

Common Typesof Data Distribution

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Uncertainty Display

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Step 4 – Create Uncertainty Management Plan

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Uncertainty Management Plan

Uncertainty Management Plan was created to Develop a plan to resolve and manage key uncertainties.

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Step 5 – Finalize The Outcome Ranges

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Finalize The Outcome Ranges of Project

To finalize the outcome ranges of project, there are 2 steps:

1. We need to combine the uncontrollable subsurface uncertainties with operational uncertainties.

Well construction constraints such as tubing size or well operating constraints including artificial liftDrilling schedule and orderNumber of wells, patterns and spacingFacilities constraintsOperational downtimeRisk of unsuccessful wells due to geology or mechanical reasonsCommercial and demand risk – especially for gasApprovals, e.g., permits, commingling, regulatory, partners, equity agreements, AFE’s

2. We need to Use DA Model to Assess Alternatives and Economic Projects

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Combination Outcome Ranges Between Subsurface and Operational Uncertainties

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Decision Analysis Model (D-Tree & Economic Model)

Decision Tree withDifferent Alternatives

Project Outcomes vsInvestment inDifferent Alternatives

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Data Source / Reference

Risk Management Text Book –by Dr Anthony Merna - Manchaster Business School – University of Manchaster – England – United Kingdom

Chevron Subsurface Assessment (General Concept)