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