Stochastic Modeling of Technical Uncertainty: A Tool for Making Better Exploration and Development Decisions

Ned R. Timbel

Statistical programs for personal computers may be used to conduct stochastic analysis to deal with technical uncertainty in the petroleum industry. Such analyses are used to quantify probability of success and recoverable resources for a prospect, play, or basin.

Exploration and development risk analysis models yield several intermediate results including the amount of generated hydrocarbons, migrated hydrocarbons, trapped hydrocarbons, and oil or gas in place. Technical weakness in a play may be examined by putting cumulative distribution functions of intermediate results on a single graph. Interpretation of preliminary risk analysis, conducted early in the exploration cycle, may guide the acquisition and use of additional geologic and geophysical data.

Geotechnical input parameters used to characterize a project must be carefully compiled prior to analysis. Statistical determination of natural distribution types for parameters with measured data is recommended.

Expectations for portfolio performance may be refined and summarized using risk analysis. A computer simulation using results from several risk analyses may be conducted to better understand probability of success and potential resource size. Estimation of potential reserve additions from a portfolio is possible through calculation of the mean resource size of predicted economic successes.

Stochastic determination of sensitivity in wireline log calculations, and models for dealing with uncertainty in drilling cost estimation can also be used as an effective tool to aid in the decision process.

AAPG Search and Discovery Article #91020©1995 AAPG Annual Convention, Houston, Texas, May 5-8, 1995