Risk Analysis for Unconventional Resource Opportunities

William Haskett
Decision Strategies Inc., Houston, TX

A decidedly different approach must be taken for risk analysis (chance and uncertainty) in unconventional opportunities. Due to the non-applicability of field size distributions (FSD’s), a new approach to range-based resource estimation involving multiple well size distributions (WSD’s) is warranted. Single WSD evaluation methods are inherently flawed resulting in gross error, inclusion of significant bias (usually upside), and poor development decisions. Uncertainty envelopes for both resource and production potential form the starting point for evaluation. As seen in a typical Shale Gas project, the impact on NPV of resource uncertainty is greatly reduced from that of conventional opportunities, whereas, production and cost uncertainty have significantly increased impact. Unconventional assessments should provide guidance as to the certainty of making a correct decision as opposed to simply calculating a mean or deterministic result on a risked or success basis. Valid opportunity assessment is enabled through a full value-chain approach that helps make land, pilot, and development decisions in a timely and effective manner.

AAPG Search and Discover Article #90078©2008 AAPG Annual Convention, San Antonio, Texas