--> Abstract: Subsurface Appraisal: A Poorly Understood Post-Discovery Risk Mitigation Tool Carrying High Financial Stakes, by Ferruh Demirmen; #90914(2000)

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Ferruh Demirmen1
(1) Petroleum Consultant, Katy, TX

Abstract: Subsurface appraisal: A poorly understood post-discovery risk mitigation tool carrying high financial stakes

A critical consideration for an E&P company after a field discovery is to decide whether and to what extent to appraise the field. E&P companies spend large sums of money every year for subsurface (field) appraisal. Commonly, however, the appraisal decision (at least after the first or second appraisal well) is difficult and tortuous, lacks transparency and objectivity, and the level of appraisal is less than optimal. Suboptimal appraisal, either in the form of under- or over-appraisal, leads to poor economics. The financial stakes would be particularly high in hostile or deep-offshore environments.

For optimum appraisal, a distinction should be made between “exploration appraisal” and “development appraisal.” The overall objective is to reduce reservoir (often reserves) uncertainty and mitigate economic risk, but the focus will differ depending on the type of appraisal. A common misconception is to equate appraisal success with commercial success. It is also essential to use a decision tool that ties reservoir uncertainty to potential economic consequences through a series of development scenarios. The “value of information” (VOI) criterion, that quantifies the expected benefit of appraisal against cost, is well suited for such decision process. This criterion is used to justify appraisal and to decide when to stop appraising. A probability distribution, for example of reserves, helps establish the link between uncertainty and economics. Proper application of VOI, however, comes with certain caveats. A truly multidisciplinary and synergistic approach is required in the process.

The foregoing concepts are illustrated with two contrasting examples from the North Sea.

AAPG Search and Discovery Article #90914©2000 AAPG Annual Convention, New Orleans, Louisiana