Field/project development

Holistic Appraisal Strategy Aims To Get the Most Out of Unconventional Reservoirs

This paper presents a pragmatic approach to frame, evaluate, and compare appraisal strategies in resource plays.

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This paper presents a pragmatic approach to frame, evaluate, and compare appraisal strategies in resource plays. The unique approach starts with framing the overall field-appraisal plan, holistically, and then progresses to evaluating the most commonly encountered individual appraisal decisions, enabling teams to answer the following questions:

  • What are the key uncertainties, and which appraisal options should we consider to resolve them?
  • Is there value in running a pilot to determine the optimal well spacing, and, if so, what is the best pilot design?
  • Do we want to run a completions pilot, and how should we configure it?
  • Do we need to pilot where and how to orient our laterals?
  • Can we justify seismic to high-grade our drilling program?

Introduction

Open, Structured, Auditable Decision Process. Decision analysis is designed in two key phases, framing and analysis. Framing involves defining the decision problem, setting the objectives and decision criteria, agreeing on the alternatives to be evaluated, and structuring the evaluation. The analysis involves quantifying the key uncertainties and their effect on the development, estimating the uncertainty-reduction potential for each of the appraisal options, and applying standard value-of-information (VOI) analysis practices to gain insight on the strategic direction. Both framing and analysis are important and necessary.

Frame and Evaluate the Development Strategy Without New Information

Understanding the Risk Profile. Appraisal strategies are information strategies and, as such, require a VOI workflow to evaluate them. To define the value that information adds to an asset, the team must first understand the value of the asset without additional information. Therefore, VOI=(asset value with information)−(asset value without information).

The evaluation results generated in this phase set the baseline “asset value without information” that excludes collecting any new information other than what one would normally collect in the course of a development.

A cumulative probability plot displays the risk profile of a development—the chance of having a positive economic development—and is generated using probabilistic analysis methods. An example cumulative probability plot is displayed in Fig. 1. Three possible zero net-present-value (NPV) points (A, B, and C) are mapped on the plot. If the NPV zero point of the asset development is near C, there is a very low chance of achieving positive economic results (approximately 7%). In this situation, there is likely little value in appraisal because there is such an extremely low probability of finding an economic development. The reverse is true if the NPV zero point is near A. There is such a high chance of finding an economic development (approximately 91%) that there may also not be any value in appraisal. The team instead might consider stepping directly into development. When the NPV zero point is near B, there is considerable upside potential and downside risk of development and, as such, there is likely to be higher value in appraisal.

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Fig. 1—Example of a cumulative probability plot.

Next, use a tornado sensitivity plot to identify the critical subsurface uncertainties on which to focus the appraisal efforts. Fig. 2 shows an example in which three of the top four uncertainties relate to the subsurface—initial rates, liquid content, and estimated ultimate recovery/well. One of the immediate insights from the tornado plot is that, if initial rates or liquid content turn out to be low, the development NPV will likely be negative.

Example of a tornado sensitivity plot EUR=estimated ultimate recovery.
Fig. 2—Example of a tornado sensitivity plot EUR=estimated ultimate recovery.

Frame the Options for the High-Level Appraisal Roadmap

Industry is tending toward appraisal in two major phases—to find an economically viable well design and to place that well optimally in the reservoir. Both phases may include multiple wells or pilots, depending on the size or the land position, the complexity of the reservoir, and the number of well and completion designs under consideration.

The benefits of a good frame cannot be overstated. Defined as a group’s bounded viewpoint of a decision problem, framing is often described as front-end loading of an evaluation. It is an efficiency process, where, for a relatively small investment of time upfront, a team can save days, weeks, and sometimes months of rework in evaluation. The steps involved in framing standard decision problems are

  1. Define the problem.
  2. Raise and sort issues.
  3. Determine the problem focus.
  4. Build a menu of alternatives.
  5. Develop strategies to evaluate and compare.

In framing information strategies, one new step is inserted between Steps 3 and 4, which link uncertainties to development decisions. Additionally, in appraising unconventional assets, teams often need to frame at two levels, the high-level appraisal roadmap and the individual appraisal stage.

Linking Uncertainties to Development Decisions. Information tends to increase the value of an asset if it provides the team with the ability to stop a project when it is likely to fail economically or to improve a project by optimizing the subsequent development decisions. Teams must identify the development decisions that hinge upon the resolution of each key uncertainty. An uncertainty table is designed for this purpose.

Uncertainty tables are invaluable tools for appraisal decision problems because they guide teams to link the uncertainties to development decisions; thus, teams begin to take a closer look at the commercial effects of their appraisal decisions.

Developing the Menu for Potential Appraisal Roadmaps. The insights from the previous steps are used along with standard decision-framing techniques to develop a strategy table representing the options under debate for the high-level roadmap, or area appraisal strategy. This is used like a menu where options from each column can be selected in combination to form an individual strategy.

Strategy tables are used when the number of alternatives under debate and the combinations thereof become too large to track. There are many instances in appraising conventional assets where strategy tables are not required because the list of appraisal alternatives is small. This is rarely the case in appraising unconventional reservoirs.

Frame Individual Appraisal Stages

The frame for each individual appraisal stage is a next-level frame in that it is derived from the main appraisal roadmap but contains more detail. The high-level frame represents “what we are going to do,” and the next-level frame represents “how we plan to do it.” The framing steps are the same as those outlined earlier in this paper, with a focus on a particular individual appraisal stage.

Strategies are developed with an eye to solving the problem using different approaches that are as diverse as possible. Fig. 3 illustrates two strategies. Both are well-spacing pilots, but they are designed to resolve the uncertainty on recovery per well through different actions. The first strategy, Full Monty, aims at understanding recovery per well through a greater number of wells spread out in two different areas of the reservoir. This pilot, if run, would help the team understand the regional variation better. The second pilot strategy, West Is Best, aims at understanding recovery per well through fewer wells and the use of more technology. This pilot would be placed in the western section of the reservoir where fewer wells have been drilled to date. It also makes use of microseismic (to determine the extent of each fracture treatment), distributed temperature sensors (to determine which of the fractures are producing), and core (to understand the local rock characteristics).

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Fig. 3—Example strategies for a well-spacing pilot.

 

A comparison of the analysis of the two strategies will lead to insights to help the team select an even better hybrid strategy for the spacing pilot.

Evaluate Individual Appraisal Stages

Early in the life of conventional petroleum reservoirs, teams are appraising to determine if the in-place volumes are large enough to justify a development. At this stage, the key development decision is often a go/no-go decision—for example, “Should we continue to appraise the asset or walk away?” In unconventional resource plays, in-place volume is not the issue. Early on, the issues center on understanding fluid type, potential for commercial rates, and materiality of the acreage position. Soon after, the team redirects the focus onto well design. The underlying development decisions tend to be go/no-go at first, and they transition to “how to go” decision problems soon thereafter.

The steps to complete an analysis of an individual appraisal stage are as follows:

Value the Asset Without Information. A decision tree for the spacing-pilot evaluation is used to estimate the value of the full-field development for different potential well-spacing plans: four, six, or eight wells per section. The NPV of each of the nine possible outcomes is calculated individually.

Assess the Reliability of Information for the Individual Appraisal Stage Strategies. The reliability of information refers to the accuracy of the information and the team’s ability to interpret the true state of nature correctly from a given information source. Once assessed, information reliability is applied, using Bayes’ rule, to estimate how much the team might reduce their uncertainty (i.e., upgrade or downgrade their probabilities) after collecting and analyzing the appraisal information.

Value the Asset With Information. These probabilities are carried into the analysis of the value of the asset with the spacing-pilot information. The full decision tree shows the well-spacing decision policies depending on the interpretation from the pilot. The rolled-back expected value of the development with the Full Monty spacing pilot is USD 759 million. The value of the development without further appraisal is USD 720 million. The value of the information, therefore, is USD 39 million (759 million−720 million). This additional value is possible because the reliability of information of the Full Monty appraisal pilot is high enough to help the team optimize the well spacing in the development.

Gain Insight and Look for Hybrid Appraisal Strategies To Consider. The insight in the preceding paragraph is an example of the importance, again, of moving up and down the branches of the decision trees to gain insight and develop potential hybrid strategies. These insights almost always lead to new ideas that improve the value of the asset, often incrementally better and sometimes significantly so. In all cases, the analysis leads to clearer decision making.

Agree on the High-Level Appraisal Roadmap

With all the evaluations completed, the team can return to the high-level roadmap to structure the area uncertainty-reduction plan. The process is ever-evolving as the team completes each new evaluation and collects new information from the reservoir. It is a team tool designed to spur ideas and challenge conventions in an open and auditable way. Most importantly, it stimulates a focused dialogue between the team members and decision makers, ultimately resulting in improved decisions.

Conclusions

Workflow steps and tools that are particularly useful in unconventional-resource appraisal include:

  • Probabilistic analysis of the development, to highlight the risk profile and identify the effective decisions on which to focus appraisal efforts
  • Influence diagrams, to display the relationships between subsurface uncertainties to highlight the interdependencies
  • Uncertainty tables, to identify key project uncertainties, the development decisions they affect, and the information sources to consider to reduce the uncertainties
  • Strategy tables, to brainstorm and define different area appraisal strategies and individual appraisal stage strategies to consider
  • Next-level frames of individual appraisal information stages (such as pilots), to break the problem into detailed elements for insight
  • VOI analysis and uncertainty-reduction forecasting of individual appraisal information stages
  • A high-level uncertainty-reduction roadmap, to guide appraisal and or uncertainty reduction efforts from start to finish

Each step is designed to generate an open conversation among team members and decision makers, with the ultimate aim of producing useful and interesting insights that improve decisions.

This article, written by Editorial Manager Adam Wilson, contains highlights of paper SPE 162776, “Appraisal Excellence in Unconventional Reservoirs,” by M.K. Burkholder, SPE, E.M. Coopersmith, SPE, and J.H. Schulze, SPE, Decision Frameworks, prepared for the 2012 SPE Canadian Unconventional Resources Conference, Calgary, 30 October–1 November. The paper has not been peer reviewed.