Decision Analysis for a Complex Appraisal and Sequencing Selection: An Example
Authors: Shrivastava Sanjay K , Yemez I. , Singh V. , Izaguirre Elena 
Published: November 2016

Decisions related to need of appraisal, extent of appraisal and sequencing of appraisal activities has always been tricky and complex. A well-defined process to reasonably compare the value likely to be created, not only by different set of appraisal options, but also by different set of possible sequencing is devised and illustrated through a field example using dynamically changing chance of development and corresponding expected NPV.

Executing minimal appraisal to minimize upfront appraisal investment maximizes overall project revenue. Therefore it is critical to evaluate likely value creation by each appraisal activity and their dependency on each other. It is also critical to optimize sequencing to minimize appraisal investment and maximize value for information. The illustrated field's proved resources are not sufficient enough to support economically robust development; however field has potential to be commercially viable with some uncertainty that requires further appraisal. This field with complex structure, compartments, reservoir quality, areal extent and other contingencies is evaluated for various appraisal options using complex decision tree analysis. The example uses resource distribution targeted by each activity, likely development cost and crude price distributions as input to Monte Carlo simulator to arrive at expected NPV for all possible sequencing of activities. Chance of development for each appraisal activity, derived using multi-disciplinary approach, changes dynamically dependent on results of preceding appraisal activities in different branches of the decision tree. Expected NPV for each branch thus estimated, reasonably integrates all possible scenarios of cost, crude price and appraisal success and failures. This helps to perceive an appraisal strategy that best meets the field contingency scenarios, their chance of occurrence, project cost and price uncertainties, which allows taking informed and consistent decision.

Complex situation, multiple options, dynamically changing chance of contingencies and their influence on successive appraisal is not easy to synthesize without systematic decision models. Such models, other than evaluating VoI of options, provide tool to evaluate value of flexibility and dynamically updated project value to help exit, end appraisal or farm out. Selection of appraisal activity and its sequencing is often guided by qualitative perception of uncertainty through mental short-cuts. Obvious appraisal sequencing based mainly on resource and chance may not always be the best option. Proposed method discriminates best option and optimal sequencing to help take consistent and quality decisions. This methodology attempts to include all possible scenarios and innovative multi-disciplinary contingencies for chance evaluation. This method attempts to evaluate meaningful expected NPV using Monte Carlo simulation with distribution of yearly average values of each influencing parameters (profile, cost and price) thus helping exploit ingrained opportunities in the uncertainty to generate value through repeated application. Method can be used to model complex appraisal scenarios to help chose optimal appraisal strategy. More complexities of possible scenarios can be added using the described example and methodology.