An Economic Evaluation Technique for Workovers with Declining Production
Authors: Patterson W.E. 
Published: December 2007

This paper was prepared for the 48th Annual Fall Meeting of the Society of Petroleum Engineers of AIME, to be held in Las Vegas, Nev., Sept. 30-Oct. 3, 1973. Permission to copy is restricted to an abstract of not more than 300 words. Illustrations may not be copied. The abstract should contain conspicuous acknowledgment of where and by whom the paper is presented. Publication elsewhere after publication in the JOURNAL OF PETROLEUM TECHNOLOGY or the SOCIETY OF PETROLEUM ENGINEERS JOURNAL is usually granted upon request to the Editor of the appropriate journal provided agreement to give proper credit is made.

Discussion of this paper is invited. Three copies of any discussion should be sent to the Society of Petroleum Engineers office. Such discussion may be presented at the above meeting and, with the paper, may be considered for publication in one of the two SPE magazines.

Introduction

A short-cut method has been developed for evaluating workovers that increase the production rates and reserves of exponentially production rates and reserves of exponentially declining production. In addition to present value profit (PVP) and discounted profit-to-investment (P/I) ratio, this profit-to-investment (P/I) ratio, this technique can be used to determine a ratio of investment per B/D increase or per barrel of new reserves to satisfy a particular P/I ratio. The required parameters are most readily estimated:production rate and percentage decline rate before the job,percentage decline rate before the job,amount of production increase with the job andproduction pattern after the job - same decline rate, same total life, or acceleration.

It will also be shown how the risk of failure can be included in an analysis and how the effects of federal income tax can be estimated for workover operations.

Little attention has been given in the literature to workover economics. Although Phillips and Brons et al. provided concepts Phillips and Brons et al. provided concepts with which short-cut calculation of profitability could be obtained, Rike was first to point out the need for simple techniques of workover evaluation. Rike concluded from a survey of oil companies and consultants that a majority either used discounted cash-flow techniques or were "favorably disposed" toward them. He also noted that many operators measure the economics of workover operations with only a simple payout figure. payout figure. Probably a lack of time is the most common reason for not using a discounted cash-flow technique for evaluating workovers. Preparation and analysis of a detailed cash flow may take a half day of an engineer's time, even with modern computer programs. In comparison with perhaps 10 man-days to assemble geologic information and reservoir data for a new development well, a half day spent on an economic analysis is justifiable. On the other hand, an engineer in a workover operations group usually needs only up to 5 man-days to plan a complete job. Unless short-cut methods are used, the economic analysis that takes 5 percent of the total effort in development well plaining will consume 10 to 20 percent of the staff time in workover planning. planning. Rike proposed a quick evaluation method based on the payout time of a constant rate of income. Except for wells that are limited by market demand or equipment capacity, however, oil production is generally characterized by declining rates. An exponential (constant percentage) decline pattern would seem to be a percentage) decline pattern would seem to be a more accurate model for analyzing workovers. The purpose of the present study was to improve upon the technique suggested by Rike.