An Offshore Development Planning Model Incorporating Risk Analysis
Authors: Faecke David C. , Lesso William G. 
Published: October 2008

Offshore discoveries in water depths of 1000 feet or more, and in remote and harsh environments such as the northern Atlantic and the Arctic, have resulted in vast advances in offshore production technology. New designs for fixed platforms, subsea components, and floating production/storage facilities, as wei I as new development concepts involving combinations of surface and subsea technology, are constantly being introduced. As a result, offshore development planning has become much more complicated. Numerous technical Iyfeasible alternative methods of development must be evaluated economically in order to select an optimal plan. But each of these alternatives involves a great deal of uncertainty as to investment requirements, timing, and operating expense. In addition, uncertainty exists in the estimate of recoverable reserves and production rates, and oil and gas prices.

Because of the magnitude of these uncertainties and their impact upon profitabi lity, it is desirable that they be included in the economic evaluation. By doing so, it is possible to quantify the economic risk associated with each alternative, and to identify the development plan which offers both the highest Net Present Worth (NPW) and the lowest economic risk.

This paper describes an Offshore Development Planning Model which is designed to evaluate numerous alternative methods of developing an offshore discovery. A decision tree approach is employed to organize the sequence of inter-related decisions involved in drilling, production and transport of 011 and gas. Each path through thedecision tree represents a particular development plan or alternative. A closed-form method of calculating the expected value and the variance of NPW for each alternative is used, and a measure of economic risk is obtained using these values. Comparison of the NPW and the risk values for each development plan provides a convenient method of ranking the alternatives.

An example of an offshore field development in 1000 ft. water depth in the Gulf of Mexico II lustrates the use of the model. Alternative development pians include the fixed platform, guyed tower, floating production facilities and several subsea/ surface combinations.

Introduction

Higher oil and gas prices and the increased instability of imported oil supplies have accelerated the search for new oil and gas resources throughout the world. Offshore discoveries In water depths of 1000 feet or more, and in remote areas and harsh environments have brought about vast advances in offshore production technology. New designs for offshore structures, subsea equipment, floating processing facilities, and on-site storage and offloading systems are constantly being introduced. Entirely new offshore development concepts utilizing this technology have emerged. As a result, offshore development planning has become much more complicated. In order to insure that a discovery Is brought into production whenever possible, numerous alternative methods of development are being proposed and evaluated for each particular situation.