Use of Simple Stochastic Models for North Sea Field-Development Decisions
Authors: Bybee Karen 
Published: February 2015

This article, written by Assistant Technology Editor Karen Bybee, contains highlights of paper SPE 97177, "From Geological Knowledge to Good Decisions Using Simple Stochastic Models, A North Sea Case Study," by K. Hollund, SPE, R. Hauge, SPE, and A.R. Syversveen, Norwegian Computing Center, and A. Jorstad, T. Lie, SPE, and H.C. Ronnevik, Lundin Norway A/S, prepared for the 2005 SPE Annual Technical Conference and Exhibition, Dallas, 9–12 October.
The full-length paper details the stochastic model that was built to support decisions in the early phases of development of the Alvheim field. The model made it possible to explore important upside potential in geophysical evaluations and determine if and in what sequence additional wells should be drilled. An improved understanding of the value of different drilling strategies was gained by studying distributions for in-place oil and gas volumes for various scenarios.

Introduction
The approach to decisions detailed in the full-length paper is based on standard Bayesian decision theory that assigns a loss function to different decisions and then makes a decision rule on the basis of this loss function and the distribution of possible outcomes. The first step is universal in decision theory, and the second step is specifically Bayesian. Benefits of a simplified model include speed, flexibility, and ease of explanation.
The challenge was to turn relatively small Paleocene structures consisting of unproven prospects and proven oil and gas reserves into a field development with a good economic performance. All field-development partners agreed that modeling the uncertainties of field development was important for establishing a good development strategy. The full-length paper details a simplified stochastic model built with a standard spreadsheet program and a Monte Carlo add-in to support decisions about the number and individual structures to be drilled. An improved understanding of the value of different appraisal strategies was gained by studying in-place oil and gas volumes for various scenarios. The model makes it possible to quickly compare expected values, uncertainty ranges, and other key variables for various scenarios.

Alvheim Field
The Alvheim field is in the PL203 License in the Norwegian North Sea and extends into the neighboring PL088 and PL036 Licenses. The field consists of three principal oil and gas discoveries—Kneler, Kameleon, and Boa—each of which contain hydrocarbons in good-quality Paleocene sandstones. A series of smaller accumulations that currently are not part of the development (Fig. 1) also occur in the area.
In 1974, the first discovery in the area was a gas/oil accumulation in the Gekko structure that was drilled on the basis of 2D-seismic-data interpretation to test the extension of the Heimdal field. Oil and gas were found but were not considered economically feasible to develop. A small oil accumulation, Kobra, was found in 1997, and the gas/oil accumulation in the Kameleon structure was discovered in 1998. After this, the area lay dormant until it was acquired by the current operator in 2001.