Value of Information: From Cost Cutting to Value Creation
Authors: Koninx J.P.M. 
Published: June 2014

Summary
Value-of-information (VOI) analysis is a powerful tool for short-term rationalization of data-acquisition costs. Even more, the longer-term added value of proper VOI analysis lies in the process of constructing the analysis and in the insight it gives into risk and opportunity management. A rigorous VOI analysis generally spans the full life cycle of E&P and, as such, requires input from a multidisciplinary team. A thorough examination of where data add value leads to value optimization and creation.
To unlock this value, implementation of a rigorous, easy-to-use method is critical. Such an implementation has progressed in Woodside and has already led to a shift in mindset. VOI analyses are regarded not as cumbersome and fuzzy, but increasingly as an essential part of data acquisition and data analysis. As a result, sizeable reductions in well-data-acquisition costs have been achieved and data acquisition and analysis has become more focused.

Introduction
Data acquisition lies at the root of the E&P business. Data acquired as operator, partner, or otherwise form the basis for investment decisions and future growth as a company.
Data acquisition, however, generally is costly. How costly became very clear in early 1999 when the oil price hovered around U.S. $10. In such an environment, all expenditure is challenged, and that challenge process has not disappeared with the subsequent rise in oil prices. The cost of data acquisition should be justified by the value of the data to the business. A VOI analysis is a means for such a justification.
A VOI analysis essentially is an expected-monetary-value (EMV) calculation. It analyzes the expected benefit of a series of actions and outcomes under two assumptions: with or without the proposed data being available. The difference in EMV between the scenario with data acquisition and the scenario without is then the value of the data acquired. Typically, when this value is not enough to cover the cost of data acquisition (or is even negative), it is seen as a good reason not to acquire the data.
However, VOI means more than cost reduction. Certainly, short-term cost reductions can be realized by reduction of data acquisition where this acquisition cannot be justified. The true power of the VOI analyses lies in better value, risk, and opportunity management.Value Assurance. If the value of data acquisition is known, it sets an immediate target for realizing this value once the data are acquired. This provides a focus on both value and cost.Value Creation. Sensitivity analyses of the VOI calculation identify the key risks and probabilities that may be managed to enhance value. This is particularly powerful when applied to portfolio management, opening the way to new opportunities and business growth.
This powerful aspect of VOI analyses is rarely applied in practice. VOI analysis has the image of being good in theory but rather unfruitful in practice. It is perceived to be too complicated, too fuzzy, and too much work and to have too many parameters and too many assumptions. One can justify anything just by tweaking the parameters correctly. These are ingrained but incorrect perceptions, really based only on lack of knowledge, lack of tools, and perhaps poor experiences in the past.
At the heart of the problem is the fact that monetary return on the investment of data acquisition is usually several years in the future.A 3D-seismic survey might pay off in terms of optimal positioning of development wells, enhancing recovery per well, and reducing unit cost per barrel.A full-diameter core over the reservoir might pay off in terms of a better understanding of the environment of deposition, leading to an optimized development scheme.Sidewall cores in an exploration well might pay off in terms of opening a new play, with a corresponding discovery and development in the future.
The longer the time frame between data acquisition and payback (typically in the form of a development), the more difficult the VOI analysis is. A good analysis requires a full life-cycle approach and thus input from a multidisciplinary team—geoscientists, petroleum engineers, surface engineers, economists, and sometimes marketers and public relations officers.
Similarly, data acquisition in a late phase of development might be very easy to justify because of a direct visible impact. But at the same time, there is often little room for change late in the development of a field and the value of the data is therefore limited. If new data cannot impact decisions, then those data have no value. Generally, early in the exploration phase of an area, data are valuable because so many options for development are still open.