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1、CHAPTER 1 DECISION MAKING 1.1 Decision Making Process 1.2 Interaction Among Various Steps 1.3 Economic Terminology,1.1 Decision Making Process Economic decisions go hand in hand with technical decisions in the petroleum industry. Each decision is associated with several steps. In most instances, we
2、need to understand these steps before we can determine the feasibility of a project.,Starting from whether to explore （勘探）for oil and gas, the economic decisions become an integral part of the project. The first decision may be whether to sign an agreement to acquire a concession（让步）on a lease（租约）.
3、An associated decision would be how much of a signing bonus (签字定金)needs to be paid.,Also, what types of additional commitments(义务) such as work programs and future drilling activities are made. In the next step, if a concession is acquired, one needs to decide if additional geological （地质学的）or geoph
4、ysical（地球物理学的） data needs to be gathered before drilling a well.,If sufficient data are available, where should the first well be drilled. If the well is successful, We need to decide if the hydrocarbon reserves are in sufficient economic quantities to justify additional drilling and exploitation（开采
5、）.,After finding hydrocarbons and knowing that they can be produced in economic quantities, we first need to decide whether to develop or sell to another party. If we decide to develop, we need to consider the decisions during the production phase. .,Starting from the type of drilling technique we n
6、eed to use, we need to make decisions associated with the well completion techniques（完井技术), surface separation equipment, the piping(管道） and tubing（油管） requirements and the rate of production. These factors are further compounded by the changing economics of oil and gas prices over which the produce
7、r may not have any control.,The economic decisions continue throughout the producing life of the project. Once the production begins smoothly, we will have to worry about the possibilities of secondary（二次） and tertiary （三次)oil recovery techniques, drilling of in-fill wells(加密井）, and the implementati
8、on of artificial lift techniques. .,Not to mention, the production scenario(方案) can be significantly affected by changing government regulations either related to production quotas（配额） or to the environmental and political concerns. During the same time, knowing that the present reserves are going t
9、o last over a finite period, we will have to make decisions related to future acquisition and leasing of onshore and offshore lands.,As discussed, the decision making process is cyclical（循环的） and continues throughout the perpetual existence of the oil company. Although we have only discussed the dec
10、isions related to the exploration and production of the hydrocarbons. it should be remembered that the refining and processing of hydrocarbons also involves several decisions. We need to understand the procedures involved in any of these decisions.,Our objective in this course is to understand the e
11、conomic principles related to exploration and production of hydrocarbons and study the economic evaluation process in the presence of uncertainty. In achieving this objective, one should realize that although a single answer to any question is desirable and often warranted, in many realistic situati
12、ons, it is very difficult to obtain a unique（唯一的） answer.,We will first concentrate on obtaining a single answer using basic economic principles. We will then review the procedures involved in quantifying uncertainties in an economic evaluation process. Once the uncertainties in making a certain dec
13、ision are clearly identified, the decision maker will be aware(知道) of the consequences(因果关系) of the final decision.,In this chapter, we will discuss the decision making process in economic analysis. Many of the steps in this decision making process will be expanded in the subsequent chapters.,1.1 De
14、cision Making Process Any decision making process has to be a rational, well informed process. It should be consistent with the available information and the constraints imposed. Unlike playing a card game or gambling, intuitive deductions(直觉推论) or gut feeling(内情) are rarely useful in making an obje
15、ctive decision related to economic evaluation. The steps involved in such rational economic decision are as follows:,1.1.1 Recognition of Problem(问题识别） Recognition of problem includes defining the problem at hand, its importance, and associated uncertainties and risks dealing with such a problem.,As
16、 an example, typical problems faced in the petroleum industry are: * Should you buy a lease or concession? * How many wells need to be drilled? * What production scheme should be applied? * What type of drilling method should be used?,If we can consider the development and exploitation of the petrol
17、eum reservoir in a chronological order, the problems we will encounter can be stated as: Will geological/geophysical and surrounding reservoir data locate the reservoir? * Will the wild cat well(野猫井，也称初探井。在尚未发现具有商业价值的油气地区所钻的探井)produce in commercial quantities to justify additional investigation? * W
18、ill additional delineation(描述) be required before further development? * Is full development of the field economically feasible? * What should be the optimum strategy(优化策略) for exploiting the reservoir?,In recognizing these problems, we also need to understand the associated risks and uncertainties.
19、 Some of the commonly observed uncertainties are: * Chance of discovery and effect of geological control. * Reservoir heterogeneity(不同成分). * Interest/inflation rates. * Price variations in hydrocarbons. * Government control and regulations. * Political instability. * Environmental concerns. * Reliab
20、ility of data. * Capital requirements.,A complete recognition of a problem should include the identification of a problem and the associated risks. Without the inclusion of risks, the solutions obtained may be simplistic and are often misleading.,1.1.2 Identification of Objective/Goal Once the probl
21、em is identified, the next step is to ascertain (确定)the objectives which need to be satisfied. For the same problem, depending upon the objectives, analysis can be different. As an example, an oil company with a goal to optimize production, and a lending institution(贷款机构) with a goal to provide a se
22、cured loan will analyze the same prospect differently.,An oil company will consider the economic analysis in the most favorable light to either secure the approval of loan or of its shareholders. The lending institute（信用机构）, on the other hand, will analyze the prospect in the most conservative fashi
23、on, its objective being providing a secured loan. It may cut the potential reserves of a prospect in half before granting a loan to assure that sufficient collateral exists on a loan.,Briefly, typical objectives associated with any petroleum industry problem can be summarized as follows: * Maximizat
24、ion of profit/minimization of loss. * Lending of capital using secured credit. * Diversification of activities. * Determining impact of government regulations. * Public perceptions. * Maximization of jobs. * Environmentally sound operations. * Selling and buying properties. * Capturing or increasing
25、 the market share. * Tax assessment. * Safety considerations. * Improving employee satisfaction.,All the objectives are not necessarily monetary. The non-monetary objectives can result in choosing different solutions than the ones chosen by simply concentrating on the objective of maximizing profits
26、 or minimizing losses.,We will, however, concentrate on this monetary objective. Consideration of non-monetary objectives involves factors which are difficult to quantify, and as a result, difficult to evaluate. If these factors have to be considered, every attempt should be made to convert them in
27、terms of monetary units, except when the non-monetary objectives have ethical considerations.,1.1.3 Assembly of Relevant data Data collection is often tedious and sometimes the most time consuming process. Without a careful collection and analysis of available data, the resulting economic analysis m
28、ay be worthless. The assembly of data requires evaluation of available resources and feasibility of obtaining additional data. This step itself involves a decision making.,A design of waterflood Oil and gas investment The evaluation of market consequences Prediction of future benefits Prediction of
29、oil price Overall, collection of the relevant data is one of the most time consuming(耗费时间) and the critical steps in economic analysis. Incomplete collection can have significant effects on the final solution.,1.1.4 Identification of Feasible Alternatives Analysis of a given problem may require cons
30、idering several alternatives. Unless all the alternatives are identified, the overall analysis may result in a sub optimal solution. Genuine creativity(创造力) and innovation(创新) are an integral part of this process.,1.l.5 Selection of Criterion The selection of a criterion for evaluating the alternati
31、ves should be consistent with the goals and objectives of the problem. Using the selected criterion, we should be able to arrange the alternatives for solving a problem in such a manner so as to select the most desirable alternative.,In selecting the criterion, only the differences in the alternativ
32、es are relevant to their comparison. For example, if comparing the two houses with the same price, we will only consider the differences in location, type and annual maintenance costs. On the other hand, in buying a dining table, if two tables are the same quality built by different manufacturers(厂商
33、), the differences in the prices would be the only consideration. If we restrict ourselves to purely economic analysis, most of the criteria can be grouped into three categories.,Fixed Input This criterion is applicable where the amount of money or resources are fixed. The objective is to effectivel
34、y utilize them. An example would be a fixed exploration budget which needs to be spent on potentially attractive prospects. The number of prospects and associated exploration costs are greater than the budget. Therefore, prioritizing of the budget may be required depending upon the goals of the comp
35、any.,Fixed Output This criterion is used where a fixed task needs to be accomplished. The objective is to minimize the resources required to accomplish the task. An example would be laying a pipeline from an offshore platform. We know the diameter and the length of the pipeline, and the location of
36、the pipeline where it will be laid. We will have to secure the best method to minimize the resources required for building the pipeline.,Neither Input nor Output Fixed This criterion is applied where both the input and output are flexible. The objective will be to maximize the output with minimum am
37、ount of resources. An example would be an oil production from a field. If we intend to increase the production through drilling of in-fill wells, we should select the number of in-fill wells such that the incremental cost of each new well justifies the incremental benefit received from the additiona
38、l production.,1.1.6 Construction of Model In constructing a model for evaluation of the alternatives, we need to incorporate the goals of our study, the criterion to be used, and the risks associated with the project. Typically, for economic evaluations, the constructed model is comprised of a set o
39、f mathematical equations. Ideally, these equations should reflect the time value of money, cash flow schedule and quantitative evaluation of the uncertainties. Depending upon the complexity of a problem at hand, the complexity of the model will also increase.,1.1.7 Evaluation of Alternatives Using a
40、 proper mathematical model, each alternative to a given problem needs to be evaluated. Application of the model may be computationally intensive and may require the use of computers. Once the evaluation is complete, the alternatives can be ranked based upon the objectives of the project so that a pr
41、oper selection of the best alternative can be made. The best alternative is the one which provides the most desirable solution under a given criterion.,1.1.8 Implementation of the Best alternative Once a proper selection of an alternative is made, the next step is to implement the best alternative.
42、1.1.9 Post-Evaluation of the Alternative After the implementation of the best alternative, it is important to revaluate the project after a certain time has passed. This evaluation involves comparison of the observed performance with the predicted performance. If the comparison is acceptable, no cha
43、nges need to be made. If there is a difference, an assessment needs to be made regarding the reasons for this difference.,Example 1.1 As a petroleum engineer, you have been asked to evaluate the feasibility of installing a compressor for a gas well. Explain all the necessary data you will collect. W
44、hat are the alternatives you will consider? What criterion will you use to select the best alternative? Solution To consider the feasibility of installing a compressor, we need to investigate the additional production received by installing the compressor versus the costs associated with the compres
45、sor.,To assess this, the following information needs to be collected: l. The present capacity of the well. 2. The incremental capacity as a result of the compressor. 3. The price of gas. 4. The intake pressure of the pipeline. 5. The price of the compressor, if purchased. 6. The maintenance cost of
46、the compressor. 7. The cost of leasing the compressor. Alternatives l. Produce under existing conditions. 2. Buy a compressor. 3. Lease a compressor. Criterion Maximizing the profit,1.2 Interaction Among Various Steps,Example 1.2 As an engineer, you are investigating the feasibility of improving the
47、 productivity of a well by stimulating it. Based on the calculations you have performed, you expect that the production will increase by 30 bbls/day. In reality, after the stimulation 采增产措施 为改善油井生产条件，提高油井生产能力而采取的技术措施。例如压裂、补充谢孔、洗井、控制出沙量等技术，扩大油井映出油通道，提高油井渗透略，从而提高油井产量。treatment, the production has gone
48、 up by 5 bbls/day during the first week. What possible actions would you take? Why?,Solution In this instance, the estimated performance does not compare with the observed performance. Based on Fig. l.2, some feed back in the decision making process will be needed. You may consider several options:
49、Option l: Wait for a longer period to see if the production improves after the treatment becomes more effective. In some instances, stimulating the well will not result in an immediate increase in the production. It is better to be patient. Check with the service company to see what is the typical time period during which the effect should be observed.,Option 2: Check the consistency of the input data in the stimulation program. Several sources of error are possible: a) the predicted damage, say, based on the well test data may not be correct. Therefore, the improvement is not equa