Print this pageRisk Analysis of Unconventional Plays
The valuation and assessment of unconventional or “continuous resource” opportunities is not feasible using traditional probabilistic, volumetric-based methods. While a fully stochastic business, value-chain model is the best way to assess the potential of an unconventional play, we continue to lack a solid definition of Chance elements similar to what we have traditionally applied to conventional accumulations (Container: Reservoir, seal, trap and Contents: source and migration, with subtle variances from company to company).
In Unconventional projects, there are two primary technical risks… That the formation will not produce, and that the production will be inconsequential. As such, Productivity and Materiality become the linchpins for Chance and Uncertainty Management in unconventional plays.
“Productivity” is the probability that a given formation will be able to flow a sustained gas stream. This Chance element is tied to, but not dependent on completion technology.
“Materiality” is the probability that the sustained production will be large and consistent enough, and extend over a large enough area to constitute a viable play based on local or world analogues. Essentially, Productivity is flow based P(G) and Materiality is P(S).
Each will have sub elements which may be tied to technology, local economics, or marketing aspects. The commercially oriented nature of the Materiality Chance is due to the business-decision centered approach required in unconventional plays. Conventional methods tend to hold commerciality and economics separate from technical risking, but this is impractical if not dangerous in unconventional resource plays due to the fact that the majority of the business uncertainty arises from production profile uncertainty.
In an integrated business assessment of unconventional opportunities, we start with an assessment of the potential of the play. We assess the Expected Ultimate Recovery, the Production Profile, the costs for the pilot facility, pilot wells, early experimental wells, factory phase development wells, facilities costs, learning, price volatility, operating costs, and rig and facility timing. It is a low margin business and we need to be able to identify where our efforts will have the most reward.
AAPG Search and Discover Article #90100©2009 AAPG International Conference and Exhibition 15-18 November 2009, Rio de Janeiro, Brazil