1. Value of Information and other Decision Analytic Techniques for Optimization of Seismic and Drilling
Mark Cronshaw
SPEE Denver January 13, 2010
Gustavson Associates

2. Introduction Optimal drilling and seismic choices depend on
Probability of success (presence of hydrocarbon in commercial quantity)
Value of the prospect if it is successful
Cost of drilling
Cost of seismic
Accuracy of seismic

3. Key Ideas
Decision trees promote intelligent discussion of alternatives and optimal choices
Can assess the value of information before it is gathered and analyzed
Potential cost saving: avoid unnecessary data gathering
Potential time saving: avoid unnecessary data gathering
Information has value only if it might change a decision

4. Example -Base case assumptions
Probability of structure = 10% (with commercial hydrocarbon)
Cost of seismic = $2 million
Dry hole cost = $10 million
Completion cost = $2 million
Value of prospect if successful = $60 million (excluding well cost)

5. Possible outcomes Drill dry hole without seismic
Cost = $10 million
Drill successful well without seismic
Net value = $60 (success) - $10 (dry hole cost) - $2 (completion cost) = $48 million
Drill successful well after doing seismic
Net value = $60 (success) - $10 (dry hole cost) - $2 (completion cost) - $2 (seismic cost) = $46 million
Drill dry hole after doing seismic
Cost = $10 (dry hole) + $2 (seismic) = $12 million
Abandon prospect after doing seismic
Cost = $2 million

6. Sequence of decision models
Drill without seismic
Perfect information about structure
Provides an upper bound on the value of seismic
Imperfect seismic information
Accounts for false positives and false negatives
Compare drilling with and without seismic
Uncertainty about value of success

7. Summary – Without seismic
Base case: Better to not drill
High success value: Better to drill
High probability of success: Better to drill
Value of perfect information = $4.8 million
= Maximum willingness to pay for seismic
If seismic will cost more than this, then
Do not do it
Do not become involved with the prospect

8. Summary - With seismic (1)
Base case:
Prospect is not attractive
It is not worth doing seismic!
Medium success value
Prospect is attractive
If seismic indicates promise , then drill
If seismic does not look promising ,then do not drill
Promising seismic increases the probability of success
Discouraging seismic reduces the probability of success
High success value
Prospect is very attractive
Better to drill without doing seismic!

9. Summary - With seismic (2)
Sensitivity to probability of structure:
Qualitatively similar to success value
Medium probability of structure
Prospect is attractive
If seismic indicates promise , then drill
If seismic does not look promising ,then do not drill
Promising seismic increases the probability of success
Discouraging seismic reduces the probability of success
High probability of structure
Prospect is very attractive
Better to drill without doing seismic!

10. Extensions Can incorporate additional uncertainty
Success value
Dry hole cost
Completion cost
Seismic cost
Can explicitly model success case cash flows

11. Conclusions
Optimal decision-making about drilling and seismic depends on costs, benefits and uncertainties
It is not always optimal to do seismic
Decision-making is simple to model
Relies on subjective opinions about values & probabilities
It is easy to do sensitivity analysis
Decision analysis
Is easy to do
Reveals the optimal choice
Promotes intelligent discussion of alternatives
Is very useful at early stages of a project, with lots of uncertainty

12. Backup Slide – Flipping the Tree
.08 .1
.02
.27 .9
.63
.23
Present
.77
Absent
Structure
.35
Promising
.03
.97
.65
Discouraging
Seismic Result
.08
.27
.02
.63