"A New Approach - Evaluating Oil and Gas Investment Option"
Dr Steve Begg
SPE Distingushed Lecturer
Thursday,
9th January 2003, 7:30 p. m.
Orchid
Garden Hotel, Bandar Seri Begawan.
Actual presentation material for the nite
WHAT
A SPLENDID BEGINNING FOR SPE BRUNEI SECTION!!
The first in the series of SPE Distinguished lecture programme for 2003 was held on 9th January 2003 at The Orchid Garden Hotel. The dinner and lecture was sponsored by Brunei Gas Carrier Sdn Bhd. This is an ongoing effort by SPE Brunei Section with its main objective, “to gather, store and disseminate information” to its members. Currently Brunei SPE section has about 80 members.
More than 40
professionals attended the evening. They
represented BSP, Total Fina Elf, Shell Deepwater Borneo and Petroleum Unit. A
special surprise after the dinner was cheque presentation for the participation
of SPE Brunei Section in GASEX 2002 that was held sometime in June 2002. The
Vice President for BENa Yang Mulia Awang Haji Zainal Abidin presented the cheque
worth of $10,000 on behalf of GASEX2002 committee to Yang Mulia Awang Alias Hj
Mohd Yusof, the Chairman of SPE Brunei Section.
The
highlight of the night was the lecture by the SPE Distinguished lecturer, Dr
Steve Begg, on “A New Approach - Evaluating
Oil and Gas Investment Option”. According to Dr Begg, Stochastic Integrated
Asset Model (SIAM) approach can be used to produce a better technical decision.
The proposed approach can determine when it is better to invest in dealing with
uncertainty by developing flexible responses to its revelation over time, rather
than in trying to reduce it. More intriguingly, and counter-intuitively, it can
lead to change in mindset, where, rather than being seen as a foe, uncertainty
can be exploited to create value. This
in turn can improve portfolio or project investment for the Oil and Gas
industry. The presentation was concluded with a question and answer session from
the audience.
Dr. Begg worked for 13 years with BP where he had a variety of research and management assignments in Sunbury and operational assignments in Alaska.
Abstract
Over the past two decades many oil companies have consistently under-performed in returning the economic metrics that were the basis of investment decisions. One must conclude that their evaluation procedures fail to properly account for uncertainty, resulting in a systematic over-estimate of returns and/or under-estimate of the risks of loss. Also, in today's business climate many companies are finding it imperative to do more with less. This requires making faster, smarter decisions that use an appropriate level of technical analysis (detail, rigor) with the acquisition of appropriate data (type, quantity and quality). But what is "appropriate" and how is it impacted by the presence of uncertainty?
It is proposed that answering this question requires a holistic approach that incorporates all of the key components (G&G, Drilling, Production, Facilities, Economics, etc.) that might influence a decision, whilst comprehending nested layers of uncertainty - a Stochastic Integrated Asset Model (SIAM). In this approach, precise technical analysis (classical modeling) within any one component is deliberately traded-off for the ability to model the complex dynamics of the interactions between components, whilst gaining an accurate, global assessment of the impacts of uncertainties. The role of classical modeling changes to one of supporting the SIAM approach by providing uncertainty estimates on the input parameters of simplified component models, calibrating them or generating simple surrogates.
Such an approach can identify which "state-of nature" uncertainties (e.g. porosity, saturation, oil price) can be ignored, mitigated or need to be resolved, thus focusing classical analysis and/or additional data collection on only those areas that have the biggest impact on the decision criteria. More importantly a SIAM approach can determine when it is better to invest in dealing with uncertainty by developing flexible responses to is revelation over time, rather than in trying to reduce it. More intriguingly, and counter-intuitively, it can lead to change in mindset, where, rather than being seen as a foe, uncertainty can be exploited to create value. (This latter point is illustrated by a simple example.) Thus, a SIAM can be used to implement both real options thinking and valuation. It also provides consistent risk assessment for input to portfolio management activities. Finally, a SIAM approach can also identify which "choice" variables (e.g. numbers of wells, pipeline diameter) the decision criteria are most sensitive to, thus indicating value levers that can be used to optimize the investment.
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Biography |
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Steve Begg was with Landmark as the Director for Decision Science. Here he was responsible for promoting improved processes and tools for making investment decisions, both internally and externally. His previous assignment with Landmark was as Director for Reservoir Management where he was accountable for business plans and strategy for ZMap, Stratamodel, PetroWorks and VIP. Prior to joining Landmark Steve worked for 13 years with BP where he had a variety of research and management assignments in Sunbury and operational assignments in Alaska. These spanned a wide range of technologies including, reservoir characterization, geostatistics, upscaling, petroleum engineering, production forecasting and economics. The topics of risk and uncertainty have been a constant theme throughout his career. Steve's current SPE e Forum Series Implementation Committee and serving on the Economics and Evaluation committee. He was previously a Technical Editor and Review Chairman for Formation Evaluation and recently Chaired an SPE Forum on the topic of "Adding value by leveraging Risk, Options and Portfolio Management". Steve received a PhD in Geophysics and BSc in Geological Geophysics from the University of Reading. |
Picture from SPE Evening
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