otis, haryott - how low should you go - a method to calibrate estimates of p99 prospect reserves...
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How Low Should You Go? A Method to Calibrate Estimates
of P99 Prospect Reserves
Robert Otis
Paul Haryott
www.roseassoc.com
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Acknowledgement
Thanks to Chevron Corporation for use of data in the development
of this presentation
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Background Prospect reserve and many reserve
parameter distributions are lognormal
Data from a lognormal distribution plot as a straight line on log-probability graph paper
Probit scale
Log scale
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Background Prospect reserve and many reserve
parameter distributions are lognormalMid-point is the P50;slope is proportional to standard deviation
Probability scale is greater than convention P10 is a large number; P90 is a small number
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Background Prospect reserve and many reserve
parameter distributions are lognormalVolatility or uncertainty is another term from standard deviation (or variance) and can be expressed most easily as the P10/P90 ratio
Volatility or uncertainty is another term for variance (or standard deviation) but is most easily quantified by the P10/P90 ratio
The larger the P10/P90, the more uncertainty or the higher the variance (standard deviation) of the distribution
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Background Prospect reserve and many reserve
parameter distributions are lognormal
A straight line is defined by two points thus, any lognormal distribution can be completely defined with two independent pieces of information, e.g., mean and variance, P10 and P90, P01 and P10/P90, etc.
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Pre-Post Drill Discovery Sizes
Norwegian Petroleum Directorate, 1997
1
10
100
1,000
10,000
1 10 100 1,000 10,0001
10
100
1,000
10,000
1 10 100 1,000 10,000
8th To 14th Licensing RoundsNorwegian North Sea
Expected Size before Licensing, MMBOE
S
i
z
e
o
f
D
i
s
c
o
v
e
r
y
,
M
M
B
O
E
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Observations The P01 (high side) of most distributions is
fairly well constrained Field size distributions can use the largest
field which is usually found early in the exploration phase
Area distributions can use the closing contour on structures and reservoir extent on stratigraphic traps
Average net pay distributions can use a high N/G and the thickest reservoir with an appropriate geometric correction or averaging
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Observations Given a constrained upside or P01, we
can acknowledge a significant downside by several approaches Consider the smallest field in the trend and
force the distribution to honor both the extreme upside (P01) and the extreme downside (P99) connect with straight line
Assume an appropriate P10/P90 and pivot from the P01 do a credibility check on the estimated P99 and adjust as needed
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Appropriate P10/P90? One guideline (from the mid 1980s)
suggests a range of values based on type of prospect and typical field size distributions Development 2 to 7 Extension 5 to 25 Trend 10 to 120 Rank 55 to 250 Frontier 120 to 650
Unfortunately, these values are not, for the most part, supported with published data
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What We Want To Do And Why?
What Describe a method or process to calibrate
P10/P90 to appropriately represent the uncertainty of a distribution
Why Differing opinions are abundant, but are
mostly based on a wide variety of experience; few, if any, are validated with data
We would like to see a data supportedprocess that allows a company to develop their own rule(s) of thumb
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Finding An Appropriate P10/P90
Because each company has a different portfolio, there are no hard rules each company will need to determine it independently
To do this, each company needs a history of consistent estimates of pre-drill distributions and post-drill actual results to use for calibration
If you have a history, apply the following process
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The Process Compile your history wells require two
independent values to define the pre-drill distribution and the post drill mean
Estimate the P01 from each pre-drill distribution Assign a common P10/P90 to all wells and see
where the actual prospect result falls on each distribution
Evaluate results using a percentile histogram method from Otis and Schneidermann (1997)
Do this for several P10/90 ratios and see which one is most appropriate
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Percentile Histograms
Each percentile interval has a 10% probability If the post-drill result from each pre-drill distribution
is random, the result is a uniform distribution
P05
P20P30P40
P60P70P80
P95
P01
P10
P50
P90
P991 10 100 1000
P05
P20P30P40
P60P70P80
P95
P01
P10
P50
P90
P991 10 100 1000
P05
P20P30P40
P60P70P80
P95
P01
P10
P50
P90
P991 10 100 1000
P05
P20P30P40
P60P70P80
P95
P01
P10
P50
P90
P991 10 100 1000
0
1
2
3
90-100 80-90 70-80 60-70 50-60 40-50 30-40 20-30 10-20 0-10
52 MMBOE in 50-60 Interval
193 MMBOE in 0-10 Interval
76 MMBOE in 10-20 Interval
25 MMBOE in 90-100 Interval
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0%10%20%30%40%50%
90-100
80-90
70-80
60-70
50-60
40-50
30-40
20-30
10-20
0-100%
10%20%30%40%50%
90-100
80-90
70-80
60-70
50-60
40-50
30-40
20-30
10-20
0-10
0%10%20%30%40%50%
90-100
80-90
70-80
60-70
50-60
40-50
30-40
20-30
10-20
0-100%
10%20%30%40%50%
90-100
80-90
70-80
60-70
50-60
40-50
30-40
20-30
10-20
0-10
Diagnostics
Heavy on the downside too optimistic
Heavy on the upside too pessimistic
Heavy on both up - and downsides need to widen ranges Uniform distribution - acceptable
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Lets Look at Some Data Chevron international exploration wells
from 1989-1993 (total of 50 discovery wells)
Prospects include trend, rank and frontier wells
No appraisal wells
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P10/P90 For Years 1989 - 1993
02468
101214161820
Wells
P
1
0
/
P
9
0
R
a
t
i
o
1989 1990 1992 1993
Look Back
1991
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Actual Post Drills - Pre-Lookback
0%10%20%30%40%50%
90-100
80-90
70-80
60-70
50-60
40-50
30-40
20-30
10-20
0-10
Actual Post Drills - Post-Lookback
0%10%20%30%40%50%
90-100
80-90
70-80
60-70
50-60
40-50
30-40
20-30
10-20
0-10
02468
101214161820
Wells
P
1
0
/
P
9
0
R
a
t
i
o
1989 1990 1991 1992 1993
Look Back
02468
101214161820
Wells
P
1
0
/
P
9
0
R
a
t
i
o
1989 1990 1991 1992 1993
Look Back
Percentile Histograms(1989-91) (1992-93)
Average P10/P90 = 3.7 Average P10/P90 = 7.8
Too many results below P90
Essentially balanced
About right on upside (P10)
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Observations 1989-91 wells had average P10/P90 of ~4
but needed to include more downside 1992-93 wells had P10/P90 of ~8 and had
reasonably balanced results What would the histograms have looked
like if we used a variety of P10/P90s?
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Range of P10/P90 ValuesWhat would these wells look like with a
P10/P90 = 7?P10/P90 = 10?P10/P90 = 20?P10/P90 = 50?P10/P90 = 100?P10/P90 = 250?
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Post Drills w/7 P10/P90
0%10%20%30%40%50%
90-100
80-90
70-80
60-70
50-60
40-50
30-40
20-30
10-20
0-10
Actual Post Drills
0%10%20%30%40%50%
90-100
80-90
70-80
60-70
50-60
40-50
30-40
20-30
10-20
0-10
All WellsAverage P10/P90 Ratio = 7
Not bad - a nice balanced distribution Pre-drill, 31% of the wells were above P50 With P10/P90 = 7, 56% of the wells were
above P50
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Post Drills w/10 P10/P90
0%10%20%30%40%50%
90-100
80-90
70-80
60-70
50-60
40-50
30-40
20-30
10-20
0-10
All WellsAverage P10/P90 Ratio = 10
Although not bad, indications are that we are becoming pessimistic on the downside (P99 too low)
With P10/P90 = 10, 73% of the wells were above P50
Actual Post Drills
0%10%20%30%40%50%
90-100
80-90
70-80
60-70
50-60
40-50
30-40
20-30
10-20
0-10
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Post Drills w/20 P10/P90
0%10%20%30%40%50%
90-100
80-90
70-80
60-70
50-60
40-50
30-40
20-30
10-20
0-10
Worse than the original, and way too pessimistic of the downside (P99 way too low)
With P10/P90 = 20, 84% of the wells were above P50
All WellsAverage P10/P90 Ratio = 20
Actual Post Drills
0%10%20%30%40%50%
90-100
80-90
70-80
60-70
50-60
40-50
30-40
20-30
10-20
0-10
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Point made . . . With P10/P90 = 50, 93% of the wells were
above P50
All WellsAverage P10/P90 Ratio = 50
Actual Post Drills
0%10%20%30%40%50%
90-100
80-90
70-80
60-70
50-60
40-50
30-40
20-30
10-20
0-10
Post Drills w/50 P10/P90
0%10%20%30%40%50%
90-100
80-90
70-80
60-70
50-60
40-50
30-40
20-30
10-20
0-10
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Observations For this data set, the process indicated
P10/P90 ratios for reserves vary between 5 and 10 Less than 5 too many results fall below P90 Greater than 10 too many results fall above P10
Quick Look process Check number of results above and below pre-drill
P50 Rule of Thumb: Greater than ~70% in either bin
check your process Let the process determine the appropriate
P10/P90 ratio for your company each portfolio is different and needs to be examined.
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Observations The process should be applied to reserve
parameters as well (e.g., area, average net pay) to determine appropriate P10/P90 ratios For this data set, appropriate P10/P90 for area
ranged between 3 and 4 For this data set, appropriate P10/P90 for average
gross pay ranged between 6 and 8 however, a balanced histogram was reached only by allowing to P01 to be twice the original P01
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Take-Aways Reserves and key, high variance reserve
parameters have consistent P10/P90 ratios capitalize on this observation
The high side is usually well constrained, and, together with an appropriate P10/P90 ratio, can define a very reasonable distribution as a credibility check
Use your P10/P90 ratios as QC and if aberrations are observed ask Why?
Appropriate P10/P90 ratios can only be determined by examining your company history and the basins explored of pre and post drill results maintain these religiously
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So, How Low Should You Go? Low enough to have ~10% of your post
drill outcomes in the P100-P90 range of your pre-drill distributions
When data are available, high enough so that the distribution honors values in the 80% confidence interval (P90-P10)
This can be done by developing and using your companys appropriate P10/P90 as a calibration check
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How Low Should You Go? A Method to Calibrate Estimates
of P99 Prospect Reserves
Robert Otis
Paul Haryott
www.roseassoc.com
Thank You For Your Attention