Graeme Keith - The problems of probability
Updated: May 31, 2020
Oil and Gas Exploration and Production companies invest substantially in the discovery of new resources to replace their reserves inventories. Much of this investment can not be capitalized and is treated as cost, so Explorers are very keen quickly to justify the spend and recognize the return through the reporting of reserves and prospective resources. However, the magnitudes of these resources, not to speak of their economic value, are subject to substantial uncertainty.
This uncertainty has many sources: geological pertaining to the areal extent of reservoirs, the height of the oil column and the quality of the reservoir; technical regarding the efficacy of different recovery methods as well as potential technological improvements that may be achieved between discovery and first oil, political and commercial around the stability and favourability of the law, governance and commercial terms under which the oil is to be produced; and not least the wildly unpredictable price of oil.
These uncertainties resolve with time as more information is brought to bear on subsurface uncertainties, technical decisions are made and companies enter into commercial contracts.The Society of Petroleum Engineers’ (SPE) Petroleum Resources Management System (PRMS) provides a framework for articulating both the residual uncertainty associated with reserves, as well as their stage on their journey to commerciality.
The adoption of, for example, a code of conduct for responsible extraction of raw materials overlays an additional component to these considerations and tools like PRMS can provide powerful paradigms for reporting on the resulting considerations.
This talk will briefly introduce the PRMS framework and present some of the practical and interpretive ambiguities that could undermine that potential.
Fig 1. The SPE PRMS classification, which explicitly includes an axis for uncertainty and an axis capturing the evolution of potential resources into reserves in time.
Graeme advises on Strategy, Risk Management and Portfolio Optimization, specializing in analytical approaches to these disciplines under high levels of uncertainty. Before starting as an independent consultant Graeme was head of Strategy and Enterprise Risk Management at Maersk Oil, having earlier been responsible for Growth Strategy and Portfolio Analysis, including reporting prospective resources for Maersk’s exploration function.
Graeme had a PhD in Applied Mathematics from Cambridge University and is a fellow of the Institute of Mathematics and its Applications. He teaches and supervises at Copenhagen University and the Technical University of Denmark.
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