Sidetrack and Recompletion Risks in Oil Fields. I. Recompletion Decisions Based on Estimated Net Present Value

Abstract

This paper develops a procedure for assessing quantitatively the economic risk associated with deciding whether to undertake a recompletion job for an undeveloped oil-bearing horizon in a producing oil field. Decisions to proceed, or not, with the recompletion depend upon the estimated probability of a successful recompletion and on the estimated probability one will kill the producing horizon in the process. Also of concern are the estimates of total residual production for the producing horizon, the estimates of potentially recoverable reserves in the untapped horizon, together with associated recompletion costs, production costs per barrel, and selling price of product. Because one does not know ahead of performing the recompletion what the chances are of success and kill, then expected values and their uncertainties (as measured by the volatility of the expected value), together with cumulative probabilities of the recompletion worth exceeding the worth without recompletion, and also the expected worth required in order to satisfy a corporate declared mandate of a minimum acceptable chance of improved worth, are all used to provide risk measures to the corporate decision-makers. Several numerical examples are provided to illustrate how one can rapidly evaluate such risky situations in terms of present-day worth values. Considerations of uncertain ranges of parameters involved in the risk assessment, and of models for future inflation rates, selling price time-dependence, and production variations (so that one can provide an assessment of when a recompletion job should be undertaken) are considered in later papers in this series.