Value Change in Oil and Gas Production: III a Time to Buy, a Time to Sell, a Time to Decide

Abstract

Deciding whether to buy new information to potentially improve the residual reserves of a producing oilfield, and what price to pay for the information, which may or may not actually improve the reserves picture, is a problem of some concern to field development and production economics. Here we show how the worth of obtaining new information depends not only on the reserves produced to date but also on the residual reserves still to be produced, on the probability that purchase of new information will indeed improve the known reserves, on the value estimated to be produced by the acquisition, and on the cost of the acquisition. There are also dependencies on production and lifting costs but these are not considered in detail here. The timing of a decision whether to acquire new data and how much to pay for it, are illustrated using total profitable gains made to date as a proxy for time. Two simple examples are worked through in detail so that one can see when the uncertainty of possible gains from newly acquired information are sufficient, relative to costs and the worth of residual reserves still to be produced, to allow management to make an informed and rational decision on whether to acquire and when to acquire new information in respect of the life of the field without such acquisition.