Maximization Techniques for Oilfield Development Profits

Abstract

In 1981 Nind provided a quantitative procedure for estimating the optimum number of development wells to emplace on an oilfield to maximize profit. Nind's treatment assumed that there was a steady selling price, that all wells were placed in production simultaneously, and that each well's production profile was identical and a simple exponential decline with time. This paper lifts these restrictions to allow for price fluctuations, variable with time emplacement of wells, and production rates that are more in line with actual production records than is a simple exponential decline curve. As a consequence, it is possible to design production rate strategies, correlated with price fluctuations, so as to maximize the present-day worth of a field. For price fluctuations that occur on a time-scale rapid compared to inflation rates it is appropriate to have production rates correlate directly with such price fluctuations. The same strategy does not apply for price fluctuations occurring on a time-scale long compared to inflation rates where, for small amplitudes in the price fluctuations, it is best to sell as much product as early as possible to overcome inflation factors, while for large amplitude fluctuations the best strategy is to sell product as early as possible but to do so mainly on price upswings. Examples are provided to show how these generalizations of Nind's (1981) formula change the complexion of oilfield development optimization.