Expected value, downside risk and upside potential as decision criteria in production strategy selection for petroleum field development

Abstract

Many factors affect production strategy selection in petroleum field development. Decision makers many times rely on informal procedures and professional experience to base decisions because tools to quantify their expectations are sometimes unclear or incoherent in the petroleum literature. In this work, we improve the decision-making process in field development by providing a set of quantitative criteria that assess production strategies under uncertainty. These criteria incorporate the decision maker's attitude and objectives in the decision. We use lower and upper semi-deviations to effectively quantify downside risk (uncertainty in losses) and upside potential (uncertainty in gains) of production strategies. These metrics assess individual subsets of project variability against reference benchmarks, in line with the decision maker's definition of loss and gain. The general formulation we propose is applicable to production and economic indicators, in a single- or multi-objective framework, and explicitly accounts for the decision maker's attitude: neutrality to downsides and upsides, minimizing exposure to downsides, and exploiting potential upsides. We created this framework using the well-known expected value concept with lower and upper semi-deviation measures. Theoretical examples illustrate problems faced by decision makers when using traditional risk measures, which are overcome by lower and upper semi-deviations. A synthetic benchmark reservoir in the development phase demonstrates the application of the proposed frameworks for production strategy selection