PAPER 2003 - 098

Treatment of Geological Attributes in Risk

Analysis Applied to the Appraisal Phase of
Petroleum Fields
Costa, A.P. A.
State University of Campinas - UNICAMP

Schiozer, D.J
State University of Campinas -UNICAMP

This paper is to be presented at the Petroleum Society’s Canadian International Petroleum Conference 2003, Calgary, Alberta,
Canada, June 10 – 12, 2003. Discussion of this paper is invited and may be presented at the meeting if filed in writing with the
technical program chair man prior to the conclusion of the meeting. This paper and any discussion filed will be considered for
publication in Petroleum Society journals. Publication rights are reserved. This is a pre-print and subject to correction.

ABSTRACT especially the influence: (1) attributes treatment, (2)

Decision analysis applied to petroleum field
development is always strongly related to risk due to
uncertainties present in the process. The appraisal phase
of a petroleum field is characterized by several
uncertainties, high investment and critical decisions. The
use of numerical simulation allows a detailed study of the
reservoir performance by several possible models
obtained through a probabilistic approach.
Methodologies to quantify the impact of uncertainties are
still not well established due to the amount of variables
that have to be considered and due to the computational
effort that may be required. To make this process
possible, some methodologies were developed to simplify
a risk analysis. In this paper shows several details of a
methodology that can be applied to complex and simple
reservoirs in a reasonable amount of time to quantify the
impact of the necessary simplifications, mainly by the
selection of the ideal number attributes, discussing
sensitivity study, (3) gradual combination the less critical
attributes in sensitivity study, (4) influence of the number
of critical attributes. The concept of representative
models is selected to integrate the analysis with economic
uncertainties. The simulations results in this process are
combined to calculate the NPV (Net Present Value). After
the statistical treatment of the results, it is possible to
define the risk curve. This paper shows the importance of
the simplifications and the number of simulation run
besting the accuracy of the risk curve.
INTRODUCTION
In petroleum exploration and production, a decision to
be taken has to consider the risk involved in the process,
which can be obtained by quantifying the impact of
uncertainties on the performance of petroleum fields. The
process is even more critical because most of the
investments are realized during the phase in which the

1
uncertainties are greater. The most important
uncertainties are due to the geological model, economic
conditions and technological developments. An applied
risk analysis to a field on the appraisal phase should focus
on quantifying the impact of geological uncertainties.
Uncertainties on the economic conditions are always
present in the petroleum industry. The methodology for
risk analysis here is based on the work proposed by
Loschiavo et al(1) and implemented by Steagall and
Schiozer(2) that apply numerical simulation of several
possible scenarios of the reservoir, combining the
uncertain attributes. Other papers as Ligero et al(3), Santos
and Schiozer(4), perform risk analysis using numerical
reservoir simulation. Depending on the complexity of the
problem, size of the reservoir and importance of the
project, it’s not possible include all uncertain parameters
and, therefore, simplifications are necessary to yield
viability of the process. The main objective of this work
is to quantify the impact of some aspects of these
simplifications, mainly by selection of the ideal number
attributes. Other simplifications are: automation of the
process, Ligero and Schiozer(5), and treatment of
production strategy, Santos and Schiozer(4). All these
authors have performed risk analysis with a fixed
economic model in order to quantify the impact of
geological model. However, if economic conditions
change, some additional considerations have to be
included in the process.
In this paper, the concept of representative models
(few models that can represent geological uncertainty)
was used to test the importance of economic conditions
variation and some discussion is presented to propose this
step in the simplification procedure treatment in a risk
analysis process. This concept was used before, Ligero et
al(6) but they were tested here in another type of reservoir
(offshore, heterogeneous, heavy oil reservoir). All these
treatments focus in order to reduce the amount of
information and time significant loss in precision.
RISK ANALYSIS
Decision analysis applied to petroleum field
development is always strongly related to risk due the
uncertainties present in the process. Methodologies to
measure such uncertainties are many times not well
2
defined, mainly because of the uncertainties varies with
time and amount of information available. Nevertheless,
the importance of considering these uncertainties in the
decision making process is unquestionable. Recently, it is
becoming more common the necessity of better accuracy
in the process. The use of reservoir simulation increases
the reliability and it improves the quality of results.
Basically, risk is function of geological, economic and
technological uncertainties. However, the quantification
of the risk is affected not only by such uncertainties, but
also by the production strategy model and management
decision process. The methodology adopted in this work
is based on the work proposed by Loschiavo et al(1) and
implemented by Steagall and Schiozer(2) that apply
numerical flow simulation of several possible scenarios
of the reservoir, combining the uncertain attributes. The
probability of each final model is equivalent to the
product of the combined probability of the attributes. The
number of attributes and discretization levels defined the
total number of simulations runs.
METHODOLOGY DESCRIPTION
The main objective here is to quantify the impact of
some aspects of these valid simplifications, mainly, by
selection to the ideal number attributes. The procedure to
define a simplifying criterion in a process is included in
the quantification of the geological uncertainties through
the description of the uncertainties attributes and its
levels. The simplification procedure treatment in a risk
process is based on: (1) definition of the number of
uncertainty attributes, (2) attributes treatment, (3)
sensitivity study, (4) gradual combination of attributes,
(5) simulations runs and statistical treatment of the results
to define risk curve, (6) selection of representative
models (few models that can represent the geological
uncertainty.
A more detailed study of automated risk methodology
is presented in Ligero and Schiozer(5). The impact of the
production strategy in the risk analysis process was
presented by Santos and Schiozer(4). They concluded the
treatment of the production strategy could be simplified
in many cases. The optimization of the production
strategy must be applied at least to the more probable
reservoir model. Ligero et al.(3) have shown the use of a
fast simulation model, like streamline, and coarser grid
can reduce the computational effort and consequently
total time of risk analysis process. An important point of
these two simplifications is the absence of significant
accuracy problems. Other way to speedup the process
without loss in precision is to use parallel computing
reducing the total processing time.
The objective of this paper is to study the impact of the
simplifications and concentrates the analysis on the use of
representative models to test their applicability,
especially in the integration with the economic model
with application in an offshore, heterogeneous, heavy -oil
field.
APLICATIONS
The simplification procedure is tested in order to show
the use of representative models to integrate geological
and economic uncertainties. Two models are tested in this
process.
Model 1. Model composed by synthetic and real data.
It’s based on a real offshore reservoir in Brazil. Five-spot
vertical well production strategy is adopted and its
optimization was based on net present value for 20 years.
The variation in uncertainty levels and probabilities for
the considered attributes are described in Table 1.
Model 2. This model is based on the SPE 10th
Comparative Solution, Christie and Blunt (7). It represents
a heavy oil reservoir with horizontal. This case represents
a field in the economic limit for net present value for 20
years. Table 2 summarizes the uncertain attributes
considered and its levels and associated probabilities.
In both models the uncertainty incorporation is made
through the multiplicative and scale factors based on
specialist knowledge as shown Tables 1 and 2.
Economic uncertainties. The variations in the
economic model are described in Table 3. These
variations are tested for the two models including the
analysis of representative models.
3
RESULTS
Sensitivity Study
The most effective way to reduce computational cost
in a risk analysis process is to reduce the number of
variables. The choice of the important (or critical)
attributes can be performed through a sensitivity study.
Figure 1 shows an example of the sensitivity analysis in
NPV to the Model 2. After this, results are combined to
assembly the models to calculate risk curve, illustrated in
Figure 2 to the Model 2. The simplifications adopted for
actual methodologies define a variation range to
characterize the critical attributes. This paper shows the
impact of gradual combination where the most important
attributes are included first and the other attributes are
included until the variation in the response in considered
small. This procedure is useful to avoid unnecessary
simulations runs. Figure 3 shows an example of the
variation in percentiles for gradual combination to the
Model 2.
The influence of the number of discretization levels for
the most critical attributes was studied by Costa and
Schiozer(8). It was observed that the number of levels per
attribute values can have a significant effect on the
results. Many times, when a few critical attributes
dominate geological uncertainties, they showed that, if
there is a limitation in the number of simulation runs, it is
better to use fewer attributes with more discretization
levels than to add more attributes in the analysis.
Economic Sensitivity Analysis
In both models studied, the base geological model, i.e.,
the model constituted by the most probable geological
uncertain attributes is submitted to economic sensitive
analysis. The uncertain economic parameters considered
are oil price, investments and internal rate of return
according to Table 3.
The economic sensitivity analysis is carried out in the
net present value (NPV) for the percentiles P10, P50 , and
P90 and it is illustrated in Figure 4 for Model 2,
respectively. It is possible to observe that the internal rate
of return has a weaker influence in the net present value
when compared with the other two economic parameters
analyzed The most influent economic parameter is the oil
price. For Model 2, the influence of the three economic
parameters is more expressive in P50 (value closer than
zero); it is almost not affected by the percentiles variation
for P10 and P 90 .
Representative Models
Steagall and Schiozer(2) showed that in the proces s of
quantification of geological uncertainties, representative
models can be selected to be used in the quantification of
other types of uncertainties. The criteria for the selection
these models is case dependent. The basic idea is to plot
NPV against oil recovery factor (Rfo) and cumulative oil
production (Np) and cumulative water production (Wp),
choosing models that are close to the values of P10, P50
and P90 that have a significant variation in the other
variables. Representative models can serve as input for
current economic evaluation and portfolio tools.
The criterion adopted for the selection of the
representative models may be a function of the number of
attributes used in the risk analysis and it is expected that
as the number of attributes increase, the process to choose
representative models becomes stable (i.e. representative
models still represents the geological uncertainties as the
number of attributes increase).
For Model 1, the selection of representative models
was based on the information of both (1) net present
value versus cumulative oil production and (2) net
present value versus recovery factor, as shown Figure 5.
For Model 2, the representative models are determined
through the relationship between (1) net present value
versus recovery factor and (2) net present value versus
cumulative water production, Figure 6. The red points are
the representative models. It is important to observe that
we choose 6 representative models, 2 for each percentile.
The representative models are different models in terms
of Wp and Rfo that are closer to optimistic, probable and
pessimistic percentiles (P10 , P50 and P90 ).
It is important to know that the representative models
are referring to uncertainty in geological attributes
without any uncertainty in economic parameters.
Risk Curves
After sensitivity analysis, results are combined with
associated probabilities to assembly the models to
calculate risk curve when the objective function is the
4
NPV. The combined models probabilities amount
complete the unit showing which all possible realizations
are considered. In order to avoid the calculation of the
economic analysis for all geological models, a simplified
approach can be used to incorporate economic
uncertainty using only representative models. A
sensitivity study based on the representative models is
recommended and it doesn’t require additional
simulations without great reduction in the accuracy of the
process. As an example, for Model 2, it can be observed
in Figure 7, that the range of variation is practically the
same. As observed before, the most influent economic
parameter was the oil price. The black line is the risk
curve for the base economic model. The other lines
represent the sensitivity analysis for three economic
uncertainties using all simulation models. The black dots
are the sensitivity applied only to representative models.
The use of representative models to reproduce geological
uncertainty can speedup the process without great
reduction in the accuracy of the process. Assuming
probabilistic distributions for economic parameters (as in
Table 3) and representative models (as in Table 4), a new
risk curve can be estimated as shown in Figures 8 and 9.
In these cases, oil price was the uncertain parameter
considered. Additional parameters can be considered
using the gradual combination. The green dots in Figure 8
(the same as in Figure 7) are shown to compare the new
risk curve with the sensitivity analysis of the economic
model. The comparison between geological and
economic risk curves for the Models 1 and 2, in Figures 8
and 9, shows also the influence of the economic
uncertainties when compared to geological uncertainties.
The uncertain range obtained from economic risk curve is
greater than that one of geological curve. The difference
between the curves can be a good indicator of the
importance of each type of uncertainty.
New Percentiles of Representative Models
The most important point in this work is to integrate
the geological and economic uncertainties through the
representative models and quantify how these models can
be obtained and how representative they are when
economic and technical conditions change. For the two
models discussed here the representative models yields
the conclusion that these models can give a good
approximation of the geological uncertainty.
A point that requires further investigation is how
sensitivity are the representative models to economic and
(6)
technical variations. Ligero et al have shown that
representative models for a particular economic model
can change for other economic conditions. We can
observe this by plotting graphs like in Figures 10 and 11.
The closer are the points from the straight line, less
dependent on the economic model are the representative
models.
However, even with these inversions observed in
Figures 10 and 11, the use of representative models
seems to be a good alternative to integrate geological and
economic uncertainties. In Figure 7, it is possible to
observe that the results are similar. It is recommended
that the selection of these models must take into account
the combination of net present value, cumulative
production and recovery factor. The best choice of these
relationships depends of each case.
CONCLUSIONS
It was presented a study of a risk analysis applied to
petroleum field development, investigating some possible
simplifications to speedup the process when numerical
simulation is required to model the reservoir.
Sensitivity analysis, followed by the utilization of
gradual combination, permits more detailed analysis of
the process, adjusting the problem with the require
precision and time.
The convergence criterion for the utilization of gradual
combination depends on the characteristic of each
reservoir and the objective-function. For this reason, the
gradual combination is useful to avoid unnecessary
simulations.
The use of representative models can speedup the
process when economic or technical uncertainties have to
be considered.
It was shown that even for Model 2, which is a
heterogeneous, heavy-oil reservoir with a non-linear
behavior, the risk methodology could be applied with
5
success and the procedure to choose representative
models could be applied.
NOMENCLATURE
IRR Internal rate of return
Np Cumulative oil production
NPV Net present value
RFo Oil recovery factor
Wp Cumulative water production
ACKNOWLEDGMENTS
The authors wish to thank Petrobras,
FINPE/CTPETRO and Brazilian National Agency (ANP)
for financial support.
REFERENCES
1) Loschiavo, R., Steagal D., and Schiozer D.J.,
“Estudo do Impacto de Incertezas no Desempenho de
Reservatórios de Petróleo”, 8th Brazilian Congress of
Thermal Engineering and Sciences (ENCIT), Porto
Alegre, Brasil, 2000.
2) Steagall, D.E. and Schiozer, D.J., “Uncertainty
Analysis in Reservoir Production Forecast during the
Appraisal and Pilot Production Phases”, SPE 66399, SPE
Reservoir Simulation Symposium, February, Dallas,
USA, 2001.
3) Ligero, E. L., Maschio, C., Schiozer, D. J.,
“Quantifying the Impact of Grid Size, Upscaling, and
Streamline in the Risk Analysis Applied to Petroleum
Field”, SPE 79677, 17th Reservoir Simulation
Symposium, February, Houston, USA, 2003
4) Santos, J.A.M. and Schiozer, D.J., “Quantifying
Production Strategy Impact in Risk Analysis of an E&P
Project Using Reservoir Simulation”, SPE 79679, 17th
Reservoir Simulation Symposium, February, Houston,
USA, 2003
5) Ligero, E. L. and Schiozer, D. J., “Exploration and
Production Risk Analysis - Automated Methodology and
Parallel Computing to Speedup the Process”, Second
Meeting on Reservoir Simulation, November, Buenos
Aires, Argentina, 2002.
 6) Ligero, E. L., Costa, A. P. A. And Schiozer, D. J., Parameters Levels Probabilities
“Improving the Performance of Risk Analysis Applied to base 0.50
Investment and
Petroleum Field Development”, SPE 81162, Latin base +20% 0.25
Cost
American and Caribbean Petroleum, April, Port of Spain, base – 20% 0.25
Trinidad and Tobago, 2003. base 0.50
Oil Price base +20% 0.25
7) Christie, M.A. and Blunt, M.J., “Tenth SPE base – 20% 0.25
Comparative Solution Project: A Comparison of Internal Rate of base 0.50
Upscaling Techniques”, SPE 66599, SPE Reservoir Return base +2% 0.25
base – 2% 0.25
Simulation Symposium, February, Texas, USA, 2001.
Table 3: Uncertainty in the economic model
7) Costa, A.P.A. and Schiozer, D.J., “Risk Analysis (Models 1and 2)
Applied to the Appraisal Phase of Petroleum Field”,
Second Meeting on Reservoir Simulation, November, Models Probabilities
Buenos Aires, Argentina, 2002 P10a 0.066
P10b 0.066
P10c 0.066
P50a 0.20
Attributes Levels Probabilities
P50b 0.20
Dh (base) 0.70
Total P50c 0.20
Dh * 1.15 0.15
Depth P90a 0.066
Dh * 0.85 0.15
P90b 0.066
Net (base) 0.70
Net to Gross P90c 0.066
Net * 1.10 0.15
Ratio Table 4: Probability for representative models
Net * 0.90 0.15 (Models 1and 2)
Kh (base) 0.70
Horizontal
Kh *1.5 0.15
Permeability
Kh * 0.67 0.15
Kh
Por (base) 0.70
Porosity Por * 1.15 0.15 Dwoc

Por * 0.85 0.15 Vio

Table 1: Uncertainty attributes and its levels, Model 1 Kv
Attributes

Por
Attributes Levels Probabilities
Kr
Por (base) 0.70
Porosity Por * 1.15 0.15 Area

Por * 0.85 0.15 Co

Kh (base) 0.70 Cr Pessimistic
Horizontal
Kh * 1.5 0.15 Optimistic
Permeability Cw
Kh * 0.67 0.15
Kv (base) 0.70 -0.2 -0.1 0 0.1 0.2
Vertical Variation in NPV
Kv * 2 0.15
Permeability
Kv * 0.5 0.15
vio (base) 0.70 Figure 1: Model 2 –Sensitivity in NPV for 20 years.
Oil viscosity Vio1 * 1.3 0.15
Vio2 * 0.7 0.15
Dwoc (base) 0.85
Water oil contact
Dwoc2 0.15
Table 2: Uncertainty attributes, Model 2

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 Percentil P 50
100
2 attributes Oil price 2000
90
3 attributes Investiments
80 1500
4 attributes IRR
70 5 attributes 1000
Percentile %

60 500

Influence in NPV
50 0
40 -30 -20 -10 0 10 20 30
-500
30
-1000
20
-1500
10
-2000
0
-400 -200 0 200 400 600 Parameter Variation
NPV Million US$
Figure 4(b): Model 2 - Uncertainty in economic model -
Figure 2: Model 2 – Risk curve for gradual combination
Influence in Net Present Value for percentile P5 0

200 270 Percentil P 90

240 Oil price 150
150 210 Investiments
180 IRR 100
100 150
Ifluence in NPV

120 50
50 90
60 0
-30 -20 -10 0 10 20 30
0 30
-50
2 3 4 5 0
-50 P10 -30
P50 -100
-60
P90
-100 Simulations -90 -150
-120
Parameter variation
-150 -150

Figure 3: Model 2 – Percentiles variation for gradual Figure 4(c): Model 2 - Uncertainty in economic model -
combination in NPV and simulations number Influence in Net Present Value for percentile P90

Percentil P10
Oil price 150
1400
Investiments
IRR 100 1200
NPV (Million US$)
Influence in NPV

50 1000

800
0
-30 -20 -10 0 10 20 30 600
-50
400

-100 200

0
-150
20 30 40 50 60 70
Parameter Variation
Np( Million m3)

Figure 4(a): Model 2 - Uncertainty in economic model - Figure 5 (a): Model 1 – Representative models for base
Influence in Net Present Value for percentile P10 economic model (Ligero et al. (6))

7
 100
Base
1400 90
Price+20%
80
1200 Price-20%
70
NPV (Million US$)

Investiments+20%
1000

Percentile (%)
60 Investiments-20%
800
50 IRR15%
600 40 IRR11%

400 30

20
200
10
0
40 42 44 46 48 50 52 54 0
-600 -400 -200 0 200 400 600 800
RF(%) NPV Million US$

Figure 5(b): Model 1 – Representative models for base Figure 7: Model 2 – Risk curve for base economic model
economic model and economic uncertainty (points using only
representative models)
100
400
90
Original risk curve
300 80
sensitivity in
200 70 economic data
NPV Million US$

Percentil (%)

Risk curve with

60
100 price uncertainty
50
0
5 10 15 20 25 40
-100
30
-200 20

-300 10

0
-400
0 200 400 600 800 1000 1200 1400 1600
RF% NPV (Million US$)

Figure 6 (a): Model 2 – Representative models for base Figure 8: Model 1 – NPV risk curve for base economic
economic model model and the influence of the economic uncertainty
(Ligero et al(6))

100
400
Original Risk
90 Curve
300
80 Risk curve with
price uncertainty
200 70
NPV Million US$

Sensitivity in
Percentil (%)

100 60 economic data

0 50

20000 40000 60000 80000 100000 40

-100
30
-200
20
-300 10

-400 0
-300 -200 -100 0 100 200 300 400
Wp Mm3
NPV Million US$

Figure 6 (b): Model 2 – Representative models for base

economic model Figure 9: Model 2 – NPV risk curve for base economic
model and the influence of the economic uncertainty

8
 100
90
80
Percentil-Original (%)

70

60
50
Ideal
40
price+30%
30 price-30%
20 Investiment+20%
Investiment-20%
10
IRR11%
0
0 10 20 30 40 50 60 70 80 90 100
Percentil -New economic Model (%)

Figure 10: Model 1 – Influence of uncertain economic

model in the percentiles of the representative models.

100

90

80
Percentil - Original

70

60
Ideal
50
price+20%
40 price-20%

30 Investiments+20%
Investiments-20%
20
IRR15%
10
IRR11%
0
0 20 40 60 80 100
Percentil -New Economic Model (%)

Figure 11: Model 2 – Influence of uncertain economic

model in the percentiles of the representative models