Approximately 100 feet of conventional cores were recovered and analyzed. In addition, the Schlumberger NML and EPT tools were logged over the sand. The test well was drilled in April, 1980 and a full suite of conventional logs were obtained over the San Miguel sand. In order to obtain the needed data, it was recommended that a test well be drilled, cored and logged. Oil samples are often not easily obtainable due to the limited mobility (e.g., "no flow of oil") of the crude at reservoir conditions. The accurate determination of oil properties is frequently the most difficult problem encountered in the evaluation of a heavy oil prospect. This evaluation was uncertain due to the lack of accurate knowledge of formation oil saturations and properties. Preliminary evaluation of the prospect was made using a limited data base provided by the lessor. The prospect was the shallow (e.g., 2,000 feet) San Miguel sand in southwest Texas. This paper describes the petrophysical, geologic, and economic considerations which entered into the prospect evaluation. This paper discusses practical concepts of game theory for the inclusion of "player affects or strategies" that may include "conflicting decision makers" and "negotiated" or "non-negotiated strategies" in the methodology for arriving at a fair market value of estimated reserves.ĪBSTRACT In December, 1979, a 6,500-acre farm-in prospect was offered to Shell Oil as a candidate for primary heavy-oil production using steam injection. The lessee's costs are the service providers' payoff. Its payoff is the total value of the reserves, less the costs and royalties. The lessor of the reserves, by virtue of its lease to the lessee, has assigned its associated costs to the lessee for a defined proportionate share of the defined reserve. All three players are concerned with having their maximum payoff from the recovery of the defined reserves. There are three players the owner of the reserves (the lessor), the operator of the recovery operations (the lessee) and the service providers. The payoff is, therefore, the variably defined fair market value. The payoff is defined as a proportionate amount of the total value of the reserves to each player. All of these different "player strategies" can affect the time and cost of recovering the estimated reserves and, ultimately, affect the fair market value of the defined reserves. Additional examples might include the involvement of unstable governmental regimes that are unable to protect the recovery operations or companies with dynamic economic focus that lower priorities for recovering specific reserves. Decisions and strategies may be decided upon that are more for short term financial reasons, rather than efficient production of the reserves. These decisions are typically made by more than one decision maker and they may be in conflict and they may be negotiated or non-negotiated.įor example, consider operators that are small independents with capital constraints. These entities' decisions will affect the efficiency of recovering the reserves. A consideration that should be incorporated into a reserve valuation is the entities attempting to recover and market the oil and gas reserves through their designed and implemented strategies. Probability theory assists with the classification of the risk associated with the actuality of the reserve amount, while game theory assists with the classification of the strategy associated with the recovery of the reserve, which defines the fair market value of the reserve.Įstimating a fair market value for a reserve must incorporate a whole new set of parameters. Probability theory deals with chance, while game theory deals with strategy. By the same logic, the process of identifying a reserve value, which is realized by implementing a recovery strategy, should incorporate game theory. This classification allows uncertainty and risk to be incorporated into the reserve estimate itself, but not necessarily the dynamics of the chosen strategies for recovering and marketing the reserve.īecause of the many unknowns and uncertainties inherent in accurately identifying a reserve amount, the process includes an element of chance and, therefore, incorporates probability theory. ![]() Once these classifications have been defined, the reserves are risked accordingly. drilling fluid selection and formulation (1)Ībstract Petroleum engineers follow guidelines set forth by the SPE/WPC/AAPG/SPEE for reserve classification when estimating reserves.
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