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A more cautious approach to forecast DOG commercial analyst explains state’s new method of oil production forecasting used for developing DOR’s revenue forecasts Alan Bailey Petroleum News
The task of trying to predict future oil production in Alaska is a touchy issue, especially given the criticality of production volumes to the state’s economy and the inherent uncertainties in any attempt to say what those future production levels might be. In the fall of 2016, for the first time, staff in Alaska’s Division of Oil and Gas took on the role of production forecasting, a role previously carried out by external consultants. And, in preparing their forecast, the in-house analysts took a conservative approach to their task, arriving at somewhat lower projected oil volumes than have been previously forecast.
In a talk to the Alaska Support Industry Alliance on April 22 about how the division staff had prepared their forecast, Pascal Umekwe, a commercial analyst with the division, explained that previous production forecasts had consistently overestimated future oil production levels. The forecasts, which in the past have covered a 10-year timeframe, have been reasonably accurate for the first year but have been very wide of the mark, much too optimistic, by year 10, Umekwe said.
One issue that can arise is the possibility of including in the forecasts oil field development projects that do not, in reality, pan out. And trying to forecast up to 10 years into the future tends to exacerbate this problem, Umekwe suggested.
Three sources The division’s new methodology, as in previous methodologies, considers three sources of future oil production: continuing production from currently operational oil fields, expected production from new oil under development and potential production from developments that are under evaluation. But, whereas previous forecasts used a time horizon of 10 years for both the under development and under evaluation categories, the new methodology improves accuracy by shrinking the horizon to five years for under evaluation and to just one year for under development, Umekwe explained.
Moreover, in assessing future oil development the division analysts now use a more risk based approach, factoring in the probabilities of developments happening, rather than determining a single, predicted development path. And the methodology also considers the dependency of oil developments on the future price of oil, Umekwe said.
90 percent from existing fields The foundation of the forecast consists of the projected future production from existing oil pools - this component of the forecast accounts for about 90 percent of the estimated, total future oil output. Division analysts obtained the data for this component of the forecast by conducting what is referred to as a decline curve analysis for each producing oil pool, using the known characteristics of each pool and the analysts’ judgement to project current production into the future. Unlike what has been done in the past, division staff conducted this analysis at the level of complete oil pools, rather than for individual wells within the pools.
The analysts developed hundreds of potential production profiles for each pool, before combining these profiles statistically using commercially available software, to obtain a mean and a range for the possible future production profiles. These results were then aggregated in a spreadsheet, to generate 90 percent confidence levels and a mean for the future production profile for the entire state.
Under development The analysts then considered new oil under development, oil expected to originate from development projects slated to come online within the next year. Although many of these projects consist of in-field drilling, already sanctioned to be carried out, the analysts did not include drilling that they considered routine, drilling that would normally be conducted to sustain a field. While a greater-than-normal number of new wells in a field should correctly be considered as new development, the inclusion of routine drilling within the new development category would likely result in the double counting of oil produced as a consequence of this drilling, Umekwe said.
The inclusion of the under development production tranche adds a thin wedge of new production onto the projected production profile for existing oil pools.
Under evaluation The under evaluation tranche of the production forecast forms a series of slightly thicker wedges on top of the under development category, with the start of each wedge representing a new development coming on line. For inclusion in the tranche, a project must have most features critical to success in place, including facility access and funding, and must be scheduled to come on line within the next five years.
Example projects in this under evaluation category include continuing drilling from the CD-5 pad in the ConocoPhillips Colville River unit; ConocoPhillips Greater Mooses Tooth 1 and Greater Mooses Tooth 2 developments; Hilcorp’s Moose Pad development in the Milne Point unit; and ConocoPhillips’ Moraine project in the Kuparuk River unit. Some projects within this category have currently been postponed. These consist of Caelus Energy Alaska’s Nuna and Nuiqsut expansion projects in the Oooguruk field; Brooks Range Petroleum’s Mustang project; additional drilling by Eni in the Nikaitchuq field; and ConocoPhillips’ 1H NEWS project in the Kuparuk River unit.
Layering the under development and under evaluation tranches onto the decline curve data for existing pools suggests a future oil production decline rate of about 4 percent, compared with an historic decline rate of about 5.5 percent.
Future development Moving into the longer term, there is a list of projects, some of which could result in large future production volumes, but which lie too far in the future and have too much associated uncertainty for inclusion in the division’s official oil production forecast. It is possible to assess the potential impact of these projects by layering publicly available production estimates for the projects on top of the official forecast. And that impact would be significant. The projects in question consist of ConocoPhillips’ Fiord West project; ASRC Energy’s Placer project; Armstrong Energy’s Pikka project; ConocoPhillips’ Tofkat project; ConocoPhillips’ Willow project, Hilcorp Alaska’s Liberty project; major gas sales from ExxonMobil’s Point Thomson field; Caelus’ Smith Bay project; and the possibility of developing heavy oil in the Ugnu formation of the central North Slope.
In late April Paul Decker, DOG’s resource evaluation manager, talked to Alaska’s Senate Finance Committee about the various projects that fall into the state’s under evaluation and future development categories. Petroleum News reported on Decker’s talk in its April 30 issue.
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