Uncertainty management in Statoil (Risk and opportunity management) NSP 18 September 2001.

Uncertainty management in Statoil(Risk and opportunity management)

NSP

18 September 2001

Requirements for uncertainty management in development projects

• AR005 - Project development in Statoil

• Classification requirements for cost estimates and schedules

Practical guidance document

Recommended practices for uncertainty management in development projects

Presentation content

• Uncertainty management trough project phases and decision gates

• The qualitative uncertainty management process

• The quantitative uncertainty management process

• Presentation to management at decision gates

• Findings and recommendations

Uncertainty management trough project phases and decision gates

Operations

Business opportunity/ Exploration

Project Development Process

Testing and commissioning

Project ExecutionConstructionDetail engineeringFeasibility

Project PlanningConcept Pre-engineering

DG3 (BoG)

DG1 (BoK)

DG2 (BoV)

DG4 (BoD)

DG0 (BoM)

DG 0: Decision to start feasibility studies (BoM).DG 1: Decision to start planning (BoK).DG 2: Provisional project sanction (BoV).DG 3: Project sanction (BoG).DG 4: Start operations (BoD).

The qualitative uncertainty management process

Continuous process

Uncertainty identification

1. Identify uncertaintiesUncertainty identification

Uncertaintyassessment

3. Prioritise/rank uncertainties

2. Analyse uncertaintiesUncertainty assessmentUncertainty

responseaction

4. Develop an uncertainty response

Uncertainty response actions

Uncertainty response control

6. Evaluate results

5. Implement uncertainty strategy

7. Document uncertainty results

Uncertainty response control

Periodicreview

New or unknown

uncertainties

Tools :

Lotus Notes

PIMS

Presentation to management at decision gates (I) Project uncertainty - Top 10 risks

Risk mapping - June 2001

0

1

2

3

4

5

6

7

8

9

10

11

0,0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1,0 <--Probability-->

<--

Ne

gat

ive

Imp

act

-->

Well productivity in upper formation

Sand Control

QA for well equipment and services

HPHT Drilling and completion

Depth conversion uncertainty Technology qualif. programs

Rig availability and cost

Segmentation

Gas allocation

Gas Swing Services

Responsible : John Doe Consequence : Consequence with NPV Manageability : Potential for management via the project team or through contractors Criticality : Potential to become "Show stoppers" Probability : Probability for deviations reflected in consequence, manageability and criticality

Movement from last period:

Criticality :

Low

Medium

High

Medium low

Medium high

Manageability :

Low

Medium

High

The quantitative uncertainty management process

• The quantitative uncertainty management process consists of performing uncertainty analysis on the value chain.

• A value chain includes all the variables that affect the cash flow.

• Each uncertainty in the value chain is described with a probability distribution and linked to the economical model.

• Dependencies between variables are taken into account.

• Uncertainty in project economy is calculated through Monte-Carlo simulations.

Principle poster of the value chain analysis

Sp

ec

iali

st

too

ls

Uncertainty in drilling and well

Uncertainty in investment and operational cost

Uncertainty in reservoir and geology

SCOREPartly

Dependencies

Project framework

Results, uncertainties and dependencies from specialist tools are modelled in Excel spreadsheet

y

x0

ProductionInvestment (CAPEX)Drilling (DRILLEX)Operational cost (OPEX)Removal

Re

ven

ue

Ex

pen

dit

ure

sStatoil's economy model (Excel spreadsheet)

Info

rmati

on

Presentation to management at decision gates (II)

Mean NPV versus standard deviation

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

0.00 50.00 100.00 150.00 200.00

Standard deviation, million $

Mea

n N

PV

, mill

ion

$

NPV (1)

NPV (6) NPV (7)

NPV (5)

NPV (4) NPV (3)

NPV (2)

The numbers in brackets correspond to different scenarios

NPV, million $

.000

.250

.500

.750

1.000

0.00 150.00 300.00 450.00 600.00

Cu

mu

lati

ve

pro

ba

bil

ity

NPV after taxScenario 3

P10 = 153

P90 = 410

Mean= 291.91

STOIIP 89.3%

Well rate 7.1%

Well cost 2.4%

Recovery 1.1%

0% 25% 50% 75% 100%

Percentage contribution to variance in NPV

Sensitivity on NPVScenario 3

Qualitative vs. quantitative uncertainty management

Information flow

Uncertainty management is a continues process through all decision gates and project phases

Quantitative value chain analysis is mainly performed at important decision gates.

Continues

process

Operations

Business opportunity/ Exploration

Project Development Process

Testing and commissioning

Project ExecutionConstructionDetail engineeringFeasibility

Project PlanningConcept Pre-engineering

DG3 (BoG)

DG1 (BoK)

DG2 (BoV)

DG4 (BoD)

DG0 (BoM)

Sp

ecia

list

too

ls

Uncertainty in drilling and well

Uncertainty in investment and operational cost

Uncertainty in reservoir and geology

SCOREPartly

Dependencies

Project framework

Results, uncertainties and dependencies from specialist tools are modelled in Excel spreadsheet

y

x0

ProductionInvestment (CAPEX)Drilling (DRILLEX)Operational cost (OPEX)Removal

Re

ven

ue

Ex

pen

dit

ure

s

Statoil's economy model (Excel spreadsheet)

Info

rma

tio

n

Project ranking and portfolio management

Statoil EPAexchange rates, crude oil prices, inflation

ValueCreation

(E)NPVSØA 8/9% a.t.

Profitability

NPVCAPEX

Profitability

NPVboe

StrategicCriteria

strategic fitHSE

robustnessmateriality

technical costCAPEX/boeOPEX/boe

RiskProfile

technicalcommercialexecution

local conditions

human resources

HSEgovernance

quality of workuncertainty

management plan

x

Project Ranking

$$

Findings and recommendationsThe qualitative uncertainty management process

• The project management team must have ownership and actively support the uncertainty management process

• Uncertainty management must be established as a continuous process integrated in project management

• Uncertainty management must be delegated to the line of responsibility

• High focus and effort should be given to the implementation phase. A person responsible for facilitating the process should be appointed to secure sufficient attention

• Uncertainty management must be on the agenda in regular meetings

• Uncertainty management must focus on the total value chain and the lifetime perspective to secure an overall management of risks and opportunities

• A practical detailing and structure is needed in order to reduce the number of uncertainties

• uncertainty management must be supported by efficient methods and tools.

• Experience transfer from other projects is important

Findings and recommendationsThe quantitative uncertainty management process

• Keep the analysis simple

• Treat uncertainties on an aggregated level

• One person must be appointed to coordinate the process

• Challenge the input from the different disciplines and search for dependencies

• Make sure that the input corresponds to the uncertainty suppliers view (everybody is not familiar with statistics and statistical definitions)

• Present the results from the analysis to the project and explain in simple terms the value chain and the effect of each input on the totality as a quality assurance of the model

• Get a second opinion on the model to avoid effects of subjective interpretations

• Use benchmarking to quality assure the results