Stochastic investment model for offshore oil and gas production

Abstract

This report presents a stochastic multistage model that addresses strategic subsea separator investment decisions with reservoir uncertainty. Since strategic decisions in the petroleum industry have long-term consequences and are taken under considerable uncertainty regarding the future and the nature of the petroleum asset in question, optimization tools that take uncertainty into account may provide the decision-maker with more robust support than deterministic models. The model presented is formulated to maximize the present value of oil and gas production from an asset, given uncertainty captured by sets of different scenarios representing different realizations of the underlying reservoir. The problem is formulated as a mixed-integer program where investment decisions can be made in a subset of the modelled time periods. Depending on the flexibility of installed equipment, recourse decisions in later stages allow modification of the subsea separator configuration to increase capacity and efficiency. The underying production model is kept as simple as possible with linear constraints and only one linearization using SOS2 sets in order to be able to deal with the problem stochastically. Fico-Xpress is used to implement the program, which is also attempted solved using the progressive hedging heuristic with promising results. Computational results show that real options in the form of flexibility in subsea separator configuration has theoretical value both due to the ability to hedge against reservoir uncertainty and due to the possibility to adapt equipment to the development of the maturing oil field.