Price stress testing in offshore oil field development planning

Abstract

Oil & gas field development planning has the objectives of maximizing economic value and also mitigating potential risk. An optimal development concept and strategy depend on the selected oil price trajectory. The conventional scenario-analysis assuming a fixed hydrocarbon price over the lifetime is often inadequate as oil price shocks are likely to occur in the 20-year plus production horizon. In this work, we argue that stress testing, a method widely used in the financial domain, can valuably support field development planning. This work explores the adoption of stress testing to quantify the resilience of field development concepts in the early field development phase. The empirical analysis is presented, a MILP model is formulated, and a new metric is introduced to conduct the price stress testing for field development planning. Additionally, the developed method is applied to a real-world planning case of selecting the development concept and choosing the optimal variables. Results from the case study reveal that the timing and magnitude of oil price shocks can significantly affect the economic value of a project. Consequently, when considering sudden hydrocarbon price drops, it is preferable to chose a resilient field development concept at the early stage of field planning.