The Summary of

Subsurface
Risk Management
Project
Zein Wijaya, KBK - Reservoir
July, 10 2007

Risk Management General Concept

(Definition and Theory)

Introduction

If you cant manage risk, you cant control it. And if you
cant control it you cant manage it. That means youre
just gambling and hoping to get lucky.
(Hooten [2000])

Definition
The art of risk management is to identify risks
specific to an organisation and to respond to them in
an appropriate way.
Risk management is a formal process that enables
the identification, assessment, planning and
management of risks.

Typical organisation Structure which allows risk

management to be focused at different level

The Concept of Risk

Risk and Uncertainty (Merna, 1996)

A decision is said to be subject to risk when there is

a range of possible outcomes and when known
probabilities can be attached to the outcome.
Uncertainty exists when there is more that one
possible outcome to a course of action but the
probability of each outcome is not known.

Typical Risk Parameters

How to define and measure the risk

Defining bad by identifying the objectives of an

organisation and the resources that are threatened.
Identifying scenarios whose occurrence can
threaten the resources of value.
Measure the severity or magnitude of impacts.

Risk and Uncertainties

(Lifton and Shaifer 1982)
The uncertainty associated with estimates of outcomes.
Uncertainty is used to describe the situation when it is not
possible to attach a probability to the likelihood of
occurrence of an event. Uncertainty causes rift between
good decision and good outcome. The distinguishing factor
between risk and uncertainty is that risk is taken to have
quantifiable attributes, and its place in a calculus of
probabilities, whereas uncertainty does not.

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Type of Uncertainties
Basically There are two types of uncertainties;
Uncertainty arising from a situation of a pure
chance; is known as aleatory uncertainty
Uncertainty arising from a problem situation where
the resolution will depend upon the exercise of
judgement; is known as epistemic uncertainty.

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Risk Uncertainty Continuum

(Raferty 1994)

A broad definition of project risk is:

The implications of the existence of significant
uncertainty about the level of project performance
achievable. (Chapman and Ward [1997])

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Hazards
People often confuse the concepts of hazard and risk since they
are used interchangeably as if they have the same meaning.
This is untrue, however, but to add to the confusion different
industries often define the concepts differently.
A common definition is:
A hazard is a condition that can cause injury, or death,
damage to or loss of equipment or property, or
environmental harm.
A hazard can be the result of a system or component failure but
this is not always the case; a hazard can exist without anything
failing.

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Subsurface Risk Assessment Tool

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Why do we need to improve subsurface

Assessment ?

Economic performance is driven by reserves

Reliable subsurface assessments are important to
project value
Appropriation
Request, NPV10

Value
Erosion

Actual Realized
Value, NPV10

Prices
Other
OPEX
CAPEX
Reserves /
Production

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Appraisal Strategy Impacts Production

Attainment
Aggressive

Conservative
Fully characterize
reservoir properties and
fluids
Minimize risks
Moderate

Minimize appraisal costs and

duration
Manage asset risks
Frequently an acceleration
or cost minimization
strategy

Balance appraisal cost,

schedule, and asset risks
Focus appraisal on
critical risk areas
Conclusions:
Conservative appraisals do not add
much value over moderate appraisals
Moderate appraisals should be
adequate to define uncertainty and
assess development alternatives
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Level of Confidence Matrix:

New Project Outcomes

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Subsurface Assessment 5 Steps Process

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Step 1 Choose Assessment Method

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Subsurface Assessment Method

There are several methods to do subsurface
assessment and predict reservoir performance:
1. Analogy
2. Empirical Methods
3. Decline Curves
4. Analytical Models
5. Reservoir Simulation

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Example Subsurface Assessment Method

Analogy

Analytical
(Material
Balance Model)

Empirical

Decline Curve

Reservoir
Simulation
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Uncertainty Identification Tools

Identify uncertainties:
z Brainstorming
z Force field diagrams
z Influence diagrams

Force Field Diagrams

Influence Diagrams

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Assess Uncertainty Ranges

(Tornado Diagram)

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Step 3 Estimate Uncertainty Ranges

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Estimate Uncertainty Range (Montecarlo

Simulation Crystal Ball & @RISK)

Common Types
of Data Distribution

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Uncertainty Display

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Step 4 Create Uncertainty Management

Plan

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Uncertainty Management Plan

Uncertainty Management Plan was created to
Develop a plan to resolve and manage key
uncertainties.

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Step 5 Finalize The Outcome Ranges

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Finalize The Outcome Ranges of Project

To finalize the outcome ranges of project, there are 2 steps:
1. We need to combine the uncontrollable subsurface
uncertainties with operational uncertainties.
Well construction constraints such as tubing size
or well operating constraints including artificial lift
Drilling schedule and order
Number of wells, patterns and spacing
Facilities constraints
Operational downtime
Risk of unsuccessful wells due to geology or
mechanical reasons
Commercial and demand risk especially for gas
Approvals, e.g., permits, commingling, regulatory,
partners, equity agreements, AFEs

2. We need to Use DA Model to Assess Alternatives

and Economic Projects
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Combination Outcome Ranges Between

Subsurface and Operational Uncertainties

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Decision Analysis Model (D-Tree &

Economic Model)

Decision Tree with

Different Alternatives
Project Outcomes vs
Investment in
Different Alternatives

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Data Source / Reference

Risk Management Text Book by Dr Anthony
Merna - Manchaster Business School University of
Manchaster England United Kingdom

Chevron Subsurface Assessment (General

Concept)

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