S. H. Begg

• The University of Adelaide

Uncertainties are present in many decision-making processes. In field development planning, these uncertainties, typically represented by a set of geological realizations, need to be propagated in response to any proposed alternative (solution). Incorporation of the full set of realizations results in the oil and gas field development optimization...

This paper aims to encourage Front End Loading (FEL) to be used more effectively to increase the likelihood of delivering better project outcomes. It introduces a simple and pragmatic approach to assessing FEL which can be carried out in-house. Previous research has shown that, despite FEL being highly regarded, companies regularly sanction project...

An experiment was set up to determine whether some short, focused training could influence decision makers to take a more structured and process-based approach to project decision-making. The experiment also investigated the impact on project decision-making of the way a decision is framed by an authority figure, i.e. how a decision is influenced b...

Many industry professionals are poorly calibrated, overestimating their ability to make accurate forecasts. Previous research has demonstrated that an individual's calibration in a specific domain can be improved through calibration training in that domain; however devising a training program for each specific domain within a field is laborious. A...

There is very limited literature relating to gas production from ultra-deep (>9000 ft; >2700 m) coal seams. This paper investigates permeability enhancement in ultra-deep coal seams of the late Carboniferous and early Permian to Late Triassic Cooper Basin in South Australia, using a time-lapse pressure transient analysis (PTA) approach for a pilot...

Outcomes for oil and gas projects often fall short of the expectations predicted at project sanction. Appropriate use of Front End Loading (FEL) and Decision Analysis (DA) to achieve high Decision Quality (DQ) should increase the likelihood of achieving better outcomes. However, despite being successful methodologies, research has shown that they a...

Biases like overconfidence and anchoring affect values elicited from people in predictable ways—due to people’s inherent cognitive processes. The more-or-less elicitation (MOLE) process takes insights from how biases affect people’s decisions to design an elicitation process to mitigate or eliminate bias. MOLE relies on four, key insights: (1) unce...

The outcomes of many business decisions do not live up to expectations or possibilities. A literature review of neuroscience and psychological factors that affect decision making has been undertaken, highlighting many reasons why it is hard for people to be good decision makers, particularly in complex and uncertain situations such as oil and gas p...

The CRT is an increasingly well-known and used test of bias susceptibility. While alternatives are being developed, the original remains in widespread use and this has led to its becoming increasingly familiar to psychology students (Stieger & Reips, 2016), resulting in inflated scores. Extending this work, we measure the effect of prior exposure t...

The development of unconventional plays tends to unfold in many stages, each of which involves incremental investment and a reduction in the geological uncertainty of the reservoir. These two characteristics yield a large decision space where future decisions are optimised based on the near-continuous arrival of new information. This managerial fle...

Risk communication, where scientists inform policy-makers or the populace of the probability and magnitude of possible disasters, is essential to disaster management – enabling people to make better decisions regarding preventative steps, evacuations, etc. Psychological research, however, has identified multiple biases that can affect people's inte...

Cognitive biases—unconscious errors resulting from how people’s minds work—have been observed in both laboratory and in situ examinations of petroleum personnel’s decisions, and have been demonstrated to result in significant lost value. Since 2003, the CIBP group at the Australian School of Petroleum has been conducting research into such effects,...

Appraisal programs undertaken by exploration and production (E&P) companies are designed to resolve subsurface uncertainties that contribute to uncertainty in the economic potential of undeveloped fields. Value-of-information (VOI) assessments allow E&P players to quantify the economic value of their proposed appraisal programs before carrying them...

Historically, oil and gas projects have struggled to achieve promised outcomes. Research has demonstrated that a good predictor of project outcomes is the level of front end loading (FEL) achieved at the final investment decision (FID). Specifically, projects with high levels of FEL have more predictable costs, shorter schedules and better producti...

Overconfidence is the tendency for people to underestimate the true range of uncertainty regarding unknown or future values. It results in observed outcomes falling outside people's estimated ranges more often than their stated confidence would suggest. Previous research has, however, demonstrated various ways of reducing this bias and the More-Or-...

A common problem in edge-water drive reservoirs is oil bypassing by aquifer water. The encroaching water from the adjacent aquifer overtakes oil phase and leaves a significant volume of trapped residual oil behind. Early arrival of these water fingers causes pre-mature water production that leads to well abandonment. One solution to the problem is...

Oil bypassing is a significant problem in edge-water drive reservoirs. The encroaching water from an active aquifer overruns oil and leaves a significant volume of trapped residual oil behind. This causes pre-mature water production and early well abandonment. The technique to inject small volume of low salinity water into abandoned wells in order...

Technical professionals are often asked to estimate “ranges” for uncertain quantities. It is important that they distinguish whether they are being asked for variability ranges or uncertainty ranges. Likewise, it is important for modelers to know if they are building models of variability or uncertainty, and their relationship, if any. We discuss...

Anchoring is a well-known effect leading to bias in estimation in various decision-making contexts. Previous research examining the role of individual differences in anchoring susceptibility has found weak and unreliable results. In this study anchoring was examined in a simulated poker-like card game, among people with varying levels of academic a...

We present a new methodology to evaluate subsurface uncertainty during the development of shale-gas plays. Even after many wells are drilled, the average well production and the variation of well performance (economics) remain highly uncertain. The ability to delineate a shale play with the fewest wells and to focus drilling in the most-productive...

Natural gas and electricity are commonly traded through swing contracts that enable the buyer to exploit changes in market price or market demand by varying the quantity they receive from the producer (seller). The producer is assured of selling a minimum quantity at a fixed price, but must be able to meet the variable demand from the buyer. The fl...

Previous work on utility theory has highlighted value lost as a result of companies’ non-risk-neutral behaviour. Prospect theory, however, extends utility theory to describe how individuals make decisions under uncertainty. Key features include: use of decision weights rather than probabilities, and asymmetry between losses and gains, with losses w...

One of the most important tasks a petroleum geologist undertakes is to recognize and incorporate uncertainty concepts into their geologic interpretations and estimates of volumetric parameters. This is crucial, because the first requirement for sound decision-making is an accurate and unbiased evaluation of uncertainty in hydrocarbon volume estimat...

Anchoring is a well-known effect leading to bias in estimation in various decision-making contexts. A question, however, is whether individuals with greater numerical and academic ability would be less prone to this effect than others because of greater ability to discern the value being estimated. In light of growing interest in the role of indivi...

From decades of psychological research, the observation that people’s decisions are often biased by particular decision-making flaws has led to discussions of what can be done to de-bias decisions. A key area of research is the study of individual differences in decision-making ability–that is, whether certain people are less susceptible to particu...

Business under-performance in the upstream oil and gas industry, and the failure of many decisions to return expected results, has led to a growing interest over the past few years in understanding the impacts of current decision-making tools and processes and their relationship with decision outcomes. A primary observation is that different decisi...

Sound decision making requires the elicitation and quantification of key uncertainties. Probabilities are, in general, subjective and most petro-technical experts find assessing them challenging. Furthermore, much evidence shows that, although they may not be aware of it, assessors find it difficult to make unbiased assessments. We show how the max...

Anchoring describes the tendency for people's estimates of unknown quantities to be affected by numbers (or information) they have recently seen (or vividly remember). In the oil & gas industry, anchoring is regarded as a potential problem resulting from, for example, the sparsity of data that leads to the common practice of using analogues. "Base...

The 'planning fallacy' describes the tendency of people to underestimate costs and times required for the completion of complex projects. Psychological research has demonstrated that a key component of this results from the packing/unpacking bias—where options or problems that are not specifically stated tend to be ignored by people when making est...

There is growing use of modern portfolio management methods that integrate risks, strategic goals and optimisation techniques to aid investment decision-making in the exploration and production industry. This modern approach consists of stages of analysis that include asset analysis, strategic goals definition and portfolio selection to maximise th...

Making strategic and tactical decision about your company's future - oil and gas field developments, selection drilling locations, initiating seismic and reservoir studies, company acquisitions and R & D investments - is often a complex process with highly uncertain outcomes and consequences. Knowing how to make good decisions is essential whether...

It is commonly recognised that the Wisdom of Crowds [1] enables a group of people with limited knowledge to make, on average, very accurate estimates. This process underlies the success of prediction markets [2], which are used to accurately predict outcomes as disparate as elections and box office takings. In the O&G industry, however, there are c...

Recent work has demonstrated the benefits of repeated judgments in improving the accuracy of estimates – both independent and repeated, individual judgments. The More-Or-Less-Elicitation (MOLE) method has previously been shown to improve accuracy and precision of elicitation over single judgment elicitations (Welsh, Lee, & Begg, 2008). In this pape...

Uncertainties, and the business risks they generate, touch all aspects of the oil and gas industry. Being able to understand and quantify the risks and uncertainties, and knowing how to manage them effectively, contributes to well-founded business decisions, protects the value of projects and assets, and maximizes the value of company project portf...

Offshore drilling programs on complex reservoirs carry inherent risks. Subsurface uncertainty can lead to costly mistakes being made, and, therefore, being able to gain information during the course of a sequential drilling program, and use it effectively, can have sizeable capital importance. Based only on predicted drilling costs and production r...

This article addresses the need for a holistic, integrated approach to assessing the impacts of uncertainty on oil and gas investment decision making. We argue that this cannot be accomplished effectively by just adding a capability to deal with uncertainty to classical, comprehensive, and rigorous models of all the components that contribute to an...

Tversky and Kahneman [1] described the biases known as anchoring and overconfidence, respectively, as: the tendency of people to base estimates on any number just seen; and the tendency of people to provide too narrow ranges when estimating the range that an uncertain value might fall within. They also suggested that anchoring might be causing over...

Walls' work [1, 2], based around Expected Utility Theory [3], has highlighted the relationship between corporate risk tolerance and value; and others have commented on the loss of value resulting from companies behaving in a non-risk-neutral manner (i.e. not using expected value (EV) to make decisions) [4]. Prospect Theory [5], however, extends Uti...

The normal rule for choosing between alternatives in a decision situation is to select the one with the maximum estimated value. Due to uncertainty in the estimates (prediction errors), the mere fact of choosing the maximum induces a systematic bias that guarantees that, over repeated decisions, less than the estimated expected value will be realiz...

Elicitation of people's knowledge is a central methodological challenge for psychology, with important impacts in many technical disciplines and industrial settings. The need to convert an expert's beliefs into a useable format is of particular importance when judgments and decisions are made under uncertainty. Simply asking a person for their best...

Cognitive biases are known to affect decisions made under conditions of uncertainty. Previous demonstrations of these biases have focused on their effect on a single-parameter, typically technical, judgment rather than examining the potential effect on economics when applied to all of the judgments involved in a complex oil and gas (O&G) decision s...

Business under-performance in the upstream oil and gas industry, and the failure of many decisions to return anticipated results, has led to a growing interest in the past few years in understanding the impacts of decision-making processes and their relationship with decision outcomes. Improving oil and gas decision making is, thus, increasingly se...

Dynamic price models (which replicate the characteristics of real price fluctuations over time, not just the mean) are a crucial element in economic evaluations. However, there has been little systematic evaluation of the effects of uncertainty in what type of model is most appropriate, or of uncertainty in the parameters of such models. We present...

Cognitive biases have long been known to impact decisions taken under conditions of uncertainty [1, 2]. Previous demonstrations of these biases, however, have focused on their impact on a single, typically technical, parameter judgment rather than examining their potential impact on economics when applied to all of the judgments involved in a compl...

A key step in valuing petroleum investment opportunities is to construct a model that portrays the uncertainty inherent in the investment decision. In almost all such cases, several of the random variables that are relevant for the model are correlated. Properly accounting for and modelling these correlations is essential in deriving reliable valua...

It is argued that biases such as anchoring and overconfidence contribute to a US$30 billion/year loss in the oil and gas industry (Goode, 2002). The most commonly used debiasing technique, within the industry, is awareness-style training, where participants have the biases and debiasing techniques described to them without specific training. Given...

Business underperformance in the upstream oil and gas industry, and the failure of many decisions to return expected results, has led to a growing interest over the past few years in understanding the impacts of decisionmaking tools and processes and their relationship to decision outcomes. A primary observation is that different decision types req...

An accurate assessment of uncertainty is now seen as a necessary starting point from which to make decisions that will create value and/or mitigate loss in value (risk). As such, uncertainty analysis drives the decisions that are made, rather than just being an add-on, or afterthought, piece of "risk analysis". This impacts the way it should be tau...

Many oil companies struggle with how to value investment decisions that carry a large amount of risk due to uncertainty. There are two key questions. How should value be adjusted to account for risk? And, what is the value of flexibility (or options) in managing uncertainty? Traditional project valuation techniques and metrics (Net Present Value ba...

‘Debiasing’ refers to techniques taught during risk and uncertainty training that enable trainees to avoid or reduce errors arising from cognitive biases. We discuss current techniques and their applicability to oil and gas decisions. To test the debiasing efficacy of sitting a general decision making course, engineering students completed a survey...

Development decision-making practices in the oil and gas industry focus on detailed modelling of every decision parameter—such as reserves, production schedule, facilities design, costs and prices—individually, without due attention to the dependencies and interactions between these parameters. Dependencies and interactions are captured in modellin...

It has been repeatedly demonstrated [1–5] that humans are prone to what are called cognitive biases - discrepancies between calculated, optimal decisions and those made using intuition. Such demonstrations of cognitive bias in expert decision makers, however, are often criticized on the basis of their content being irrelevantto the participants. We...

More than thirty years after the debut of the famous Black-Scholes option pricing formula, and more that twenty five years after Stewart Myers coined the term, real option valuation has yet to catch on at most companies in the upstream petroleum industry as part of the asset decision-making process. While there is a great deal of agreement about th...

This paper is part of an overall programme to investigate how to distill the massive amounts of technical information that are generated in the analysis of any upstream petroleum asset into suitable formats for use in "complete" decision tree analyses of the design, management and value of that asset. A complete decision tree analyses future flexib...

The Oil and Gas industry has a poor record when it comes to accurately assessing uncertainties. An assessment of the risks that arise from these uncertainties is a major factor influencing investment decisions in the O&G industry. Thus, throughout the industry, experts' understanding of the probabilities of uncertain events are elicited via a range...

This paper describes an investigation of abandonment decisions and shut-in policy as a function of uncertainty in oil price. We first review a fundamental error that is often made in predicting the outcome of, and hence making decisions about, systems that are subject to uncertainty: for many common models, the use of "best" estimates of the uncert...

The industries interest in formal Decision and Risk Assessment (D&RA), including portfolio optimization, over the last few years has been quite amazing and somewhat surprising. Overcoming the barriers to adoption of these methods, including cultural change, continue to amaze even the most devout practitioners. Whether the drivers for accepting chan...

Uncertainty is the underlying cause of the failure of many decisions to deliver their promised technical and economic metrics. Are these failures, despite the increased application of tools and processes for decision-making under uncertainty over the past decade, due to bad decisions or just bad outcomes? This paper examines quantitatively the vali...

This paper addresses some of our experiences in working with practitioners dealing with the adoption and implementation of formal risk and portfolio decision methods. The emergence of project investment case histories based on formal Decision and Risk Assessment (D&RA) methods provides a mixed bag of results. Though generally better than historical...

This paper deals with improving the oil and gas industry's ability to manage the impacts of uncertainty on investment evaluations. We first review the economic performance of the industry and conclude that it is not good. Under-performance is attributed largely to poor investment decision-making, which is in turn due to inaccurate evaluation of the...

Ever since the early publication by Grayson,1 we have seen an increasing interest in decision-analysis in the oil and gas industry. There have been numerous studies and publications discussing methods and models for rational decision-making. Given the inherent limitations of intuition and heuristics, one might expect decision-makers to be delighted...

This paper addresses the need for a holistic, integrated approach to assessing the impacts of uncertainty on oil and gas investment decision-making. We argue that this cannot be accomplished effectively by just adding a capability to deal with uncertainty to classical, rigorous models of all the components that contribute to an investment decision...

Lithotype is shown to be the main geological control on the spatial distribution of reservoir flow properties. The distribution of lithotypes is in turn controlled by lithofacies. Using core data, assemblages of lithotypes were grouped into major facies associations (MFA's). Log signatures were used to pick MFA's in uncored wells to provide conditi...

We address the question of what grid-size is necessary to adequately simulate oil recovery from a variety of heterogeneous facies found within a fluvial-deltaic system. We start by generating geological models of core-plug-scale poro-perm heterogeneities based on a geological understanding of the spatial distribution of lithotypes within a facies....

Advances in the development of geostatistics and object modeling, have allowed the construction of numeric representations of the Zone 1 interval, Ivishak Formation, Prudhoe Bay Field, that retain the character of the porosity / permeability seen in conventional core data. Modeling of the distribution of imbibition capillary pressure forces associa...

Core and log data indicate highly variable reservoir quality in the lower part of the Prudhoe Bay reservoir. Characteristic reservoir descriptions were developed in order to investigate the sensitivity of production performance to reservoir heterogeneity. Detailed core description and analysis showed that grain-size (lithotype) was the major contro...

This paper describes a conceptual study to assess the impact of small-scale heterogeneities on the vaporization by lean injected gas of residual oil remaining in a gas cap after gas cap expansion. Two heterogeneous reservoir elements have been considered, one with a rapidly varying distribution of porosity and permeability and the other with a more...

Characterization of heterogeneous reservoirs for simulation studies by use of a statistical component to the reservoir description combined with calculation of effective permeabilities is discussed through a case study of a fluvial reservoir. Inspection of whole core and logs from the Sherwood reservoir revealed that it is extremely heterogeneous,...

This paper outlines the procedures undertaken in characterizing, for the purpose of reservoir simulation, the distribution of geological controls on porosity and permeability within the Sherwood sandstone reservoir.-from Authors

This paper describes a quick, simple, easy to use method of calculating the effective vertical permeability of a reservoir region containing discontinuous shales. The method, which is derived in both two and three dimensions, can be applied to a layered medium in which the sand permeability anisotropies (in three mutually perpendicular directions)...

In this paper the authors present four methods of estimating the effective vertical permeability of a reservoir containing stochastic shales in both two and three dimensions. The methods vary in their accuracy, speed and range of applicability. The first is based on numerical simulation, the second is an analytical method, the third and fourth are...