Development as the Continuation of Appraisal by Other Means
The paper is available in .pdf - here.
The upstream petroleum asset life cycle is usually divided into discrete phases. However, the actual situation is more fluid. For example, information arrives, and can be collected, throughout the life of the asset. In this sense, appraisal never stops, and, in principle, development and production activities should be tuned to take into account the value of the information that can be collected as a result of these activities.
We begin to explore this by examining, in an integrated fashion, the appraisal and development phases of the asset life cycle, using a model of an offshore oil-field development lease as an example.
We presume that drilling and facilities construction are the only two activities during this part of the life cycle.
Drilling can give information about the asset ("appraisal drilling") or provide production capability ("production drilling") or both.
Investment in production facilities begins at sanction, which can occur in any year until the end of the lease.
In our initial exploration of this issue, we have found situations where an asset manager can add value by considering the option to have mixed appraisal and production drilling programmes before and after sanction.
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Drillship photo courtesy of the Integrated Ocean Drilling Program.