Field Development Concept Selection

The business question

Osprey is an oil discovery 25 km from the Kestrel platform, which has spare processing capacity for a few more years. The appraisal wells leave a wide range for the recoverable volume.

A subsea tieback to Kestrel is cheap and quick, but its throughput is capped by the host's spare capacity and it must stop when Kestrel shuts down, leaving oil behind if the reservoir is large.

A standalone floating production vessel (FPSO) has the capacity and the life to produce a large reservoir, but it costs more than twice as much and loses money if the reservoir is small.

The third concept starts as a tieback and keeps an option: after two years of production, when the reservoir is better known, it adds a second phase — more capacity and a longer host life — if the estimate of the volume exceeds a threshold.

The model evaluates the three concepts on the same simulated reservoir and oil price, so that their differences come from the concepts alone, and puts a value on the flexibility.

Who it is for

Asset and development managers, concept-select teams, reservoir and facilities engineers, and investment committees.

Main outputs

For each concept: expected NPV (EMV), chance of losing money, range of NPV, volume produced · how often each concept turns out best · the value of the option to expand · what drives the value of the flexible concept.

How the model works

Three sheets after this one, read from left to right. Each one feeds the next.

1. 1

   Inputs sheet

   The recoverable volume (Lognormal from P90 and P10), how fast the reservoir can deliver, the oil price model, a common cost overrun factor, and for each concept its capital cost, capacity, first-oil year, operating costs and constraints — the host's remaining life for the tiebacks, a possible one-year delay for the FPSO, the expansion rule for the third concept.

2. 2

   Concepts sheet

   Each year, production is the smaller of the facility's capacity and what the reservoir can deliver (a share of the remaining volume). Production stops at the economic limit, or when the host shuts down. For the third concept, the volume is estimated with an error after two years of production. If the estimate exceeds the threshold, the expansion is built.

   The three concepts are the same block of rows. They differ only in the parameter table at the top of the sheet and in their capital phasing. Cash flows are discounted at 10% (real, pre-tax).

3. 3

   Results sheet

   EMV, chance of loss and range of NPV for each concept, how often each one turns out best, the value of the option to expand, and the drivers of the flexible concept's value.

ModelRisk techniques

• Lognormal volume from P90/P10
• Mean-reverting price VoseTimeGBMVR
• Production limits, economic limit
• Common random numbers
• Real option
• Frequency of the best decision

Find similar models

Product

• ModelRisk

Type

• Simulation

Application

• Choosing a strategy
• Valuation and investment

Uses

• PERT
• Lognormal
• Normal
• Bernoulli
• Time series
• Geometric Brownian motion
• Sensitivity analysis (tornado)

Inputs and assumptions

Every assumption in the model, with its uncertainty and where it comes from. The figures are illustrative.

Units and conventions

Money

US$ million (US$m), real 2026 terms; NPV at a 10% real discount rate, mid-year, before tax.

Volumes

MMbbl = million barrels; kb/d = thousand barrels per day.

Years

Year 0 is the investment decision (2026); first oil follows in year 3 or 4.

P90 / P10

Petroleum convention for the recoverable volume: P90 is the low estimate (90% chance of being exceeded).

Key assumptions and limitations

Production

Each year, the reservoir can deliver at most a fixed share of the volume still in place; the facility caps the rest. No ramp-down of the host's ullage, no water handling limits.

Option

The volume estimate at the expansion decision has a 15% error (Lognormal). The second phase takes two years to build and also buys eight more years of host life.

Economics

Pre-tax, real terms; no inflation, no fiscal regime; costs are certain apart from a common overrun factor.

Data

The discovery, the host and all costs are invented for this example.

How to use it

1. Review the reservoir range and each concept's costs and constraints on the Inputs sheet.
2. Press F9 on the Concepts sheet to see how the three concepts play out on one reservoir and one price path.
3. Run a simulation from the ModelRisk ribbon (10,000 samples with a fixed seed are set).
4. Change the expansion threshold or the cost of the second phase and simulate again to see how the option's value changes.

Simulate this model with ModelRisk’s classic engine: it does not run in Turbo mode yet.

ModelRisk functions used

VoseLognormalAlt, VosePERT, VoseBernoulli, VoseNormal

Recoverable volume, deliverability, long-term price, overrun, host life, FPSO delay and the error of the volume estimate.

VoseTimeGBMVR

A 25-year mean-reverting oil price path, shared by the three concepts.

VoseInput, VoseOutput

Name the uncertain inputs and the outputs for the Results Viewer and the sensitivity analysis.

VoseSimMean, VoseSimPercentile, VoseSimProbability

Statistics of the simulation for the tables and charts on the Results sheet.

VoseSimSensitivityMean

The tornado chart: every VoseInput ranked by how far the mean NPV of concept C moves across its range.

Further reading

• Sensitivity analysis in Excel: a tornado chart step by step (Vose guide)
• de Neufville, R. and Scholtes, S. (2011). Flexibility in Engineering Design. MIT Press.
• Mian, M. A. (2011). Project Economics and Decision Analysis, Volume II: Probabilistic Models, 2nd edition. PennWell.