Oil reserve declining production rate model
An example of a Monte Carlo simulation risk analysis model for the Oil and Gas industry
This example shows a simple use of Monte Carlo simulation to assess the uncertainty of the declining production rate from an oil reserve.
The risk analysis model is built using Excel with our Monte Carlo simulation add-in called ModelRisk. It uses the following formatting convention:
The model is simple and easy to follow:
The input parameters are simulated by drawing from Lognormal statistical distributions with a mean equal to the point estimate values and a standard deviation equal to the error terms multiplied by the point estimates.
The calculations use the hyperbolic decline model for reserve production rates with the formula:
The calculations follow the formulae:
where t = time of production, d = initial nominal decline rate, q(x) = production rate at time x, and b = the hyperbolic decline constant.
The model takes about 3 seconds to run 5,000 samples. It is set up to directly show a number of reports within the ModelRisk ResultsViewer at the end of the simulation, which are described below.
The first tab shows a Trend plot of the annual oil production:
This red line shows the median (P50) of the production estimate, the light-colored band shows the P25-P75 range, and the dark bank shows the P01-P99 range.
The second tab shows a histogram plot for the estimate of total oil production over the forecast period:
It illustrates, for example, that it is estimated there is a 5% chance the total production is less than 213 MM bbl, and a 5% chance it is over 229 MM bbl, with a most likely value of around 221 MM bbl.
The third tab plots the cumulative probability distribution together for several years’ production for comparison:
Finally, the last tab plots the different production volumes by year in box plot form: