Handling risk and uncertainty in petroleum exploration and asset management: An overview

Abstract

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 portfolios. This article shows how different combinations of risks and uncertainties become relevant through the life cycle of an oil or gas field from exploration (main risk: absence of commercially viable hydrocarbons) through appraisal and development (main risks: aspects of effective project delivery) to field operation (main risks: delivery of promised reserves and value). This corresponds to a change in the relevance of uncertainties, which are mainly related to static volumetric issues early on, with dynamic factors coming to dominate later in field life. The specific risks related to individual assets need to be managed using mitigations or contingencies. By contrast, the overall risk exposure of the company (comprising many assets and potential projects) is managed by optimizing the portfolio of opportunities that are to be actioned.