“We believe there are some very different attitudes to investment between small E&P companies and some of the larger companies,” says Robert Parish, Managing Director of Energy Scitech, a UK-based consultancy and software supplier that employs statistical methods to measure risks in the petroleum industry.

“Obviously, the less data there is about a discovery, the harder it is to assess risk,” he says. Energy Scitech has developed technology that will calculate the spread of probability of certain situations occurring. Once and E&P department or company has a description of a field, however simple, it can build a reservoir simulation model that describes its flow behaviour. The company is then in a position to assess the uncertainty in the field’s production and economic outcomes and to select optimal well types and positions taking into account these uncertainties and the company’s attitude to risk.

Energy Scitech, which assists companies in working out the probability distribution of various outcomes, stresses that this needs to be done in conjunction with assessing a company’s risk appetite. “A company’s own risk appetite will decide whether it wants to move forward with a project which could have a high return but has a relatively low probability of hitting that return.”

Excerpt from Energy Risk Magazine
Top of the agenda by Gary Worby
Quotation by permission of Stella Farrington, December 2005
www.energyrisk.com