Inverted Hockey Stick Method Quantifies Price Uncertainty in Petroleum Investment Evaluation

In this paper, we present a new method for quantifying the uncertainty of economic projections due to uncertainty in future oil prices. Traditionally, the petroleum industry has employed what are known as “hockey stick” price forecasts, i.e., monotonically increasing price profiles, in economic calculations to evaluate investment opportunities. Calculations are often run using most-likely, optimistic, and pessimistic price profiles in an attempt to quantify the uncertainty in the resulting economic indicators. These conventional hockey stick methods significantly underestimate uncertainty because they do not reproduce the volatility inherent in oil prices. Stochastic methods that attempt to model price volatility have been used successfully and indicate that there is considerably more uncertainty in oil and gas development projects than has been previously recognized. However, many operators do not use stochastic methods for modeling oil prices, most likely because they require more time and effort to implement than conventional methods.

The Inverted Hockey Stick method presented herein is similar to conventional methods in that only three price realizations are run to quantify uncertainty. However, the high and low cases are designed to better capture the range of possible future price paths. Uncertainty ranges for economic indicators predicted by the new method are comparable to 70-95% probability ranges predicted by the stochastic bootstrap method, significantly greater than the 32-42% ranges predicted by conventional methods. This new method can be easily incorporated into existing economic modeling systems. Recognition of the greater uncertainty in oil and gas investment opportunities, both upside as well as downside, should improve investment decision making.     

Inverted Hockey Stick Method Quantifies Price Uncertainty in Petroleum Investment Evaluation

Abstract

In this paper, we present a new method for quantifying the uncertainty of economic projections due to uncertainty in future oil prices. Traditionally, the petroleum industry has employed what are known as “hockey stick” price forecasts, i.e., monotonically increasing price profiles, in economic calculations to evaluate investment opportunities. Calculations are often run using most-likely, optimistic, and pessimistic price profiles in an attempt to quantify the uncertainty in the resulting economic indicators. These conventional hockey stick methods significantly underestimate uncertainty because they do not reproduce the volatility inherent in oil prices. Stochastic methods that attempt to model price volatility have been used successfully and indicate that there is considerably more uncertainty in oil and gas development projects than has been previously recognized. However, many operators do not use stochastic methods for modeling oil prices, most likely because they require more time and effort to implement than conventional methods.

The Inverted Hockey Stick method presented herein is similar to conventional methods in that only three price realizations are run to quantify uncertainty. However, the high and low cases are designed to better capture the range of possible future price paths. Uncertainty ranges for economic indicators predicted by the new method are comparable to 70–95% probability ranges predicted by the stochastic bootstrap method, significantly greater than the 32–42% ranges predicted by conventional methods. This new method can be easily incorporated into existing economic modeling systems. Recognition of the greater uncertainty in oil and gas investment opportunities, both upside as well as downside, should improve investment decision making.     

Estimation of volatility of selected oil production projects

In oil project valuation and investment decision-making, volatility is a key parameter, but it is difficult to estimate. From a traditional investment viewpoint, volatility reduces project value because it increases its discount rate via a higher risk premium. Contrarily, according to the real-option pricing theory, volatility may aggregate value to the project, since the downside potential is limited whereas the upside is theoretically unbounded. However, the estimation of project volatility is very complicated since there is not a historical series of project values. In such cases, many analysts assume that oil price volatility is equal to that of project. In order to overcome such problems, in this paper an alternative numerical method based on present value of future cash flows and Monte Carlo simulation is proposed to estimate the volatility of projects. This method is applied to estimate the volatility of 12 deep-water offshore oil projects considering that oil price will evolve according to one of two stochastic processes: Geometric Brownian Motion and Mean-Reverting Motion. Results indicate that the volatility of commodity usually undervalue that of project. For the set of offshore projects analyzed in this paper, project volatility is at least 79% higher than that of oil prices and increases dramatically in those cases of high capital expenditures and low price.     

SIMULATED DISTILLATION BY TRERMO GRAVIMETRIC MEASUREMENTS APPLIED TO THERMAL CRACKING AND THERMAL HYDROCRACKING

A suitable correlation can be made to represent the simulated distillation of heavy oils starting from thennoaravimetric measurements. This method is applicable to hydrocarbons having an initial boiling point equal or greater than 200°C.

The simulated thermogravimetric distillation fit was obtained from experiments with the standard compounds obtained from ASTM D-2887-83 (Boiling range distribution of petroleum fractions by gas chromatography). This method is simple, fast and without problems when applied to heavy feedstocks

The data were used in the determination of average boiling temperatures of products from thermal cracking and thermal hydrocracking. It was also possible to quantify coke yields

Average relative molecular masses of products from the above processes correlated well with the average boiling point temperatures. It indicates that, with respect to the hydrocarbon types, thermal cracking is not selective in comparison with thermal hydrocracking

The equation applied to find the average boiling temperature is following: T = (1/al) (Ttg-a2). T is the boiling temperature, al and a2 are the correction factors, Ttg is the thermogravimetric temperature.     

FRCTIONATION AND CHARACTERZATION OF SULFUR COMPOUND IN PETROLEUM DISTILLATES

A procedure For the fractionation and the characterization of sulfur containing compounds in petroleum distillates is descrloea. The method is based on a enromatograonic separation using aiumina columns ceated with silver nitrate (Ligand Exchange enromatography) which permits the seperation of molecules containing aromatic sulfer itniocnenic compounds from the sulfiaes

The subsequent gc analysis using selective atomic emission oetector allows the Quantification of the two types of sulfur as well as the quantification of the major sulfur -containing compounds n each fraction

The result of the application of theis procedure on an Egyption gas-oil from Belaym crude are reported.     

REACTION OF PHOSPHORIC ACID WITH THERMAL RESIDUES AND BITUMENS

The purpose of the work was to study the effect of the addition of small quantities of phosphoric acid (or P₂O₅), on the physical and chemical behaviour of petroleum residues and bitumens.

Phosphoric acid (and P₂O₅) reacts only with thermal products such as visbreaker (VB) residues and bitumens, and do not react with straight run (SR) products.

The unstable constituents of VB residues, i.e. carbonaceous material and part of the asphaltenes, contain significant amounts of free radicals which easily share electrons with phosphorous.

The resulting condensed particles are higher molecular wighht, polar material no longher soluble in the bitumen, and flocculate.

This reaction confirms the presence of stable free radicals in thermal bitumens and residues, suggests a way to neutralize their destabilizing effect.     

STUDIES ON LARGE CRUDE OIL ALKANES. II. ISOLATION AND CHARACTERIZATION OF AROMATIC WAXES AND WAXY ASPHALTENES.

Isolation of very large alkane components as described in the first paper within this series, fail in some cases. This work describes two non-routine isolation procedures applied to two different non-typical petroleum fractions. The first one comprises a chromatographic approach applied for the separation of alkanes from alkylaromatic compounds derived from paving asphalt waxes. The second separation procedure was developed for the isolation of alkane fractions associated with asphaltenes that precipitated during long crude oil storage periods, resulting in highly insoluble organic composites

In the first case, the isolated fractions were characterized by spectroscopic and chromatographic methods. The evidence showed that long chain naphtheno-aromatic molecules behave like waxy asphalt components, which interact by unusual mechanisms with solid sorbents. Their chromatographic behavior was found to be between typical alkanes and typical aromatics. This behavior is caused by the simultaneous presence of three functionalities

The second sample type was characterized by spectroscopic methods only. The results permitted to assess that the waxy composite from crude oil tank sediments precipitated selectively, including highly aromatic and long alkyl chain asphaltenes as well as very large n-alkanes.     

THE SOLVENT EXTRACTION APPROACH TO PETROLEUM DEMETALLATION

Metals are present in petroleum depending on age and conditions of diagenesis, and concentrate during refining in heavy fractions and residua. Nickel and vanadium show particularly deleterious effects on catalysts, such as poisoning, excessive gas and coke formation. Besides, removing vanadium from fuel oils reduces the environmental impact of “acid rain” due to the oxidation of sulphur dioxide in the atmosphere.

In this paper, research and industrial practice literature concerning the removal. of nickel and vanadium from petroleum and its fractions by solvent extraction and related techniques is reviewed and arranged into four groups as follows:

i) Processes employing hydrocarbon solvents, used to modify the oily matrix solubility parameter in such a way that asphalt/enes be separated. Because a fraction of total metals present are associated to asphalt/enes, deasphaltation implies partial demetallation.

ii) Processes using polar solvents, scarcely miscible with petroleum and able to selectively extract from it metallic complexes of heteroatomic ligands (e.g. metalloporphyri ns).

iii) Processes not based on molecular phase equilibria like i) and ii) but on the formation, by contact with aqueous solutions, of a separate, colloidally stabilized phase. Either surface active agents are added or the surface activity of substances naturally occurring in petroleum is promoted.

iv) Processes based on extraction with chemical reaction (oxidation, chelation) orion exchange between organometallic species in petroleum and ligandsin solution of non-miscibile media.     

THE PRODUCTION OF SYNTHETIC FUELS FROM NIGERIAN TANBAND BITUMEN

Synthetic fuels are expected to become a major source of energy supply in the future and major sources of synthetic fuels will be coal, shale oil and tar sand.

This paper presents an investigation of hydrotreating using a batch process for bitumen from Nigerian oil sand. The chatacteriistics in conversion of asphaltencs were studied. Various ananlyses were performed to obtain the properties of the bittemen before and after conversion to synthetic crude, e.g., changes of heteroatoms such as sulphur decreases of asphaltics, viscosity add specific gravity, and increases of distillate yield.

The process liquid fuel streams that are highly aromatic. The data suggest that the use of hydrogen causes stabilization of reactive intermediates rather than saturation of thermal products.     

CHARACTERIZATION OF HEAVY AND MEDIUM OILS FROM SASKATCHEWAN RESERVOIRS

Physical and chemical properties of oils are not available for most of Saskatchewan reservoirs. Hence, standard and specialized oil and water analyses were performed on fluids obtained from nineteen medium and heavy oil reservoirs. Seven of these reservoirs are producing under steam and fireflood processes.

The results of the oil analysis suggest that thermal history of the oil can be monitored by GC-MS techniques and viscosity measurements. 011 samples from different wells within a reservoir demonstrated significant differences 1n density, viscosity and other properties.

The water analysis data show that the variation in resistivity, total dissolved solids, pH and the concentration of the Ions present 1n the wellhead water samples as a function of time could be a useful Indicator for the flow pattern and flushing efficiency of steam or the advancement of the firefront and the extent of oil oxidation during thermal recovery processes.     

BITUMEN AND HEAVY OIL UPGRADING IN CANADA

A review is presented of the heavy oil upgrading industry in Canada. Up to now it has been based on the processing of bitumen extracted from oil sands mining operations at two sites, to produce a residue-free, low sulphur, synthetic crude. Carbon rejection has been the prime process technology with delayed coking being used by Suncor and FLUID COKING at Syncrude.

Alternative processes for recovering greater amounts of synthetic crude are examined. These include a variety of hydrogen addition processes and combinations which produce pipelineable materials requiring further processing in downstream refineries with expanded capabilities.

The Newgrade Energy Inc. upgrader, now under construction in Regina, will use fixed-bed, catalytic, atmospheric-residue, hydrogen processing. Two additional projects, also based on hydrogenation, will use ebullated bed catalyst systems; the expansion of Syncrude, now underway, is using the LC Fining Process whereas the announced Husky Bi-Provincial upgrader is based on H-Oil.     

CHARACTERISTICS OF LUBRICATING GREASE PRODUCED FROM NIGERIAN TARSAND-DERIVED HEAVY OIL

The results of a study involving the laboratory production of lubricating grease from heavy oil extracted from the Nigerian tarsands are reported.

Toluene-extracted oil from the tarsands was used in making a soap-based grease and a clay-based grease. The grease produced vas then tested in accordance with the standard National Laboratory for Grease Institute (NLGI) specifications.

The two types of grease produced from the tarsands oil conformed with the NLGI specifications and were in the category of grease suitable for use as lubricant for plain and roller bearings and as sealants.     

Pressure-Volume-Temperature Empirical Formulations for Undersaturated Omani Oils

Pressure-Volume-Temperature (PVT) empirical correlations result from analysis of experimental data collected from laboratory measurements of phase behavior properties of hydrocarbon systems. The correlations are only applicable for the tested hydrocarbons. They could nevertheless be used to predict PVT properties of similar hydrocarbons with pressures and temperatures falling within the measurements' data range.

The developed correlations are mostly, local, some are “region-bound” and a few are global. Regional and global correlations are used with caution. The reason being that hydrocarbon systems from different regions have different composition and paraffinicity, regardless of comparable temperature and pressure ranges. As a result and due to a complex geology resullting from unique depositional environments of most Omani reservoirs, a local correlation to derive PVT properties for Omani crude oils is needed.

The correlations could also be used to supplement PVT experiments often time consuming and extremely costly. In this paper, the developed correlations are derived for undersaturated Omani black-oil.     

IDENTIFICATION OF THE MINERAL PHASES RESPONSIBLE FOR CEMENTATION OF LURGI SPENT OIL SHALE

Very large volumes of solid waste are generated during oil shale retorting. The reclamation and use of these wastes are desirable from an environmental and economical point of view. Two of the primary considerations in the disposal of these wastes are their structural integrity and the leaching of toxics into groundwater.

The spent shale used in this study was generated from oil shale mined from the Green River Formation in the Piceance Basin of western Colorado. The oil shale was processed using the Lurgi-Ruhrgas method (Schmalfeld 1975). The spent shale was packed in the Harvard miniature apparatus (Soiltest 1964) forming columns using three different water contents. Subsequently, the columns were allowed to cure for periods ranging from one day to eight weeks.

Pour types of analyses were performed on the cured columns. X-ray diffraction (XRD), scanning electron microscopy with an energy dispersive X-ray analyzer     

PREPARATION OF ADSORBENTS FROM THE PROCESSED COMBUSTIBLE RAW MATERIALS

Data are presented on the way in which petroleum residues and shale phenols can serve as raw material sources for producing high efficiency carbon adsorbents. These co-polycondensates produce mechanically strong adsorbents with a well-developed microporous structure.

The new adsorbents may be useful for air cleaning air and gas cleaning, as well as selective extraction of gold from multi-component metal cyanide solutions.     

AN XPS STUDY OF THE FORMS OF ORGANIC SULPHUR IN SOME CHINESE COALS

The forms of organic sulphur in nine Chinese coals of different ranks were studied by XPS. Bonding energy values of the different forms of sulphur were obtained. The chemical forms of sulphur in these coals were estimated from the binding energies on the basis of the data for model compounds (Lindberget al. 1970).

The forms of sulphur in different rank coals were not the same; there was a wide distribution in the coal molecule(s), such as thiol, thioether. disulphide, heterocyclic ring sulphur, sulphur bridge, and sulphur in substituents.

These results provide an important scientific basis for future studies of the molecular structure of coal and new methods of desulphurization.     

The relationship between international crude oil prices and China’s refined oil prices based on a structural VAR model

With the frequent fluctuations of international crude oil prices and China’s increasing dependence on foreign oil in recent years, the volatility of international oil prices has significantly influenced China domestic refined oil price. This paper aims to investigate the transmission and feedback mechanism between international crude oil prices and China’s refined oil prices for the time span from January 2011 to November 2015 by using the Granger causality test, vector autoregression model, impulse response function and variance decomposition methods. It is demonstrated that variation of international crude oil prices can cause China domestic refined oil price to change with a weak feedback effect. Moreover, international crude oil prices and China domestic refined oil prices are affected by their lag terms in positive and negative directions in different degrees. Besides, an international crude oil price shock has a significant positive impact on domestic refined oil prices while the impulse response of the international crude oil price variable to the domestic refined oil price shock is negatively insignificant. Furthermore, international crude oil prices and domestic refined oil prices have strong historical inheritance. According to the variance decomposition analysis, the international crude oil price is significantly affected by its own disturbance influence, and a domestic refined oil price shock has a slight impact on international crude oil price changes. The domestic refined oil price variance is mainly caused by international crude oil price disturbance, while the domestic refined oil price is slightly affected by its own disturbance. Generally, domestic refined oil prices do not immediately respond to an international crude oil price change, that is, there is a time lag.     

HORIZONTAL WELL LENGTH OPTIMIZATION FOR A SOUTH OMAN FIELD

Oman produces around 850,000 bbl/day of crude oil from around 85 fields of which 35% comes from horizontal wells. Horizontal drilling was started in 1986 with three short radius wells drilled in chalky oil reservoirs due to gas or water coning and low production rates. Results were not sufficiently encouraging to lead to future activity in the short term. Horizontal drilling technology evolved rapidly and in 1990, Oman embarked on a more ambitious program. The results, this time, were so impressive that the trial was extended and has led to almost continuous horizontal drilling. Some 100 horizontal wells per year are expected to be drilled for the foreseeable future. These wells exploit both clastic and carbonate reservoirs from Precambrian to Cretaceous age, thin and thick oil columns, light and heavy oil, and a wide range of reservoir quality.

Multilateral drilling in Oman has also shown significant benefits in increased production rates, reduced costs and increased oil recovery from existing producing fields and previously uncommercial oil accumulations. Well costs have been reduced by optimising the well design and drilling operations. The most significant cost saving has been due to a reduction in hole size and casing scheme.

The main focus of this project is optimizing oil recovery in a South Oman oil field using multilateral well technology. It mainly outlines both the effects of horizontal length and number of horizontal legs completed for different reservoir properties using Eclipse 100 black-oil simulator as a numerical tool.

Eclipse black-oil simulator is utilized in order to formulate the reservoir models of the concerned field and two other synthetic reservoirs having different rock properties. In order to generalize the findings, correlations are developed for different rock properties. That way predictions for optimum well conditions for any particular field in Oman could be established.     

RAPID PYROLYSIS OF EASTERN CANADIAN COALS BY FREE FALL REACTORS

The effect of temperature was investigated on the rapid pyrolysis of Prince, Lingan and No. 26 coals in the temperature range of 525^° to 750^°C using a 600 cm high stainless-steel free fall reactor at atmospheric pressure.

The yields of char, condensibles and gaseous products were determined at 25^°C intervals. Gaseous products were analysed for H₂, CO, CO₂, CH₄ and C₂+.

Volatile product (condensible and gas) yields exceeded the volatile product in the A.S.T.M. methods at and above 700^°C.

Some experiments using Prince coal were repeated at reduced pressure (50 mm mercury) in both the 600 cm height stainless-steel and a 140 cm height quartz reactor in order to find out the effect of pressure and retention time.

The experimental results indicated that the condensable yield was higher at the lower pressure and at the shorter retention time. The effect of retention time was far more pronounced.     

TERTIARY OIL RECOVERY POTENTIAL FROM CO2-MISCIBLE FLOODING OF AGBADA VISCOUS OIL RESERVOIR

A mathematical model has been employed to determine the incremental oil recoverable by CO₂-miscible processes in Agbada viscous oil reservoir at assumed abandonment conditions. Sensitivity of the recoverable oil to changes in water-alternating-gas (WAG) ratio, fluid injection rate and pattern area was also assessed.

The results showed a potential for tertiary recovery of up to 28% OOIP at WAG ratio of 1.0 and fluid injection rate of 2,000 bbl/d on an 800 metre, 5-spot pattern spacing.