Number of Development Wells: A Decision Under Uncertainty

Abstract

Oil and gas companies are involved in the business of developing oil fields and bringing them into production for financial gain. One of the decisions made by field managers is determining the optimum number of wells in order to yield the highest net present value (NPV). This article reviews two approaches to solve this problem: deterministic and probabilistic. In addition, two methods are used for each approach: an analytical equation and a field development model. The need for a probabilistic approach to determine the optimum number of wells is essential because, in practice, decisions are made under uncertainties. A case study examining both vertical and horizontal wells is used in order to illustrate the approaches.

Results showed that the horizontal well scenario yielded higher NPV than the vertical well scenario. The field development model validated the analytical equation method. The analytical equation method was found to be advantageous due to its ease in determining the probability of an event and its insights in determining which factors impact the optimum number of wells the most.

ACKNOWLEDGMENT

I thank the editors and the anonymous reviewers for their valuable comments and suggestions.