Koch

I would like to welcome our subscribers to the October 2011 issue of SPE Economics & Management. SPE E&M covers a wide range of topics of interest to petroleum engineers, managers, and others involved in the energy business, including resource and reserve evaluation, portfolio and asset management, project valuation, strategic decision-making and processes, uncertainty/risk assessment and mitigation, systems modeling and forecasting, benchmarking and performance indicators, information and knowledge management, digital energy, and petroleum economics. In my last executive summary, I mentioned a new reprint volume recently published by the SPE. Decision Analysis in E&P is part of the new "Getting up to Speed" series of reprint volumes published by SPE for young engineers or experienced engineers growing their skills in a new discipline. The volume contains 18 papers that range across the field of decision analysis in the E&P business. Decision Analysis in E&P is not published in print; books and magazines are going the way of slide rules, hand-drawn maps, and stone tablets; but it is available for download to your 21st century device by going to the SPE online bookstore.

In this issue, we have five peer-reviewed papers that represent the broad range of topics covered by SPE E&M.

Valuation of Swing Contracts by Least-Squares Monte Carlo Simulation by Bart Willigers, Steve Begg, and Reidar Bratvold examines how flexibility can create value in natural-gas contracts and uses least-squares Monte Carlo simulation to quantify that value. The authors demonstrate how gas producers could benefit from improving their understanding of swing contracts and capture value from price volatility that would otherwise accrue to the traders.

Optimization of Equity Redeterminations Through Fit-for-Purpose Evaluation Procedures by Paul Worthington considers the inadequacies of many of the technical procedures associated with equity redetermination and suggests some high-level protocols that may avoid some of the short-comings of current techniques and support a more efficient and effective redetermination of equity.

Through a series of five case studies, Improving Allocation and Hydrocarbon Accounting Accuracy Using New Techniques by Ron Cramer, Dave Schotanus, Kolin Ibrahim, and Nick Colbeck describes Shell’s experience with improving allocation accuracy using a continuous hydrocarbon accounting process and more effective use of available production data.

Demonstrating Reasonable Certainty under Principles-Based Oil and Gas Reserves Regulations by Rod Sidle and John Lee examines the concept of "reasonable certainty" of future hydrocarbon recovery and how the move from a rules-based to a principles-based approach in the 2008 US Securities and Exchange Commission regulations has affected reserves evaluation. The paper describes the challenges to the reserves evaluator in which compliance to detailed reporting rules has been replaced by adherence to the principles of responsible business practice.

Unconventional Natural Gas Business: TSR Benchmark and Recommendations for Prudent Management of Shareholder Value by Ruud Weijermars and Steve Watson provides a good summary of the unconventional-gas business. The authors compare the financial performance of unconventional-gas producers with the performance of major oil and gas companies and draw some conclusions about the profitability of the unconventional-gas business.

In addition to our peer-reviewed papers, we are continuing our feature called "Worth a Second Look." In each issue, we include a significant paper that we believe deserves renewed attention from our readers. Many of our current members may not be aware of these papers or may not have read them in a long time. Although our thinking in economics, decision making, and management has evolved over the years, many of these articles have true relevance today. For this issue, we have looked beyond the SPE literature and selected a paper that was originally published by the American Association of Petroleum Geologists (AAPG) in their Bulletin in July 1997. The AAPG has graciously allowed us to republish the paper in this issue of SPE E&M. We invite you to take a second look at A Process for Evaluating Exploration Prospects by Robert M. Otis and Nahum Schneidermann. This paper examines how Chevron improved its assessment of key uncertainties in their exploration prospects and how that process improved their risk assessment. Although the paper focuses on exploration, their techniques are broadly appropriate for the assessment of key uncertainties in the evaluation of any development or production project. Because of SPE's agreement with AAPG, this paper will only be available online for 3 months, while the October issue is current, and will not be archived. Subscribers, of course, can download the paper during that period but, after December, will have to access the paper through the AAPG archives and pay the appropriate download fee.

As always, I would like to thank and acknowledge our editorial review committee for their continuing hard work. This group is made up of a distinguished group of seven associate editors: Dr. Steve Begg (University of Adelaide), Dr. Reidar Bratvold (University of Stavanger), Gary Citron (Rose & Associates), James Crompton (Chevron), John Howell (Portfolio Decisions Incorporated), Dr. Wumi Iledare (Louisiana State University), and Dr. Chris Jablonowski (The University of Texas at Austin).

I am happy to hear your comments and suggestions about SPE E&M, please feel free to contact me at frank@kochdecisions.com.

–Frank Koch