Production

During the production phase the flexibility arises from the operator’s option to decide the level of
production, the drilling of production wells and, if possible, any increase in production capacity of the production unit. Both the drilling of production wells and any increase of the platform’s production capacity are examples of capacity flexibility.

Reservoirs are by nature three-dimensional, and should be modelled by three-dimensional models. However, the computational demand of such models (cf. Lia et al (1995)) inevitably hampers their usefulness in a comprehensive framework. Thence, a much simpler approach is proposed, in which the maximum production level is described by a zero-dimensional tank model with perfect communication throughout the reservoir.

The well rate, and thence the production capacity of a well (see appendix A), follows a Markov
process, where transition takes place if the field is producing. The capacity of the wells for the next production period is revealed at the end of the present production period. Hence, the production capacity is assumed known when the production decision is taken. Without any production the production capacity of a well remains the same.

By modelling the reservoir volume and the well rate as stochastic variables the (originally
deterministic (cf. Wallace et al (1985b)) tank model provides a production profile with stochastic
escalation, plateau level and duration, and decline. This is considered adequate to describe the
uncertainty surrounding the reservoir at an early stage of the development. Note that the assumption of a stochastic well rate is not in accordance with the foundation for the tank model, which requires a homogenous and well behaved reservoir. The tank model should therefore be considered a convenient framework for development of a simple relationship between important reservoir parameters and the production profile, rather than a strict condition.

To curtail the model size the production decision is implemented as a binary choice, where the
platform either produces at maximum level or it does not produce at all. This is similar to enforcing a so-called “bang-bang” solution (cf. Dixit and Pindyck (1994)).

Production wells can be drilled at all stages in the production phase, and the possible number of wells is independent of platform concept. As for the exploration wells, the production wells are assumed drilled in clusters of predetermined size, and in a predetermined sequence. The total number of clusters that can be drilled at the field is restricted by an upper limit. The production wells have infinite lifetimes, i.e., each well can produce throughout the entire production period.

It is further assumed that the platform capacity can be increased at all stages. Naturally this requires that the platform concept is designed for optional capacity, and that available space has not been utilised by previous installations of additional capacity. The increase is only limited by the available space. Hence, it is possible to use all expansion area at one stage. Capacity expansions are made in steps of predetermined size. The cost of increasing the capacity is dependent upon the magnitude of the expansion and (generally) the concept.

During the production phase, the platform incurs fixed operating costs. These are dependent on the installed capacity and the platform concept, but independent of the production level. In addition there is a variable cost associated with the production of oil. This cost is given per produced barrel.