My PhD student, Semyon Fedorov, addresses in his project one of the challenges that the Norwegian petroleum industry is facing right now; the decreasing area size of new discoveries on the Norwegian Continental Shelf (NCS). Semyon’s PhD project is a part of BRU21, NTNU’s research and innovation program in digital and automation solutions for the oil and gas industry. His work focuses on hydrocarbon production economics and investment under uncertainty. The project is sponsored by OKEA ASA, a Norwegian oil company founded in 2015 and headquartered in Trondheim.
Semyon’s research aims to facilitate the uptake of advanced techniques for investment valuation in hydrocarbon exploration and production. These novel methods should substitute state-of-the-art approaches, dominating the industry, such as the static discounted cash flow (DCF) approach. Applying this method for the investment in oil and gas often leads to inconsistencies and faulty decisions that result in losses both of private and public revenues. This is the consequence of the fact that the DCF fails to account for operational flexibilities, the effect of uncertainties on the project performance and the opportunity to gather additional information that can lead to the decision to change a course of a project.
With properly accounting for the value of flexibility and well informed decision making, the economic valuation can reduce the number of forgoing profitable investment opportunities and investments in non-economical projects. This can contribute to additional value creation and prevention of losses for private firms, the government and society. Semyon applies the real options approach for investment valuation addressing the uncertainty, implied flexibility and inherited project risks in the hydrocarbon investment valuation procedure. It allows to decrease downside risks of the long-term investment and exploit upside potentials due to accounting for the opportunity to react to the outcome of uncertain conditions. One of the applications of Semyon’s work is the development of a methodology to address the prominent reservoir uncertainty in a small oil field development case. Take a look at the video below, where Semyon describes some results of his research.
The results demonstrate that oil companies can use the staged development when approaching risky investments. By employing this approach companies can decrease the exposure to downside risks and increase the project value due to accounting for the potential to learn on the reservoir and market uncertainty during the production stage. This results of this research were recently published in the Journal of Petroleum Science and Engineering. The application of this methodology was also presented at the SPE Annual Technical Conference and Exhibition 2020.
Semyon’s PhD is a collaboration between BRU21 and OKEA ASA, an oil company founded in 2015 and headquartered in Trondheim. OKEA’s goal is to be the leading player in the development and operation of smaller fields on the NCS. OKEA provides the challenge for the research and funds Semyon’s PhD and several other projects within BRU21.
The BRU21 (Better Resource Utilization in the 21st century) is a research and innovation program in The BRU21 (Better Resource Utilization in the 21st century) program aims to improve the state-of-the-art approaches in the oil and gas industry through novel digital and automation technologies, innovation and people development. This is important to ensure the profitability of hydrocarbon production under a low oil price environment, environmental constraints, smaller discovery sizes and focus on operations in challenging areas. Verena is the assistant manager of the Field development and Economics research area within BRU21. Read more about the project here.
