Project Risk Analysis and Assessment in Oil and Gas Industry - Essay Example

Risk analysis in oil and gas industry The risk and uncertainty in the oil project appraisal stage is extensive because of numerousunverifiable parameters and restricted data included. Moreover, the declining of the generation and field revelation, expanding working cost together with low oil value include chance and make the complication to the petroleum business (Simpson et al., 2000). In this manner, a superior seeing in the danger and vulnerabilities in ahead of schedule venture stage to give the great data to choice making is fundamental. It can be fulfilled by enhancing the reasonable premise, methodology, system, and useful premise for risk and uncertainty investigation in venture. However, the main aim of this paper is to focus on limitations and problems of the tools and techniques of project risk analysis and assessment.  Risk and uncertainty examination has a few limitation and pitfalls in the principal idea. Every one of these strategies makes solid component of intervention and absence of crucial premise in risk and uncertainty examination. These insufficiencies will bring about shameful treatment of uncertainties. Those limits are exhibited here to give the pursuer a reflection on the utilization of current risk and uncertainty investigation in the down to earth instance of the reasonable undertaking stage (Perminova et al, 2008). In the present strategies for risk and uncertainty examination, sensitivity study is used to Focus the discriminating parameter for subject of examination. This basis can be addressed. Sensitivity examination is not vulnerability investigation. Sensitivity just concerns on yield result as adjustment of info parameter. Dubious info parameter is not decided through utilization of sensitivity examination. The investigation on how dubious information parameter is excluded in this investigation. The target of risk and uncertainty examination is to anticipate future execution of dubious noticeable amounts that are not known at the season of examination. Envision the impact of oil stores to combined NPV of a field. In the event that saves has substantial measure of oil contained, venture NPV may be positive. Something else, NPV may be negative on the grounds that cost will be higher than oil deals given that saves are beneath sure measure of worth. Sensitivity investigation is led to explore how oil stores affects NPV. It has nothing to do with how indeterminate the stores, vulnerability of stores beneath certain quality, or total likelihood of stores in the middle of high and low esteem. Sensitivity investigation is not used to focus unverifiable data parameter for risk and uncertainty examination. Estimate class: Utilization of estimate class does not have the proper premise. Uncertainty appraisal must be seen connected with all perspective. Putting consideration on estimate class is just seen as seclusion for uncertainty administration. Predefined uncertainty interim/possibility ought not to be seen barely. Outright agreeability to class may give wrong picture of uncertainty. Moreover, improvement for advantages and weaknesses on specific idea need to be completed. Utilization of predefined possibility interim for uncertainty lessening ought to be performed in consideration. The uncertainty decrease is not simply minor satisfaction of decreased possibility. All the advantages and cons ought to be contemplated in the improvement exertion. Decreasing possibility that will expect uncertainty diminishing is not considered, as quality included is not seen as the advantage. The substantial parameter (for instance expected NPV and expense) that will show more picture advantage and hindrance should likewise be considered. Utilization of expected NPV ought to be went with appraisal on how the E [NPV} could shift from expected worth, not just extent of variety (as estimate class address). Knowledge and information assessed, different value can be assigned. It is clear from this example that different knowledge may result in different number of facility cost. If probability approach is seen in restriction, the number derived from poor knowledge is used and the resulting risk and uncertainty analysis is not representing uncertainty involved. Classic adage saying “garbage in, garbage out” is seen in this case (Potlog, 2003). Probability distribution and Probability assignment: Savvides (1994) contended that by setting the recurrence translated probability distribution, the genuine quality is still in as far as possible. It implies that the circumstance should be rehashed limitless times to get the genuine quality (recurrence probability). It is difficult to get the same circumstance for a special kind of venture. Of course a petroleum venture case is constantly special and there is no any likelihood to find the same case for in the extensive number. On the off chance that recurrence probability is connected in the measuring the uncertainty of reservoir stores, the expansive (limitless) populace of comparative supply condition (trap, porosity, seal, and parameter) ought to be assembled so as to characterize genuine importance of likelihood (Hultzsch et al., 2007). This equally applies for others parameter. Comparative information may be utilized however in the event that those information are looked in point of interest, it is not consistent with have the same worth with article mulled over. The term of probability may be helpful if huge populace or large scale manufacturing of an article could be characterized. At the same time, it is hard envision in the petroleum venture case. Hence the frequency probability is neglected to use in appraisal phase of the undertaking. Subjective or knowledge based probability is doled out by the expert taking into account certain knowledge. The information may originate from data, recorded information, or experience. On account of evaluating the probability of seaward office cost underneath a certain measure of cash, an investigator may relegate a probability number or circulation in view of information from chronicled costs alone. He/she can legitimize probability of 0.8 that topside gear wont be above 50 million USD. In conclusion, Risk and uncertainty are regularly utilized conversely as a part of the task. A terminology of risk and uncertainty is regularly given the diverse significance. A few refinements in the middle of risk and uncertainty in the appraisal stage and venture exist. The excellent separation in the middle of risk and uncertainty likely is the Knight characterization (Knight, 2012). In this characterization, risk is depicted as the condition where probability circulation can be allocated objectively while uncertainty is characterized as the condition where the examiner cant give the probabilities or likelihood task ought to be made subjectively. References Alessandria, T. M., Ford, D. N., Lander, D. M., Leggio, K. B. & Taylor, M. (2004). Managing risk and uncertainty in complex capital projects. The Quarterly Review of Economics and Finance, 44, 751-767. Armstrong, M., Galli, A., Bailey, W. & Couët, B. (2004). Incorporating technical uncertainty in real option valuation of oil projects. Journal of Petroleum Science and Engineering, 44, 67-82. Brashear, J., Becker, A. & Faulder, D. (2001). Where have all the profits gone? Journal of Petroleum Technology, 53, 20-23, 70-73. Gatta, S. (1999) Decision tree analysis and risk modeling to appraise investments on major oil field projects. Middle East Oil Show and Conference. Hultzsch, P., Lake, L. & Gilbert, R (2007). Decision and risk analysis through the life of the field. Knight, F. H. (2012). Risk, uncertainty and profit, Courier Dover Publications Perminova, O., Gustafsson, M. & Wikström, K. (2008). Defining uncertainty in projects–a new perspective. International Journal of Project Management, 26, 73-79. Potlog, S. 2003. Uncertainty Quantification and Risk Analysis for Petroleum Exploration and Exploitation Projects Simpson, G. (2002).The potential for state-of-the-art decision and risk analysis to contribute to strategies for portfolio management. SPE Annual Technical Conference and Exhibition Suslick, S. & Schiozer, D. (2004). Risk analysis applied to petroleum exploration and production: an overview. Journal of Petroleum Science and Engineering, 44, 1-9. Suslick, S. B., Schiozer, D. & Rodriguez, M. R. (2008) Uncertainty and Risk Analysis in Petroleum Exploration and Production. Terræ. Read More