Improving the oil production forecast

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Improving the oil production forecast in Alaska. Bill Barron, DNR and Bruce Tangeman, DOR, Alaska OIl

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Improving the oil production forecast

  1. 1. State of AlaskaDepartment of Revenue December 6, 2012 1
  2. 2. What is the problem?In developing the forecast DOR Forecaststhe Department & its 1,200consultant rely on inputfrom industry to forecast 1,100production. 1,000While this method works 900 BOPDrelatively well in the nearterm it has consistently 800been optimistic in the 700long-term. 600The average forecast errorfor six to ten years in the 500 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012future has been 40%-60%. Actual FALL 01 FALL 03 FALL 05 FALL 06 2
  3. 3. The Department’s ApproachThe Production Forecast has been based on threetranches of future production: ANS Production DeclineCurrently Producing: 1000000 Oil from wells that are in production and following typical reservoir engineering optimization without major investment.Under Development (UD): •Oil from projects that will add incremental oil to existing fields or will bring new fields into production. •Project must have senior management approval and be allocated funds in the companies budget.Under Evaluation (UE): •Oil from projects that are likely to occur in the future, but have not meet the requirements of the previous Bounds of reasonable expectations category. for future production were developed •Requires that oil reserves are known and recovery is technically possible based on historical production with current technology. Under Development + Under Evaluation = “New Oil” 100000 2020 2021 2022 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019***These definitions are not equivalent to those used by the Society of Petroleum Engineers (SPE) orSecurities & Exchange Commission (SEC) and should not be used as such*** 3
  4. 4. Accounting for the Risks Appropriately Currently Producing oil was not risked because it is grounded in engineering principles. The New Oil portion of the Forecast was adjusted using a scenario modeling method.  Categories  Budgetary  Technical  Confidence decreasing with time  Higher confidence with near term, 1-3 years, than in out-year plans.  Reasonable to expect greater uncertainty in both under- development and under-evaluation tranches.  Recognizing the impact of the known-knowns, known-unknowns and unknown-unknowns. 4
  5. 5. Testing the Traditional Forecast Forecasted ANS Production1000000 100000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 5
  6. 6. Applying the Refined Methodology ANS Production Forecast1000000 100000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 6
  7. 7. Summary Prior forecasts have over-estimated long-term (6 years out) production by significant margins (40-60%). The refined methodology is based on statistical analysis and tested against past performance.  Reasonable and Prudent The refined methodology does not impact near term revenues. Provides a more prudent and reasonable forecast for the purposes on long-term planning. Alaska still holds substantial discovered and undiscovered resources that may provide additional production in the future.  Example – heavy and shale oil are not included in the forecast. 7
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