Production forecasting purpose

Production Forecasting is an important input into the decision-making process and investment scenario evaluation, which are crucial for an upstream organization. The production forecast flows through the central nervous system of an organization and helps to identify opportunities and decide on the best way forward.

There are many reasons for making production forecasts, and to make it even more complex, the different purposes quite often have several aspects. Often the overall integrating factor is that forecasts are made to see how the maximum value of an asset can be achieved. 

Production forcasting approach

The approach to product forecasting is likely to differ depending on:

• The specific objectives of that particular forecast
• The customer of that forecast and their particular needs
• The phase/stage of a field's life

All of these categories were widely discussed in the SPE Production Forecasting Global Integrated Workshop Series (LinkedIn).

Production forecasting objective

It is important to have the objective of the production forecast in the decision-making process in mind while forecasting. It is important to go through a process to identify and address the requirements in generating a production forecast. This could be a three step process:

• Identify what decisions will be made using the information from the forecast
• Identify what uncertainties matter for these decisions
• Design of the forecast

It should be noted that there are differences between tactical or operational objectives vs. strategic objectives. 

Table 1 – Differences between tactical and strategic objectives
Tactical (Operational)	Strategic
Short-term feedback loop	Long time before you find out the outcome
Low upfront investment	High upfront commitment
Uncertainties are well understood	High degree of “unknown” unknowns
Subset of the organization involved	Typically requires buy-in/input across the organization
Very granular	Less detail required

Some examples of tactical objectives could be multiple detailed short-term forecasts for testing models, deciding on facility changes/optimizations, assessing whether contract obligations or company targets will be met, forecasting hydrocarbon sales, etc.

Errors typically made are lack of integration between subsurface and facilities leading to misinterpretation of information, not updating a forecast regularly enough to account for ongoing changes, not taking account of all activities, and their interactions, in field uptime calculations and underestimating activity durations.

Many of the forecasts made for strategic objectives will be life of field forecasts for objectives such as green field development planning, major brown field redevelopment, and company portfolio analysis for reviewing asset acquisition or disposal decisions.

Errors typically made are insufficient appraisal to optimize development planning, not considering uncertainties effectively enough in alternative concepts testing or only considering them when it is too late to change the concept and not considering “unknown unknowns” in the contingency planning and risking.

Production forecasting customer

Table 2 – Production forecasting customer needs
Customer	Main Decisions	Differentiating Factors
Subsurface Manager/Reserves Auditor	Defining recovery mechanism (natural/applied), technical limit recovery, optimal development plan Assigning Reserves and Resources to an asset	Compliance with Reserve & Resource standards (PRMS, SEC, COGEH) Focus on life of field forecasts, understanding full potential of a field, remaining uncertainty
Asset/Operations Manager	Setting short term production targets & maximizing production safely Deciding on short, medium and long term maintenance and development activities When to abandon equipment and the field	Focus on short to medium term forecasting, operational activities and associated asset reliability and availability Activity scheduling focal point Ultimate decision maker on production vs. EUR vs. safety vs. integrity
Company portfolio/strategy manager	Capital allocation across a company’s assets, which activities to fund Portfolio ranking, what does each project bring to the company, when to buy or sell	Needs consistent forecasting approach across assets in order to compare effectively Emphasis on economics. Focus on full range of uncertainty in deciding to buy, sell, swap or maintain equity
Development team (facilities, pipeline, drilling)	Decide between different development concepts Decide on initial capacity of facilities and, how much flexibility to build in, when to debottleneck/replace facilities Decide how many wells are required and water/gas injection, artificial lift	All forecast details important, not just revenue generating streams (e.g. gas/water production, pressures, H2S) Need full range of uncertainty Needs full integration with subsurface team in order to optimize development.
Commercial (joint venture, gas sales, third-party processing)	Negotiate exact terms of contracts and agreements (eg. Sales, joint venture, production handling) in terms of prices, fees, timing, length of term, ways to sell hydrocarbons, quantities of HC	Normally contracts set up early on (pre start up), large remaining uncertainty If commercial team understand uncertainty they can limit liability and build flexibility into contracts to add value
Investors/Financial Institutions	Decision to  invest money/lend money to an owner of an asset based on future production forecast and anticipated monetary return.	Often focused on Reserves rather than Resources, sometimes only Proved (low/P90 case). Often customer has limited technical understanding Will rely on historical performance and rules of thumb
Government (tax revenues, import, elections, HSE)	Decision to approve the development What revenue can be expected from the HC industry What long term taxes/incentives/environmental standards to put in place to maximize recovery, government return, ensure safety, etc.	Needs consistent forecasting approach across industry in order to understand big picture Unique perspective of historical performance vs actual (the least human bias) across the industry for a particular country

Field Life Phase

Not only do the production forecasts depend on objectives and customers, but the basic purposes and their connections to objectives and customers often depend on the phase of a field’s life. Therefore, forecasting is an ongoing process rather than a one-time event.

At different phases of a field’s life the amount and quality of available data varies, and the level of reliability of this data has to be considered. It may be important to adjust the forecasting approach to the quantity and quality of data available, rather than trying to obtain a level of detail that is beyond that which can be supported by the database. The following provides the basic ideas of production forecasting purposes at different phases of a project’s life and attempts to provide some hints on limitations and errors that are often made at each stage.  

It is important to view the purposes and according constraints depending on the following principle phases: 

Production Forecasting at an Exploration Stage

Purpose

To find out which concept can be selected for a new discovery to make it a profitable development and which concepts to discard.

Limitations

Very early and only limited information available.

Errors

Looking at too narrow a set of development options, wrong concepts, too low capital costs and expenses. Not reviewing analogues or using inappropriate analogues. Over reliance on a limited dataset to determine the range of potential forecasts.

Production Forecasting During Appraisal Phase

Purpose

Better definition of potential resources; firming up of development concepts and their feasibility; planning of timing and logistics; getting approvals from authorities, JV partners and investors.

Limitations

Still very limited data available, no production data.

Production Forecasting During Early Field Life

Purpose

To further confirm and establish resources - repetitive short-term forecasts in detail to assess confirm/adjust geo model; to assess/confirm near-term production and ramp up; to adjust development concepts, facilities and recovery methods; to get production allowances from governmental bodies.

Limitations

Still limited production data available, short history to simulate longer and reliable predictions. Stakeholders likely to be looking for reliable early performance indications before you have enough data to give it to them. Likely to see some surprises which will take time to understand.

Errors

Underestimating timing and cost, ramp up of production, total resources. Over confidence and over reliance on early data could mean reaching the wrong conclusions.

Production Forecasting During Established Field Life

Purpose

To re-asses resource potential; to re-evaluate geo-model definition of blocks/production units; to ascertain whether previous and current forecasts reflect communication within the field; to optimize recovery methods and facilities for maximization of economic recoveries; to evaluate possibilities with changes in recovery mechanisms, addition of facilities (e.g., compression, WAG, CO₂ injection etc.) and steps to improve flow (e.g., infill drilling, fracturing, etc.). To estimate when a field may go off plateau production.

Limitations

Interpretation of production data available, correct predictions, cost estimates. Without water breakthrough there is still significant uncertainty. Some fields may not have reliable well test data or pressure surveillance.

Errors

Underestimating timing and cost of changes in production concept, total resources, viewing and analyzing options too narrow or too late. Incorrectly predicting water breakthrough, GOR changes and well declines.

Production Forecasting During Mature/Late Field Life

Purpose

To determine whether geo model is still correct and impact on remaining resources; to define economic cut-off and likely cessation of production.To re-evaluate geo model definition of blocks/production units; to evaluate whether previous and current forecasts reflect communication within the field; to plan for late life measures to optimize recoveries; to plan potential gas blow-down of oil fields; to evaluate the potential to inject inert gasses (CO₂, N₂, ..) in gas or gas condensate fields; to plan early for shut down and removal of wells, facilities, etc.; to prepare for authority and investor approvals for late-life measures and shut-downs; to potentially plan for necessary approval from environmental bodies.

Limitations

Interpretation of production data available, correct predictions. Often too much data to handle and interpret. An expectation that you will now understand the field inside out but there will remain residual uncertainty.

Errors

Underestimating timing and cost of changes in production regime, underestimating the impact of water and gas production on the oil forecast and total resources, viewing and analyzing options too late. Underestimating the integrity work required in later life and therefore overestimating up time and economic value.

It is important at all times to assess the field- and company-specific parameters that affect the definition of the purpose of the production forecast. Forecasts also have to take the following into account:

• the individual type of HC that is produced (heavy oil/black oil/light oil/gas condensate/gas)
• the individual development concept that is selected
• on-shore vs of-shore issues (including differences in timing, cost, etc)
• are primary/secondary/tertiary mechanisms planned
• the forecast has to be economically feasible/optimized
• the various economic and other assumptions of all (operating and non-operating) companies involved in joint ventures

The approach for each production forcast will vary depending on these basic parameters. It will always be important to ensure that the purpose is defined correctly and that the definition, as well as the limitations and uncertainties, are clearly communicated to the relevant customers.

Noteworthy books

Society of Petroleum Engineers (U.S.). 2011. Production forecasting. Richardson, Tex: Society of Petroleum Engineers. WorldCat or SPE Bookstore

External links

Production forecasts and reserves estimates in unconventional resources. Society of Petroleum Engineers. http://www.spe.org/training/courses/FPE.php

Production Forecasts and Reserves Estimates in Unconventional Resources. Society of Petroleum Engineers. http://www.spe.org/training/courses/FPE1.php

See also

Production forecasting glossary

Aggregation of forecasts

Challenging the current barriers to forecast improvement

Commercial and economic assumptions in production forecasting

Controllable verses non controllable forecast factors

Discounting and risking in production forecasting

Documentation and reporting in production forecasting

Empirical methods in production forecasting

Establishing input for production forecasting

Integrated asset modelling in production forecasting

Long term verses short term production forecast

Look backs and forecast verification

Material balance models in production forecasting

Probabilistic verses deterministic in production forecasting

Production forecasting activity scheduling

Production forecasting analog methods

Production forecasting building blocks

Production forecasting decline curve analysis

Production forecasting expectations

Production forecasting flowchart

Production forecasting frequently asked questions and examples

Production forecasting in the financial markets

Production forecasting principles and definition

Production forecasting purpose

Production forecasting system constraints

Quality assurance in forecast

Reservoir simulation models in production forecasting

Types of decline analysis in production forecasting

Uncertainty analysis in creating production forecast

Uncertainty range in production forecasting

Using multiple methodologies in production forecasting