Debiasing probabilistic oil production forecasts.
Saved in:
| Title: | Debiasing probabilistic oil production forecasts. |
|---|---|
| Authors: | Nesvold, Erik1 (AUTHOR) erik.nesvold@uis.no, Bratvold, Reidar B.1 (AUTHOR) |
| Source: | Energy. 2022, Vol. 258, pN.PAG-N.PAG. 1p. |
| Subjects: | Oil fields, Valuation of investments, Continental shelf, Cognitive bias, Behavioral economics, Forecasting |
| Abstract: | Exploration and production companies in the hydrocarbon industry have every interest in producing unbiased production forecasts at the time of the investment decision, since it is an intrinsic part of making oil field development profitable. However, recent results show presence of significant biases in the uncertainty models which support these decisions. Some important questions which are addressed in this study are i) whether there are simpler and more robust approaches to forecasting than what is the practice in this industry today, ii) whether forecasts can be calibrated for bias, and iii) what the consequences are for valuation of investments in new oil fields. In this study, 71 oil fields on the Norwegian continental shelf with production start between 1995 and 2020 are analyzed. Three robust bias reduction methods are proposed: a pure reference class forecast and two calibration models for the field operators' own forecasts. These show that expected production early in the field lifetime must be shifted down and that the uncertainty range must be expanded. The results are also consistent across field sizes and over time. The findings in this study demonstrate the need to draw on results in behavioral economics to improve uncertainty quantification - reference class forecasting is an inexpensive and powerful way to avoid cognitive biases. An important conclusion is also that the discounted revenue stream from new oil fields is far more uncertain and has a lower expected value than companies lay to ground. • Optimism bias and overprecision bias are strongly present in production forecasts. • The expectation of the discounted income stream from oil fields is lower than companies assume. • Reference class forecasts based on empirical data outperform operator forecasts. • Simple, inexpensive and robust forecast calibration methods are proposed. • Calibration performance is robust across field sizes and startup year. [ABSTRACT FROM AUTHOR] |
| Copyright of Energy is the property of Pergamon Press - An Imprint of Elsevier Science and its content may not be copied or emailed to multiple sites without the copyright holder's express written permission. Additionally, content may not be used with any artificial intelligence tools or machine learning technologies. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.) | |
| Database: | Engineering Source |
| FullText | Text: Availability: 0 |
|---|---|
| Header | DbId: egs DbLabel: Engineering Source An: 159329774 AccessLevel: 6 PubType: Academic Journal PubTypeId: academicJournal PreciseRelevancyScore: 0 |
| IllustrationInfo | |
| Items | – Name: Title Label: Title Group: Ti Data: Debiasing probabilistic oil production forecasts. – Name: Author Label: Authors Group: Au Data: <searchLink fieldCode="AR" term="%22Nesvold%2C+Erik%22">Nesvold, Erik</searchLink><relatesTo>1</relatesTo> (AUTHOR)<i> erik.nesvold@uis.no</i><br /><searchLink fieldCode="AR" term="%22Bratvold%2C+Reidar+B%2E%22">Bratvold, Reidar B.</searchLink><relatesTo>1</relatesTo> (AUTHOR) – Name: TitleSource Label: Source Group: Src Data: <searchLink fieldCode="JN" term="%22Energy%22">Energy</searchLink>. 2022, Vol. 258, pN.PAG-N.PAG. 1p. – Name: Subject Label: Subjects Group: Su Data: <searchLink fieldCode="DE" term="%22Oil+fields%22">Oil fields</searchLink><br /><searchLink fieldCode="DE" term="%22Valuation+of+investments%22">Valuation of investments</searchLink><br /><searchLink fieldCode="DE" term="%22Continental+shelf%22">Continental shelf</searchLink><br /><searchLink fieldCode="DE" term="%22Cognitive+bias%22">Cognitive bias</searchLink><br /><searchLink fieldCode="DE" term="%22Behavioral+economics%22">Behavioral economics</searchLink><br /><searchLink fieldCode="DE" term="%22Forecasting%22">Forecasting</searchLink> – Name: Abstract Label: Abstract Group: Ab Data: Exploration and production companies in the hydrocarbon industry have every interest in producing unbiased production forecasts at the time of the investment decision, since it is an intrinsic part of making oil field development profitable. However, recent results show presence of significant biases in the uncertainty models which support these decisions. Some important questions which are addressed in this study are i) whether there are simpler and more robust approaches to forecasting than what is the practice in this industry today, ii) whether forecasts can be calibrated for bias, and iii) what the consequences are for valuation of investments in new oil fields. In this study, 71 oil fields on the Norwegian continental shelf with production start between 1995 and 2020 are analyzed. Three robust bias reduction methods are proposed: a pure reference class forecast and two calibration models for the field operators' own forecasts. These show that expected production early in the field lifetime must be shifted down and that the uncertainty range must be expanded. The results are also consistent across field sizes and over time. The findings in this study demonstrate the need to draw on results in behavioral economics to improve uncertainty quantification - reference class forecasting is an inexpensive and powerful way to avoid cognitive biases. An important conclusion is also that the discounted revenue stream from new oil fields is far more uncertain and has a lower expected value than companies lay to ground. • Optimism bias and overprecision bias are strongly present in production forecasts. • The expectation of the discounted income stream from oil fields is lower than companies assume. • Reference class forecasts based on empirical data outperform operator forecasts. • Simple, inexpensive and robust forecast calibration methods are proposed. • Calibration performance is robust across field sizes and startup year. [ABSTRACT FROM AUTHOR] – Name: AbstractSuppliedCopyright Label: Group: Ab Data: <i>Copyright of Energy is the property of Pergamon Press - An Imprint of Elsevier Science and its content may not be copied or emailed to multiple sites without the copyright holder's express written permission. Additionally, content may not be used with any artificial intelligence tools or machine learning technologies. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract.</i> (Copyright applies to all Abstracts.) |
| PLink | https://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=egs&AN=159329774 |
| RecordInfo | BibRecord: BibEntity: Identifiers: – Type: doi Value: 10.1016/j.energy.2022.124744 Languages: – Code: eng Text: English PhysicalDescription: Pagination: PageCount: 1 StartPage: N.PAG Subjects: – SubjectFull: Oil fields Type: general – SubjectFull: Valuation of investments Type: general – SubjectFull: Continental shelf Type: general – SubjectFull: Cognitive bias Type: general – SubjectFull: Behavioral economics Type: general – SubjectFull: Forecasting Type: general Titles: – TitleFull: Debiasing probabilistic oil production forecasts. Type: main BibRelationships: HasContributorRelationships: – PersonEntity: Name: NameFull: Nesvold, Erik – PersonEntity: Name: NameFull: Bratvold, Reidar B. IsPartOfRelationships: – BibEntity: Dates: – D: 20 M: 10 Text: 2022 Type: published Y: 2022 Identifiers: – Type: issn-print Value: 03605442 Numbering: – Type: volume Value: 258 Titles: – TitleFull: Energy Type: main |
| ResultId | 1 |
