The Best Time to Redevelop a Mature Unconventional Oil Field to Maximise the Value

Towards the end of an unconventional field's life, declining production leads to reduced cash flows. However, there remains potential for value creation by drilling into isolated pockets or accessing remote areas of the reservoir from the original wells. Coiled tubing drilling (CTD) technology provides a promising solution for such oil and gas fields. It is more cost-effective and improves recovery compared to traditional drilling, although it carries a different risk and uncertainty profile. At this stage, the operator must make an important decision: continue production, abandon the field, or drill into remaining reserves using CTD. The timing of this decision is crucial, as it can have significant economic implications amid price uncertainty and operational challenges. Early infill drilling can accelerate production and potentially maximise value, especially when commodity prices are favourable. Conversely, delaying may be more advantageous if current prices are unfavourable. However, postponement might render it uneconomical or technically impossible. This paper employs a real options valuation approach, demonstrated using a case study, to explore answers and sensitivities to this complex decision. The decision process is carried out using a flexible Markov chain, assuming that the optimal timing for re-entry or abandonment is affected by the mean-reverting nature of prices and the likelihood of technical success, which is assessed through a quantitative risk analysis. A recursive algorithm is used to identify the option that maximises the project's value compared to alternatives. The results show that the unique features of CTD make it an ideal tool for redeveloping unconventional oil fields, especially during periods of rising prices. The key value drivers include accessing depleted reservoirs, improving recovery, and delivering a well in considerably less time and at a lower cost than traditional drilling rigs. However, the risk of not reaching the target due to wellbore collapse is an inherent threat associated with this technology. The example demonstrates that conducting infill drilling into remaining reserves before the field becomes heavily depleted can provide maximum value, particularly when capitalising on favourable commodity prices. Within the optimal timing, the field's value with an infill option surpasses that without one. The optimal redevelopment timing was identified using a decision analysis technique to enhance decision quality. The proposed model considers technical and economic factors, delivering results swiftly. It also includes a sensitivity analysis to evaluate the impact of key variables.