Oil and gas case study

Cognitus' value cycle approach has been applied with a number of oil and gas companies, including BP Exploration and Mobil, to explore the potential of operational strategies and capital project opportunities to maximise the value of oil field assets over the field life cycle. Each case has different specific strategic objectives. The general approach, however, will be described by reference to a major North Sea project - BP’s Forties field.

Client issues

BP’s massive North Sea Forties field was established in the mid 1970’s and by the mid 1990’s was approaching the end of its life. The late-life focus was to develop capital and operational strategies to maximise remaining oil extraction potential, consistent with a wide range of interdependent physical constraints and commercial objectives.

BP wished to shift the planning emphasis away from medium-term cash flow objectives to optimise the economic value of the field over its remaining life – perhaps 10 to 15 years. A wide range of radical field asset reconstruction options needed to be considered, including some that challenged established operating practices and management positions.

To address this challenge, Forties appointed a Late Life Strategy (LLS) team consisting of senior managers drawn from each of the major asset groups across the field, including the reservoir, the five production platforms and the commercial teams. The LLS team was charged with developing an integrated long-term plan to maximise Forties’ economic value. A particular problem – and opportunity – was that every asset group had their own particular perspectives on the future of the field, supported by detailed operational and financial models.

The value cycle approach

BP itself uses the term ‘holistic modelling’ to describe the value cycle approach, indicating that models simulate oilfields at a high level, capturing physical interdependencies between key oilfield assets - the reservoir, production platform(s), export pipelines, etc, over time. The models also simulate future revenue generation and operational and capital costs, enabling management to assess economic value and risk trade-offs between different asset management strategies (capex and opex), over time.

The unique ability of value cycle simulations to describe financial value implications from a holistic, physical perspective provides a significant advantage over more abstract tools such as econometric models and DCF spreadsheets - and also provides a clear context and framework for the application of other detail tools in common use by oilfield management groups (e.g. reservoir simulators, commercial models).

Holistic value cycle simulations are developed interactively by cross-disciplinary oilfield management teams, in a structured process that captures their knowledge at an appropriate level of detail for strategy development. This facilitated process, using an easily understood visual modelling interface, ensures that the models never become “black boxes” and enables wide communication of inputs and outputs.

Client outcomes

The value cycle simulation played a significant role in the strategic re-evaluation of Forties in the late 1990’s. Retrospectively, in 2002, BP estimated that the Late Life Strategy excercise had added at least £500 million of value to the field. Forties was subsequently sold on by BP to another operator in 2003 for nearly £1 billion.

BP is still using similar value cycle tools on other fields and has established a significant team in London and Houston to support the approach.