Predicting Plateau Period and Decline Rate Chris Smith, BHP Billiton

1. Predicting Plateau Period and Decline RateChris Smith, BHP Billiton PRECISE PRODUCTION FORECASTING FOR IMPROVED PORTFOLIO MANAGEMENT IQPC, London 28 April 2005

2. Topics Addressed in this Presentation • Identifying opportunities for plateau extension • Establishing true production potential in the monitoring process • Identifying remaining reserves and uncertainties in predicting performance • Capturing the possible distribution of remaining reserves • Benefits and pitfalls of decline trend analysis

3. The Challenge for Producing Assets • To sustain and improve production efficiency • Continuous asset value creation through application of best practice and team behaviours • Clarity and consistency in production forecasting • Bring clarity to the range and value of opportunities • Promoting opportunities for implementation as quickly as they are matured

4. Production Assurance Process What it should deliver: • Close the gap between current performance and economic limit of an asset; • Identify & challenge limits; • Document and rank opportunities; • Provide assurance that the asset is delivering maximum value. Technical Limit Economic Limit Improved performance Asset Performance Conventional improvement challenge Time

5. Technical Limit Uneconomic Opportunities Maximum Theoretical Economic Capacity Conceptual Opportunities Actual Production System Capacity Capacity Efficiency = Opportunities Maximum Theoretical Economic Capacity Evaluated Opportunities Actual Production System Capacity Planned and unplanned losses Actual Production Actual Production Production Operating Efficiency = Actual Production System Capacity Terminology and Setting the Correct Targets Production Efficiency = Operating Efficiency x Capacity Efficiency Production Assurance Production Loss Reporting is the focus in many assets today.

6. Production Assurance Process Events Establishing true production potential in the monitoring process: • The Process is divided into four levels, each being identified by an event. These are part of a sustained commitment; • The events are constituted as daily interactions, team meetings, workshops or reviews. These are Asset activities brought into a structured process; • The aim of each level of review is to assess and challenge the limits, and to contribute to the asset opportunity portfolio; • The higher level workshops and reviews are more sporadic, and will generally be linked to the budget cycle, major investment decisions or asset life-cycle milestones.

7. Levels of Interaction for each Event • Level 1: external Peer Review/workshop events at critical times in the production lifecycle; • Level 2:annual asset-driven/Peer-attended workshop to assess and challenge the ‘state of the asset’. Timed to coincide with the Business Planning Cycle; • Level 3:monthly or quarterly ‘barrel-chasing’ meetings attended by small, technically-focused groups from within the asset; • Level 4:daily optimizations within the asset team, with a particular focus on operational efficiencies. At all levels, promoting the positive behaviours of trust, team working, communication, knowledge sharing, constructive challenge and ‘can do’ attitude are essential to success.

8. Production Forecast Builds Forecast Production Build Production Targets and Options Underlying Production Production Efficiency Operating Efficiency Losses Decline Uncertainty Production Rate Mbpd Actual Gathering Reservoir Facilities Export Wells Choke Model E&A Opportunity Options Facilities Upgrades Performance Challenge No Discretionary OPEX Decline Projects Targets Previous Performance Dev Wells Well Work Commercial Risked Opportunities

9. Choke Model • The Choke Model concept is an industry-wide best practice. • The choke model can also provide a structure to identify technical limits and enhancement opportunities that, if implemented, could drive current performance towards the economic limit and improve ‘Capacity Efficiency’. • The approach breaks the hydrocarbon supply system into key elements, and allows the team to focus on the limits and performance within each component. Technical Limit Max Theoretical Economic Capacity Production Improvements Production System Capacity Wells Export Uneconomic Opportunities with current technology Facilities Reservoir Gathering Economic Opportunities Current System Capacity Production Sub Systems ‘Chokes’

10. Opportunities Database Ideas generated in the assurance events are captured in an Opportunities database to: • Capture and record opportunities • Prioritise opportunities • Allocate resources to progress potentially material opportunities • Select material opportunities for scenario evaluation • Highlight technology requirements to unlock value • Monitor progress and delivery performance • Report results • Capture lessons learned

11. Production Assurance and Production Forecasting Corporate Opportunities Production Assurance Forecast and Reserves Assurance 1 LTF 2 MTF ProjectImplementation Assurance Process Risked Opportunities Production Forecasts Business Plans 3 STF 4 90d Opportunities not included in base plan Events Production Performance Opportunity Database

12. Level 1 Events • Level 1 is the highest level review and is analogous to a major review of the total asset business case: • They take place at critical junctures in the asset lifecycle • They are initiated at the request of senior Asset or Functional management. • Because each phase of the asset life cycle is different in its activity set, pace, and priorities, the reviews emphasise different focus and deliverables at each stage. • Team behaviours and organisational structure are as important as technical scrutiny. Initial decline Abandonment Phases > Start up Plateau * Profile Increased plateau rates Extended plateau Slower decline

13. Technical Production Profiles Segmentation of Forecast or Build of Scenario • Profile build from underlying production through opportunities provides clarity: – Cases must be internally consistent Production Rate Opportunity Suite A Opportunity Suite B Underlying Production Time

14. Segment Uncertainty • Each segment has uncertainty: – Uncertainty generally increases with time and asset immaturity • Sensitivities investigated as part of project evaluation provide (part of the) range of potential outcomes Production Rate Opportunity Suite A Opportunity Suite B Underlying Production Time

15. Segment Uncertainty: Range around best estimate….. • Uncertainty ‘cloud’ has a controllable and an uncontrollable elemente.g. Controllable: number of wells drilled Uncontrollable: reservoir outcome of wells drilled Production Rate Part of the range of uncertainty is controllable, and part is outside our control Opportunity Suite A Opportunity Suite B Underlying Production Time

16. Griffin Development – Demonstrating the Need to Keep Different Model Options Open Production Licence WA-10-L BHP Billiton (Operator) 45% Mobil 35% INPEX 20% Subsea Development: Water depth 120-140m 11 Production wells Oil, water, gas processing Gas export into DBNGP Has produced over 140 MMstb

17. Griffin Zeepaard:Conceptual Dynamic Model Prior to Griffin-8 Swept Oil Current Oil Column Original Water Bearing Sands Original OWC 460 m 1200 m • Simple ‘Tank’ model • Dominant bottom water drive, good vertical sweep • Single OWC with local coning effects

18. Griffin Zeepaard:Revised Dynamic Model Post Griffin-8 Swept Oil Current Oil Column Original Water Bearing Sands Original OWC 460 m 1200 m • More complex vertical / areal sweep • Water flood fronts move along the top of claystones • Thin claystones can act as a significant local vertical barriers

19. Oil Rim Project - trend analysis Total Liquid Rate and Water Cut vs Cumulative Liquids 1600 1 0.9 1400 0.8 1200 0.7 1000 Total Liquid Rate (stb/d) 0.6 Total Liquids Rate Trend Total Liquid Rate (stb/d) Water Cut (stbd/stbd) 800 0.5 Water Cut (stbd/stbd) 0.4 600 Recompletion 0.3 400 0.2 200 0.1 0 0 0 2 4 6 8 10 Cumulative Liquids (MMb)

20. Oil Rim Project - Water oil ratio plots Water Oil Ratio vs Cumulative Oil 100 10 Water Oil Ratio (stbd/stbd) 1 Water Oil Ratio Trend Water Oil Ratio (stbd/stbd) Recompletion 0.1 0.01 0 2 4 6 8 Cumulative Oil (MMstb)

21. Decline plots – extrapolation methods

22. Net oil plot – product of liquid and WOR trends

23. Key Messages • To accurately forecast the end of plateau production, all opportunities for production enhancement must be identified and assessed, • A continuous structured process such as that described is highly recommended for capturing ideas and to promote and mature those that can add value, • Management must commit time and actively encourage the team to think “outside the box” to identify all possible value adding opportunities, • Due account should be taken of established production trends when deriving forecasts of future performance potential, • Consider using a combination of the most appropriate trends to assist in deriving well rate declines. This will help in estimating uncertainty ranges.