Assumptions

Assumptions: The Foundation Stones of Oil & Gas Decisions

In the world of oil and gas, where massive capital investments and complex projects are the norm, assumptions are not just a casual thought exercise. They are critical foundation stones upon which crucial decisions are made. From exploration to production, from planning to execution, assumptions permeate every stage of the oil and gas lifecycle.

What are Assumptions?

In simple terms, assumptions are statements taken for granted or considered to be true, even without concrete evidence. They are essential for bridging gaps in information, making predictions about the future, and guiding decision-making in the face of uncertainty.

Assumptions in Oil & Gas:

The oil and gas industry relies heavily on assumptions due to the inherent uncertainty associated with:

• Geologic formations: Predicting the presence, size, and quality of oil and gas reservoirs relies on interpreting geological data and making assumptions about the formation's characteristics.
• Economic conditions: Decisions on project viability depend on assumptions about future oil and gas prices, production costs, and regulatory environments.
• Technological advancements: Developing new extraction technologies and predicting their success relies on assumptions about their effectiveness and feasibility.
• Environmental impact: Assessing the environmental impact of oil and gas operations often involves assumptions about the potential risks and mitigation strategies.

Types of Assumptions:

Assumptions in oil and gas can be categorized into different types, including:

• Technical assumptions: Relate to the physical properties of the reservoir, production rates, and equipment performance.
• Economic assumptions: Focus on market conditions, project costs, and financial returns.
• Regulatory assumptions: Consider future changes in laws and regulations governing the industry.
• Environmental assumptions: Relate to the potential impact of operations on the environment.

Why are Assumptions Important?

• Facilitate Decision Making: Assumptions allow stakeholders to make decisions even when complete information is unavailable.
• Define Project Scope: Assumptions help define project scope, identify potential risks, and allocate resources effectively.
• Enable Project Planning: They enable planning for future scenarios and developing contingency plans in case of unexpected events.

The Risks of Unchecked Assumptions:

While assumptions are necessary, it's crucial to remember that they are not facts. Unchecked assumptions can lead to:

• Misguided decisions: Assumptions that prove inaccurate can result in costly mistakes and project delays.
• Increased risk: Unforeseen events can arise when crucial assumptions are not properly considered.
• Lost opportunities: Incorrect assumptions may lead to missing valuable opportunities due to an incomplete understanding of the situation.

Managing Assumptions:

To mitigate the risks associated with assumptions, it's essential to:

• Clearly document assumptions: All assumptions should be documented with supporting justifications.
• Regularly review and update assumptions: As new information becomes available, assumptions should be revised to reflect changing circumstances.
• Conduct sensitivity analysis: Assessing the impact of potential changes in assumptions helps identify critical areas and potential risks.
• Develop contingency plans: Planning for different scenarios based on alternative assumptions prepares for unexpected events.

Conclusion:

Assumptions are an integral part of the oil and gas industry. By understanding the role of assumptions, recognizing their potential risks, and implementing effective management strategies, organizations can navigate the inherent uncertainties of the industry and make informed decisions that contribute to project success.