EM185178 DOI: 10.
2118/185178-PA Date: 19-January-17 Stage: Page: 1
Handling Risk and Uncertainty in Portfolio
Production Forecasting
David P. B. Allen, Grafton Asset Management
Summary
Stochastic modeling provides a mechanism for incorporating risk
and uncertainty considerations into portfolio production forecasts.
Through this process, insight is gained into the likelihood of pro-
duction targets being missed, met, or exceeded. This insight ena-
bles organizations to better manage operational, positioning, and
strategic planning activities around stakeholders’ production
expectations. Inherent in all capital programs are numerous
uncontrollable, but definable, factors that affect overall corporate
production performance. These factors can be categorized into
four groups: (1) timing uncertainties, (2) performance uncertain-
ties, (3) sequencing uncertainties, and (4) risk. Timing uncertainty
considers spud scheduling, spud-to-first-production cycle timing,
and production-ramp-up cycle timing. Performance uncertainty
considers the historical or modeled distribution of period-specific
production rates within the constituent plays (e.g., What is the
unavoidable range of variability within a play as depicted in a
peak-normalized composite-production plot of wells within the
analog population?). Sequencing uncertainty considers perform-
ance-percentile clustering or sequencing within the program (e.g.,
the number of top-quartile wells that are, by chance, drilled early
in the year vs. later in the year). Finally, risk addresses commer-
cial failure within a program attributed to either geology or execu-
tion, or both. By integrating historical operational data with a
standardized set of play-assessment deliverables, the building
blocks of a stochastic capital-program forecast and analysis are
readily available. Ultimately, the use of stochastic modeling
in portfolio production forecasting provides an organization’s
decision makers with the information necessary to examine
investment and strategic decisions in the context of corporate-
risk tolerance.
Introduction
A portfolio production forecast is foundational to the strategic and
operational planning activities of a company. (Portfolio refers to a
collection of individual investment opportunities such as a 12-
month drilling capital program, a 5-year prospect inventory, or
the locations included in an undeveloped upside wedge of an ac-
quisition evaluation.) The portfolio production forecast is a pri-
mary determinant of a cash-flow forecast, which is arguably the
most-important consideration in strategic planning. An organiza-
tion’s ability to deliver its forecast production and cash flow, and
therefore, manage its financial obligations and capital program,
however, is subject to financial, execution, and production risks
and uncertainties.
To meet stakeholder (individuals or organizations that possess
a vested interest in the outcome of the corporation’s activities,
including an organization’s executive, management, board of
directors, investors, and bankers) expectations, resource compa-
nies seek to manage risk and uncertainty through either mitigation
of contingency measures (Smalley et al. 2008). Examples include
hedging commodity-price and currency-exchange rates to miti-
gate financial uncertainty, executing long-term contracts between
midstreamers and resource companies to mitigate processing and
Copyright V
C 2017 Society of Petroleum Engineers
This paper (SPE 185178) was revised for publication from paper URTEC 2436590,
presented at the Unconventional Resources Technology Conference, San Antonio, Texas,
USA, 1–3 August 2016. Original manuscript received for review 27 August 2016. Paper peer
approved 24 November 2016.
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transportation risk, and through portfolio optimization (Allan
2011) to configure optimal capital-investment programs around
key performance metrics. Other examples include dedicating
large capital programs to select service providers to obtain pre-
ferred rates, guaranteed access to services, and improved opera-
tional performance, thereby mitigating execution risk associated
with delivering operational results on time and on budget. The
impact of production risk and uncertainty on an organization’s
strategic-planning activities, however, is often poorly communi-
cated, generally less understood, and, as a result, commonly
receives insufficient attention at the executive level.
To improve awareness and communication about production
risk and uncertainty, this paper discusses the building blocks of a
probability-based portfolio production forecast. The methodology
incorporates the prize (or financial gain attained through a suc-
cessful investment decision), risk, and uncertainty attributes of
the portfolio’s plays and subplays into a forecast model. The
described approach enables an organization to better manage
long-range operational, positioning, and strategic-planning activ-
ities around stakeholder’s production expectations after targets
have been set.
Background
Corporate Priorities and Behaviors. Despite recognizing the
importance of delivering on its production guidance to its invest-
ors, production-risk management within many organizations is
observed by the author to receive less attention than commodity-
price risk management. This is perhaps because, with cash flow
justifiably the primary focus of most oil and gas companies, a
fixed percentage swing in commodity price stands to affect reve-
nue more than the same percentage swing in the growth wedge of
production (production that is forecast to be added through addi-
tional capital spending). For example, within an annual reporting
period, a 20% swing in commodity price stands to affect revenue
on the company’s entire unhedged production volume, whereas
the same 20% swing in production associated with the company’s
capital program stands to only affect revenue associated with a
subset of the company’s total production base.
The materiality of this production swing on cash flow
increases significantly, however, when the time window under
consideration expands from the 1-year budget cycle to the 5-year
strategic-planning cycle. In this situation, the uncertainty associ-
ated with 5 years of production derived from successive capital
programs, on top of a declining base-production wedge, repre-
sents a significantly larger proportion of the company’s total pro-
duction. Here, depending on corporate production-decline rates
and capital-program composition, the amount of cash flow at risk
associated with a fixed-percentage swing in production will
approach the cash flow at risk associated with the same percent-
age swing in commodity pricing.
The Prospect Inventory: The Building Blocks of a Portfolio.
Credible play and prospect characterizations are the key building
blocks of a meaningful portfolio production forecast. As such, it
is important to recognize three common challenges associated
with constructing a meaningful portfolio production forecast.
These challenges include (1) that not all locations within a play
are created equal, (2) a static inventory generally degrades over
time, and (3) bias exists between evaluators in how plays are
characterized.
1
 EM185178 DOI: 10.2118/185178-PA Date: 19-January-17
Not All Locations Within a Play Are Created Equal. Rarely,
if ever, are the prize, risk, and uncertainty characteristics of loca-
tions within an inventory the same across an entire geologic play
area. To be useful, therefore, the prospect inventory must possess
an appropriate degree of granularity to enable differentiation of
locations within the play area on the basis of chance-of-success
and productivity variations. An example of how this granularity
can be captured includes binning inventory within a play or sub-
play into ranked locations (e.g., Tier 1, Tier 2, Tier 3) on the basis
of risked half-cycle economic expectations (e.g., internal rate
of return).
The Nature of a Static Portfolio Changes Over Time. As
drilling inventory within an organization is drawn down, its com-
position and character change because of preferentially drawing
on plays and locations that possess the most strategically attrac-
tive attributes at the time. For example, for an extended period of
time, an organization may focus on developing that portion of its
inventory that has the highest chance of success and highest per-
centage of liquids in its product stream. The consequence of this
is that, with time, the composition of the remaining inventory
transforms to being dominated by locations possessing more risk
and a lower percentage of liquids.
Evaluator Inconsistencies Exist Around Play Characteriza-
tions. Managing evaluator bias around how plays are character-
ized within a corporate prospect inventory is a common challenge
within organizations. Rose (2012) discusses types of biases com-
monly encountered in estimating under conditions of uncertainty.
In the author’s experience, management is often observed to apply
“factors” to forecasts provided by its technical staff as a means to
adjust for perceived biases. Organizations are able to reduce bias
by applying broad standards around play-assessment expectations
(e.g., transparency, visibility, deliverables) and methodologies
(e.g., type-curve development, risk quantification). Delfiner
(2008) suggests a mechanism to minimize biasing within organi-
zations that involves calling on a diversity of opinion when char-
acterizing plays.
Probability-Based Reporting. Since the introduction of cost-
effective computing power, probability-based (i.e., stochastic)
modeling has supported analysis, planning, and reporting in a
number of areas that routinely deal with risk and uncertainty.
Examples of these areas include the insurance business (Christiansen
2013), weather forecasting (Myers and Krzysztofowicz 2016), the
stock market (Konte 2013), and across multiple applications in the
oil and gas business that include portfolio optimization (Allan
2011), prospect analysis (Harding 2008), and reservoir simulation
(Hu and Jenni 2005), to name a few. In all cases, Monte Carlo sim-
ulation is used to drive stochastic models that seek insight into
potential outcomes where single deterministic outcomes are not
particularly meaningful or useful.
Inherent in capital programs are numerous uncontrollable, but
definable, factors that affect overall corporate production per-
formance. In the same way that meteorologists are able to define,
map, and model individual parameters that contribute to influenc-
ing a 5-day weather forecast, geologists and engineers are able to
define, map, and model parameters that contribute to influencing
an extended corporate production forecast.
By way of analogy, through stochastic modeling, meteorolo-
gists are able to provide probability-based weather forecasts that
honor the variability and uncertainty characteristics of mapped
and modeled input factors such as temperature, pressure, and
atmospheric moisture differences between areas. When decision
makers (e.g., the public) are in possession of this probabilistic in-
formation (e.g., next Friday has a 10% probability of freezing
rain), appropriate actions can be taken (e.g., take along rain gear)
to avoid being caught unprepared for a low probability, but unde-
sirable event. The degree to which this event is deleterious to the
individual generally dictates the degree to which contingency
plans are put in place to deal with such an event, should it materi-
alize. For example, in the event that the individual believes his ex-
posure to the potential bad weather will be limited to the time it
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takes him to sprint from the car to the grocery store, then his per-
ceived need to undertake mitigation steps is low. If, however, it is
revealed that a mountain trek is involved in getting from the car
to the grocery store, and being caught unprepared could result in
death, then considerable mitigation measures need to be under-
taken. Figuratively, a probability-based approach to portfolio pro-
duction forecasting serves to assist an organization’s leadership in
defining not only the probability of “freezing rain” occurring (i.e.,
the probability of the portfolio production forecast underperform-
ing) but also whether the sprint between the car and the corner
store could involve an unexpected trek over a mountain pass (i.e.,
the degree to which the portfolio production forecast could
underperform).
Portfolio Optimization vs. Portfolio Forecasting. Unlike port-
folio optimization, which is used to aid in constructing an optimal
capital program in which investment options are many, a stochas-
tic portfolio forecast is used primarily to understand and manage
the downside of capital programs that have been constructed
around a limited number of portfolio options. Small to intermedi-
ate-sized companies tend to possess less depth and diversity in
their prospect inventories than the majors and supermajors, and
therefore are less likely to incorporate an enterprise-portfolio opti-
mization process into their work flow. A consequence of this is
that few small- and medium-sized companies obtain exposure to
probability-based forecasting and the associated strategic insights
made possible through the process.
Elements of a Probability-Based Forecast
The controlling factors of a probability-based portfolio production
forecast include (1) timing uncertainties, (2) performance uncer-
tainties, (3) sequencing uncertainties, and (4) risk.
Timing Uncertainty. Timing uncertainty refers to the impact
that unplanned events have on the timing at which a well is
brought on production. Factors such as blocked lease access
caused by poor surface conditions and unresolved environmental
or stakeholder issues play a significant role in affecting on-pro-
duction timing. Depending on a company’s relationship with its
contractors, uncontrollable factors such as services availability
can also significantly affect on-production timing. These opera-
tional factors affect both spud timing and spud-to-first-production
cycle timing. Reservoir performance and operational factors com-
bine to affect first-to-peak production cycle timing (e.g., produc-
tion ramp up, well cleanup, facility constraints).
To capture timing uncertainty in a stochastic model, histo-
grams are constructed for each play that describe, by month, the
probability of surface access being denied. This information is
based on operational familiarity and experience with an area with
a review of “on-production date” and “spud date” data for wells
in a given area. Fig. 1 provides an example of a timing-uncer-
tainty variogram for a play in the Western Canada Sedimentary
Basin where operations are restricted by seasonal access. In this
example, there is a 100% probability that spring breakup (a period
when road bans are put in place during the spring months as fro-
zen ground thaws) will preclude surface access during the month
of May. The key implication here is that, in the event that an oper-
ation that was scheduled to start production in April is delayed
because of services availability, there is a 0% probability that it
will be brought on-production in May and only a 40% probability
that it will be brought on-production in June.
In the model, individual capital-program elements are tested
for lease accessibility for the month relating to a scheduled
spud and completion date. On the basis of the outcome of each
Monte Carlo trial, each on-production date remains unchanged or
is delayed.
Performance Uncertainty. Performance uncertainty refers to the
unavoidable range in productivity that exists within a play. A
common way of observing well-performance variability within a
 EM185178 DOI: 10.2118/185178-PA Date: 19-January-17 Stage: Page: 3 Total Pages: 6

100%
100
90

Probability of Lease
80

Inaccessibility (%)

60%
70
60

40%
50

25%
40

20%

20%
30

10%

10%

10%
20

0%

0%

0%
10
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Higher probability of first production date being delayed if scheduled within these periods

Fig. 1—Example of a timing-uncertainty histogram that depicts probability of lease inaccessibility in an area where spring sea-
sonal restrictions exist because of road bans.

Example of Peak-Normalized Composite-Production Plot

12000
Calendar Daily Gas Rate (MMcf/D)

P 10
10000 P 50
P 90
8000

6000

4000

2000

0
Peak-4
Peak-2
Peak Month
Peak+2
Peak+4
Peak+6
Peak+8
Peak+10
Peak+12
Peak+14
Peak+16
Peak+18
Peak+20
Peak+22
Peak+24
Peak+26
Peak+28
Peak+30
Peak+32
Peak+34
Peak+36
Peak+38
Peak+40
Peak+42
Peak+44
Months on Production Relative to Peak Month

Fig. 2—Example of peak-normalized spaghetti plot showing associated P10, P50, and P90 production profiles for a population of wells.

play is through the use of a peak-normalized composite-produc- (2012) discuss how to construct type wells through combining
tion plot, also known as a “spaghetti” plot (Fig. 2). Characteriza- historical data with production forecasts of wells from within an
tion of the uncertainty in performance is portrayed through the analogous population to what is being targeted. With unconven-
use of the 10th, 50th, and 90th percentile profiles from within tional plays, however, where the completion technology is con-
these populations. These profiles, when smoothed, are referred to stantly evolving, it is often difficult to identify a statistically
as the P10, P50, and P90 type curves, respectively. significant population of wells that possess enough geologic and
The P10, P50, and P90 type curves used in portfolio modeling operational similarity to qualify as an analog population. In situa-
can be derived through a number of work flows. Freeborn et al. tions where direct analogies are scarce, a methodology known as
scaling can be used to build type of wells that involves adjusting
rate/time profiles to reflect design and geology parameters, as
TFP-P10 described by Freeborn and Russell (2015). Alternatively, paramet-
ric modeling is often used to build type wells, as demonstrated by
TFP-P50
Luo et al. (2014) in their work on tight gas reservoirs in the
QMax-P50 Alberta Deep Basin.
To represent the nature of performance variability that exists
QMax-P90 within a given play, multiple aspects of period-specific production
P50 P10
behavior are characterized for inclusion in a stochastic model.
P90 Periods considered include first-to-peak production-cycle times
Rate

(TRU), variability in the peak-production rates (Qmax), variability

in peak-rate duration for plays where production is restricted
Time (TFP), and variability in the production profile experienced after a
TRU-P33
well goes into decline (Fig. 3). Variograms of each of the previ-
TRU-P 50 TRU-P33: Ramp-up time for top-third performers ous attributes are constructed for each play and are included in the
TFP-P10: Ramp-up time for top-decile performers stochastic model.
TRU-P 66

Fig. 3—Period-specific production-profile components consid- Sequencing Uncertainty. Sequencing uncertainty refers to the
ered in stochastic portfolio production forecast. Example way in which wells, that display similar performance behavior,
depicts considerations necessary for handling wells in which cluster within the program. An example is the number of top-
peak-production rate is restricted. quartile wells that are, by chance, drilled early in the year vs. later

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 EM185178 DOI: 10.2118/185178-PA Date: 19-January-17
P10
B:
Pr oec rea
ob as
Fr xA
QM
Deterministic
ab t
ilis
a
Forecast
tic
QMax
Rate
Deterministic
Decline Profile
P50
Scheduled On-
Production Date
P90
0
T0
A: Probabilistic on-
production date range
Fig. 4—Plot depicts how a deterministic forecast for a scheduled operation in a portfolio differs from the same operation handled
probabilistically. The timing-uncertainty histogram from Fig. 1 is included along the horizontal axis.
in the year. In the same way that it is not possible to control the
sequence in which heads appear in 10 consecutive coin
tosses, it is not possible to control the sequence in which the
best well results appear in a drilling program within a well-con-
strained play.
Sequencing uncertainty can, however, be mitigated by way of
using an inventory-characterization process that applies a higher
degree of granularity to defining an organization’s plays and pros-
pect inventory. Operators are better able to influence sequencing
uncertainty when inventory within a play is divided into subplays
that are characterized and grouped by using more tightly con-
strained geologic and production-performance attributes. Exam-
ples of criteria used to define subplays may include reservoir-
quality trends, geo-hazard trends, degree of overpressure, liquids
content, degree of depletion, and geomechanical considerations.
Such an approach enables an operator to differentiate high-proba-
bility, high-quality locations from inferior locations and to sched-
ule these accordingly, thereby influencing, at a high level, how
results cluster within a program.
Risk. Risk, in the context of modeling corporate production,
refers to the likelihood of commercial failure of an operation
within a drilling program. Rose (2012) defines a commercial suc-
cess as a “well that is completed for production” with a reserves
expectation that is greater than or equal to the P90 for the play.
Commercial failure in the Rose (2012) definition is tied to geo-
logic risk factors (e.g., reservoir, trap, source, migration) and does
not include operational risk factors (e.g., services availability,
lease access, social licensing road blocks). In established uncon-
ventional plays, however, operational factors can account for as
many, or more, commercial failures as can geologic factors. This
is largely because development often occurs in geologically
derisked accumulations (i.e., contingent resources) in which pro-
duction was not possible before the application of staged-fracture
horizontal technology. Commercial failure in many of these types
of plays results not from an absence of trapped hydrocarbons but
instead from a wellbore’s cost that is significantly over budget
because of execution challenges. For modeling purposes, there-
fore, both operational and geology risk factors need to be reflected
in the prospect’s overall chance-of-success.
For completeness, two chance factors are assigned to all pros-
pects in a portfolio-forecast model. The first is the geologic
chance-of-commercial-success, which refers to the probability of
geologic risk factors aligning to deliver a reserves expectation
that exceeds the P90 for the play. The second is the execution
chance of success, which refers to one minus the probability of
operational risk factors aligning to preclude delivering a reserves
expectation that exceeds the P90 for the play. A reasonable proxy
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Performance
uncertainty
Timing uncertainty
C:
P
De roba
clin bil
e ist
Are Profi ic
a le
P10
P50
100% P90
0%
Month
for the execution-failure rate is the historical or anticipated
“junked and abandoned well” rate for the play.
When incorporated into the model, scheduled unrisked produc-
tion for each location in the program is either included or
excluded, for each iteration of the stochastic model, on the basis
of the entity’s prospect chance of success.
Aggregation of Risk and Uncertainty Elements. After the four
risk and uncertainty attributes are characterized for each play and
location in the portfolio, they are brought together in a stochastic-
forecasting model. An illustration of how a deterministic forecast for
a scheduled operation in a portfolio differs from the same operation
handled probabilistically is depicted in Fig. 4. For each iteration of
the stochastic model, a portfolio production forecast is constructed
by aggregating operations where, for each operation, first production
timing is tested and rescheduled as required along Line Segment A.
The productivity distribution is then sampled, and a corresponding
type curve is selected for inclusion in the model. Peak production
occurs anywhere within Area B, and the decline profile off the peak
rate occurs within Area C. The chance of success attached to each
operation in the portfolio determines whether production for that
operation is included in each iteration of the model.
The magnitude of the difference in the volumes forecast in the
low-probability (P10) and high-probability (P90) portfolio solu-
tions is a function of the portfolio size as well as the timing uncer-
tainties, performance uncertainties, sequencing uncertainties, and
risk assigned to individual operations within the portfolio or pro-
gram. Large, low-risk development programs consisting of plays
in which productivity variability is small within the constituent
plays exhibit portfolio P10:P90 ratios for annual daily average-
production rates as low as 1.1 for 12-month-period forecasts.
Smaller programs that consist of a high proportion of exploration
or proof-of-concept wells can exhibit portfolio P10:P90 ratios in
excess of 2.0 for the fifth-year daily average-production rate in a
5-year forecast. (Proof of concept refers to an operation where
new technology is being applied, or proven technology is being
applied to a play where the technology has not yet been applied.)
An example of a production forecast constructed from a
notional 100-well, low-risk 12-month development program is
displayed in Fig. 5. The plot compares, by quarter, the P10, P50,
and P90 forecasts from stochastic modeling with a simple deter-
ministic forecast of “risked” the P10, P50, and P90 forecasts pro-
duction. (Risked production is commonly used in industry as a
means of determining production potential for a program. It refers
to the sum of the chance of success multiplied by the production
rate for each well included in the program.)
Here, the deterministic forecast is considered to be what has
already been communicated to “the street” (i.e., analysts and
 EM185178 DOI: 10.2118/185178-PA Date: 19-January-17
8,000
Barrels Oil Equivalent per Day
P10
7,000
6,000
5,000
4,000
3,000
2,000
350
297
248
1,000
0
Q1
Fig. 5—Production forecast for a notional 100-well program consisting of 22 plays that exhibits a portfolio average chance of suc-
cess of 88%. Timing uncertainties associated with spring breakup put second-quarter (Q2) deterministic volumes at significant
risk of being missed.
investors). The significant variation that exists between the Q2
deterministic forecast and the P10/50/90 stochastic forecasts is
attributed primarily to timing uncertainties associated with spring
breakup. In this example, to reduce the likelihood of underper-
forming in Q2, management may consider accelerating the Q1
and Q2 programs as much as possible into Q1 to mitigate the risk
of being denied surface access should spring breakup arrive as
early as it occasionally has in the past.
Discussion
Because stochastic modeling enables probability-based produc-
tion forecasting on the basis of uncontrollable risks and uncertain-
ties that are inherent in a program, it is useful to define and briefly
discuss a term that refers to a strategic state that is associated with
realizing bottom-decile performance from a capital program. To
that end, “production vulnerability” refers to a disadvantaged stra-
tegic state that arises from a capital program that delivers produc-
tion results that are within the bottom decile (P90) of what
was possible.
Visibility into an organization’s production vulnerability pro-
vides its leadership with an early-warning sign of potential chal-
lenges that the company may face in executing its strategic plan.
These insights are useful in identifying potential disconnects
between leadership’s vision for the company and the ability of the
company’s assets to support that vision. Insight into production
vulnerability creates a sense of urgency around asset and portfolio
management and triggers an organizational call to action around
contingency planning. By defining, acknowledging, and managing
its production vulnerability, an organization reduces its likelihood
of delivering disappointing results at the end of its reporting or
planning period.
Beyond enabling a resource company’s leadership to defen-
sively manage its business, an awareness of the portfolio produc-
tion vulnerability serves many business interests. For example,
activities and businesses that are primarily concerned with under-
standing the risk-based upside and downside value of an oil-and-
gas entity benefit significantly from these insights. Examples of
these businesses include banks and private-equity firms that are
involved in financing resource companies along with pension
funds, foreign investors, or midstreamers that are looking to dif-
ferentiate high-probability upside value from lower-probability
upside value when considering acquisitions, joint ventures, or
strategic partnerships.
Conclusions
Understanding the risk and uncertainty that is embedded in a port-
folio production forecast is critical in guiding an organization in
how it manages its business. Following the oil-price crash that
began in November 2014, organizations have found themselves
with severely contracted capital budgets, stressed balance sheets,
and significantly diminished risk tolerance. This reduced financial
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P50 P 90 Deterministic
5,965
5,646
5,430
4,944
4,144
3,794
3,729
3,337
2,280
1,053
879
730
347
Q2 Q3 Q4
flexibility and risk tolerance have increased the importance
of understanding how risk and uncertainty associated with
strategic-planning activities stand to affect the bottom line of
the organization.
To avoid strategically damaging consequences resulting from
false assumptions about the future-production potential of a port-
folio of prospects, organizations need to ensure that corporate fi-
nancial models are built from portfolio production forecasts that
are fully supported by the company’s vetted and ranked prospect
inventories. Organizations that lack this discipline introduce
unnecessary risk and uncertainty into their corporate production
forecast and, as a result, put their ability to deliver on their entire
business model in jeopardy.
A disciplined approach to handling risk and uncertainty in
portfolio production forecasting involves
• Ensuring that a robust prospect-inventory management process
is in place that oversees play and prospect characterization
integrity
• Basing future cash-flow expectations on production forecasts
that are built from actual inventory that is up to date and fully
characterized in terms of prospect prize, risk, and uncertainty
• Incorporating, by way of stochastic modeling, known geologic
and execution risks with performance, timing, and sequencing
uncertainties in production forecasts used for strategic-planning
purposes
• Ensuring that consideration of production vulnerability and its
associated risk management is routinely on the agenda at the
executive table
By integrating historical operational data with a standardized
set of play-assessment deliverables, the building blocks of a proba-
bility-based portfolio production forecast and analysis are readily
available. Ultimately, the use of stochastic modeling in corporate
production forecasting provides an organization’s decision makers
with the information necessary to examine investment and strate-
gic decisions in the context of corporate-risk tolerance.
Acknowledgments
I would like to thank Jon MacConnell for his insights offered dur-
ing the preparation of this paper.
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David P. B. Allen is Vice President Geosciences at Grafton
Asset Management. Over the past 10 years, he has served in
both executive leadership and consulting advisory capacities
for oil and gas companies where his work has focused on pros-
pect-portfolio stewardship. Allen’s interests include initiatives
around prospect-inventory assessments and characteriza-
tions, and their integration into corporate strategic planning
and positioning activities. He holds an MSc degree in geology
from the University of British Columbia.

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