It is important for petrophysicists to have a feel for the economic impact of the work they are performing and whether or not the cost of running a certain log is really justified in view of the economic benefit it will ultimately bring. In this chapter, some considerations and tools for assessing this will be explained.

In a normal oilfield economic model, money is expended on exploration until a discovery is made. Following discovery, there is a development phase involving significant capital expense (called CapEx) on wells and facilities. At a certain point, money will start coming in from production and start to pay back CapEx. There will also be ongoing operating expenses (OpEx) and tax on revenues. At the payback time, the revenues will have covered the sunk CapEx and OpEx and the project starts to move into the black. At any point in time, the field will have a future value (ignoring all the sunk costs), which will be denoted as net present value (NPV). The NPV will be calculated from the production forecasts, together with assumptions about hydrocarbon prices, taxes, and future OpEx and abandonment costs. The time element in these costs and revenues is taken into account with present value accounting, which relates all cash flows to a fixed reference point.

It is important to realize how information is related to NPV. Obviously the more information you have about a field, the more wisely the CapEx may be expended (e.g., in right-sizing the facilities and drilling...