See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/268394450

Offshore Oilfield Development Planning under Uncertainty and Fiscal

Considerations

Article  in  Optimization and Engineering · March 2012

DOI: 10.1007/s11081-016-9331-4

CITATIONS READS
7 1,803

2 authors, including:

Vijay Gupta

14 PUBLICATIONS   203 CITATIONS   

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Heuristic decomposition methods to solve complex process industry optimization View project

Convex MINLP View project

All content following this page was uploaded by Vijay Gupta on 27 September 2015.

The user has requested enhancement of the downloaded file.

 Offshore Oilfield Development Planning under
Uncertainty and Fiscal Considerations

Vijay Gupta1 and Ignacio E. Grossmann2

Department of Chemical Engineering, Carnegie Mellon University
Pittsburgh, PA 15213

Abstract
The objective of this paper is to present a unified modeling framework to address the issues of
uncertainty and complex fiscal rules in the development planning of offshore oil and gas fields
which involve critical investment and operational decisions. In particular, the paper emphasizes
the need to have as a basis an efficient deterministic model that can account for various
alternatives in the decision making process for a multi-field site incorporating sufficient level of
details in the model, while being computationally tractable for the large instances. Consequently,
such a model can effectively be extended to include other complexities, for instance endogenous
uncertainties and a production sharing agreements. Therefore, we present a new deterministic
MINLP model followed by discussion on its extensions to incorporate generic fiscal rules, and
uncertainties based on recent work on multistage stochastic programming. Numerical results on
the development planning problem for deterministic as well as stochastic instances are discussed.
A detailed literature review on the modeling and solution methods that are proposed for each
class of the problems in this context is also presented.

Keywords: Multi-period optimization, Planning, Offshore Oil and Gas, Multistage Stochastic,
Endogenous, Production Sharing Agreements (PSAs)

1 Introduction
The development planning of offshore oil and gas fields has received significant attention in
recent years given the new discoveries of large oil and gas reserves in the last decade around the

1
E-mail: [email protected]
2
To whom all correspondence should be addressed. E-mail: [email protected]

1
world. These have been facilitated by the new technologies available for exploration and
production of oilfields in remote locations that are often hundreds of miles offshore.
Surprisingly, there has been a net increase in the total oil reserves in the last decade because of
these discoveries despite increase in the total demand (BP, Statistical review Report 2011).
Therefore, there is currently a strong focus on exploration and development activities for new oil
fields all around the world, specifically at offshore locations. However, installation and operation
decisions in these projects involve very large investments that potentially can lead to large
profits, but also to losses if these decisions are not made carefully.
With the motivation described above, the paper addresses the optimal development planning
of offshore oil and gas fields in a generic way and discusses the key issues involved in this
context. In particular, a unified modeling framework (Fig. 1) is presented starting with a basic
deterministic model that includes sufficient level of detail to be realistic as well as
computationally efficient. Moreover, we discuss the extension of the model for incorporating
uncertainty based on multistage stochastic programming, and fiscal rules defined by the terms of
the contract between oil companies and governments.

Basic Model: Oilfield

Development Planning under
Perfect Information Stochastic Programming
Uncertainty in Model formulation without/with Fiscal
Parameters considerations

Include Fiscal Calculations

within the basic model

Figure 1: A unified framework for Oilfield Development planning under uncertainty and
complex fiscal rules
The planning of offshore oil and gas field development represents a very complex problem
and involves multi-billion dollar investments (Babusiaux et al., 2007). The major decisions
involved in the oilfield development planning phase are the following:
(a) Selecting platforms to install and their sizes
(b) Deciding which fields to develop and what should be the order to develop them
(c) Deciding which wells and how many are to be drilled in the fields and in what sequence
(d) Deciding which fields are to be connected to which facility

2
 (e) Determining how much oil and gas to produce from each field
Therefore, there are a very large number of alternatives that are available to develop a
particular field or group of fields. However, these decisions should account for the physical and
practical considerations, such as the following: a field can only be developed if a corresponding
facility is present; nonlinear profiles of the reservoir to predict the actual flowrates of oil, water
and gas from each field; limitation on the number of wells that can be drilled each year due to
availability of the drilling rigs; long-term planning horizon that is the characteristics of the these
projects. Therefore, optimal investment and operations decisions are essential for this problem to
ensure the highest return on the investments over the time horizon considered.
By including all the considerations described above in an optimization model, this leads to a
large scale multiperiod MINLP problem. The extension of this model to the cases where we
explicitly consider the fiscal rules (Van den Heever et al. (2000) and Van den Heever and
Grossmann (2001)) and the uncertainties, especially endogenous uncertainty cases (Jonsbraten et
al. (1998), Goel and Grossmann (2004, 2006), Goel et al. (2006), Tarhan et al. (2009, 2011) and
Gupta and Grossmann (2011)), can lead to a very complex problem to solve. Therefore, an
effective model for the deterministic case is essential. On one hand such a model must capture
realistic reservoir profiles, interaction among various fields and facilities, wells drilling
limitations and other practical trade-offs involved in the offshore development planning, and on
the other hand can be used as the basis for extensions that include other complexities, especially
fiscal rules and uncertainties as can be seen in Figure 1.
The paper starts with a brief background on the basic structure of an offshore oilfield site and
major reservoir features. Next, a review of the various approaches considered in the literature for
optimal oilfield development under perfect information is outlined. The key strategic/tactical
decisions and details to be included with a generic deterministic model for multi-field site are
presented. Given the importance of the explicit consideration of the uncertainty in the
development planning, the recent work on the multistage stochastic programming approaches in
this context is highlighted. Furthermore, based on the above unified framework and literature
review, discussions on the extension of the proposed deterministic model to incorporate
uncertainty and generic fiscal rules within development planning are also presented. Numerical
results on several examples ranging from deterministic to stochastic cases for this planning
problem are reported.

3
2 Background
(a) Basic elements of an offshore oilfield planning
The life cycle of a typical offshore oilfield project consists of following five steps:
1) Exploration: This activity involves geological and seismic surveys followed by
exploration wells to determine the presence of oil or gas.
2) Appraisal: It involves drilling of delineation wells to establish the size and quality of the
potential field. Preliminary development planning and feasibility studies are also
performed.
3) Development: Following a positive appraisal phase, this phase aims at selecting the most
appropriate development plan among many alternatives. This step involves capital-
intensive investment and operations decisions that include facility installations, drilling,
sub-sea structures, etc.
4) Production: After facilities are built and wells are drilled, production starts where gas or
water is usually injected in the field at a later time to enhance productivity.
5) Abandonment: This is the last phase of an oilfield development project and involves the
decommissioning of facility installations and subsea structures associated with the field.
Given that most of the critical investment decisions are usually associated with the
development planning phase of the project, this paper focuses on the key decisions during this
phase of the project.
An offshore oilfield infrastructure (Fig. 2) consists of various production facilities such as
Floating Production, Storage and Offloading (FPSO), Tension Leg platform (TLP), fields, wells
and connecting pipelines to produce oil and gas from the reserves. Each oilfield consists of a
number of potential wells to be drilled using drilling rigs, which are then connected to the
facilities through pipelines to produce oil. There is two-phase flow in these pipelines due to the
presence of gas and liquid that comprises oil and water. Therefore, there are three components,
and their relative amounts depend on certain parameters like cumulative oil produced.
The field to facility connection involves trade-offs associated to the flowrates of oil and gas,
piping costs, and possibility of other fields to connect to that same facility. The number of wells
that can be drilled in a field depends on the availability of the drilling rig that can drill a certain
number of wells each year.

4
 Figure 2: A Complex Offshore Oilfield Infrastructure
The facilities and piping connections in the offshore infrastructure are often in operation over
many years. It is therefore important to anticipate future conditions when designing an initial
infrastructure or any expansions. This can be accomplished by dividing the planning horizon, for
example, 20 years, into a number of time periods with a length of 1 year, and allowing
investment and operating decisions in each period, which leads to a multi-period planning
problem.

(b) Development planning Problem Specifications

We assume in this paper that the type of offshore facilities connected to fields to produce oil
and gas are FPSOs (Fig. 3). The extension for including Tension Leg Platform (TLP) is
straightforward but for simplicity we only consider FPSOs with continuous capacities and ability
to expand them in the future. These FPSO facilities cost multi-billion dollars depending on their
sizes, and have the capability of operating in remote locations for very deep offshore oilfields
(200m-2000m) where seabed pipelines are not cost effective. FPSOs are large ships that can
process the produced oil and store it until it is shipped to the onshore site or sales terminal.
Processing includes the separation of oil, water and gas into individual streams using separators
located at these facilities. Each FPSO facility has a lead time between the construction or
expansion decision, and its actual availability. The wells are subsea wells in each field that are
drilled using drilling ships. Therefore, there is no need to have a facility present to drill a subsea
well. The only requirement to recover oil from it is that the well must be connected to a FPSO
facility.

5
 Figure 3: FPSO (Floating Production Storage and Offloading) facility
In this paper, we consider a typical offshore oilfield infrastructure (Figure 4) as a reference to
model the problem of oilfield development planning. In particular, given are a set of oil fields F
= {1,2,…f} available for producing oil using a set of FPSO (Floating, Production, Storage and
Offloading) facilities, FPSO = {1,2,…fpso}, that can process the produced oil, store and offload
it to the other tankers. Each oilfield consists of a number of potential wells to be drilled using
drilling rigs, which are then connected to these FPSO facilities through pipelines to produce oil.

Oil/Gas
Production
FPSO FPSO

Field Field
Field
Field

Figure 4: A typical offshore oilfield infrastructure

The location of production facilities and possible field and facility allocation itself is a very
complex problem. In this work, we assume that the potential location of facilities and field-
facility connections are given. In addition, the potential number of wells in each field is also
given. Note that each field can be potentially allocated to more than one FPSO facility, but once
the particular field-connection is selected, the other possibilities are not considered. Furthermore,
each facility can be used to produce oil from more than one field. We assume for simplicity that
there is no re-injection of water or gas in the fields.

6
 The problem considers strategic/tactical decisions to maximize the total NPV of the project
under given constraints. The proposed model, as explained in the next section, focuses on the
multi-field site presented here and includes sufficient details to account for the various trade-offs
involved without going into much detail for each of these fields. However, the proposed model
can easily be extended to include various facility types and other details in the oilfield
development planning problem.

Oil Deliveribility per well

14
12 x(F1-FPSO1)
x(F1-FPSO2)
10
x (kstb/d)

8
6
4
2
0
0 0.5 1
fc
(a) Oil Deliverability per well for field (F1)

Water-oil-ratio Gas-oil-ratio
3 1.2
wor(F1-FPSO1)
2.5 1
WOR (stb/stb)

GOR (kscf/stb)

wor(F1-FPSO2)
2 0.8
1.5 0.6 gor(F1-FPSO1)
1 0.4 gor(F1-FPSO2)
0.5 0.2
0 0
0 0.5 1 0 0.5 1
fc fc

(b) Water to oil ratio for field (F1) (b) Gas to oil ratio for field (F1)

Figure 5: Nonlinear Reservoir Characteristics for field (F1) for 2 FPSO facilities (FPSO 1 and 2)

When oil is extracted from a reservoir oil deliverability, water-to-oil ratio (WOR) and gas-to-
oil ratio (GOR) change nonlinearly as a function of the cumulative oil recovered from the
reservoir. The initial oil and gas reserves in the reservoirs, as well as the relationships for WOR

7
and GOR in terms of fractional recovery (fc), are estimated from geologic studies. Figures 5 (a) –
(c) represent the oil deliverability from a field per well, WOR and GOR versus fractional oil
recovered from that field.
The maximum oil flowrate (field deliverability) per well can be represented as a 3rd order
polynomial equation (a) in terms of the fractional recovery. Furthermore, the actual oil flowrate
(xf ) from each of the wells is restricted by both the field deliverability , (b), and facility
capacity. We assume that there is no need for enhanced recovery, i.e., no need for injection of
gas or water into the reservoir. The oil produced from the wells (xf ) contains water and gas and
their relative rates depend on water-to-oil ratio (worf) and gas-to-oil ratio (gorf) that are
approximated using 3rd order polynomial functions in terms of fractional oil recovered (eqs. (c)-
(d)). The water and gas flowrates can be calculated by multiplying the oil flowrate (xf ) with
water-to-oil ratio and gas-to-oil ratio as in eqs. (e) and (f), respectively. Note that the reason for
considering fractional oil recovery compared to cumulative amount of oil is to avoid numerical
difficulties that can arise due to very small magnitude of the polynomial coefficients in that case.

Qdf  a1, f ( fc f ,t )3  b1, f ( fc f )2  c1, f fc f  d1 f (a)

x f  Q df f (b)

worf  a2, f ( fc f )3  b2, f ( fc f )2  c2, f fc f  d2, f f (c)

gorf  a3, f ( fc f )3  b3, f ( fc f )2  c3, f fc f  d3, f f (d)

w f  worf x f f (e)

g f  gorf x f f (f)

The next section reviews several approaches to model and solve the development planning
problem in the literature for the deterministic case where all the model parameters are assumed
to be known with certainty. A generic MINLP model for oilfield development planning is
presented next taking the infrastructure and reservoir characteristics presented in this section as
reference.

8
3 Development Planning under Perfect Information
The oilfield investment and operation planning has traditionally been modeled as LP (Lee and
Aranofsky (1958), Aronofsky and Williams (1962)) or MILP (Frair, 1973) models under certain
assumptions to make them computationally tractable. Simultaneous optimization of the
investment and operation decisions was addressed in Bohannon (1970), Sullivan (1982) and
Haugland et al. (1988) using MILP formulations with different levels of details in these models.
Behrenbruch (1993) emphasized the need to consider a correct geological model and to
incorporate flexibility into the decision process for an oilfield development project.
Iyer et al. (1998) proposed a multiperiod MILP model for optimal planning and scheduling of
offshore oilfield infrastructure investment and operations. The model considers the facility
allocation, production planning, and scheduling within a single model and incorporates the
reservoir performance, surface pressure constraints, and oil rig resource constraints. To solve the
resulting large-scale problem, the nonlinear reservoir performance equations are approximated
through piecewise linear approximations. As the model considers the performance of each
individual well, it becomes expensive to solve for realistic multi-field sites. Moreover, the flow
rate of water was not considered explicitly for facility capacity calculations.
Van den Heever and Grossmann (2000) extended the work of Iyer et al. (1998) and proposed
a multiperiod generalized disjunctive programming model for oil field infrastructure planning for
which they developed a bilevel decomposition method. As opposed to Iyer and Grossmann
(1998), they explicitly incorporated a nonlinear reservoir model into the formulation but did not
consider the drill-rig limitations.
Grothey and McKinnon (2000) addressed an operational planning problem using an MINLP
formulation where gas has to be injected into a network of low pressure oil wells to induce flow
from these wells. Lagrangean decomposition and Benders decomposition algorithms were also
proposed for the efficient solution of the model. Kosmidis et al. (2002) considered a production
system for oil and gas consisting of a reservoir with several wells, headers and separators. The
authors presented a mixed integer dynamic optimization model and an efficient approximation
solution strategy for this system.
Barnes et al. (2002) optimized the production capacity of a platform and the drilling
decisions for wells associated with this platform. The authors addressed this problem by solving
a sequence of MILPs. Ortiz-Gomez et al. (2002) presented three mixed integer multiperiod

9
optimization models of varying complexity for the oil production planning. The problem
considers fixed topology and is concerned with the decisions involving the oil production
profiles and operation/shut in times of the wells in each time period assuming nonlinear reservoir
behavior.
Lin and Floudas (2003) considered the long-term investment and operations planning of the
integrated gas field site. A continuous-time modeling and optimization approach was proposed
introducing the concept of event points and allowing the well platforms to come online at
potentially any time within planning horizon. Two-level solution framework was developed to
solve the resulting MINLP problems which showed that the continuous time approach can
reduce the computational efforts substantially and solve problems that were intractable for the
discrete-time model.
Kosmidis et al. (2005) presented a mixed integer nonlinear (MINLP) model for the daily well
scheduling in petroleum fields, where the nonlinear reservoir behaviour, the multiphase flow in
wells and constraints from the surface facilities were simultaneously considered. The authors
also proposed a solution strategy involving logic constraints, piecewise linear approximations of
each well model and an outer approximation based algorithm. Results showed an increase in oil
production up to 10% compared to a typical heuristic rules widely applied in practice.
Carvalho and Pinto (2006) considered an MILP formulation for oilfield planning based on
the model developed by Tsarbopoulou (2000), and proposed a bilevel decomposition algorithm
for solving large scale problems where the master problem determines the assignment of
platforms to wells and a planning subproblem calculates the timing for the fixed assignments.
The work was further extended by Carvalho and Pinto (2006) to consider multiple reservoirs
within the model.
Barnes et al. (2007) addressed the optimal design and operational management of offshore oil
fields where at the design stage the optimal production capacity of a main field was determined
with an adjacent satellite field and a well drilling schedule. The problem was formulated as an
MILP model. Continuous variables involved individual well, jacket and topsides costs, whereas
binary variables were used to select individual wells within a defined field grid. An MINLP
model wad proposed for the operational management to model the pressure drops in pipes and
wells for multiphase flow. Non-linear cost equations were derived for the production costs of
each well accounting for the length, the production rate and their maintenance. Operational

10
decisions included the oil flowrates, the operation/shut-in for each well and the pressures for
each point in the piping network.
Gunnerud and Foss (2010) considered the real-time optimization of oil production systems
with a decentralized structure and modeled nonlinearities by piecewise linear approximations,
resulting in a MILP model. The Lagrange relaxation and Dantzig–Wolfe decomposition methods
were studied on a semi-realistic model of the Troll west oil rim which showed that both the
approaches offers an interesting option to solve the complex oil production systems as compared
to the fullspace method.

(a) Key issues and Discussions

The work described above uses a deterministic approach to address the oilfield development
planning problem, and considers a sub-set of decisions under certain assumptions to ease the
computational burden. One such approach used is to optimize the production profiles and other
operation related decisions assuming that the investment decisions have already been fixed.
Other simplifying approaches include optimizing the decisions associated with a field or a
facility independent of decisions for other fields, optimizing investment and operation decisions
assuming linear or piece-wise linear reservoir behavior, simplified reservoir characteristics, etc.
In this paper, we emphasize the need to include the following details and decisions in the
deterministic model for it to be more realistic and consider various trade-offs to yield optimal
investment and operations decisions in a multi-field setting:
1) All three components (oil, water and gas) should be considered explicitly in the
formulation to consider realistic problems for facility installation and capacity decisions.
2) Nonlinear reservoir behavior in the model should be approximated by nonlinear functions
such as higher order polynomials to ensure sufficient accuracy for the predicted reservoir
profiles.
3) Reservoir profiles should be specific to the field-facility connections.
4) The number of wells should be a variable for each field to capture the realistic drill rig
limitations and the resulting trade-offs among various fields.
5) The possibility of expanding the facility capacities in the future, and including the lead
times for construction and expansions for each facility are essential to ensure realistic
investments.

11
 6) Reservoir profiles should be expressed in such a way so that non-convexities can be
minimized in the model for it to be computationally efficient.
7) The planning horizon should be long enough, typically 20-30 years.
Notice that the inclusion of the other details in the model could further improve the quality of
decisions that are made. However, the model may become computationally intractable for the
deterministic case itself. Therefore, it is assumed that accounting for the above details will
provide a model that while being computationally tractable, is realistic.

(b) Proposed Deterministic Development Planning Model

We outline in this section the proposed MINLP model (Gupta and Grossmann, 2011), in
which we incorporate all the features mentioned above. The model takes the infrastructure (Fig.
4) and reservoir characteristics (Eq. (a)-(f)) presented in the earlier section as reference. With the
objective of maximizing the NPV considering a long-term planning horizon, the key investment
and operations decisions included in the proposed multi-period planning model are as follows:
(i) Investment decisions in each time period include which FPSO facilities should be
installed or expanded, and their respective installation or expansion capacities for oil,
liquid and gas, which fields should be connected to which FPSO facility, and the number
of wells that should be drilled in a particular field given the restrictions on the total
number of wells that can be drilled in each time period over all the given fields.
(ii) Operating decisions include the oil/gas production rates from each field in each time
period.
It is assumed that all the installation and expansion decisions occur at the beginning of each
time period, while operation takes place throughout the time period at constant conditions. There
is a limit on the number of expansions for each FPSO facility, and lead time for its initial
installation and expansion decision. The above decisions should satisfy the following set of
constraints:
Economic Constraints: The gross revenues, based on the total amount of oil and gas produced,
and total cost based on capital and operating expenses in each time period are calculated in these
constraints. Capital costs consist of the fixed FPSO installation cost, variable installation and
expansion costs, field-FPSO connection costs and well drilling costs in each time period, while
total operating expenses depend on the total amount of liquid and gas produced.

12
Reservoir Constraints: These constraints predict the reservoir production performance for each
field in each time period. In particular, the oil flow rate from each well for a particular FPSO-
field connection to be less than the deliverability (maximum oil flow rate) of that field. The
cumulative water and cumulative gas produced by the end of time period from a field, are
represented by a polynomial in terms of fractional oil recovery by the end of time period, and are
further used to calculate individual water and gas flowrates. The cumulative oil produced is also
restricted by the recoverable amount of oil from the field. The other way to incorporate water
and gas flow rates is to use the water-oil-ratio and gas-oil-ratio profiles directly in the model,
eqs. (c)-(d). However, it will add bilinear terms in the model, eqs. (e)-(f).
Field-FPSO Flow constraints: It includes the material balance constraints for the flow between
fields and FPSOs. In particular, the total oil flow rate from field in time period is the sum of the
oil flow rates over all FPSO facilities from this field, which depends on the oil flow rate per well
and number of wells available for production. Total oil, water and gas flowrates into each FPSO
facility, at time period from all the given fields, is calculated as the sum of the flow rates of each
component over all the connected fields.
FPSO Capacity Constraints: These equations restrict the total oil, liquid and gas flow rates into
each FPSO facility to be less than its corresponding capacity in each time period. The FPSO
facility capacities in each time period are computed as the sum of the corresponding installation
and expansion capacities taking lead times into considerations. Furthermore, there are
restrictions on the maximum installation and expansion capacities for each FPSO facility.
Well drilling limitations: The number of wells available in a field for drilling is calculated as the
sum of the wells available at the end of the previous time period and the number of wells drilled
at the beginning of time period. The maximum number of wells that can be drilled over all the
fields during each time period and in each field during complete planning horizon, are restricted
by the respective upper bounds.
Logic Constraints: Logic constraints include the restrictions on the number of installation and
expansion of a FPSO facility, and possible FPSO-field connections during the planning horizon.
Other logic constraints are also included to ensure that the FPSO facility can be expanded, and
the connection between a field and that facility and corresponding flow can occur only if that
facility has already been installed by that time period.

13
 The proposed non-convex MINLP model for offshore oilfield planning involves nonlinear
and non-convex constraints that can lead to suboptimal solutions when solved with a method that
assumes convexity (e.g. branch and bound, outer-approximation). The detailed description of the
model is outlined in Gupta and Grossmann (2011) with two possibilities of MINLP formulations.
MINLP Model 1 consists of bilinear terms in the formulation involving WOR, GOR and oil flow
rates. MINLP model 2 includes univariate polynomials that represent reservoir profiles in terms
of cumulative water and gas produced. In addition, some constraints that involves bilinear terms
with integer variables that calculates the total oil flow rate from a field as the multiplication of
the number of available wells in the field and oil flow rate per well, are also present. However,
this MINLP formulation (Model 2) can be reformulated into an MILP using piecewise
linearizations and exact linearizations with which the problem can be solved to global optimality
(Gupta and Grossmann, 2011).
Table 1 summarizes the main features of these MINLP and reformulated MILP models. In
particular, the reservoir profiles and respective nonlinearities involved in the models are
compared in the table. Realistic instances involving 10 fields, 3 FPSO’s and 20 years planning
horizon have been solved and comparisons of the computational performance of the proposed
MINLP and MILP formulations are presented in the paper. The computational efficiency of the
proposed MINLP and MILP models have been further improved by binary reduction scheme that
yield an order of magnitude reduction in the solution time. A large scale example is explained in
the results section 6 of this paper.

Table 1: Comparison of the nonlinearities involved in 3 model types

Model 1 Model 2 Model 3
Model Type MINLP MINLP MILP
Oil Deliverability 3rd order polynomial 3rd order polynomial Piecewise Linear
WOR 3rd order polynomial - -
GOR 3rd order polynomial - -
wc - 4th order polynomial Piecewise Linear
gc - 4th order polynomial Piecewise Linear
Bilinear Terms N*x N*x None
N*x*WOR
N*x*GOR
MILP Reformulation Not Possible Possible Reformulated MILP

14
Remarks:
The proposed non-convex MINLP model yields good quality solutions in few seconds when
solving with DICOPT directly even for large instances. There are various trade-offs involve in
selecting a particular model for oilfield problem. In case that we are concerned with the solution
time, especially for the large instances, it would be better to use DICOPT on the MINLP
formulations directly to obtain good quality solutions with modest computational times, although
global optimality is not guaranteed. If computing times are of no concern, one may want to use
the MILP approximation models that can yield better solutions, but at a higher computational
cost as explained in the results section.
Furthermore, these MILP solutions also provide a way to assess the quality of the suboptimal
solutions from the MINLPs, or finding better once using its solution for the original problem.
These MINLP or MILP models can further be used as the basis to exploit various decomposition
strategies or global optimization techniques for solving the problems to global optimality.
Moreover, the deterministic model proposed in the paper is very generic and can either be used
for simplified cases (e.g. linear profiles for reservoir, fixed well schedule, single field site etc.),
or extended to include other complexities as discussed in the following sections.

4 Incorporating Uncertainty in the Development Planning

In the previous section, one of the major assumptions is that there is no uncertainty in the model
parameters, which in practice is generally not true. There are multiple sources of uncertainty in
these projects. The market price of oil/gas, quantity and quality of reserves at a field are the
most important sources of the uncertainty in this context. The uncertainty in oil prices is
influenced by the political, economic or other market factors. The uncertainty in the reserves on
the other hand, is linked to the accuracy of the reservoir data (technical uncertainty). While the
existence of oil and gas at a field is indicated by seismic surveys and preliminary exploratory
tests, the actual amount of oil in a field, and the efficacy of extracting the oil will only be known
after capital investment have been made at the field. Both, the price of oil and the quality of
reserves directly affect the overall profitability of a project, and hence it is important to consider
the impact of these uncertainties when formulating the decision policy. However, the problem
that addresses the issue of uncertainty within development planning is very challenging due to
the additional complexity caused by the model size and resulting increase in the solution time.

15
 Although limited, there has been some work that accounts for uncertainty in the problem of
optimal development of oil and/or gas fields. Haugen (1996) proposed a single parameter
representation for uncertainty in the size of reserves and incorporates it into a stochastic dynamic
programming model for scheduling of oil fields. However, only decisions related to the
scheduling of fields were considered. Meister et al. (1996) presented a model to derive
exploration and production strategies for one field under uncertainty in reserves and future oil
prices. The model was analyzed using stochastic control techniques.
Jonsbraten (1998) addressed the oilfield development planning problem under oil price
uncertainty using an MILP formulation that was solved with a progressive hedging algorithm.
Aseeri et al. (2004) introduced uncertainty in the oil prices and well productivity indexes,
financial risk management, and budgeting constraints into the model proposed by Iyer and
Grossmann (1998), and solved the resulting stochastic model using a sampling average
approximation algorithm.
Jonsbraten (1998b) presented an implicit enumeration algorithm for the sequencing of oil
wells under uncertainty in the size and quality of oil reserves. The author uses a Bayesian
approach to represent the resolution of uncertainty with investments. Both these papers consider
investment and operation decisions for one field only. Lund (2000) addressed a stochastic
dynamic programming model for evaluating the value of flexibility in offshore development
projects under uncertainty in future oil prices and in the reserves of one field using simplified
descriptions of the main variables.
Cullick et al. (2003) proposed a model based on the integration of a global optimization
search algorithm, a finite-difference reservoir simulation, and economics. In the solution
algorithm, new decision variables were generated using meta-heuristics, and uncertainties were
handled through simulations for fixed design variables. They presented examples having
multiple oil fields with uncertainties in the reservoir volume, fluid quality, deliverability, and
costs. Few other papers, (Begg et al. (2001), Zabalza-Mezghani et al. (2004), Bailey et al.
(2005), Cullick et al. (2007)), have also used a combination of reservoir modeling, economics
and decision making under uncertainty through simulation-optimization frameworks.
Ulstein et al. (2007) addressed the tactical planning of petroleum production that involves
regulation of production levels from wells, splitting of production flows into oil and gas

16
products, further processing of gas and transportation in a pipeline network. The model was
solved for different cases with demand variations, quality constraints, and system breakdowns.
Elgsæter et al. (2010) proposed a structured approach to optimize offshore oil and gas
production with uncertain models that iteratively updates setpoints, while documenting the
benefits of each proposed setpoint change through excitation planning and result analysis. The
approach is able to realize a significant portion of the available profit potential, while ensuring
feasibility despite large initial model uncertainty.
However, most of these works either consider the very limited flexibility in the investment
and operations decisions or handle the uncertainty in an ad-hoc manner. Stochastic programming
provides a systematic framework to model problems that require decision-making in the presence
of uncertainty by taking uncertainty into account of one or more parameters in terms of
probability distribution functions, (Birge and Louveaux, 1997). This area has been receiving
increasing attention given the limitations of deterministic models. The concept of recourse action
in the future, and availability of probability distribution in the context of oilfield development
planning problems, makes it one of the most suitable candidates to address uncertainty.
Moreover, extremely conservative decisions are usually ignored in the solution utilizing the
probability information given the potential of high expected profits in the case of favorable
outcomes.
In the next section, we first provide a basic background on the stochastic programming.
Furtheremore, given the importnace of uncertianty in the reserves sizes and its quality (decision-
dependent uncertianty) that directly impact the profitabiltiy of the project, a detailed review of
the model and solution methods recently proposed are discussed (Goel and Grossmann (2004),
Goel et al. (2006), Tarhan et al. (2009)).

(a) Basics Elements of Stochastic Programming

A Stochastic Program is a mathematical program in which some of the parameters defining a
problem instance are random (e.g. demand, yield). The basic idea behind stochastic
programming is to make some decisions now (stage 1) and to take some corrective action
(recourse) in the future, after revelation of the uncertainty (stages 2,3,…). If there are only two
stages, then the problem corresponds to a 2-stage stochastic program, while in a multistage
stochastic program the uncertainty is revealed sequentially, i.e. in multiple stages (time periods),

17
and the decision-maker can take corrective action over a sequence of stages. In the two-stage and
multistage case the cost of the decisions and the expected cost of the recourse actions are
optimized.
The problems are usually formulated under the assumption that uncertain parameters follow
discrete probability distributions, and that the planning horizon consists of a fixed number of
time periods that correspond to decision points. Using these two assumptions, the stochastic
process can be represented with scenario trees. In a scenario tree (Figure 6-a) each node
represents a possible state of the system at a given time period. Each arc represents the possible
transition from one state in time period t to another state in time period t+1, where each state is
associated with the probabilistic outcome of a given uncertain parameter. A path from the root
node to a leaf node represents a scenario.

t=1
θ1=1 θ1=2 θ1=2 θ1=2
θ1=1 θ1=1
t=2
2 θ2=1 θ2=2
θ1=1 θ1=1 θ1=1 θ2=1 θ2=2
t=3
1, 2 3 4 1 2 3 4
(a) Standard Scenario Tree with uncertain parameters θ1 and θ2 (b) Alternative Scenario Tree
Figure 6: Tree representations for discrete uncertainties over 3 stages.

An alternative representation of the scenario tree was proposed by Ruszczynski (1997) where
each scenario is represented by a set of unique nodes (Figure 6-b). The horizontal lines
connecting nodes in time period t, mean that nodes are identical as they have the same
information, and those scenarios are said to be indistinguishable in that time period. These
horizontal lines correspond to the non-anticipativity (NA) constraints in the model that link
different scenarios and prevent the problem from being decomposable. The alternative scenario
tree representation allows to model the uncertainty in the problem more effectively.
Jonsbraten (1998) classified uncertainty in Stochastic Programming problems into two broad
categories: exogenous uncertainty where stochastic processes are independent of decisions that
are taken (e.g. demands, prices), and endogenous uncertainty where stochastic processes are
affected by these decisions (e.g. reservoir size and its quality). Notice that the resulting scenario
tree in the exogenous case is decision independent and fixed, whereas endogenous uncertainty

18
problems yield a decision-dependent scenario tree. In the process systems area, Ierapetritou and
Pistikopoulos (1994), Clay and Grossmann (1997) and Iyer and Grossmann (1998) solved
various production planning problems that considered exogenous uncertainty and formulated as
the two-stage stochastic programs. Furthermore, detailed reviews of previous work on problems
with exogenous uncertainty can be found in Schultz (2003) and Sahinidis (2004). These
approaches for exogenous uncertainty can directly be exploited for the oilfield development
planning problem under oil/gas price uncertainty. In this paper, we focus on the endogenous
uncertainty problems where limited literature is available.
In the next section, we review the development planning problem using a multistage
stochastic programming (MSSP) approach with endogenous uncertainty, where the structure of
scenario tree is decision-dependent.

(b) Development planning under Endogenous Uncertainty

Most previous work in planning under uncertainty has considered exogenous uncertainty
where stochastic processes are independent of decisions (e.g., demands, prices). In contrast, there
is very limited work in problems in which the stochastic processes are affected by decisions, that
is with endogenous uncertainty.
Decisions can affect stochastic processes in two different ways (Goel and Grossmann, 2006).
Either they can alter the probability distributions (type 1), or they can be used to discover more
accurate information (type 2). In this paper, we focus on the type 2 of endogenous uncertainty
where the decisions are used to gain more information, and eventually resolve uncertainty.
Ahmed (2000), Vishwanath et al. (2004) and Held et al. (2005) considers type 1 decision-
dependent uncertainty. Ahmed (2000) presented examples on network design, server selection,
and facility location problems with decision-dependent uncertainties that are reformulated as
MILP problems, and solved by LP-based branch-and-bound algorithms. Vishwanath et al. (2004)
addressed a network problem having endogenous uncertainty in survival distributions. The
problem is a two-stage stochastic program in which first-period investment decisions are made
for changing the survival probability distribution of arcs after a disaster. The aim is to find the
investments that minimizes the expected shortest path from source to destination after a disaster.
Held et al. (2005) considered the problem that includes endogenous uncertainty in the structure
of a network. In each stage of this problem, an operator tries to find the shortest path from a

19
source to a destination after some of the nodes in the network are blocked. The aim is to
maximize the probability of stopping the flow of goods or information in the network.
Another way the decisions can impact the stochastic process is that they can affect the
resolution of uncertainty or the time uncertainty resolves (type 2). Type 2 uncertainty can further
be classified into two categories.

Immediate Uncertainty Resolution:

The first category of type 2 decision-dependent uncertainty assumes that the revelation of
accurate information (resolution of endogenous uncertainty) occurs instantaneously (Pflug
(1990); Jonsbraten et al. (1998); Goel and Grossmann (2004, 2006); Goel et al. (2006); Boland et
al. (2008)).
Pflug (1990) addressed endogenous uncertainty problems in the context of discrete event
dynamic systems where the underlying stochastic process depends on the optimization decisions.
Jonsbraten et al. (1998) proposed an implicit enumeration algorithm for the problems in this
class where decisions that affect the uncertain parameter values are made at the first stage.
In the context of oilfield development planning, Goel and Grossmann (2004) considered a
gas field development problem under uncertainty in the size and quality of reserves where
decisions on the timing of field drilling were assumed to yield an immediate resolution of the
uncertainty, i.e. the problem involves decision-dependent uncertainty as discussed in Jonsbraten
et al. (1998). The alternative scenario tree representation described earlier is used as a key
element to model the problem in this work. Linear reservoir models, which can provide a
reasonable approximation for gas fields, were used. In their solution strategy, the authors used a
relaxation problem to predict upper bounds, and solved multistage stochastic programs for a
fixed scenario tree for finding lower bounds. Goel et al. (2006) later proposed the theoretical
conditions to reduce the number of non-anticipativity constraints in the model. The authors also
developed a branch and bound algorithm for solving the corresponding disjunctive/mixed-integer
programming model where lower bounds are generated by Lagrangean duality. The proposed
decomposition strategy relies on relaxing the disjunctions and logic constraints for the non-
anticipativity constraints.
Boland et al. (2008) applied multistage stochastic programming to open pit mine production
scheduling, which is modeled as a mixed-integer linear program. These authors consider the

20
endogenous uncertainty in the total amount of rock and metal contained in it, where the
excavation decisions resolve this uncertainty immediately. They followed a similar approach as
Goel and Grossmann (2006) for modeling the problem, with the exception of eliminating some
of the binary variables used in the general formulation to represent conditional nonanticipativity
constraints. Furthermore, they solved the model in full-space without using a decomposition
algorithm. These authors also compared the fullspace results for this mine-scheduling problem
with the one where non-anticipativity constraints were treated as ‘lazy constraints’ during the
solution in CPLEX.
Colvin and Maravelias (2008, 2010) presented several theoretical properties, specifically for
the problem of scheduling of clinical trials having uncertain outcomes in the pharmaceutical
R&D pipeline. These authors developed a branch and cut framework to solve these MSSP
problems with endogenous uncertainty under the assumption that only few non-anticipativity
constraints be active at the optimal solution.
Gupta and Grossmann (2011) proposed a generic mixed-integer linear multistage stochastic
programming model for the problems with endogenous uncertainty where uncertainty in the
parameters resolve immediately based on the investment decisions. The authors exploit the
problem structure and extend the conditions by Goel and Grossmann (2006) to formulate a
reduced model to improve the computational efficiency in fullspace. Furthermore, several
generic solution strategies for the problems in this class are proposed to solve the large instances
of these problems, with numerical results on process networks examples.
Ettehad et al. (2011) presented a case study for the development planning of an offshore gas
field under uncertainty optimizing facility size, well counts, compression power and production
policy. A two-stage stochastic programming model was developed to investigate the impact of
uncertainties in original gas in place and inter-compartment transmissibility. Results of two
solution methods, optimization with Monte Carlo sampling and stochastic programming, were
compared which showed that the stochastic programming approach is more efficient. The models
were also used in a value of information (VOI) analysis.

Gradual uncertainty Resolution:

The second category of decision-dependent uncertainty of type 2 assumes that uncertainty
resolves gradually over time because of learning (Tarhan and Grossmann (2008); Solak (2007);

21
Tarhan et al. (2009); Stensland and Tjøstheim (1991); Dias (2002); Jonsbraten (1998); Harrison
(2007)).
Stensland and Tjøstheim (1991) have worked on a discrete time problem for finding optimal
decisions with uncertainty reduction over time and applied their approach to oil production.
These authors expressed the uncertainty in terms of a number of production scenarios. Their
main contribution was combining production scenarios and uncertainty reduction effectively for
making optimal decisions. Dias (2002) presented four propositions to characterize technical
uncertainty and the concept of revelation towards the true value of the variable. These four
propositions, based on the theory of conditional expectations, are employed to model technical
uncertainty.
Jonsbraten (1998) considered gradual uncertainty reduction where all uncertainty is assumed
to resolve at the end of the project horizon. The author used a decision tree approach for
modeling the problem where Bayesian statistics are applied to find the probabilities of branches
in the decision tree that are decision dependent. The author also proposed an algorithm that relies
on the prediction of upper and lower bounds. Harrison (2007) used a different approach for
optimizing two-stage decision making problems under uncertainty. Some of the uncertainty was
assumed to resolve after the observation of the outcome of the first stage decision. The author
developed a new method, called Bayesian Programming, where the corresponding integrals were
approximated using Markov Chain Monte Carlo simulations, and decisions were optimized using
simulated annealing type of meta-heuristics.
Solak (2007) considered the project portfolio optimization problem that deals with the
selection of research and development projects and determination of optimal resource allocations
under decision dependent uncertainty where uncertainty is resolved gradually. The author used
the sample average approximation method for solving the problem, where the sample problems
were solved through Lagrangean relaxation and heuristics.
Tarhan and Grossmann (2008) considered the synthesis of process networks with
uncertainties in the yields of the processes, which are resolved gradually over time depending on
the investment and operating decisions. In the context of oilfield development planning problem,
Tarhan et al. (2009) address the planning of offshore oil field infrastructure involving
endogenous uncertainty in the initial maximum oil flowrate, recoverable oil volume, and water
breakthrough time of the reservoir, where decisions affect the resolution of these uncertainties.

22
The authors extend the work of Goel and Grossmann (2004) and Goel et al. (2006) but with three
major differences.
i. Model focuses on a single field consisting of several reservoirs rather than multiple
fields. However, more detailed decisions such as the number, type, and construction
decisions for infrastructure are considered.
ii. Nonlinear, rather than linear, reservoir models are considered. Nonlinear reservoir
models are important because Goel and Grossmann (2004) focused on gas fields, for
which linear models are often an adequate approximation, while for oil fields
nonlinear reservoir models are required.
iii. The resolution of uncertainty is gradual over time instead of being resolved
immediately. Compared to the instantaneous uncertainty resolution, gradual
resolution gives rise to some challenges in the model, including the underlying
scenario tree and the nonanticipativity constraints.
Tarhan et al. (2009) developed a multistage stochastic programming framework that was
modeled as a disjunctive/mixed-integer nonlinear programming model consisting of individual
non-convex MINLP subproblems connected to each other through initial and conditional non-
anticipativity constraints. A duality-based branch and bound algorithm was proposed taking
advantage of the problem structure and globally optimizing each scenario problem
independently. An improved solution approach was also proposed that combines global
optimization and outer-approximation to optimize the investment and operations decisions
(Tarhan et al. (2011)).

(c) Discussions
The explicit modeling of endogenous uncertainty in the multistage stochastic programming
framework, and the proposed duality based branch and bound solution strategies (Goel et al.
2006, Tarhan et al. 2009, 2011) can be very useful for the oilfield development planning
problem. The examples considered in these papers show considerable improvement in the
expected NPV compared to the solution where uncertainty is handled by simply using expected
values of the parameters (expected value solution). The added value of stochastic programming
is due to the more conservative initial investment strategy compared to the expected value
solution. In particular, stochastic programming solution proposes higher investments only when

23
the uncertainty parameters are found to be favorable. Moreover, stochastic programming based
model generate solutions that not only provides higher expected net present values, but also
offers more robust solutions with respect to the uncertainties that are not included explicitly in
the uncertainty space. The stochastic solutions have low risk in terms of probability of leading to
a negative NPV as compared to expected value solution. These results support the advantage of
using stochastic programming approach for development planning of oilfields.
The model considered by Goel et al. (2006) is for gas fields only, where linear reservoir
profiles is a reasonable assumption. The model considers multiple fields but facility expansions
and well drilling decisions are not considered. On the other hand, the model considered in
Tarhan et al. (2009) assumes either gas/water or oil/water components for a single field and
single reservoir at a detailed level. Hence, its extension to realistic multiple field instances can be
expensive to solve with this model. Also, the model cannot be reformulated as an MILP for
solving large instances to global optimality.
Therefore, the proposed deterministic model, (Gupta and Grossmann, 2011), presented in the
earlier section can be used as a basis to incorporate uncertainty in the decision-making process
(either exogenous or endogenous) under the proposed unified framework (Fig. 1). The model
includes multiple fields, oil, water and gas, nonlinear reservoir behavior, well drilling schedule
and facility expansions and lead times to represent realistic oilfield development project while
being computationally tractable for large instances. The interaction among various fields,
possibility of capacity expansions, lead-times and well drilling decisions allows incorporating
recourse actions in a more practical way. Moreover, the model is suitable for either immediate
(Goel et al. 2006) or gradual uncertainty resolution (Tarhan et al. 2009) using multistage
stochastic program as the underlying model.
However, there are still certain points in the proposed uncertainty modeling approaches and
solution algorithms in these papers (Goel et al. 2006, Tarhan et al. 2009) for which there is scope
for further improvement:
1. The duality based branch and bound method can further be improved e.g. use of logic
inference during the generation of cuts in the branch and bound tree, robust procedure to
generate feasible solution from the solution of Lagrangean dual, use of parallel
computing and scenario reduction algorithms to solve large instances etc.

24
2. Other solution approaches (e.g. Gupta and Grossmann (2011)) for multiage stochastic
problems with endogenous uncertainties can be explored.
3. Some heuristic approaches and model approximations can be explored to handle the
realistic large scale development planning problems with uncertainty.
4. The importance of considering other uncertain parameters, most notably oil price, might
be interesting to consider.
5. The decision maker is assumed to be risk neutral in the proposed models where the
objective is to maximize the expected net present value. In reality with such huge
investments, companies are interested in models that consider not only uncertainty but
also the risk explicitly, which can make the problem even more challenging to solve (You
et al. 2009).
6. The available reservoir simulators ECLIPSE (Schlumberger, 2008) could be incorporated
into the model to improve the accuracy of the reservoir profiles, although the potential
computational expense would be too large.
7. Although the real options methods, (Lund (1999, 2005), Kalligeros (2004), Dias (2004)),
seems to be limited to the number of decisions and the flexibility to incorporate complex
system structures, some insight about its advantages and disadvantages over stochastic
programming methods would be worth investigating.
It should also be noted that the development planning models are not intended to solve only
once to plan for next 20-30 years. Instead the model can be updated and resolved multiple times
as more information reveals.

5 Development Planning with Fiscal Considerations

In previous sections, we considered the development planning problem under perfect information
and proposed a deterministic model that can be applied to a project with multiple fields.
Furthermore, we also outlined the multistage stochastic approaches to incorporate uncertainty
and their solution methods. The deterministic model, (Gupta and Grossmann, 2011), can be used
a basis to incorporate uncertainty according to the unified framework (Fig. 1).
Including fiscal considerations, (Van den Heever and Grossmann (2001), Lin and Floudas
(2003)), as part of the investment and operation decisions for the oilfield development problem
can significantly impact the optimal investment and operations decisions and actual NPV.

25
Therefore, in this section we extend the proposed deterministic model that considers multiple oil
and gas fields with sufficient detail to include generic complex fiscal rules in development
planning under the proposed framework (Fig. 1). We first consider the basic elements of the
various types of contracts involved in this industry, review the work in this area and provide a
generic approach to include these contracts terms in the model.

(a) Type of Contracts

There are a variety of contracts that are used in the offshore oil and gas industry (World
Bank, 2007). These contracts can be classified into two main categories:
I. Concessionary System: A concessionary (or tax and royalty) system usually
involves royalty, deduction and tax. Royalty is paid to the government at a certain
percentage of the gross revenues each year. The net revenue after deducting costs
becomes taxable income on which a pre-defined percentage is paid as tax. The total
contractor’s share involves gross revenues minus royalty and taxes. The basic
difference as compared to the production sharing agreement, is that the oil company
obtains the title to all of the oil and gas at the wellhead and pay royalties, bonuses,
and other taxes to the government.
II. Production Sharing Agreements: The revenue flow in a typical Production Sharing
Agreement can be seen as in Figure 7. Some portion of the total oil produced is kept
as cost oil by the oil company for cost recovery purposes after paying royalties to the
government that is a certain percentage of the oil produced. There is a cost recovery
ceiling to ensure revenues to the government as soon as production starts. The
remaining part of the oil called profit oil is divided between oil company and the host
government. The oil company needs to further pay income tax on its share of profit
oil. Hence, the total contractor’s (oil company) share in the gross revenue comprises
of cost oil and contractor’s profit oil share after tax. The other important feature of a
PSA is that the government owns all the oil and transfers title to a portion of the
extracted oil and gas to the contractor at an agreed delivery point. Notice that the cost
oil limit is one of the key differences with a concessionary system.

26
 Production

Cost Oil Profit Oil Royalty

Contractor’s Share Government’s

Share

Contractor’s after- Income

tax Share Tax

Total Contractor’s Share Total Government’s Share

Figure 7: Revenue flow for a typical Production Sharing Agreement

The specific rules defined in such a contract (either PSA or concessionary) between
operating oil company and host government determine the profit that the oil company can keep
as well as the royalties and profit share that are paid to the government. These profit oil splits,
royalty rates are usually based on the profitability of the project (progressive fiscal terms), where
cumulative oil produced, rate of return, R-factor etc. are the typical profitability measures that
determine the tier structure for these contract terms.
In particular, the fraction of total oil production to be paid to the government in terms of
profit share, royalties are to be calculated based on the value of one or more profitability
parameters (e.g. cumulative production, daily production, IRR, etc.), specifically in the case of
progressive fiscal terms. The transition to the higher profit share, royalty rates is expressed in
terms of tiers that are a step function (g) linked to the above parameters and corresponding
threshold values. For instance, if the cumulative production is in the range of first tier,
L1  xct  U1 , the royalty R1 will be paid to the government, while if the cumulative production
reaches in tier 2, royalty R2 will need to be paid, and so on. In practice, as we move to the higher
tier the percentage share of government in the total production increases. Notice that if the fiscal

27
terms are not linked to the specific parameters, e.g. royalties, profit share are the fixed
percentage of total production, then the tier structure is not present in the problem.

R1 L1  xc  U1 : Tier 1

R2 L2  xc  U 3 : Tier 2

Royalty Rate   (g)
R3 L3  xc  U 3 : Tier 3

R3 L4  xc  U 4 : Tier 4

Given that the resulting royalties and/or government profit oil share can be a significant
amount of the gross revenues, it is critical to consider these contracts terms explicitly during
oilfield planning to access the actual economic potential of such a project. For instance, a very
promising oilfield or block can turn out to be a big loss or less profitable than projected in the
long-term if significant royalties are attached to that field, which was not considered during the
development planning phase involving large investments. On the contrary, there could be the
possibility of missing an opportunity to invest in a field that has very difficult conditions for
production and looks unattractive, but can have favorable fiscal terms resulting in large profits in
the long-term. In the next section we discuss how to include these rules within a development
planning model.

(b) Development Planning Model with Fiscal Considerations

The models and solutions approaches in the literature that consider the fiscal rules within
development planning are either very specific or simplified, e.g. one field at a time, only one
component, simulation or meta-heuristic based approaches to study the impact of fiscal terms
that may not yield the optimal solutions (Sunley et al. (2002), Kaiser, M.J. and A.G. Pulsipher
(2004), World Bank (2007), Tordo (2007)).
Van den Heever et al. (2000), and Van den Heever and Grossmann (2001) used a
deterministic model to handle complex economic objectives including royalties, tariffs, and taxes
for the multiple gas field site. These authors incorporated these complexities into their model
through disjunctions as well as big-M formulations. The results were presented for realistic
instances involving 16 fields and 15 years. However, the model considers only gas production
and the number of wells were used as parameters (fixed well schedule) in the model. Moreover,
the fiscal rules presented were specific to the gas field site considered for the study, but not in the
generic form. Based on the continuous time formulation for gas field development with complex
28
economics of similar nature as Van den Heever and Grossmann (2001), Lin and Floudas (2003)
presented an MINLP model and solved it with a two stage algorithm.
With the motivation for optimal investment and operations decisions in a realistic situation
for offshore oil and gas field planning project, we incorporate the generic fiscal terms described
earlier within proposed planning models (MINLP and MILP) and unified framework (Fig. 1).
Notice that we focus on the progressive production sharing agreement terms here that covers the
key elements of the most of the available contracts, and represent one of the most generic forms
of fiscal rules. Particular fiscal rules of interest can be modeled as the specific case of this
representation.
The objective here is to maximize the contractor’s NPV which is the difference between total
contractor’s revenue share and total cost occurred over the planning horizon, taking discounting
into consideration. The idea of cost recovery ceiling is included in terms of min function (h) to
limit the amount of total oil produced each year that can be used to recover the capital and
operational expenses. This ceiling on the cost oil recovery is usually enforced to ensure early
revenues to the Govt. as soon as production starts.

COt  min(CRt , f tCR  REVt ) t (h)

Moreover, a sliding scale based profit oil share of contractor that is linked to some parameter,
for instance cumulative oil production, is also included in the model. In particular, disjunction (i)
is used to model this tier structure for profit oil split which states that variable Z i,t will be true if

cumulative oil production by the end of time period t, (Gupta and Grossmann, 2012), lies
between given tier thresholds Li  xc t  U i , i.e. tier i is active and split fraction f i PO is used to
determine the contractor share in that time period. The disjunction (i) in the model is further
reformulated into linear and mixed-integer linear constraints using the convex-hull formulation
(Lee and Grossmann, 2000).

 Z i ,t 
 ConSht beforetax
 f i  POt 
PO
i   t (i)
 Li  xc t  U i 

We assume that only profit oil split is based on a sliding scale system, while other fractions
(e.g. tax rate, cost recovery limit fraction) are fixed parameters. Furthermore, the proposed model

29
is also extended to include the ring-fencing, which is the provision that are usually part of fiscal
terms and have significant impact on the NPV calculations. These provisions determine that all
the costs associated with a given block (which may be a single field or a group of fields) or
license must be recovered from revenues generated within that block, i.e. the block is “ring-
fenced”. It basically defines the level at which all fiscal calculations are need to be done, and
provide restriction to balance the costs and revenues across various projects/blocks that are not
part of that ring-fence. The other constraints and features remains the same as the proposed
MINLP and MILP models described in earlier sections.
Notice that the deterministic model with fiscal consideration presented here can also be used
as the basis for the stochastic programming approaches explained in the previous section to
incorporate uncertainty in the model under the unified framework (Fig. 1). Optimal investment
and operations decisions, and the computational impact of adding a typical progressive
Production Sharing Agreement (PSA) terms, is demonstrated in the results section 6 with a small
example.

(c) Key issues and Discussions

The extension of the deterministic oilfield development planning problem to include fiscal
rules explicitly in the formulation raises the following issues:
1. The model can become expensive to solve with the fiscal rules, especially the one that
involves progressive fiscal terms due to the additional binary variable that are required to
model the tier structure and resulting weak relaxation of the model. This is due to the
relatively weak bounds on some of the key variables in the model, e.g. contractor share,
profit oil, cost oil etc. which are difficult to estimate a priori.
2. Specialized decomposition algorithms that exploit the problem structure may be exploited
to improve the computational efficiency.
3. Alternative ways to disjunctive models for the fiscal rules can be analyzed, e.g. including
fiscal terms in approximate form, especially for the progressive fiscal terms so that multi-
field site problem is tractable.
4. Although we include the most general basic elements of the fiscal rules, there might be
some additional project specific fiscal terms that can have significant impact. Therefore,
it is important to include the corresponding fiscal terms defined for a particular project of
interest.

30
 In a forthcoming paper, we will discuss the details of the generic model for the development
planning problem with fiscal considerations and ways to improve its computational efficiency,
(Gupta and Grossmann, 2012).

6 Examples
In this section we consider a variety of the examples for the oilfield development planning
problem that covers deterministic, stochastic and complex fiscal features as discussed in the
earlier sections.

(a) Instance 1: Deterministic Case

In this section we present an example of the oilfield planning problem assuming that there is
no uncertainty in the model parameters. We compare the computational results of the various
MINLP and MILP models proposed in the respective section (see Gupta and Grossmann, 2011
for more details).
We consider 10 oil fields (Figure 8) that can be connected to 3 FPSOs with 23 possible
connections. There are a total of 84 wells that can be drilled in all of these 10 fields, and the
planning horizon considered is 20 years, which is discretized into 20 periods of each 1 year of
duration. We need to determine which of the FPSO facilities is to be installed or expanded, in
what time period, and what should be its capacity of oil, liquid and gas, to which fields it should
be connected and at what time, and the number of wells to be drilled in each field during each
time period. Other than these installation decisions, there are operating decisions involving the
flowrate of oil, water and gas from each field in each time period. The objective function is to
maximize total NPV over the given planning horizon.

Figure 8: Instance 3 (10 Fields, 3 FPSO, 20 years) for oilfield problem

31
 The problem is solved using the DICOPT 2x-C solver for MINLP Models 1 and 2, and
CPLEX 12.2 for MILP Model 3. These models were implemented in GAMS 23.6.3 and run on
Intel Core i7 machine. The optimal solution of this problem that corresponds to reduced MINLP
Model 2-R solved with DICOPT 2x-C, suggests to install all the 3 FPSO facilities in the first
time period with their respective liquid (Figure 9-a) and gas (Figure 9-b) capacities. These FPSO
facilities are further expanded in future when more fields come online or liquid/gas flow rates
increases as can be seen from these figures.

Liquid Capacity Gas Capacity

800 400

700 350

600 300

Qgas (MMSCF/d)
Qliq (kstb/d)

500 250
400 200
fpso1 fpso1
300 150
fpso2 fpso2
200 100
fpso3 fpso3
100 50
0 0
1 3 5 7 9 11 13 15 17 19 1 3 5 7 9 11 13 15 17 19
Year Year

(a) Liquid capacities of FPSO facilities (b) Gas capacities of FPSO facilities
Figure 9: FPSO installation and expansion schedule

14
Well Drilling Schedule
12 f1
f2
10 f3
Number of Wells

f4
8 f5
f6
6 f7
f8
4 f9
f10
2

0
1 3 5 7 9 11 13 15 17 19
Year

Figure 10: FPSO-field connection schedule Figure 11: Well drilling schedule for fields

After initial installation of the FPSO facilities by the end of time period 3, these are
connected to the various fields to produce oil in their respective time periods for coming online
as indicated in Figure 10. The well installation schedule for these fields (Figure 11) ensures that
the maximum number of wells drilling limit and maximum potential wells in a field are not

32
violated in each time period t. We can observe from these results that most of the installation and
expansions are in the first few time periods of the planning horizon. The total NPV of the project
is $30946.39M.
Tables 2-3 represent the results for the various model types considered for this instance.
DICOPT performs best in terms of solution time and quality, even for the largest instance
compared to other solvers as can be seen from Table 2. There are significant computational
savings with the reduced models as compared to the original ones for all the model types in
Table 3. Even after binary reduction of the reformulated MILP, Model 3-R becomes expensive to
solve, but yields global solutions, and provides a good discrete solution to be fixed/initialized in
the MINLPs for finding better solutions.
Table 2: Comparison of various models and solvers for Instance 1
Model 1 Model 2
Constraints 5,900 10,100
Continuous Var. 4,681 6,121
Discrete Var. 851 851
Optimal NPV Time (s) Optimal NPV Time (s)
Solver (million$) (million$)
DICOPT 31297.94 132.34 30562.95 114.51
SBB 30466.36 4973.94 30005.33 18152.03
BARON 31297.94 >72,000 30562.95 >72,000

Table 3: Comparison of models 1, 2 and 3 with and w/o binary reduction

Model 1 Model 1-R Model 2 Model 2-R Model 3-R
Constraints 5,900 5,677 10,100 9,877 17,140
Continuous Var. 4,681 4,244 6,121 5,684 12,007
Discrete Var. 851 483 851 483 863
SOS1 Var. 0 0 0 0 800
NPV(million$) 31297.94 30982.42 30562.95 30946.39 30986.22
Time(s) 132.34 53.08 114.51 67.66 16295.26
*Model 1 and 2 solved with DICOPT 2x-C, Model 3 with CPLEX 12.2
We can see from Table 4 that the solutions from the Models 1 and 2 after fixing discrete
variables based on the MILP solution (even though it was solved within 10% of optimality
tolerance) are the best among all other solutions obtained in Table 2. Therefore, the MILP
approximation is an effective way to obtain near optimal solution for the original problem.
Notice also that the optimal discrete decisions for Models 1 and 2 are very similar even though

33
they are formulated in a different way. However, only Model 2 can be reformulated into an
MILP problem that gives a good estimate of the near optimal decisions for these MINLPs.
Table 4: Improved solutions (NPV in million$) for Models 1 and 2 using Model 3-R solution
Model 1 Model 1 (fixed Model 2 Model 2 (fixed
binaries from binaries from
Model 3-R) Model 3-R)
31297.94 31329.8136 30562.95 31022.4813

(b) Instance 2: Stochastic Case

In this example, we consider the planning of offshore oilfield under decision-dependent
uncertainty which resolves gradually as a function of investment and operations decisions.
A single reservoir (Figure 12) for 10 years planning horizon is considered that involves
decisions about the number, capacity, and installation schedule of FPSO/TLP facilities; the
number and drilling schedule of subsea/TLP wells; and the oil production profile over time. The
objective is to maximize the expected NPV value. The problem data, details and solution
methods are reported in Tarhan et al. (2009).

Figure 12: Offshore oilfield Infrastructure for instance 2

The uncertainties in the initial maximum oil flowrate, the size of the reservoirs, and the water
breakthrough time are represented by discrete distributions consisting of high and low values
resulting in eight scenarios (Table 5).

34
 Table 5: Scenario representation for example 2
Initial Water
Scenarios Productivity per Reservoir Size breakthrough
well (kbd) time
1 10 300 5
2 10 300 2
3 20 300 5
4 20 300 2
5 10 1500 5
6 10 1500 2
7 20 1500 5
8 20 1500 2

The specific rules used for describing the uncertainty resolution are as follows:
The appraisal program is completed when a total of three wells are drilled in one reservoir,
which not only gives the actual value for the initial maximum oil flowrate, but also provides the
posterior probabilities of reservoir sizes depending on the outcome. The uncertainty in reservoir
size can be resolved if either a total of nine or more wells are drilled, or production is made from
that reservoir for a duration of 1 year. Uncertainty in the water breakthrough time is resolved
after 1 year of production from the reservoir.
The comparison of model statistics given in the paper shows that the size of the full space
model increases exponentially as a result of the increase in the number of binary variables for
representing uncertainty resolution and the nonanticipativity constraints that relate the decisions
in indistinguishable scenarios.
The proposed branch-and-bound algorithm in Tarhan et al. (2009) required 23 h because, at
each node, 40 MINLP problems were solved to global optimality. A total of seven nodes were
traversed, and the best feasible solution was found at node 5. The computational efficiency of the
method is further improved by combining global optimization and outer-approximation within
proposed duality based branch and bound based algorithm (Tarhan et al. 2011).
The expected value solution proposes building five small FPSO and two TLP facilities and
drilling nine subsea wells in the first year. These decisions resolve the uncertainty in the initial
productivity and reservoir size. Depending on the values of the reservoir size and initial
productivity, different decisions are implemented. This expected value approach gives an
objective function value of $5.81 × 109. The optimal stochastic programming solution yields an

35
expected net present value of $6.37 × 109, which is higher than the expected value solution
($5.81 × 109). The multistage stochastic programming solution proposes building two small
FPSO and one TLP facility, and drilling nine subsea wells in the first year. Uncertainty in the
initial oil flowrate and reservoir size is resolved after nine wells have been drilled. For scenarios
5 and 6, the solution proposes building four more small FPSO facilities, one large FPSO facility,
and five TLP facilities and drilling 12 subsea and three TLP wells. For scenarios 7 and 8, the
solution proposes building six more small FPSO facilities and one TLP facility and drilling six
subsea wells.
The added value of stochastic programming is due to the conservative initial investment
strategy compared to the expected value solution strategy. The stochastic programming approach
considers all eight scenarios before making the initial investment. Therefore, it proposes building
two small FPSO facilities instead of five and one TLP facility instead of two. Also, it builds
more facilities and drills wells only after it determines that the reservoir size is 1500 Mbbl. A
comparison of net present values of the expected value solution and stochastic programming
shows that the added value of stochastic programming comes from handling the downside risk
much better than the expected value solution.

(c) Instance 3: Development planning with Complex Fiscal Rules

Optimal investment and operations decisions, and the computational impact of adding a
typical progressive Production Sharing Agreement (PSA) terms for a deterministic case of the
oilfield planning problem is demonstrated here.

100%
% Profit oil Share of

80%
Contractor

60%

40%

20%

0%
0 200 400 600 800 1000
Cumulative Oil Production (MMbbl)

Figure 13. Contractor’s Profit oil share for Example 3

36
 In this instance, we consider 5 oilfields that can be connected to 3 FPSO’s with 11 possible
connections (Gupta and Grossmann, 2012). There are a total of 31 wells that can be drilled in the
5 fields, and the planning horizon considered is 20 years. There is a cost recovery ceiling and 4
tiers (see. Fig. 13) for profit oil split between the contractor and host Government that are linked
to cumulative oil production, which defines the fiscal terms of a typical progressive Production
Sharing Agreement.
Table 6 compares the results of the proposed MILP (Model 3) and reduced MILP models
(Model 3-R) with progressive PSAs for this example. We can observe that there is significant
increase in the computational time with fiscal consideration for the original MILP formulation
(Model 3), which takes more than 10 hours with a 14% of optimality gap as compared to the
reduced MILP model (Model 3-R), which terminates the search with a 2% gap in reasonable
time. In contrast, Model 3-R without any fiscal terms can be solved in 189.8 seconds. Therefore,
including fiscal rules within development planning can make the problem much harder to solve
due to the additional binary variables that are required to model tiers, and resulting weak
relaxation.
Note that on contrary the fiscal terms without tier structure, for instance fixed percentage of
profit share, royalty rates, may reduce the computational expense of solving the deterministic
model directly without any fiscal terms instead. Surprisingly, the problem with flat 35% of the
profit share of contractor is solved in 72.64s which is even smaller than the solution time for
deterministic case without any fiscal terms (189.8s). On the other hand, the problem with 2 tiers
instead of 4 as considered above is solved in 693.71s which is more than the model without fiscal
terms and less than the model with 4 tiers. Therefore, the increase in computational time while
including fiscal rules within development planning is directly related to the number of tiers
(steps) that are present in the model to determine the profit oil shares or royalties.
Table 6. Computational Results for Example 3
Constraints Continuous Discrete NPV Time (s)
Model
Variables Variables ($Million)
Model 3 with PSA 9474 6432 727 2,183.63 >36,000
Model 3-R with PSA 9363 6223 551 2,228.94 1,163.7

The optimal solution from Model 3-R with fiscal considerations suggests installing 1 FPSO
facility with expansions in the future (see Fig. 14), while Fig. 15 represents the well drilling
schedule for this example. The tiers 2, 3 and 4 for profit oil split become active in years 6, 8 and

37
12, respectively, based on the cumulative oil production profile during the given planning
horizon.

700
250
600
500 200
kstb/d

400

MMSCF/d
150
300
100
200
100 50
0 0
0 5 10 15 20 0 5 10 15 20
Year Year

(a) Liquid capacity (b) Gas capacity

Figure 14. Liquid and Gas capacities of FPSO 3
facility

10

8
Number of Wells

f1
6 f2
f3
4 f4
f5
2

0
0 5 10 15 20
Year
Figure 15. Well drilling schedule for Example 3

Conclusions
In this paper, we have first reviewed a new generic model for offshore oil and gas field
infrastructure investment and operational planning considering multiple fields, three components
(oil, water and gas), facility expansions decisions, well drilling schedules and nonlinear reservoir
profiles. The detailed model and its reformulations to improve the computational efficiency have
been discussed. Furthermore, to address the issue of uncertainty in key model parameters, recent
work on multiage stochastic programming based approaches was highlighted. Discussion on the
extensions of the proposed deterministic model to incorporate uncertainties and generic fiscal
rules in a unified framework, and possible complications was presented. Numerical results on
development planning problems involving perfect information or uncertainty were reported, as
well as the handling of fiscal considerations, specifically Production Sharing Agreements. It is

38
hoped that this paper has shown that there has been very significant progress in the mathematical
programming models for offshore development planning.

References
1. Ahmed, S., 2000. Strategic planning under uncertainty: Stochastic integer programming
approaches. Ph.D. thesis, University of Illinois at Urbana-Champaign.
2. Aronofsky JS, Williams AC. The use of linear programming and mathematical models in
underground oil production. Manage Sci. 1962; 8:394–407.
3. Aseeri, A., Gorman, P., Bagajewicz, M. J. Financial risk management in offshore oil
infrastructure planning and scheduling. Ind. Eng. Chem. Res. 2004, 43, 3063–3072.
4. Babusiaux, D., Favennec, J. P., Bauquis, P. R., Bret-Rouzaut, N., and Guirauden, D.
(2007). Oil and Gas Exploration and Production: Reserves, costs, contracts. Technip
edition, 2007, chap. 4.
5. Bailey, W. J.; Couet, B.; Wilkinson, D. Field Optimization Tool for Maximizing Asset
Value. SPE ReserVoir EVal. Eng. 2005, 8 (1), 7–21.
6. Barnes, R., Linke, P., Kokossis, A. Optimization of oil-field development production
capacity. European symposium on computer aided process engineering, 2002, vol. 12 (p.
631).
7. Barnes, R.J., Kokossis, A. and Shang, Z. An integrated mathematical programming
approach for the design and optimisation of offshore fields. Computers and Chemical
Engineering, 31, Issues 5-6, 2007, 612-629.
8. Begg, S. H., Bratvold, R., Campbell, J. C. Improving Investment Decisions Using A
Stochastic Integrated Asset Model Presented at the SPE Annual Technical Conference
and Exhibition, New Orleans, LA, Sep 30-Oct 3, 2001; Paper SPE 71414.
9. Behrenbruch, P. Offshore oilfield development planning. J. Pet. Technol. 1993, 45 (8),
735–743.
10. Birge, J. R., Louveaux, F., 1997. Introduction to stochastic programming. New York,
NY: Springer.
11. Bohannon J. A linear programming model for optimum development of multi-reservoir
pipeline systems. J Petrol Tech. 1970;22:1429–1436.
12. Boland, N., Dumitrescu, I., Froyland, G., 2008. A multistage stochastic programming
approach to open pit mine production scheduling with uncertain geology.
http://www.optimizationonline.org/DBHTML/2008/10/2123.html.
13. BP Statistical Review of World Energy, 2011.
14. Caroe, C.C., Schultz, R., 1999: Dual decomposition in stochastic integer programming.
Oper. Res. Lett. 24, 37–45.
15. Carvalho, M., Pinto, J. M. A bilevel decomposition technique for the optimal planning of
offshore platforms. Brazilian J. Chem. Eng. 2006a, 23, 67–82.

39
16. Carvalho, M., Pinto, J. M. An MILP model and solution technique for the planning of
infrastructure in offshore oilfields. J. Pet. Sci. Eng. 2006b,51, 97–110.
17. Clay, R. L., Grossmann, I. E., 1997. A disaggregation algorithm for the optimization of
stochastic planning models. Computers and Chemical Engineering 21 (7),751-774.
18. Colvin, M., Maravelias, C. T., 2008. A stochastic programming approach for clinical trial
planning in new drug development. Computers and Chemical Engineering 32 (2008)
2626–2642
19. Colvin, M., Maravelias, C.T., 2010. Modeling methods and a branch and cut algorithm
for Pharmaceutical Clinical Trial Planning using Stochastic Programming, European
Journal of Operational Research, 203 (2010) 205–215.
20. Cullick, A. S., Heath D., Narayanan K., April J., Kelly J. Optimizing Multiple-Field
Scheduling and Production Strategy with Reduced Risk. Presented at the SPE Annual
Technical Conference and Exhibition, Denver, CO, Oct 5-8, 2003; Paper SPE 84239.
21. Cullick, A. S., Cude, R., and Tarman, M. 2007. Optimizing Field Development Concepts
for Complex Offshore Production Systems, Paper SPE 108562-MS presented at Offshore
Europe, Aberdeen, Scotland, U.K., 4-7 September.
22. Dias, M. A. G., 2004. Valuation of exploration and production assets: an overview of real
options models. Journal of Petroleum Science and Engineering 44 (1-2), 93-114.
23. Elgsæter, S. M., O. Slupphaug, Johansen T. A. A structured approach to optimizing
offshore oil and gas production with uncertain models. Comput. Chem. Eng. 2010, 34(2),
163-176.
24. Ettehad, A., Jablonowski, C. J., Lake, L. W. Stochastic Optimization and Uncertainty
Analysis for E&P Projects: A Case in Offshore Gas Field Development, Offshore
Technology Conference, 2011.
25. Goel, V., Grossmann, I. E. A stochastic programming approach to planning of offshore
gas field developments under uncertainty in reserves. Comput. Chem. Eng. 2004, 28 (8),
1409–1429.
26. Goel, V., Grossmann, I. E. A class of stochastic programs with decision dependent
uncertainty. Mathematical Programming, 2006, 108(2–3, Ser. B), 355–394.
27. Goel, V., Grossmann, I. E., El-Bakry, A. S., Mulkay, E. L. A novel branch and bound
algorithm for optimal development of gas fields under uncertainty in reserves. Comput.
Chem. Eng. 2006, 30, 1076-1092.
28. Grothey, A., McKinnon, K., 2000. Decomposing the optimization of a gas lifted oil well
network. Tech Rept. MS 00-005, Department of Mathematics and Statistics, University
of Edinburgh.
29. Gunnerud, V., Foss, B. Oil production optimization – A piecewise linear model, solved
with two decomposition strategies. Computers and Chemical Engineering, 2010, 34,
1803–1812.
30. Gupta, V., Grossmann, I. E. Solution strategies for multistage stochastic programming
with endogenous uncertainties. Comput. Chem. Eng. 2011, 35, 2235–2247.

40
31. Gupta, V., Grossmann, I. E. An Efficient Multiperiod MINLP Model for Optimal
Planning of Offshore Oil and Gas Field Infrastructure. I&EC Research, 2011, Submitted
for publication.
32. Gupta, V., Grossmann, I. E. Optimal Development Planning of Offshore Oil and Gas
Field Infrastructure under Complex Fiscal Rules. Proceedings of Foundations of
Computer-Aided Process Operations (FOCAPO 2012), In press.
33. Gupta, V., Grossmann, I. E. Modeling and Solution strategies for Offshore Oilfield
Development Planning under Complex Fiscal Rules. Working paper,2012.
34. Haugen, K. K., 1996. A stochastic dynamic programming model for scheduling of
offshore petroleum fields with resource uncertainty. European Journal of Operational
Research 88 (1), 88–100.
35. Haugland, D., Hallefjord, Å.; Asheim, H. Models for Petroleum Field Exploitation. Eur.
J. Oper. Res. 1988, 37, 58.
36. Held, H., Woodruff, D. L., 2005. Heuristics for multi-stage interdiction of stochastic
networks. Journal of Heuristics 11 (5-6), 483-500.
37. Ierapetritou, M. G., Pistikopoulos, E. N., 1994. A novel optimization approach of
stochastic planning models. Industrial and Engineering Chemistry Research 33, 1930-
1942.
38. Iyer, R. R., Grossmann, I. E., 1998. A bilevel decomposition algorithm for long-range
planning of process networks. Industrial and Engineering Chemistry Research 37 (2),
474-481.
39. Iyer, R. R., Grossmann, I. E., Vasantharajan, S., Cullick, A. S. Optimal planning and
scheduling offshore oilfield infrastructure investment and operations. Ind. Eng. Chem.
Res. 1998, 37, 1380–1397.
40. Jonsbraten, T. W. Oil-field optimization under price uncertainty. Journal of the
Operational Research Society,1998, 49, 811.
41. Jonsbraten, T., 1998. Optimization models for petroleum field exploitation. PhD thesis,
Norwegian School of Economics and Business Administration.
42. Jonsbraten, T. W.; Wets, R. J. B.; Woodruff, D. L. A class of stochastic programs with
decision dependent random elements. Ann. Oper. Res. 1998, 82, 83–106.
43. Kaiser, M.J. and A.G. Pulsipher. Fiscal System Analysis: Concessionary and Contractual
Systems Used in Offshore Petroleum Arrangements. US Department of the Interior
Mineral Management Services MMS 2004-016, 1-78.
44. Kosmidis, V., Perkins, J., Pistikopoulos, E., 2002. A mixed integer optimization strategy
for integrated gas/oil production. In: European Symposium on Computer Aided Process
Engineering. Vol. 12.
45. Kosmidis, V. D.; Perkins, J. D.; Pistikopoulos, E. N. Optimization of Well Oil Rate
Allocations in Petroleum Fields. Ind. Eng. Chem. Res. 2004, 43, 3513.

41
46. Kosmidis, V. D., Perkins, J. D., Pistikopoulos, E. N. A mixed integer optimization for the
well scheduling problem on petroleum fields. Computers & Chemical Engineering
Journal, 2005, 29, 1523–1541.
47. Lee AS, Aronofsky JS. A linear programming model for scheduling crude oil production.
J Petrol Tech. 1958;10:51–54.
48. Lee, S., Grossmann, I. E. New algorithms for nonlinear generalized disjunctive
programming. Computers and Chemical Engineering 2000, 24 (9-10), 2125-2141.
49. Ligero, E. L., Xavier, A. M., Schiozer, D. J. Value of information during appraisal and
development of petroleum fields. Presented at the 18th International Congress of
Mechanical Engineering, Ouro Preto, MG Brasil, Nov 6-11, 2005.
50. Lin, X., Floudas, C. A. A Novel Continuous-Time Modeling and Optimization
Framework for Well Platform Planning Problems. Optim. Eng. 2003, 4 (1-2), 65–95.
51. Lund, M. W. 1999. Real options in offshore oil field development projects, Proceedings
3rd International Conference on Real Options, 6-8 June Wassenaar, Holland.
52. Lund, M. W. Valuing Flexibility in Offshore Petroleum Projects. Ann. Oper. Res. 2000,
99 (1-4), 325–349.
53. Lund, D., 2005. How to analyze the investment–uncertainty relationship in real options
models? Review of Financial Economics 14, 311–322.
54. Ortiz-Gomez, A., Rico-Ramirez, V., & Hernandez-Castro, S. Mixed-integer multiperiod
model for the planning of oil-field production. Comput. Chem. Eng.,2002, 26(4–5), 703.
55. Ozdogan, U.; Horne, R. N. Optimization of well placement under time-dependent
uncertainty. SPE Reservoir Eval. Eng. 2006, 9 (2), 135–145.
56. Pflug, G. Ch., 1990. Online optimization of simulated markovian processes. Mathematics
of Operations Research Res. 15, No.3, 381-395.
57. Rico-Ramirez V., Grossmann I. E., Tarhan B., Hernández-Castro S., Segovia-Hernández
J. G. An Approach to the Representation of Gradual Uncertainty Resolution in Stochastic
Multiperiod Planning. Computer Aided Chemical Engineering, 26, 2009, 713-718.
58. Ruszczynski, A., 1997. Decomposition methods in stochastic programming. Math.
Programming (Ser. B) 79, 333-353.
59. Sullivan J. A computer model for planning the development of an offshore gas field. J
Petrol Tech. 1982;34:1555–1564.
60. Sahinidis, N.V., 2004. Optimization under uncertainty: State-of-the-art and
opportunities. Comput. Chem. Eng. 28 (6–7), 971–983.
61. Schultz, R., 2003. Stochastic programming with integer variables. Mathematical
Programming 97 (1–2), 285–309.
62. Solak, S., 2007. Efficient solution procedures for multistage stochastic formulations of
two problem classes. PhD thesis, Georgia Institute of Technology.
63. Sunley, E. M., T. Baunsgaard, and D. Simard. 2002. “Revenue from the Oil and Gas
Sector: Issues and Country Experience.” IMF Conference Paper.

42
 64. Tarhan, B., Grossmann, I. E., 2008. A multistage stochastic programming approach with
strategies for uncertainty reduction in the synthesis of process networks with uncertain
yields. Computers and Chemical Engineering 32, 766-788.
65. Tarhan, B., Grossmann, I.E., Goel, V. Stochastic programming approach for the planning
of offshore oil or gas field infrastructure under decision- dependent uncertainty. Ind. Eng.
Chem. Res. 2009, 48(6), 3078–3097.
66. Tarhan, B., Grossmann, I.E., Goel, V. Computational strategies for non-convex
multistage MINLP models with decision-dependent uncertainty and gradual uncertainty
resolution. Ann. Oper. Res., 2011, DOI: 10.1007/s10479-011-0855-x.
67. Tordo, S. 2007. Fiscal Systems of Hydrocarbons: Design Issues.Working Paper 123/07,
World Bank, Washington, D.C.
68. Tsarbopoulou, C. Optimization of oil facilities and oil production. M.Sc. Dissertation,
University College London, London, U.K., 2000.
69. Ulstein, N. L., Nygreen, B.; Sagli, J. R. Tactical planning of offshore petroleum
production. Eur. J. Oper. Res. 2007, 176, 550–564.
70. Viswanath, K., Peeta, S., Salman, S. F., 2004. Investing in the links of a stochastic
network to minimize expected shortest path length. Tech. rep., Purdue University.
71. van den Heever, S. A.; Grossmann, I. E. An iterative aggregation/disaggregation
approach for the solution of a mixed integer nonlinear oilfield infrastructure planning
model. Ind. Eng. Chem. Res. 2000, 39, 1955–1971.
72. van den Heever, S. A., Grossmann, I. E., Vasantharajan, S.; Edwards, K. Integrating
complex economic objectives with the design and planning of offshore oilfield
infrastructures. Comput. Chem. Eng. 2000, 24, 1049–1055.
73. van den Heever, S. A., Grossmann, I. E. A Lagrangean Decomposition Heuristic for the
Design and Planning of Offshore Hydrocarbon Field Infrastructures with Complex
Economic Objectives. Ind. Eng. Chem. Res. 2001, 40, 2857–2875.
74. World Bank. 2007. “Contracts for Petroleum Development – Part 1-3.” Petroleum Sector
Briefing Note No. 7.
75. You F., Wassick J. M., Grossmann I. E. Risk management for global supply chain
planning under uncertainty: models and algorithms. AIChE J. 2009, 55, 931–946.
76. Zabalza-Mezghani, I.; Manceau, E.; Feraille, M.; Jourdan, A. Uncertainty management:
From geological scenarios to production scheme optimization. J. Pet. Sci. Eng. 2004, 44,
11–25.

43

View publication stats