Monte Carlo Simulation

Dr. Charlie Wu
charwu2015@gmail.com
Phone:0816897838 March 4, 2017
 INPUT
Seismic Well Geology Production

Analytical methods

Stochastic
Deterministic
Simulation

Other
OK IK SGS SIS others
mapping

OUTPUT
Reservoir variables

Depth Porosity Thickness Saturation Production Econ $$$

 Monte Carlo Simulation
Monte Carlo, a city in Monaco.
People gamble there; play games of
chance, which involve randomness.

Monte Carlo methods are ways of

simulating (calculating) physical
phenomena based on randomness
and probability.
 Monte Carlo Methods
Randomly generate a large number of example
cases (realizations) of a complex phenomenon,
and then use the average and statistical summary
of these realizations (outcome).

Used in nuclear science, finance, project

management, energy, manufacturing, engineering,
research and development, insurance, oil & gas,
transportation, environment, etc.
 Monte Carlo Simulation Steps
Step 1: Create a parametric model (deterministic equation or formula)
y = f(x1, x2, ..., xm).
Step 2: Select and evaluate model variables, x1, x2, ..., xm
Step 3: Choosing a probability distribution for each variable
Step 4: Generate random input for each variable, xi1, xi2,.., xim
Step 5: Run the deterministic calculation
Step 6: Evaluate the calculation result yi
Step 7: Repeat N steps 2 and 3 for i = 1 to N
Step 8: Analyze the results using histograms, summary
statistics, sensitivity and probability plots.
 Input Variable Distribution
For describing uncertainty of variables of a risk analysis,
common probability distributions for variables include:

• Normal – defines the mean/expected value and a standard

deviation, ie. inflation rate, energy price, porosity

• Lognormal –permeability, oil reserves

• Uniform –short term material costs, short term revenues

• Triangular – The user defines the minimum, most likely, and

maximum values, ie. reserve distribution

• Discrete – defines specific values, ie. limited porosity data

Distribution types
16 10 10

14 9 9

8 8
12
7 7
10
6 6

8 5 5

6 4 4

3 3
4
2 2
2
1 1
0 0 0
0 2 4 6 8 10 0 2 4 6 8 10 0 2 4 6 8 10

14 14 14

12 12 12

10 10 10

8 8 8

6 6 6

4 4 4

2 2 2

0 0 0
0 2 4 6 8 10 0 2 4 6 8 10 0 2 4 6 8 10

12 10 10

9 9
10 8
8

7 7
8
6 6

6 5 5

4 4
4 3
3

2 2
2
1 1

0 0
0
0 2 4 6 8 10 0 2 4 6 8 10
0 2 4 6 8 10
 2 SAMPLS FROM POPULATION
N=20 N=50 N=100 N=500 N=1000
4.5 12 20 120 250

4 18
10 100
3.5 16 200

14
3 8 80
12 150
2.5
6 10 60
2
8 100
1.5 4 40
6
1 4 50
2 20
0.5 2
0 0 0 0 0
0 2 4 6 8 10 0 2 4 6 8 10 0 2 4 6 8 10 0 2 4 6 8 10 0 2 4 6 8 10

3.5 12 18 100 200

16 90 180
3
10
14 80 160
2.5 70 140
8 12
60 120
2 10
6 50 100
1.5 8
40 80
4 6
1 30 60
4 20 40
2
0.5
2 10 20
0 0 0 0 0
0 2 4 6 8 10 0 2 4 6 8 10 0 2 4 6 8 10 0 2 4 6 8 10 0 2 4 6 8 10
OPERATIONS OF DISTRIBUTION
9
N=20 14
N=50 N=100 160
N=500 N=1000 300
30
8 140
12
250
7 25
120
10
6 200
20 100
5 8
80 150
4 6 15
60
3
4 100
10 40
2
2
1 20 50
5

0 0 0
0 2 4 6 8 10 0
0 2 4 6 8 10 0 0 2 4 6 8 10
-1 -2 -20 0 2 4 6 8 10
0 2 4 6 8 10

3.5 9 70 160
20
8 18 140
3 60
7 16
2.5 50 120
6 14
100
2 12 40
5
10 80
1.5 4 30
8 60
3
1 20
6
2 40
0.5 4 10
1 20
2
0 0
0
-10 -5 0 5 10 0 -10 -5 0 5 10 0
-10 -5 0 5 10
-0.5 -1 -10 -5 -2 0 5 10 -10 -10 -5 0 5 10

8 14 35 160 300

7 12 140
30 250
6 10 120
25
200
5 100
8
20
4 80 150
6 9
9 9
15
3 9 9 60
4 100
2 10 40
2
1 50
5 20
0
0 0 0
0 20 40 60 80 100 0
0 20 40 60 80 100 -2 0 20 40 60 80 100 0 20 40 60 80 100
-1 0 20 40 60 80 100

25 45 250 500
6
40 450
5 20 200 400
35
350
4 15 30 150
300
25
3 250
10 20 100
200
2 15
5 50 150
10
1 100
0 5 0 50
0 0 20 40 60 80 100 0 0 20 40 60 80 100
0
0 20 40 60 80 100 0 20 40 60 80 100
-5 -5 -50 0 20 40 60 80 100
-1
 Oil and Gas Example: Calculating
Petroleum Initially In Place (PIIP) & Estimated
Ultimate Recovery (EUR) calculations
PIIP (STB or scf) = c A h ø (1- Sw) / Bh

PIIP = GRV x N/G x Porosity x Sh / FVF

EUR (STB or scf) = PIIP (STB or scf) × RE (fraction of PIIP)

• c constant: 7758 for oil, 43560 for gas

• A: Area; h: net pay; Sh: hydrocarbon saturation; Sw: water saturation
• GRV (Gross Rock volume) – rock volume above the hydrocarbon water contact
• Net/gross ratio (N/G) - fraction of the GRV to be reservoir rock
• Porosity ø – fraction of the net reservoir rock occupied by pores
• FVF, Bh - factor converts volumes at reservoir conditions (high pressure and
high temperature) to surface storage and sale conditions
 Volumetric calculation

7758 x Area x Net Pay x Porosity x Oil Saturation

OIIP =
Oil Formation Volume Factor

43560 x Area x Net Pay x Porosity x Gas Saturation

GIIP =
Gas Formation Volume Factor

Notes: Area (acres) Net Pay (ft) Porosity (fraction)

Oil or Gas Saturation (fraction)
Oil Formation Factor (Bbl/STB)
Gas Formation Factor (cubic ft/Scf)
 Monte Carlo Simulation of Volumetric Calculation

GRV N/G Sh Bh

MC Simulation
Initially In-place Petroleum volume
PDF CDF
STPIIP STPIIP
p p>x
Freq

1P 2P 3P
 NET-TO-GROSS POROSITY
9
GRV 9
9
8
8
8
7
7 7

Frequency
Frequency

Frequency
6
6 6
5
5 5
4
4 4
3
3 3
2
2 2
1 1
1
0 0
0

0 500,000 1,000,000 1,500,000 0 0.2 0.4 0.6 0.8 1 0 0.05 0.1 0.15 0.2 0.25
Acre-feet

Sw 14
Bo RF
12 14

12
10 12
10

Frequency
Frequency

10

Frequency
8
8
8
6
6
6
4 4
4
2 2
2

0 0
0

0 0.2 0.4 0.6 0.8 1 0 0.5 1 1.5 2

0 0.2 0.4 0.6 0.8

RESERVES RESERVES
18
100 P90
16

14
80
Frequency

Probability

12

10 60 P50
8

6 40
4
20
2 P10
0
0
0 100 200 300 400 0 100 200 300 400
mmbo mmbo
Expected Monetary Value Simulation

Source: Guidelines for Application of the Petroleum Resources Management

System, Sponsored by SPE, AAPG, WPC, SPEE and SEG, November 2011.
 Prospect Uncertainty

mmbo 100 300 500 700 900

Source: Guidelines for Application of the Petroleum

Resources Management System, Sponsored by SPE,
AAPG, WPC, SPEE and SEG, November 2011.
Range of Input Uncertainty

Source: Guidelines for Application of the Petroleum

Resources Management System, Sponsored by SPE,
AAPG, WPC, SPEE and SEG, November 2011.
Reserves = Constant x GRV x Porosity
x Hydrocarbon Saturation x
Net-to-Gross x (1/FVF) x RF

http://www.hendersonpetrophysics.com/
 RESERVES
100 P90

80
Probability

60 P50

40

20
P10
0 1P 2P 3P
0 100 200 300 400
mmbo
 Pitfalls in simulation
• Trial and error approach, generate different result in
repeated runs
• Which result to use? Bias selection?
• No guarantee that the model will provide good answers.
• Difficult to prove reliability
• Maybe less accurate than deterministic approach because
it is randomly based
• Take time to build a simulation model
• Could be expensive
• Lack standardized approach
• Too many assumptions sometimes
 Homework 4 Monte Carlo Simulation
Design a simple Excel program to perform MC simulation of a
simple task involves 3 or more variables. Please submit 1)
task/problem description/formula, 2) excel functions/calculation,
and 3) probability output in writing and graphs. Do not duplicate
the class examples. Some useful Excel functions are shown
below.
RAND() Returns a random number between 0 and 1
COUNTIF(data range, criteria) Returns total counts meeting criteria
INT(x) Rounds a number down to the nearest integer
ROUND(x, digits) Rounds a number to a specified number of digits
NORMDIST(x, mean, SD, cdf true/false) return cdf or pdf
NORMSDIST(z) return cdf (mean=0, SD=1)
NORM.INV(probability, mean X, standard deviation) return random X
NORMSINV(probability) return z value (mean=0, SD=1)

and many more in excel math and statistical functions