The Production Model in A Petroleum Industry Management Game

A management game for the petroleum industry has been developed at The U. of Oklahoma. The game simulates all major areas of the industry. This paper describes in detail the simulation Used for exploration and production operations. Novel features are the means whereby research and development expenditures contribute to long-range profitability, the use of variable probability distributions to determine success ratios for both exploratory and development drilling, and the inclusion of a trend toward smaller discoveries per successful well as the game progresses. Introduction In 1959, a study was completed on the construction of a simulation of the economic factors in the petroleum industry. This work is the basis for the model used in the present version of The U. of Oklahoma petroleum game, a creation of The U. of Oklahoma Computer Laboratory. Several revisions and additions have been made based on experience with the original game, such as allowing more detailed decisions by the players and adding petrochemicals as an important product. The Oklahoma petroleum game is a computer program which accepts quarterly economic and technical decisions from three to eight teams, each representing the management of a different integrated petroleum company. Each company produces, refines and markets several products in competition with the other companies, and is subject to variable economic conditions. The program is divided into sections, one for each major division in the industry and one each for simulation of the general economy and for handling accounting, decision inputs and preparation of outputs. Initial conditions have been provided for eight companies. Each is patterned after an actual oil corporation. They vary not only in size, but also in economic soundness. The objective of the game is not to produce a winner but, rather, to give the players experience in management under conditions of competition and uncertainty. Each team should strive toward improving the condition of its company. Some companies have low production, others poor reserves or high unit costs. Great care has been taken to make sure that the equations and generated parameters do not favor the large companies over the small ones. This has been satisfactorily demonstrated. A consistent long-range plan has been shown to be a virtue in guiding decisions. This paper describes the production model in detail. Several quantities are computed in other parts of the game, primarily in a section which simulates the general economy. These are described briefly as they are used. Input Decisions Initial conditions required for the production model are values for producing acreage, nonproducing acreage, producing wells owned, current production and a factor representing present effectiveness of past research investment. These are required for each company. Annual decisions which directly affect the production section are the total production budget and the amount allocated for new lease acquisition. Another annual decision, the company-wide budget for research and development, has an indirect effect. The following quarterly decisions are made.Amount budgeted for development drilling, Ddd.Amount budgeted for exploratory drilling, Ded.Average depth of exploratory wells, Le.Posted price of crude, Cc. Computer Output The following information is furnished by the program after each quarter of play.The number of successful exploratory wells this Quarter, Wes.The number of dry exploratory wells this quarter, Wed.The number of successful development wells this quarter, Wds.Posted price of crude, Cc. Wdd.Footage drilled this quarter, F. JPT P. 1^