A hybrid approach to well economics

USE MODERN PORTFOLIO THEORY AND MACHINE LEARNING TO DRIVE PRUDENT DECISION MAKING PATRICK NG, REAL CORE ENERGY, HOUSTONTYLER CHESSMAN, MICROSOFT CORPORATION, HOUSTON IN FINANCE, we’ve witnessed an emerging application of machine learning algorithms, e.g., robo-advisor, and earthquake prediction technology. Here, we illustrate with examples, practical applications of a hybrid approach that combines fundamental well economics modeling, modern portfolio theory, and algorithmic machine learning to generate actionable insights and drive prudent investment decisions. FUNDAMENTAL ROI SENSITIVITY Figure 1 shows how we can model discounted cash flows and better understand the sensitivity of ROI over different WTI prices for drill-but-uncomplete (DUC) and refracking a well. Assume typical unconventional well costs and decline rates. Implicit in DUC is how much WTI will rise to make it work from a return perspective. Figure 2,…

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