Profit and Risk Measures in Oil Production Optimization∗

In oil production optimization, we usually aim to maximize a deterministic scalar performance index such as the profit over the expected reservoir lifespan. However, when uncertainty in the parameters is considered, the profit results in a random variable that can assume a range of values depending on the value of the uncertain parameters. In this case, a problem reformulation is needed to properly define the optimization problem. In this paper we describe the concept of risk and we explore how to handle the risk by using appropriate risk measures. We provide a review on various risk measures reporting pro and cons for each of them. Finally, among the presented risk measures, we identify two of them as appropriate risk measures when minimizing the risk.