A model for success

Bringing risk, uncertainty and scenarios into value and portfolio assessment is critical for building the E&P business. Per Audun Hole discusses the three key challenges for exploration risk and resource and economic value assessment.

The first challenge is delivering a ’correct’ probabilistic representation of risks and volume for all possible outcomes of a prospect drilling campaign. ‘Prospectivity’ assessment is the foundation for exploration decisions. One of the paradoxes of modern exploration is the challenge of the ‘overconfidence trap’. High quality seismic and 3D geological mapping systems provide detailed representations of the subsurface. The apparent realism of interpreted maps and sections often leads assessors into believing that they have the ‘right’ picture of the prospect. Subsequent drilling has repeatedly shown that nature can surprise. Uncertain as well as incomplete data and interpretations can often overlook different stories -- different fluid systems, different dry zones, different facies or different and incomplete contacts and spill points.

The best in the industry have found that the antidote to overconfidence in one story is to use tools and a workflow that both supports and promotes active consideration of alternative scenarios. There is still room for developing the details of the most likely scenario, but this is balanced with at least one alternative. Together, the alternative scenarios provide a more robust and realistic evaluation of exploration opportunities. Scenario analysis is built into a databased prospect assessment system such as GeoX from GeoKnowledge. The database provides an effective platform for a scenario-based assessment workflow. Best practice uses a report from the probabilistic aggregation of alternative scenarios as the central assessment review document. The result is effective consideration of relevant scenarios.

Assessing the full range economic value outcomes for both single target and multiple target opportunities
Accurate and unbiased ‘prospectivity’ assessment is critical. But it is not a sufficient basis for making informed decisions on exploration opportunities.  Projects need to be characterised and understood in terms of their economic potential. A barrel of oil is not a barrel of oil: Exploration, development and production costs vary significantly as do fiscal terms; there are potentially significant economies of scale. Effective decisions need therefore to consider not only subsurface risks and uncertainties, but also the complementary and interdependent ‘above the ground’ risks and uncertainties such as exploration and development costs, well productivity and hydrocarbon prices. The assessment also needs to capture the consequences of delays and capacity constraints. Consistent analysis should be based on integrated business modelling tools that include rules for how opportunities can and will be both explored and exploited.

In a system such as GeoX, there is full integration from rocks to dollars. With business rules, conditions and contingencies modelling, the user can capture the full range of economic returns for single target opportunities while also handling more complex concessions and clusters that involve multiple targets and staged decisions. A global fiscal library completes the tool set. The result is a fit-for-purpose platform for rapid and consistent assessment of international exploration opportunities.

Optimising exploration portfolio value while satisfying strategic objectives
The successful player in the upstream E&P business needs to manage and develop a portfolio of exploration opportunities. The portfolio enables the company to exploit economies of scale and scope, spread risks and grow the business. Managing the portfolio of exploration opportunities requires choosing a composition of projects that maximises economic returns. The composition should also adhere to strategic objectives concerning key performance indicators such as production levels and reserve replacement.

Given the inherent uncertainties and risks of exploration ventures, the analysis of alternative portfolios cannot assure that targets will be met. Instead, the analysis needs to give estimates of, for example, the probability of achieving the desired production level. The foundation is assessments of the individual opportunities that reflect the full range of possible outcomes. 
Portfolio composition evaluation is primarily assessment of the joint outcomes of the projects. In a system such as GeoX where project evaluations are databased, assessment of portfolio composition reduces to project selection.  The relevant portfolio assessment tool then calculates the results of drilling out the set of exploration projects in the portfolio.

Per Audun Hole, CEO GeoKnowledge, has been with the company since 2004. Hole, who began his career as an exploration geologist in Statoil in 1986, has a broad experience in oil and gas exploration, production geology and integrated field development projects. He has an MSc in geology from the University of Bergen.