“The Play’s The Thing!” William Shakespeare, as quoted to Pete Rose THE MOST CRUCIAL DECISION:...
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Transcript of “The Play’s The Thing!” William Shakespeare, as quoted to Pete Rose THE MOST CRUCIAL DECISION:...
“The Play’s The Thing!”
William Shakespeare,as quoted to Pete Rose
THE MOST CRUCIAL DECISION:
SELECTING NEW PLAYS
KEY MESSAGE:
Plays (aggregates of related prospects) & large concessions can be systematically and objectively evaluated for potential, just like prospects
chance of success
reserves
value
0.01 0.10 1.0 10.0 100.0
Monetary Impact $ MM
Seismic Program
Prospect Exploration
Play Investment Plan
SELECTING PLAYS TO PURSUE IS THE KEY EXPLORATION DECISION
Which Prospect to drill
NEW PLAY DECISIONS DESERVE DISCIPLINED ANALYSIS
MOST CRITICAL DECISION?
Which Play to enter
Companies routinely make new PLAY decisions in ways that are often
isolated, haphazard, even superficial.The results can be Disastrous !
CHANCE OF PROGRAM ECONOMIC SUCCESS, Pe
X SUCCESS CASE VALUE
POSITIVE EV = INVESTING; NEGATIVE EV = GAMBLING!!
CHANCE OF PROGRAM FAILURE
XPROGRAM FAILURE COST
PLUS
PLAY / CONCESSION EXPECTED VALUE
Geologic Chance
Geologic Chance
Dry Hole Tolerance
Failure Cost Program Failure Cost
Threshold (MCFS) Threshold (MEFS)
NPV per BOENPV per BOE
PROSPECT (5) PLAY (7)
Due to uncertainty, most inputs are ranged (P90 : P10)
COMPARING EV INPUTS
Number of future discoveries
FSD for potential discoveriesProspect Res. Distrib.(Area x Pay x HC RF)Estimated volume
1. DELINEATE ‘PLAY’ (Geographic Scope, Time, Company vs Industry)
2. ASSESS CHANCE of SUCCESS
3. ESTIMATE NUMBER OF DISCOVERIES
4. APPROPRIATE FIELD SIZE DISTRIBUTION
5. DRY HOLE TOLERANCE & FAILURE COST
6. ECONOMIC THRESHOLD & VALUE per BOE
PLAY ANALYSIS PROCESS FLOW
1. DELINEATE ‘PLAY’ (Geographic Scope, Time, Company vs Industry)
2. ASSESS CHANCE of SUCCESS
3. ESTIMATE NUMBER OF DISCOVERIES
4. APPROPRIATE FIELD SIZE DISTRIBUTION
5. DRY HOLE TOLERANCE & FAILURE COST
6. ECONOMIC THRESHOLD & VALUE per BOE
PLAY ANALYSIS PROCESS FLOW
PROGRAM Pe, THE ‘ON/OFF SWITCH’ FOR A PLAY
ON
OFF
One or MoreEconomicDiscoveries
All Wells Dry orUn-economic
ExecuteMinimumProgram
AbandonPlay
Execute Success
Case Program &
Develop
Pf = 1 - Pe
ProspectPe
Shared Chance x Local Chance = Average Prospect Pg
Shared Chance Play ChanceChance that the play exists, i.e., chance of finding a minimum quantity of hydrocarbons capable of sustained flow in at least one prospect through a discussion of dependent factors.
Local Chance Prospect Success Ratio (PSR)Given that there is at least one future discovery, the % of undrilled prospects expected to contain hydrocarbons capable of sustained flow, when considering independent factors.
PLAYS: SHARED AND LOCAL CHANCE
Migration / Timing
Source
Reservoir
Closure
Containment
Shared Chance Local Chance
1.00
0.80
1.00
1.00
1.00
Play Chance PSR
Average Prospect Pg
1.00
0.50
0.75
1.00
0.80
0.80 0.30
0.24
For example, 20% chance that migration pathway fails for all prospects
in the play, that is, there is only an 80% chance
that play exists.
Given that migration pathway works somewhere
in the play, only 50% of traps are located properly
to receive hydrocarbon charge.
GEOLOGIC CHANCE ASSESSMENT
1. DELINEATE ‘PLAY’ (Geographic Scope, Time, Company vs Industry)
2. ASSESS CHANCE of SUCCESS
3. ESTIMATE NUMBER OF DISCOVERIES
4. APPROPRIATE FIELD SIZE DISTRIBUTION
5. DRY HOLE TOLERANCE & FAILURE COST
6. ECONOMIC THRESHOLD & VALUE per BOE
PLAY ANALYSIS PROCESS FLOW
ESTIMATE # FUTURE DISCOVERIES
• COUNT BUMPSEstimate success case exploration activity
(# Undrilled Prospects x PSR)
• USE ANALOGSBased on areal density of fields in analog play, estimate number of discoveries.
Validate plausibility of play area containing at least that number of undrilled prospects, (# Discoveries ÷ PSR)
or
Ex: 10 x 0.3 = 3
1. DELINEATE ‘PLAY’ (Geographic Scope, Time, Company vs Industry)
2. ASSESS CHANCE of SUCCESS
3. ESTIMATE NUMBER OF DISCOVERIES
4. APPROPRIATE FIELD SIZE DISTRIBUTION
5. DRY HOLE TOLERANCE & FAILURE COST
6. ECONOMIC THRESHOLD & VALUE per BOE
PLAY ANALYSIS PROCESS FLOW
MEFS at P55
Mean = 78 MMBOE
Mean beyond MEFS = 840 MMBOE
ANALOG OR PARENT FSD
1 10 100 1,000 10,000
MEFS at P55
DERIVED OR PROJECTED FSD
Mean = 9 MMBOE
Mean beyond MEFS = 109 MMBOE
MEFS at P30
Estimated maximum FS possible = 1,000 MMBOE
1 10 100 1,000 10,000
Mean = 78 MMBOE
Mean beyond MEFS = 840 MMBOE
1. DELINEATE ‘PLAY’ (Geographic Scope, Time, Company vs Industry)
2. ASSESS CHANCE of SUCCESS
3. ESTIMATE NUMBER OF DISCOVERIES
4. APPROPRIATE FIELD SIZE DISTRIBUTION
5. DRY HOLE TOLERANCE & FAILURE COST
6. ECONOMIC THRESHOLD & VALUE per BOE
PLAY ANALYSIS PROCESS FLOW
DRY HOLE TOLERANCE
“How many would YOU tolerate drilling prior to abandoning this play?”
• Company’s track record in similar plays• Number of geologic concepts• In some cases, well commitments
consecutive dry holes
Estimate all costs (wildcats, land, seismic, overhead) associated with executing this minimum program – the equivalent of ‘failure cost’ for a single prospect.
& PROGRAM FAILURE COST
Ex: $140 MM
1. DELINEATE ‘PLAY’ (Geographic Scope, Time, Company vs Industry)
2. ASSESS CHANCE of SUCCESS
3. ESTIMATE NUMBER OF DISCOVERIES
4. APPROPRIATE FIELD SIZE DISTRIBUTION
5. DRY HOLE TOLERANCE & FAILURE COST
6. ECONOMIC THRESHOLD & VALUE per BOE
PLAY ANALYSIS PROCESS FLOW
PLAY / CONCESSION EXPECTED VALUE
PLUS
CHANCE OF PROGRAM ECONOMIC SUCCESS, Pe
X SUCCESS CASE VALUE
CHANCE OF PROGRAM FAILURE
XPROGRAM FAILURE COST
= PLAY CHANCE X (1 – [1 – (PSR X PMEFS) ] #TESTS )
PROGRAM Pe = chance of making at least one economic discovery before abandoning Play
Chance of Program Failure:Pf = 1 – Pe
PLAY / CONCESSION EXPECTED VALUE
SUCCESS CASE ECONOMIC RESERVES
X
NPV per BOE
SUCCESS CASE VALUE
Burden this value with success-case dry holesand, sometimes, additional success case costs.
SUCCESS CASE VALUE
Ex: 200 MM x $2.5/BOE = $500 MM
PLUS
CHANCE OF PROGRAM ECONOMIC SUCCESS, Pe
X SUCCESS CASE VALUE
CHANCE OF PROGRAM FAILURE
XPROGRAM FAILURE COST
PLAY / CONCESSION EXPECTED VALUE
= 0.26 x $500 MM = $130 MM
= 0.74 x - $140 MM = - $103.6 MM
EV = $ 130 MM - $103.6 MM = $26.4 MM
PLAY / CONCESSION EXPECTED VALUE
PLAY ANALYSIS:COMPARATIVE OUTPUT MEASURES
PROSPECT SCALEPROSPECT PeECONOMIC DISCOVERY SIZE RANGE
PROGRAM SCALEPROGRAM PePROGRAM FAILURE COST (Before & After Tax)
SUCCESS CASE VOLUMES & VALUENUMBER OF ECONOMIC FIELDS FOUNDEXPECTED VALUEPLAY INVESTMENT EFFICIENCY
Composite
15%20%50% 15%
Parameters & Weightings Determined by Company
BUILDING A BUSINESS MODEL FOR PLAY RANKING
PROFITPOTENTIAL
PLAYINVESTMENTEFFICIENCY
POTENTIALRESERVEADDITIONS
POLITICALRISK
STRATEGIC ADVANTAGES OF SYSTEMATIC PLAY ANALYSIS
• Facilitate dialog and understanding of play strengths and weaknesses
• Assist consistent comparison and ranking of global opportunities
• Optimize and focus exploration spending
• Identify when to exit plays and minimize failure cost
TACTICAL ADVANTAGES OF SYSTEMATIC PLAY ANALYSIS
• Easy, quick, intuitive
• Tied to maps (leads & prospects)
• Tied to opportunity strategy
• Incorporates dependencies
• Identifies accountability for program execution
• Calculates value directly