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“The Play’s The Thing!” William Shakespeare, as quoted to Pete Rose THE MOST CRUCIAL DECISION: SELECTING NEW PLAYS
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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
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0.010.101.010.0100.0 Monetary Impact $ MM Seismic Program Prospect Exploration Play Investment Plan SELECTING PLAYS TO PURSUE IS THE KEY EXPLORATION DECISION
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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 !
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CHANCE OF PROGRAM ECONOMIC SUCCESS, Pe X SUCCESS CASE VALUE POSITIVE EV = INVESTING; NEGATIVE EV = GAMBLING!! CHANCE OF PROGRAM FAILURE X PROGRAM FAILURE COST PLUS PLAY / CONCESSION EXPECTED VALUE
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Geologic Chance Geologic Chance Dry Hole Tolerance Failure CostProgram Failure Cost Threshold (MCFS)Threshold (MEFS) NPV 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 discoveries Prospect Res. Distrib. (Area x Pay x HC RF) Estimated volume
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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
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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
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PROGRAM Pe, THE ‘ON/OFF SWITCH’ FOR A PLAY ON OFF One or More Economic Discoveries All Wells Dry or Un-economic Execute Minimum Program Abandon Play Execute Success Case Program & Develop Pf = 1 - Pe Prospect Pe
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Shared Chance x Local Chance = Average Prospect Pg n Shared Chance Play Chance Chance 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. n 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
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Migration / Timing Source Reservoir Closure Containment Shared ChanceLocal Chance 1.00 0.80 1.00 Play ChancePSR Average Prospect Pg 1.00 0.50 0.75 1.00 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
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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
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ESTIMATE # FUTURE DISCOVERIES COUNT BUMPS Estimate success case exploration activity (# Undrilled Prospects x PSR) USE ANALOGS Based 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
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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
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MEFS at P55 Mean = 78 MMBOE Mean beyond MEFS = 840 MMBOE ANALOG OR PARENT FSD 1101001,000 10,000
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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 1101001,000 10,000 Mean = 78 MMBOE Mean beyond MEFS = 840 MMBOE
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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
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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
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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
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PLAY / CONCESSION EXPECTED VALUE PLUS CHANCE OF PROGRAM ECONOMIC SUCCESS, Pe X SUCCESS CASE VALUE CHANCE OF PROGRAM FAILURE X PROGRAM FAILURE COST
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= PLAY CHANCE X ( 1 – [1 – (PSR X P MEFS ) ] #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
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SUCCESS CASE ECONOMIC RESERVES X NPV per BOE SUCCESS CASE VALUE Burden this value with success-case dry holes and, sometimes, additional success case costs. SUCCESS CASE VALUE Ex: 200 MM x $2.5/BOE = $500 MM
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PLUS CHANCE OF PROGRAM ECONOMIC SUCCESS, Pe X SUCCESS CASE VALUE CHANCE OF PROGRAM FAILURE X PROGRAM 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
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PLAY / CONCESSION EXPECTED VALUE
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PLAY ANALYSIS: COMPARATIVE OUTPUT MEASURES PROSPECT SCALE PROSPECT Pe ECONOMIC DISCOVERY SIZE RANGE PROGRAM SCALE PROGRAM Pe PROGRAM FAILURE COST (Before & After Tax) SUCCESS CASE VOLUMES & VALUE NUMBER OF ECONOMIC FIELDS FOUND EXPECTED VALUE PLAY INVESTMENT EFFICIENCY
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Composite 15%20%50%15% Parameters & Weightings Determined by Company BUILDING A BUSINESS MODEL FOR PLAY RANKING PROFIT POTENTIAL PLAY INVESTMENT EFFICIENCY POTENTIAL RESERVE ADDITIONS POLITICAL RISK
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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
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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
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