Which Prospects to Drill? Lecture 16 - Prospects Which Prospects to Drill? Slide 1 This unit has a dice game to convey the challenge of meeting a new discovery target with a limited drilling budget It was originally designed for a “100 series” course – undergrad intro course Some slides from units 1 and 2 can be added to form a short introduction e.g., some slides about the 5 play elements (source, reservoir, trap, seal, migration) Courtesy of ExxonMobil L 16 - Prospects

A Prospect A prospect is a location and depth that has been identified as a good place to drill for oil and/or gas For us to find oil or gas, certain conditions must be meet There needs to be a source for the oil or gas The source rocks need to be ‘cooked’ to the right degree There needs to be a porous rock to hold the oil or gas There needs to be a subsurface trapping geometry There need to be a seal There needs to be ‘plumbing’ connecting source and reservoir Slide 2 A prospect is a location and depth that has been identified as a good place to drill for oil and/or gas For us to find oil or gas, certain conditions must be meet There needs to be a source for the oil or gas The source rocks need to be ‘cooked’ to the right degree There needs to be a porous rock to hold the oil or gas There needs to be a subsurface trapping geometry There need to be a seal There needs to be ‘plumbing’ connecting source and reservoir Courtesy of ExxonMobil L 16 - Prospects

Prospect Analysis Our geological and geophysical analysis helps us identify and characterize prospects in terms of these critical elements Geoscientists will work a prospect such that: The volume of oil or gas that is most likely to be present and recovered is determined, The range of possible volumes is estimated (maximum and minimum cases), and The chance of success is estimated All this information is presented to management Slide 3 Our geological and ……. Geoscientists will ….. The volume …. The range …. The chance …. All this …. Courtesy of ExxonMobil L 16 - Prospects

Now for Some Fun – The Prospect Game INTRODUCTION You are part of an exploration management team with 20 prospects that your staff has worked up for your approval to drill. Your prospect portfolio is rather diverse ranging from low risk, low reward prospects to high risk, high reward opportunities. All 20 prospects are possible oil fields. YOUR CHALLENGE You have a drilling budget of $400 million. Headquarters has set a goal for you to discover 500 million barrels of oil. You want to keep the cost per barrel as low as possible (< $1.00/barrel). Slide 4 Now you are going to be the management team I will divide you into about 4 teams Each team will be a management committee would has 20 prospects under review These prospects vary considerably in their predicted size (volume of oil) and in their risk (chance of success) Smaller volumes have lower risk (more certain) Large volumes have a high risk (more likely to have no oil) Your challenge: You have a drilling budget of $400 million. Headquarters has set a goal for you to discover 500 million barrels of oil. You want to keep the cost per barrel as low as possible (< $1.00/barrel) Courtesy of ExxonMobil L 16 - Prospects

The Prospect Game Starting Point Your staff has been hard at work 'maturing' each prospect. Their work for each prospect is summarized by: An estimated drilling cost A prediction of the most-likely amount of oil (in millions of barrels, MBO) The likely range of possible oil volumes (high-side and low-side cases) An estimate of the chance of success for the prospect. These data are provided on tables. If you only drill the low risk prospects, the probability of your reaching your goal is extremely low - but not zero. Slide 5 For each prospect, your staff has An estimated drilling cost A prediction of the most-likely amount of oil (in millions of barrels, MBO) The likely range of possible oil volumes (high-side and low-side cases) An estimate of the chance of success for the prospect. These data are provided on tables If you only drill the low risk prospects, the probability of your reaching your goal is extremely low - but not zero. Courtesy of ExxonMobil L 16 - Prospects

OR you can spend all your money on drilling wells. The Prospect Game USING YOUR BUDGET Your team can spend some of your budget on improving the seismic data to get better predictions of the amount of oil and its range of values, and the chance of success. You can reprocess the existing seismic data over a prospect at a cost of 10% of the well cost. Alternatively, you can acquire better seismic data at a cost for acquisition and processing of 25% of the well cost. OR you can spend all your money on drilling wells. Slide 6 Remember, you have a drilling budget of $400 million You can use alll of it for drilling with the information on hand, or spend some to improve your seismic data and predictions You can reprocess the existing seismic data over a prospect at a cost of 10% of the well cost Alternatively, you can acquire better seismic data at a cost for acquisition and processing of 25% of the well cost Courtesy of ExxonMobil L 16 - Prospects

We will divide you up into 3 or 4 teams The Prospect Game GAME PLAN We will divide you up into 3 or 4 teams We will go over the instructions Your team will have 5 minutes to develop a strategy. We will rotate through each team allowing them to: Drill one prospect without additional data, OR Ask for reprocessing on a prospect, see the new estimates, and then either drill the same prospect or pass, OR Ask for a new survey, see the new estimates, and then either drill the same prospect or pass NOTE: No clear decision after 30 seconds is an automatic pass. Slide 7 We will divide you up into 3 (or 4) teams We’ll review the instructions/rules Your team has 5 minutes to develop a strategy After 5 minutes, the first team will be selected That team can do one of the following: Drill one prospect without additional data Ask for reprocessing on a prospect, see the new estimates, and then either drill the same prospect or pass Ask for a new survey, see the new estimates, and then either drill the same prospect or pass NOTE: No clear decision after 30 seconds is an automatic pass The first team to discover 500 million barrels of oil WINS If we run out of time, after a complete round, the team with the lowest finding cost ($/barrel) WINS The first team to discover 500 million barrels of oil WINS Courtesy of ExxonMobil L 16 - Prospects

Drilling a Well Drilling a well is a three-step process: Drill based on the data at hand or spend some money to either re-process or re-acquire & re-process the seismic Roll 2 dice to determine the success of the well (function of the well’s risk and the total on the dice) If the well is an oil discovery, roll 2 dice a second time to determine the volume of oil discovered. Slide 8 When it is your team’s turn, you go through a 3-step process: Decide if you want to spend money on new seismic data, which may give you more accurate numbers to work with Drill a well by rolling 2 dice and determining if it is a discovery or dry hole If your well is a discovery, then roll the dice a second time to get the oil volume Courtesy of ExxonMobil L 16 - Prospects

Drilling with the Data on Hand TABLE 1: Prospects with key assessment parameters Drilling with the Data on Hand Prospect Number Prospect Name Drilling Cost ($M) Most-Likely Volume (Unrisked) (MBO) Low-Side Case High-Side Case Chance of Success Discovery if Total on 2 Dice 1 Mouse 0.2 0.1 0.4 97% 3 - 12 2 Canary 0.8 3 Kitten 4 0.6 0.3 1.2 92% 4 - 12 Terrier 6 0.9 0.45 1.8 5 Goat 10 3.6 72% 5 - 12 Ram 15 2.3 1.15 4.6 7 Kangaroo 18 4.4 2.2 8.8 58% 6 - 12 8 Bull 20 9 4.5 Stallion 27 17 8.5 34 Zebra 32 21 10.5 42 42% 7 - 12 11 Lion 38 50 25 100 12 Bear 90 45 180 8 - 12 13 Elk 49 125 62.5 250 28% 14 Moose 55 290 145 580 9 - 12 Hippo 80 450 225 900 17% 10 - 12 16 Gorilla 600 300 1200 Elephant 120 840 420 1680 8% 11 - 12 Whale 130 1180 590 2360 19 T-Rex 140 1900 950 3800 3% Brontosaurus 160 4500 2250 9000 Slide 9 Here is the chart that is based on the existing seismic data Note that each prospect has a drilling cost and a Most-Likely volume The range in volume is also indicated along with the chance of success The last column is how we determine if the well is a discovery based on the roll of the 2 dice e.g., the Bull prospect (#8) is dry if the total on the 2 dice is 2 – 5; a discovery if 6 or greater Courtesy of ExxonMobil L 16 - Prospects

Determining the Volume of a Discovery If the well is a discovery, a team member rolls 2 dice a second time to see how much oil is present. This chart indicates a multiplier for the most-likely amount (range is from 1/2 to double). e.g., for the Bull prospect (#8), the most-likely volume is 9 MBO and if the second roll has a total of 10, the volume = 9 * 1.25 = 11.25 MBO . Slide 10 If the well discovers oil (e.g., for Bull the total is > 6), then we have to determine the recoverable volume of oil The total on a second roll of the dice determines what we multiple the most-likely volume by to get the recoverable volume e.g., for Bull (#8), the most-likely volume is 9 MBO and if the second roll has a total of 10, the volume = 9 * 1.25 = 11.25 MBO Courtesy of ExxonMobil L 16 - Prospects

Data Re-Acquisition or Re-Processing If your team decides to re-acquire or re-process the data for one prospect, what happens? Money will be subtracted from your total You will get a revised set of numbers (privately) for the prospect Given the updated most-likely volume of oil (could be higher or lower) and a new chance of success (always higher), your team can drill the prospect or pass. If you make a discovery, a revised set of multipliers will be used Keep the revised numbers confidential; you paid for more accurate numbers and you do not want another team to benefit at your expense! Slide 11 What happens if your team decides to re-acquire or re-process the seismic data? Money will be subtracted from your total You will get a revised set of numbers (privately) for the prospect Given the updated most-likely volume of oil (could be higher or lower) and a new chance of success (always higher), your team can drill the prospect or pass. If you make a discovery, a revised set of multipliers will be used Courtesy of ExxonMobil L 16 - Prospects

Good Luck! End of the Game We will keep a running total of the money spent and the volumes of oil discovered for each team. We will continue drilling if we do not run out of time. If time runs out, we will use the finding cost (MBO/Dollars spent) as a measure of success. HINT You do not want to spend money on better seismic for the small prospects where the chance of success is high and the range of MBO is low, even though the cost is small. It is difficult to decide on spending money on better seismic data for the large prospects - the cost is high but it could save you a dry hole. Slide 12 We will keep a running total of the money spent and the volumes of oil discovered for each team. We will continue drilling until: one team discovers 500+ MBO, OR we get close to running out of time. If time is going to run out, after a round is completed, we will use the lowest finding cost (MBO/Dollars spent) to determine the winning team Good Luck! Courtesy of ExxonMobil L 16 - Prospects