In the field of observation, chance favors only the prepared mind.
Louis Pasteur, lecture 1854
French biologist & bacteriologist (1822 - 1895)
Yes, ma'am, the more I practice, the luckier I get!
Gary Player, golfer, in response to a lady who said
'that was a lucky shot!'
A couple of stories...
The first comes from nearly 25 years ago when I was working in Houston and had the opportunity to read a review of the then century-long exploration history of every play in every basin in USA. What I noticed then was that in each example, there were no more than two or three real 'Winners' who claimed a large, disproportionate, share of the discovered volumes and a very large number of 'Losers' who (literally and metaphorically?!) 'made up the numbers' and drilled a large, disproportionate, share of the dry holes. I have noticed this in more recent campaigns; consider how for example ExxonMobil, Total and BP - the early entrants - have dominated deep water Angola.
The second is really an example of hubris, in which I played a part. Following BP's merger with Amoco at the end of 1998, when our exploration portfolio more or less doubled and - as oil prices began to rise - we were able to drill some wells which had been postponed for a couple of years, we enjoyed two years of unprecedented exploration success, drilling major discoveries in the Gulf of Mexico, the Northern Caspian, enjoying continued success in Angola, with an overall success rate of something like 2 out of 3. To us this all seemed to follow from really getting a grip on the exploration process - applying technology (regional 3D seismic etc), building and ranking a prospect inventory, drilling only the 'best' - and as 'Winners' we were willing to share our wisdom with anybody who would listen (anybody who was in the audience at the 2001 Bath meeting of the Petroleum Group of the Geological Society might remember this!). Of course what happened next was that the wheels fell off and in the next two years our overall exploration success rate plummeted and we drilled dry holes where none were imagined - in Angola, West of the Shetlands, the Gulf of Mexico...
In trying to figure out what separates exploration 'Winners' from 'Losers', I have been somewhat bemused by these experiences and so have been collecting stories about exploration successes, especially those from relatively early in the history of our business. I'm not going to recount them here as to do so would step across the lines of confidentiality - owed to both companies and more especially to individuals - and some of them are truly anecdotal. However, what these stories all seem to imply is that our predecessors were smart...but not perhaps as smart as they thought! Indeed, the layperson might well conclude that serendipity, good old 'luck', played a much larger role in exploration than some old explorers would ever want to admit.
The first step in being 'good' is to answer the question...
Where shall we explore?
This is a cartoon representation of the Exploration 'Life Cycle' of exploration plays (and, occasionally, whole basins). It illustrates the essential discussion.
The status of any play can be considered in terms of its position in this Cycle. To illustrate, the movement of the UKCS North Sea Brent (oil) province can be positioned over its 45+ year history: Frontier - in the 1960's: Prolific - in the early 1970's: Mature - in the late 1970's and in the 1980's: 'Red' - today
Explorers are often accused of being only concerned with Volumes but of course this Cycle has profound implications for Value.
In the early, Frontier, phase, of course there is only expenditure with as yet no production of even significant discoveries.
In the Prolific phase, value creation is at a maximum, as discoveries are large (typically, 'Giant' accumulations of >250mm boe gross), and therefore F&D costs are spread over a large number of barrels.
In the Mature phase, value creation can still be good but technology application and cost reduction become important in order to enhance economics.
In the 'Red' phase, value destruction is probable, occasionally inevitable, as success rates plunge, the very few discoveries are small, and costs escalate. Of course, it remains possible for a company to 'win' during this phase but the number of 'winners' is small, the number of 'losers' very high!
The following sketch illustrates the evolution of discovered resources, value, costs and a notion of 'reward', through these cycles of exploration from Frontier to 'Red'.
It is important to emphasise that the right level of analysis is the play level. It would be absurd to pretend that a whole region lies in the 'Red' zone for example.
This illustrates but the first step in Exploration where many different types of data need to be integrated before we can offer knowledge about a petroleum system or a play, and then a series of prospects, or a prospect we wish to drill, and talk sensibly about volumes, uncertainties and risks.
This article is for information and discussion purposes only and does not form a recommendation
to invest or otherwise. The value of an investment may fall. The investments referred to in this
article may not be suitable for all investors, and if in doubt, an investor should seek advice from
a qualified investment adviser. More