“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

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

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

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


MEFS at P30

Estimated maximum FS possible = 1,000 MMBOE

1 10 100 1,000 10,000

Mean = 78 MMBOE


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


PLUS





= 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


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






= 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 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

“The Play’s The Thing!” William Shakespeare, as quoted to Pete Rose THE MOST CRUCIAL DECISION:...

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