Improving the Exploration Process by Learning from the Past, Proceedings of the Norwegian Petroleum Society Conference PDF
Preview Improving the Exploration Process by Learning from the Past, Proceedings of the Norwegian Petroleum Society Conference
V Preface This volume contains most of the papers presented at the Norwegian Petroleum Society conference Improving the Exploration Process by Learning from the Past held in Haugesund in September 1998. Learning by experience is both a part of our daily life and our exploration life. A systematic review of the past is essential if we are to improve the exploration process by better managing risks and uncertainties. Learning through different disciplines has become a favoured technique. With new tools for interpretation and simulation, integration of data and the creation of cross-discipline teams, we can take a major step forward in understanding the exploration task and its different elements. This volume attempts to document some of what has been learnt in exploration at the end of the 20th century. These topics are covered in four parts in this volume. The first three papers deal with global views of risk management and retrospective prospect assessment. These are followed by four papers focusing on retrospective prospect assessment on the Norwegian shelf carried out by all operators within the project Evaluation of Norwegian wildcat wells. In this project the drilling results from all wildcat wells drilled from 1990 to 1997 are compared with the prospect evaluation before drilling. A number of important conclusions and suggestions for improvement are drawn. Three detailed exploration case histories from the North Sea, Norwegian Sea and Barents Sea are then presented, documenting both positive and negative experiences and highlighting the benefits of integrated thinking and methods. The following seven papers review the impact of the application of various state-of-the-art and developing technologies on portfolio management, opportunity evaluation and volumetric and risk assessment of prospects and discoveries. Finally, in the two concluding papers, recent experience with developing processes to manage and exploit subsurface knowledge is reviewed and the future technological challenges in exploring the remaining hydrocarbon potential of the Norwegian Continental Shelf are summarised. Acknowledgements The editors wish to express their thanks to the members of the organising committee and the NPF secretariat who put this successful conference together and to all the authors and co-authors of these papers who had the courage to submit their manuscripts to the penetrating scrutiny of knowledgeable referees and the ruthless red pens of the editors. Special thanks go to P.E. Bj0rkum, Martin Gowers, Sigmund Hanslien, Francis Harper, Kees Hornman, Wanda Jones, Flemming J0rgensen, Dexter Krol, Nick Milton, Bente Nyland, Snorre Olaussen, Arild Skerv0y, Tony Spencer, and Thorbj0rn Storland for their help as referees. The editors are also grateful to the Norwegian Petroleum Directorate, Norske Shell and BP Amoco Norge for allowing them the time and opportunity to take part in preparing this material for publication. Kari Ofstad Jan Erik Kittilsen Peter Alexander-Marrack Stavanger, 2000 VII List of Contributors P. ALEXANDER-MARRACK A/SNorske Shell, P.O. Box 40, N-4098 Tananger, Norway Present address: 9 Beechwood Court, Park Road, London W4 3HJ, UK J.H. AUGUSTSON Norsk Hydro ASA, Stordkeren 11, N-9411 Harstad, Norway J. BAILLIE Enterprise Oil pic, Aberdeen, UK J. BERGAN Norsk Hydro ASA, Sandsliveien 90, N-5254 Sandsli, Norway M.L. BROWN ExxonMobil International Ltd., Mobil Court, 3 Clements Inn, London WC2A 2EB, UK D.M. COOK ExxonMobil Exploration Company, P.O. Box 4778, Houston, TX 77210-4778, USA H. DENNIS Enterprise Oil Norge Ltd., Stavanger, Norway E.R DION 1614 Reunion Circle, Carrollton, TX 75007, USA L. FOSVOLD ExxonMobil Exploration Company, P.O. Box 4778, Houston, TX 77210-4778, USA AJ. GARZA ExxonMobil Exploration Company, P.O. Box 4778, Houston, TX 77210-4778, USA PJ. GOLDSMITH Phillips Petroleum Company UK Ltd., 35 Guildford Road, Woking, Surrey GU21 3LX, UK J.O. HANSEN Schlumberger Oilfield Services, P.O. Box 330, N-4002 Stavanger, Norway S. HANSLIEN Statoil, N-4035 Stavanger, Norway Present address: Forusvdgen 28, N-4033 Stavanger, Norway P. HAREMO Norsk Hydro ASA, N-0246 Oslo, Norway EG. HARPER B.P Amoco pic, Chertcey Road, Sunbury on Thames, Middlesex TW16 7LN, UK K. HEGGLAND Norwegian Computing Center, P.O. Box 114 Blindern, N-0314 Oslo, Norway D. HELLIKSEN Norwegian Petroleum Directorate, P.O. Box 600, N-4003 Stavan ger, Norway T. HOLT S1NTEF Petroleum Research, SP Andersens v 15B, N-7034 Trond- heim, Norway G. HUTTON Schlumberger Oilfield Services, P.O. Box 330, N-4002 Stavanger, Norway S. HVOSLEF Norsk Hydro Oil and Gas, Kj0rboveien 16, P.O. Box 490, N-1301 Sandvika, Norway VIM List of Contributors S.-M. KNUTSEN Norsk Hydro ASA, Stordkeren 11, N-9411 Harstad, Norway D.E. KROL Shell UK Exploration and Production, 1 Altens Farm Road, Aberdeen AB12 3FY, UK L. KULLERUD Norwegian Petroleum Directorate, P.O. Box 600, N-4003 Stavan- ger, Norway Present address: Grid-Arendal, Longum Park, N-4849 Arendal, Norway M.S. LEONARD Shell International EP Inc., 200N Dairy Ashford, Houston, TX 77210, USA P.J.T. VAN MAREN Shell UK Exploration and Production N. MILLS Applied Petroleum Technology A/S, Instituttveien 18, N-2007 Kjeller, Norway N. MILTON Knowledge Transformation International, The Old Bakery, Lower North Street, Cheddar, Somerset BS27 3HE, UK SJ. MONCRIEFF ExxonMobil Exploration Company, P.O. Box 4778, Houston, TX 77120-4778, USA M. NICKEL Schlumberger Oilfield Services, P.O. Box 330, N-4002 Stavanger, Norway V. NOUAL Shell UK Exploration and Production K. OFSTAD Norwegian Petroleum Directorate, P.O. Box 600, N-4003 Stavan ger, Norway R.G. OLSEN Statoil, N-4035 Stavanger, Norway A. 0VRETVEIT Norsk Hydro ASA, N-0246 Oslo, Norway F. OZKAYNAK Shell EP International Ventures B.V., P.O. Box 663, 2501 CR The Hague, The Netherlands R. DI PRIMIO Norsk Hydro Research Centre, P.O. Box 7190, N-5020 Bergen, Norway B. REYMOND Schlumberger Geco-Prakla, Geosupport, Level 5 Capital Building, 256 St. Georges Terrace, Perth WA6000, Australia H. CHR. R0NNEVIK DNOA/S, P.O. Box 1345 Vika, N-0013 Oslo, Norway J. SCHLAF Schlumberger Oilfield Services, P.O. Box 330, N-4002 Stavanger, Norway C. SIGNER Schlumberger Cambridge Research, High Cross, Madingley Road, Cambridge CB3 OEL, England K.J. SKAAR Statoil, N-4035 Stavanger, Norway A. SKJERV0Y Conoco Inc., Exploration-Production Technology, P.O. Box 2197, Houston, TX 77252, USA L. S0NNELAND Schlumberger Oilfield Services, P.O. Box 330, N-4002 Stavanger, Norway A.M. SPENCER Statoil, N-4035 Stavanger, Norway D. STODDART Norsk Hydro Oil and Gas, Kj0rboveien 16, P.O. Box 490, N-1301 Sandvika, Norway G. ST0LE Statoil, N-4035 Stavanger, Norway List of Contributors IX 0. SYLTA SINTEF Petroleumsforskning, N-7465 Trondheim, Norway M. THOMSEN ExxonMobil International Ltd., Mobil Court, 3 Clements Inn, London WC2A 2EB, UK 1. THRONDSEN Norsk Hydro Oil and Gas, Kj0rboveien 16, P.O. Box 490, N-1301 Sandvika, Norway T. THRONDSEN Institute for Energy Technology, P.O. Box 40, N-2007 Kjeller, Norway B. TJ0STHEIM Schlurnberger Oilfield Services, P.O. Box 330, N-4002 Stavanger, Norway H.H. VEIRE Schlurnberger Oilfield Services, P.O. Box 330, N-4002 Stavanger, Norway K.S. WEISSENBURGER Conoco Inc., Gulf Coast Business Unit, P.O. Box 51266, Lafayette, LA 70505, USA D. WESSEL-BERG SINTEF Petroleum Research, SP Andersens v 15B, N-7034 Trond heim, Norway M. WHITAKER Norsk Hydro Research Centre, P.O. Box 7190, N-5020 Bergen, Norway C. ZWACH Norsk Hydro ASA, Sandsliveien 90, N-5254 Sandsli, Norway 1 Managing risk worldwide: global portfolio management at Shell EP Mark S. Leonard and Freddie Ozkaynak In an effort to improve global portfolio management, Shell has recently introduced to most of its business units a straightforward business process, the 'Opportunity Funnel', and has developed a number of simple, standardized tools to facilitate its use. Prototyping was carried out by Shell's exploration and production organization responsible for business development in new areas. It required building this organization, both culturally and structurally, around the work process and current strategy. Initial results since the introduction are encouraging. Introduction methodology to first characterize various risks and then score each of the opportunities with a standard In 1997, Shell spent over U.S. $6.8 billion in capital ized series of parameter screens. All opportunities expenditures and exploration expenses while produc are depicted graphically together so that each team ing 2.3 MM BO/d of equity oil and 8 BCF/d of equity can see how their opportunity compares with others. gas. A key success factor for Shell has been the Investment decisions are made with this knowledge. presence of local producing Operating Companies This sounds easy in theory, but especially with op that are fairly autonomous (Fig. 1) with the ability erations around the globe, it is difficult to implement to pursue exploration opportunities within their own in practice. For Shell, the basic work process (op sphere of governance and approved budgets. portunity evaluation and maturation) had to be well Out of Shell's exploration budget in 1997 (exclud defined and implemented, parameter screens needed ing Shell U.S. and Shell Canada), 75% was allocated to be clear and easy to use, and the global EP strategy to be spent by these Operating Companies and about had to be well understood. 25% of the budget was spent by the Shell EP (explo Initial prototyping of this methodology was car ration and production) New Business Development ried out by SEPIV The global strategy and the work Group. This group comprises Shell Exploration and process had to be developed, understood, and imple Production International Ventures (SEPIV), the up mented by the entire SEPIV group. Four strategic stream organization which is responsible for identifi themes were created and communicated. Each theme cation and maturation of new business opportunities was composed of plays and various projects within outside of the areas in which Operating Companies each play (Fig. 2). A Business Play is described as already exist, and the New Venture Organizations a campaign, or staircase, by which an aspirational which execute the exploration and development ac end game is pursued. For example, a Business Play tivities in the new areas. In 1997, SEPIV evaluated might be to become the largest producer in an area more than 200 opportunities in over 70 countries in by a given year. Some projects are considered 'key' order to add to Shell's profitable reserve base. So to a play, meaning that without this project the play how does a large multinational EP company carry out concept would collapse and the end game could not global portfolio management on all these opportuni be achieved. Plays and projects falling outside of the ties while still recognizing the governance of the local themes are sold, traded or dropped. Operating Companies? Process Methodology The work process is defined to be an 'Opportunity At Shell EP, in the world outside of Shell U.S. and Funnel' (Fig. 3) with many opportunities put in up Shell Canada, portfolio management uses a common front and far fewer investment decisions coming out Improving the Exploration Process by Learning from the Past edited by K. Ofstad, J.E. Kittilsen and P. Alexander-Marrack. NPF Special Publication 9, pp. 1-8, Published by Elsevier Science B.V., Amsterdam. © Norwegian Petroleum Society (NPF), 2000. 2 M.S. Leonard and F. Ozkaynak 1 ; x Shell Shell operated non-operated Production Appraisal/development/exploration Fig. 1. World map showing countries with Shell Group Exploration and production interests (as of July 1998). THEMES PLAYS pp •Project 1-1-a \ • Play 1-1 •Project 1-1-b •Project 1-1-c j • Play I-2 • Project l-2-a • Project l-2-b •Project IM-a I • Play IM Project 11-1-b I • Play 111-1 > Project IIM-a Project lll-1-b | • Play III-2 • Project lll-2-a Project IV-1-a | • Play IV-1 •Project I V-1-b | • Play IV-2 Project IV-2-a Etc Fig. 2. Business themes and plays: strategic focus. at the end of the funnel. SEPIV has divided this New Organization Business Development Process into three sub-pro cesses: Opportunity Identification, Maturation, and Work groups, and indeed the whole organization, Execution. Opportunities can be lost by not acting are organized around this process to emphasize its im quickly enough, they can be dropped because they portance (Fig. 4). The main emphasis is on flexibility do not meet the screening criteria, or they can be in resource allocation and the focus is on the ultimate passed further down the funnel, hopefully resulting in target of delivering assets to Final Investment Deci a viable business. sion (FID). It was observed that one of the primary slowdowns in this process occurs when a project is handed over to a new team with completely different Managing risk worldwide: global portfolio management at Shell EP 3 Portfolio Management 5fi Opportunities lost a s +^ = © ft .2 ft Viable o S Maturation Execution Business S <« Opportunities dropped + TIME Fig. 3. The New Business Development Process: the Opportunity Funnel. IDENTIFICATION MATURATION EXECUTION Country a Business Development Coordination o Representatives 33 (Business Theme Based) I; G85 T3 i ; *e «4>5 • u «U Business ; © « : O j*>J Maturation New Venture Positioning Opportunity 1 >^O f i Ident. Project Organizations & ; = .=2 Evaluation Studies Teams Partner-Operated a Of) Technology 2 Ventures P'ocus a \—' ON o Skills Pool Portfolio Management LEADERSHIP TEAM Fig. 4. The New Business Development Organization: process based. SEPIV is responsible for the identification and maturation of new business opportunities. staff. Much effort may be expended in re-doing and quired. A large broad funnel will require many staff for validating previous work. Because continuity of staff a significant amount of time while a steep narrow fun reduces this slowdown or 'hand-off risk, individuals nel represents much fewer staff but the increased risk now often transfer along with a given opportunity that more opportunities may be incorrectly valued. to FID in order to mitigate this risk. A single lead ership team steers the process of identification and Screening criteria maturation. Key to success is a firm understanding of the opportunity evaluation and maturation processes Three types of screens were devised to shape the occurring as opportunities move through the funnel funnel and optimize staff time (Fig. 5). The first and reach decision milestones. screen, the 'Quick Look', is designed to be done All opportunities are logged in a database and as in less than half a day and consists of just five pa signed to an 'Opportunity Coordinator' who ensures rameters, such as scope (size and growth potential) movement through the funnel. It was immediately rec and fit to the Strategic Theme. Around one third of ognized that the shape of the front of the funnel is the opportunities are rejected by this screen. Next, controlled by how quickly opportunities are evaluated for those opportunities passing the Quick Look, the and either rejected or passed along. This also has a 'Evaluation' screen is applied. This screen consists significant impact on the staffing resources that are re of eight more detailed parameters, including assess- 4 M.S. Leonard and F. Ozkaynak | Quick Look [ Evaluation 25 Parameter Tool r $ Value at Investment Parameter B ; $ Value at Investment Parameter C : Parameter D 1 E 1 UPSIDE L UPSIDE L Parameter E U 1 RESERVES 4 * RESERVES ^ Upside reserves L 1 f Parameter G A P MSV 1 MSV ZL Growth potential V Parameter I 1 ^ i ^i- — MSV reserves Parameter K TECH. POS ^ IN PLAY, Parameter L ^ Technical POS ! KEV R) PLAY L Parameter N r COMM. POS -- Commercial POS K Parameter P Growth Potential I Parameter Q S HSE CHALLENGE I > Parameter R R Parameter S ] W i L M i i lli^_r-T_^_^X_n^ Parameter T TIME TO FID 1 TIME TO FID HSE challenge Parameter V Time to FID iifli'' .-j TIME TO PROD. d| Time to production J Parameter Y Legend: MSV = Mean Success Volume HSE = Health Safety & Environment POS = Probability of Success FID = Final Investment Decision Fig. 5. Attractiveness screening. This shows the three screens with different numbers of parameters. Tn Play' indicates whether the project fits in an existing play (Fig. 2), and projects which are 'Key to Play' are critical for underpinning the play concept. The red arrows highlight those parameters which are common between successive screens. ments of net present value, of technical and commer An 'Attractiveness Score' is calculated using the cial (do-ability) probabilities and of risks associated 25 parameters, or a smaller subset for the earlier with health, safety and environment (HSE). This screens, to give a balanced view of the value of an op may take several days. Almost 75% of the remaining portunity (Fig. 6). The relative weightings reflect the opportunities are rejected here. The final screen is aspirations of the New Business Development Group, a 25-parameter set that incorporates a variety of for instance to find opportunities of 'material' size for economic runs to assess price risk, the competitive long-term growth (big enough to make a difference environment and ultimate marketability. for Shell EP). The tool attempts to simulate the de- ATTRACTIVENESS 50% 20% 30% I VALUE RISK TIME J _J 10% I 5% I 10% I 25% | 5% I 5% | 5% | 5%| 30%| Profitability Efficiency Upside Materiality Do-ability Technical Robustness Image Speed Risk 3 Parameters 4 Parameters 2 Parameters 3 Parameters 3 Parameters 3 Parameters 2 Parameters 3 Parameters 2 Parameters Percentages are just for illustration but this would be a business requiring "company maker" value, quickly at any risk! Fig. 6. Example of an attractiveness scoring system. 'Materiality' = size. Managing risk worldwide: global portfolio management at Shell EP 5 cision makers' subjective judgement ('gut feel') and ness environment and therefore require updating. The gives a more balanced view of the upside potential Strategic Fit/Attractiveness Matrix also provides a than measuring economic or volume data alone. Data basis for comparing different types of opportunities input is scored in ranges, rather than specific values, such as gas or oil, exploration wildcats or appraisals, which facilitates scoring at an early stage when most developments or pipelines, etc. information may be very imprecise. These plots are analyzed and discussed before re jecting an opportunity. At this time, a New Business Analysis Forum is convened to decide whether or not to re source a team to 'mature' the opportunity, by prepar After each screen, two-dimensional plots are made ing a negotiating mandate for obtaining a deal while to depict the portfolio of opportunities (Fig. 7). The refining the economic model based on further com plays, screens, and attractiveness parameters are a mercial inquiries (for example, Tax or Legal). Par reflection of company aspirations as well as the busi- ticipants include the opportunity team, the Business Development Coordinator in charge of the appropri ate Strategic Theme, representatives from the portfo Project Key lio management and skills pool group, and the New RETAIN GROW to Play Business Development Leadership Team Members. A New Business Development Portfolio Matrix is reviewed to depict the types of opportunities being Project within worked on at this time (Fig. 8). This is initially '3D Play, not Key plotted at Shell's current premise price and recreated u at a low price to depict the robustness of projects and C0 the portfolio to downside price risk. *»it: W Project not within Play Portfolio value On a monthly basis, the entire portfolio is viewed LOW MEDIUM HJG1H from a 'risk and value over time' standpoint (Fig. 9). Project Attractiveness It can also be viewed taking a different price premise Fig. 7. Strategic Fit/Attractiveness matrix. 'Monetize' = sell or trade. Legend: Deepwater Project 1 Deepwater Project 8 Gas Project 34 EP Gas Deepwater Project 9 Deep water FSU FSU Project 3 InNBD Gas Project 36 Deepwater Project 11 Play& Deepwater Project 5 FSU Project 12 Deepwater Project 38 Deepwater Project 6 Key to play FSU Project 13 Deepwater Project 39 Gas Project 14 Deepwater Project 40 FSU Project 15 FSU Project 16 FSU Project 19 Deepwater Project 20 Deepwater Project 21 Oil Project 22 FSU Project 23 FSU Project 24 FSU Project 25 In NBD Play FSU Project 26 & Not Key FSU Project 28 Not in any Play Deepwater Project 29 Deepwater Project 31 Deepwater Project 32 Low Medium High Fig. 8. Example of a New Business Development Portfolio Matrix displayed at premise price. 6 M.S. Leonard and F. Ozkaynak CUM. RISKED GROSS VALUE ^** Prob. of Success NET VALUE CREATION Target CUMULATIVE COSTS Year of Value Capture Fig. 9. Example of portfolio value creation expectation at premise price against year of value capture. Prob. of Success CUM. RISKED GROSS VALUE Target NET VALUE CREATION • u 1998 1999 2000 2001 * 2002 tO \ • CUMULATIVE COSTS > £L Year of Value Capture Fig. 10. Example of portfolio value creation expectation at low price against year of value capture. Note the lower net value expected but the overall lower risk of the portfolio projects. into account and choosing different projects to max in the light of the strategic resource (staff and money) imize value (Fig. 10). In the case shown, net value requirements. Additionally, reward systems are par creation is substantially less than in Fig. 9, but the tially based on the value creation scorecards and risk of the overall portfolio has been reduced (more milestone targets, both of which are tracked monthly. yellow/blue and less red indicates a greater propor tion of lower-risk projects). Results This is analyzed to understand how the balance of risk and strategy changes over time. The impact of a SEPIV has been very pleased with this process. new opportunity on the global portfolio is reviewed From January 1997 to August 1998, SEPIV looked at
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