Black, David1
(1) Wood Mackenzie, Edinburg, United Kingdom
ABSTRACT: Value Creation through Exploration
Exploration is a key part of every upstream company’s business and companies need
to replace the reserves that they produce. Reserves replacement has been a direct measure
of a company’s exploration success and is a prerequisite for sustainable growth in
production. However, there has been an emerging shift from volume towards value within the
industry.
Who could replace reserves and create value? Wood Mackenzie has carried out extensive
research about exploration strategies and performances. Recently, it benchmarked a key
group of 25 companies, ranging from super-majors to smaller E&P companies, in terms of
their exploration performance. On a country-by-country basis, each company was assessed on
whether they had created or destroyed value through exploration. The key drivers behind
their performance were also identified. In contrast to traditional performance measures
– reserves’ replacement and finding costs -- two key metrics were used to
measure performance: (1) absolute value creation through exploration; and (2) the
exploration margin on a $/boe basis.
More than half of the companies analysed have created value through exploration; but
others have made discoveries worth less than their exploration cost and/or failed to
replace production with discoveries of commercial reserves.
What have been the strategies for success?
The ideal exploration program is to be able to discover sufficient reserves and to create
value through exploration in doing so. Exploration is an enigma – but value creation
seems to be based on the ability to (1) leverage skills; (2) legacy positions; and –
not least – (3) an element of luck.
AAPG Search and Discovery Article #90026©2004 AAPG Annual Meeting, Dallas, Texas, April 18-21, 2004.