Managing the Probability of Making at Least One Discovery*

By

George H. Rhoads¹

Search and Discovery Article #40169 (2005)

Posted September 6, 2005

*Oral presentation at AAPG Annual Convention, Calgary, Alberta, June 19-22, 2005

Click to view presentation in PDF format.

¹ChevronTexaco, 935 Gravier Street, New Orleans, LA 70112 ([email protected])

Abstract 

This paper presents an exploration portfolio management tool that ChevronTexaco is using in the Gulf Of Mexico Shelf Business Unit to maximize the probability that we will have a least one discovery every budget year. The tool is based on the calculation for Cumulative Probability of Success:

    Cumulative Probability of Success  =

1 – ((1 - POS₁) * (1 – POS₂) * (1 – POS₃) * (1 – POS₄) …* (1 – POS_N))

where POS_N = probability of success at each attempt.

The number of attempts is the number of prospects drilled in any one budget year, and is determined by the size of the drill budget and the dry hole costs of the prospects.

The above equation can be put into graph form -- for a particular budget amount, Cumulative Success Probability curves can be drawn on a chart of risk versus dry hole cost. The prospects within our portfolio can be added to this same chart to show what prospects can be drilled while maintaining a desired statistical probability of making at least one discovery.

In the GOM Shelf Exploration Group, we have set our cumulative success probability level threshold at 90%. Prospects that plot above the 90% cumulative success probability level we are willing to drill with a 100% working interest. For prospects that fall below the 90% level, we will either find partners, farmout, or not drill.

If an attractive prospect falls below the 90% cumulative success probability level, the prospect can be moved to 90% level by taking only a partial working interest (find partners). The same chart can be used to determine what percent working interest that can be retained to move the prospect to the 90% cumulative success probability level.

Cumulative success probability can also be used to help determine how much budget money should be requested at business planning time.

It can also be used to determine how many wells to drill before abandoning a play.

This analysis can be expanded to determine the probability of making multiple successes.

The concept of Cumulative Success Probability is a basic principle, but its use as a portfolio management tool is critical for exploration groups with small budgets.

Keep in mind that this analysis is just one additional tool that we use to manage our exploration portfolio -- along with COF, reserves potential, NPV, ROR, DPI, production schedule, and proximity to current operations.

General rules of thumb