Abstract: A Process for Valuation of Exploration Prospects

Robert M. Otis, Nahum Schneidermann

The oil industry is facing a world of budgetary constraints, low oil prices, and decreasing exploration opportunities. With this environment in mind, Chevron Overseas Petroleum, Inc., developed a process to allow management to compare the expected value of a wide variety of global opportunities on a uniform and consistent basis. This process is an effective method to "level the playing field" for value-based decisions related to prospect ranking, exploration program development, budget allocation and technology management. It is a continuous process and includes, within a single organizational unit, the integration of geologic risk assessment and probabilistic distribution of prospect reserves with engineering development plans and prospect economics.

The process rests on a foundation of the concepts of the play and hydrocarbon system. Other steps of the process-geologic risk assessment, volumetric estimation, engineering support, economic evaluation and post-drill feedback are considered extensions of our fundamental knowledge and understanding of the underlying geological, engineering and fiscal constraints imposed by these concepts. Setting the foundation consists of determining the geologic framework and describing the prospect in terms of the play concept-source, reservoir, trap (including seal) and dynamics (timing/migration). The information and data of this description becomes the basis for subsequent steps in the process. Risk assessment assigns a probability of success to each of the four elements of the play concept, and multiplication of these probabilities yields the probability of geologic success. A well is considered a geologic success if a stabilized flow of hydrocarbons is obtained on test. Volumetric estimation expresses uncertainty in a distribution of possible reserves for the prospect constructed from ranges of parameters obtained from the information and data describing the play concept. Given the volume of hydrocarbons present, engineering support provides development scenarios for three cases described by the volumetric distribution-a pessimistic case (10%), the mean case and an optimistic case (90%). Economic evaluation is run for each of the three cases, thus providing a range of economic consequences of the geological, engineering and fiscal framework. Commercial risk is based on the res lts of this evaluation, and overall probability of success is the multiplication of the probability of geologic success and probability of commercial success. Post-drill feedback is used to determine whether the individual processes for risk assessment, volumetric estimation, etc. are providing predicted results consistent with actual outcomes.

AAPG Search and Discovery Article #90986©1994 AAPG Annual Convention, Denver, Colorado, June 12-15, 1994