Peter R. Rose1
(1) Rose and Associates, LLP, Austin, TX
ABSTRACT: The Relation of Corporate Organizational and Cultural Patterns to Exploration Performance
Recent independent studies document that companies managing petroleum exploration using (1) integrated geotechnical prospect and play assessment; (2) systematic probabilistic risk analysis; and (3) venture selection through centrally coordinated portfolio management clearly outperform companies that do not. This has naturally prompted great interest in sophisticated mathematics and software systems that enable routine application of portfolio theory, real options theory, and decision analysis.
To be effective, however, such advanced management tools must rely on objective geotechnical input -- that is, the estimates of key geotechnical parameters must be free of bias. Outperforming companies reduce bias through integrated geotechnical work, probabilistic risk analysis, and post-drill well reviews. Then they select those ventures which optimize portfolio performance, consistent with acceptable risk. But the primary problem remains the input, not the tools.
Analysis of many active E and P companies indicates that organizational and cultural patterns of underperforming firms encourage biased geotechnical input, and discourage centrally coordinated portfolio management. Subjectivity, intuition, salesmanship, and geopolitics flourish in the absence of consistent probabilistic procedures, thus promoting persistent motivational bias, mostly as prospect overestimation. Decentralization of exploration decision-making into autonomous business units necessarily reduces the selective power of portfolios, and allows inferior projects from some business units to replace superior projects from others. The result is general underperformance relative to centrally coordinated E&P firms.
Companies who purposefully undertake to improve persistent exploration underperformance should anticipate (and encourage) substantial changes to both their organizational structure as well as their prevailing professional culture, if they are to succeed.
AAPG Search and Discovery Article #90906©2001 AAPG Annual Convention, Denver, Colorado