AAPG Annual Convention and Exhibition

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Economic Evaluation of Unconventional Plays – New Perspectives on Familiar Questions

Abstract

The unconventional play space has cycled through numerous peaks and troughs in the past decade. Plays once highly-touted at discovery have evolved into non-commercial failures; other nameplate assets realized peak production; and some high-risk exploratory plays are now targets of preferential development and down-spacing. The learning opportunities presented by these developments alter the paradigm that investors and operators use to evaluate unconventional plays. Operators and investors initially contemplated: “What plays provide the highest returns? What operator has the largest core acreage position? How much does acreage cost if I choose to enter the play? Where is the next successful play likely to be located? As an operator, is my portfolio underweight or overweight in unconventional assets?” Those questions, although meaningful at one time, have been advanced. Operators and investors now consider: “Are successful projects measured by being in the best play, or just the best part of an average play? In new plays, what is an appropriate risk factor to incorporate when evaluating the likelihood of commercial success? Should a premium be placed on the opportunity to partner with a prominent operator? What timescale is reasonable to determine project success or failure? What types of partnerships and what level of project integration is required to capture value?” New perspectives will be presented in fine detail to demonstrate how analysis of the unconventional sector has progressed. The cornerstone of these new perspectives is full-cycle value creation and how operators can leverage their own unique operational strengths.