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Does It Pay to Innovate? An Economic Lookback at the Lifecycle of the Amplitude Play in the Deepwater Gulf of Mexico


The exploration frontier is characterized by the intersection of resource access, technological barriers, and profitability. To develop insight into the most profitable time to enter a play from a technological barrier standpoint, full-cycle economic valuations were performed on 105 producing fields from the deepwater amplitude play (DWAMP) in the Gulf of Mexico. The fields were originally identified as “bright spots” in greater than 1000 ft. water depth between 1974 and 2008. Key technologies such as the floating production platform, subsea production equipment and 3D seismic were invented in the 1970's, but were either inaccessibly expensive or untested in deep water and served as play entry barriers. The net present value (NPV) and internal rate of return (IRR) were calculated using publicly available leasing, drilling, production, and facilities information. To provide the best estimate of intrinsic profitability, all economic valuations were run at a common commodity price deck and cost index. The novelty of this study is that we use economic results to generate value-based creaming curves. Results of the analysis demonstrate there are unique economic distributions as a function of play entry timing and show in what context discovered resources relate to value. The first mover group, defined as the first 5% of fields to come online, has the widest NPV distribution and the poorest overall performance, which is the consequence of producers moving into the play before the requisite technologies were available. The role of innovation in value generation is underscored by the fact that 80% of the play's NPV was generated on leases that were held before key production technologies like tension-leg and spar platforms were commercially available. Strategically, this suggests that it pays to speculate on imminent technology breakthroughs through early leasing in order to capture the most NPV from a play. Early adopters (first 5%-15%) capture the highest NPV, but later entrants (last 15%) capture the highest average and most narrowly distributed IRR. Subsea tie backs (SSTB) have a greater chance of exceeding the 10% IRR threshold. Regarding the future of exploration, the value creaming curve methodology described above is applied to the subsalt Miocene play and demonstrates great value potential remains with imaging being the technology barrier.