“Look at Situations From All Angles and You Will Become More Open” – Advanced Analytics Approach to Exploration Portfolio Allocation Decisions
The term “exploration portfolio management” means different things to different experts in the E&P value chain (e.g., a new ventures manager, a hydrocarbon accountant, a petroleum economist, a corporate business planner, and a management consultant). A common feature among the various definitions is that all portfolio candidates are compared visually, allocated to certain classes, and considered from multiple angles. In this paper, we review current global practices of portfolio allocation decisions as exploration plays mature; compare and explain differences for bluefield and greenfield assets; study issues with applicability of Markowitz/capital asset pricing model portfolio theory in petroleum exploration; review a balanced scorecard approach for prospect ranking; and propose a management-level prospect-ranking dashboard with a live link to the corporate prospects database of an industry-leading exploration risk, resource, and value (RRV) assessment solution. We focus on practical aspects of handling risk/reward tradeoffs given decision-makers’ attitudes towards risk. We discuss applicability of artificial intelligence for making informed exploration drilling decisions and the management choice between exploration decision systems and exploration decision support systems. We apply this integrated approach to a practical case study. We start from mapping leads and generating prospects using a shared earth approach, proceed to a multidiscipline prospect assessment with the RRV suite, and culminate with a portfolio ranking reflecting a customizable set of criteria and a measure of attitude towards risk using a business intelligence/business analytics (BI/BA) tool. The novelty of our study consists of the adopted practical multidisciplinary approach to prospect ranking. Until an E&P company drills out a statistically meaningful sample of prospects and performs a post-drill analysis, there is no way to differentiate between right and wrong ways of prospect assessment and ranking. Even then, the company will face a choice between vaguely right and vaguely wrong ways. The most important aspect in the never-ending route to perfection in exploration, however, is to try to reach a consensus between key exploration disciplines, both geology & geophysics and engineering & economics. This is the most important condition of mitigating individual and group biases, heuristics, and fallacies, which are, in turn, the “mortal enemies to exploration portfolio management”.
AAPG Datapages/Search and Discovery Article #90332 © 2018 AAPG International Conference and Exhibition, Cape Town, South Africa, November 4-11, 2018