Adventures in Exploration Deal-making, Examples, and Lessons

Abstract

Most presentations made to the exploration community at conventions are about technical issues: petroleum geology, prospect/play risk analysis and volume expectation, economics etc. However once the evaluation has been carried out and the project is validated for implementation there remains a sometimes difficult phase of negotiation which is an essential part of the ”Art of Exploration”, to use a formula made famous by our late colleague John Masters. The purpose of this paper is to present 3 real life cases that give a front view of the action concerning this particular segment of the exploration process. Although the events took place years ago, the examples may offer useful lessons applicable to present-day circumstances. Case 1 from South America illustrates the need to calibrate a level of contractual commitment significantly higher than warranted by a strictly technically-driven strategy, in order to get a stake in a high risk and costly project: a combination of tertiary recovery of a known field and testing of a deep untested target with a notable insufficient seismic definition. A daring undertaking founded on the confidence placed in the recommendation (based on a good perception of the regional structural grain) and a close real time collaboration between explorers and negotiators.Case 2 from the Middle East describes a situation where one can beat the “bandwagon syndrome”, i.e. an industry crowd racing aggressively to get a well identified and much coveted “golden block”. In this example a very special partnership suited to a specific geopolitical situation allowed the company to get the prize with a reasonable, committed working program on the block and in the end coming up with a major regional gas project.Case 3 from South-East Asia deals with a situation which has become common to compensate a relative deficit of large exploration targets by acquiring production rights in existing reserves. The gas field in question was difficult to produce and needed innovative drilling technology and numerous wells to produce many small sand reservoirs with gas trapped against a dense family of faults. One of the motivations was the possibility of developing a substantial upside in the block on still untested targets. Leaving aside a sophisticated pricing formula and marketing arrangement, a critical factor in the negotiation was to propose a strong well-planned training program of the national company’s staff and a transfer of technology leading to full control of the operations by the national company after a given number of years. As a conclusion, just going “by the book” is not necessarily the best approach. Being reasonably flexible with contractual terms, building a constructive partnership, or giving priority to transferring managerial skills, may well ensure a competitive business advantage.

AAPG Datapages/Search and Discovery Article #90350 © 2019 AAPG Annual Convention and Exhibition, San Antonio, Texas, May 19-22, 2019