What’s Still Needed for Profitable Risk Analysis?

Gary Citron¹ and Glenn McMaster^2
1 Rose & Associates, LLP, Houston, TX
² BP, Houston, TX

Risk analysis for effective portfolio management has steadily advanced through the exploration portion of our business in the last decade. Most large and middle capitalization companies employ exploration risk analysis systems, in various states of consistency and calibration, to measure the opportunities for subsequent inventory and portfolio purposes and to form the foundation for better decision-making. To date, many companies have started to deliver on their promises related to EUR resources and commercial success rates. Upon more critical analysis, the industry, regardless of the price environment, continues to struggle to deliver on promises related to value creation.

Based on our efforts and observations in the field of risk analysis since 1990 in both large and small companies, we describe five main themes for the industry to tackle in perfecting the search for profitable hydrocarbons and better delivery on promised levels of value creation:

1. Better handling of trap complexity (including classic area versus depth techniques) to illustrate the impact of complexity on valuation;
2. Quantitative, consistent seismic amplitude analysis;
3. Better techniques to characterize unconventional plays;
4. Rigorous, institutionalized post well and project reviews;
5. Enhanced management understanding of uncertainty, leading to probabilistic economic analyses which also incorporate probabilistic production profiles and cost estimates.