The Exploitation Enigma

The Exploitation Enigma John R. Etherington; John R. Etherington PRA International Search for other works by this author on: This Site Google Scholar Patrick E. Leach; Patrick E. Leach APM International Search for other works by this author on: This Site Google Scholar David H. Slaght David H. Slaght Marathon Canada Search for other works by this author on: This Site Google Scholar Paper presented at the SPE Annual Technical Conference and Exhibition, San Antonio, Texas, September 2002. Paper Number: SPE-77419-MS https://doi.org/10.2118/77419-MS Published: September 29 2002 Cite View This Citation Add to Citation Manager Share Icon Share Twitter LinkedIn Get Permissions Search Site Citation Etherington, John R., Leach, Patrick E., and David H. Slaght. "The Exploitation Enigma." Paper presented at the SPE Annual Technical Conference and Exhibition, San Antonio, Texas, September 2002. doi: https://doi.org/10.2118/77419-MS Download citation file: Ris (Zotero) Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex Search Dropdown Menu toolbar search search input Search input auto suggest filter your search All ContentAll ProceedingsSociety of Petroleum Engineers (SPE)SPE Annual Technical Conference and Exhibition Search Advanced Search AbstractEvaluation of exploitation drilling programs raises unique issues around risking logic plus estimated ultimate recoverable (EUR) and project economic uncertainties. Clarification of these issues will assist in managing portfolios of exploration, exploitation, and development investment opportunities.Under USA accounting rules, all wells drilled outside the area of proved reserves are classified as "exploratory wells" for computation of cost of finding. However, companies typically segregate wells into Exploration (targeting prospective resources in undiscovered accumulations) and Exploitation (targeting probable and possible reserves in and around discovered fields).Classification as "discovered" signifies a high degree of confidence that the accumulation's EUR exceeds an internal economic threshold for development. However, there remains significant risk of drilling a dry well within the projected field limits. At the field level, the non-proven area is part of the uncertainty distribution for discovered reserves. At the exploitation well level, risk of failure and success case volume uncertainty both come into play. This multiple level view of risk and uncertainty gives rise to the "exploitation enigma".Exploitation well results change the field/reservoir model, the EUR uncertainty profile and associated cash flow projections. Successful wells not only develop reserves within a drainage area but also modify the total field volume uncertainty distribution. Results redefine the remaining proved undeveloped, probable, and possible reserve volumes and their associated confidence levels. Dry exploitation wells also change the EUR distribution and increase investment costs without an increase in forecast production.This paper compares alternative approaches to the evaluation of exploitation programs. It concludes that the economic analysis to support exploitation drilling decisions should not be based solely on the individual well's anticipated results, but rather on its risk-weighted, incremental effect on the overall project value.IntroductionThe dictionary defines an "enigma" as something obscure and hard to understand or explain. Oil and gas exploitation drilling programs certainly fit this definition.Exploitation wells share attributes with conventional wildcats, exploration appraisal wells, and field development wells. While the definition of an exploitation well varies from company to company, generic characteristics include:drilled into unproven areas in and around an existing fieldhas significant chance of failureif successful can be completed and quickly tied into existing production facilitiesresults may significantly impact field economicsExploration managers often describe exploitation wells as low risk wildcats. However, they are concerned that these ventures, which may impact their performance metrics ("exploration success ratios", cost of finding, dry hole costs), are not within their control and may not fit their corporate strategies. Producing managers view exploitation wells as high risk and are often concerned that these programs take money out of development drilling programs. Further, exploitation well failures will negatively impact cost of development metrics upon which they are judged. Staff assigned to exploitation programs thus suffer distrust from both parts of the organization. Keywords: spe 77419, prospective resource, upstream oil & gas, slaght, project valuation, scenario, reserves evaluation, exploration, project level, etherington Subjects: Reserves Evaluation, Asset and Portfolio Management, Reserves classification, Project economics/valuation This content is only available via PDF. 2002. Society of Petroleum Engineers You can access this article if you purchase or spend a download.

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