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Reframing Exploration Strategy Optimizes Project Value

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The conventional approach to project-exploration strategic planning at the identification or access stage is focused usually on the confirmation of the presence of hydrocarbons and the reduction of uncertainty. At the end of the appraisal stage, the main purpose is to create a successful business case. However, a focus on the economic value of the entire project at the identification stage may lead to optimal exploration programs and increasing project expected monetary value (EMV). The objective of this case study is to describe a specific approach to establishing an exploration strategy at the initial stage on the basis of not only uncertainty reduction, but also early business-case development and maximization of future economic value.

Project Framing on the Basis of Geological Options and Uncertainties

The Pannonian basin, part of the Alpine orogenic system, is the largest Neogene basin in the intra-Carpathian area, surrounded by the Alpine, Carpathian, and Dinaric thrust belts and characterized by anomalous high-heat-flow values. Continental collision and shortening recorded in these thrust belts and the Pannonian basin extension with associated magmatic events were reported to be the main drivers of basin development. The Pannonian basin is an aggregation of extensional and transtensional Neogene depressions separated by coeval uplifts.

The basin is fed by three main sedimentary sources: the Eastern Carpathians in the north and the Apuseni Mountains and Southern Carpathians in the east. The main sediment transport direction is northeast/southwest, but small-scale deltas prograde westward locally, sourced by the Apuseni Mountains and the South Carpathians. These differently oriented deltas merged in the Tomnatec depression.

The latest significant onshore basin in the study area was discovered and developed in the late 1950s to the early 1960s. Approximately 68 oil structures and 66 gas structures were documented, and most production is concentrated in or around the deepest depressions, which most likely contain mature source rocks. More than one-quarter of the oil discovered in the entire basin is found in three fields.

To analyze all available geological information and to increase exploration success, a Pannonian basin model was created, involving more than 40 team members from several countries and different scientific institutes over a 2-year period. The results of the basin modeling showed that, in terms of the licence blocks, some zones have a high probability for the detection of hydrocarbon reservoirs. The study area is within a depression; the main source rock is clay marl of the Endrod formation.  

The case-study area has experienced different stages of exploration coverage. Three-dimensional seismic only covers the western part of the blocks. The eastern part is covered with only 2D seismic. Seismic interpretation identified 41 traps for further study and exploration drilling. Oil and gas reservoirs are represented by sandstones and siltstones and fractured rock of the Paleozoic. The found prospects are structural, structural-tectonic, erosive, and stratigraphic pinch-out traps.

Resources were estimated by the Monte Carlo method. The geological chance of success (GCOS) was estimated for each prospect. GCOS comprised five geological factors: source rock, migration, reservoir, trap, and safety deposit. Then, the traps were rated on the basis of geological criteria: geological chance of success, resource, uncertainty of reserves, complexity of geology aspects, and state of exploration. A tornado plot highlighted the key geological uncertainty that formed the basis for the exploration program for the uncertain traps. This uncertainty involved the area of traps, reservoir properties, and pressure/volume/temperature properties. This rating allowed confident selection of traps for exploration drilling.

As a result, the project was framed for all possible options. This project stage is recognized as identification, because most of the options have no direct hydrocarbon confirmation. Exploration strategy mainly focuses on reducing uncertainty and does not take into account time frame, economic efficiency, potential synergies, or other issues.

Reframing the Exploration Strategy

In order to increase project value at an early stage, and to tie this goal in with a companywide strategy, early business-case creation was performed. This decision was challenging for the project team because it needed additional competencies that usually are not required at the identification stage of the project.

A particularly important issue concerns assumptions about, and quantification of, initial data. There are not many sources of hard data because of the early project stage; therefore, an accurate analog study was performed. All assumptions were then critically analyzed in order to create uncertainty ranges wide enough to reflect data limitations. Production profiles were estimated by an algorithm described by the following sequence:

  1. Probabilistic reserves and GCOS were taken from an initial calculation for the exploration strategy.
  2. Initial oil rate was based on the specific rate per 1-m thickness and also was verified by the analog study. The decline rate was also taken from the analog study.
  3. The production profile for a typical well was calculated analytically.
  4. The total amount of wells was determined as initial recoverable resources (P90/P50/P10 cases) divided by cumulative production from one well.
  5. The general production profile (P90/P50/P10) for the trap was created on the basis of the proposed drilling schedule.

The situation of the region of study in terms of access to land plots for geological exploration and field development is complex. Land is privately owned and is used for agriculture, and the populace is generally unsympathetic to oil- and gas-producing companies. Thus, the basic concept of field development in the study area focuses on the construction of individual minicenters of oil and gas production and treatment rather than broad synergies of development. On a wellpad, five wells are drilled and the infrastructure is set up, consisting of a gas-­separation unit, an oil- and water-treatment unit, and a small power plant running on associated petroleum gas. If an oil wellpad is the subject, a gas-treatment unit and a power plant running on gas is present; if the subject is a gas wellpad, power lines are underground cable lines and gas facilities are few. In each particular case, the matters are negotiated with landowners.

Market research for oil and gas sales has shown that the optimal option for monetizing crude oil during project implementation is transportation to local refineries. This solution is invited by current oil prices in the regional market, where local refineries try to buy oil cheaply. As for natural-gas sales, custody transfer to the national gas-pipeline system looks like the most beneficial option, but it is unfeasible because building gas pipelines is impossible owing to permit issues. An alternative is to build compressor stations at wellpads and to transport the compressed gas by motor vehicles to decompression facilities at gas pipelines. The compressed-natural-gas market is undeveloped. Currently, a power-generation scheme is being implemented where power-generating equipment is leased from a company, which works to obtain a permit to bring an underground power cable to the tie-in to the central power-distribution grid. Because the project is at an early stage of development, for the determination of optimal infrastructure solution, accounting for a decision-flexibility (sustainability for reservoir uncertainty) criterion is important.

Project economic evaluation was performed on the basis of decision trees. Decision trees were used for each option constructed, and project EMV was calculated. The assumptions for calculating EMV included point-forward economic evaluation; GCOS value is determined by taking into consideration additional work in the laboratory and the field before the decision to drill an exploration well is made. Another important aspect of exploration strategy is that it should consider not only the list of rated options but also timing, sequence of works, and geological- and nontechnical-risk estimation.

After traps were ranked on the basis of EMV, a set of locations with positive values of EMV was defined. Then, the business case was formed, taking into account the drilling schedule and the necessity of performing seismic work. The total value of the business case was estimated on the basis of an optimized portfolio of exploration options. As a result of this study, the EMV of the project increased by more than 50%.

Thus, the exploration strategy included 10 traps and optimized 3D seismic and exploration-drilling schedules and led to the decision to drill exploration wells for specific traps without 3D seismic (because P90, in successful cases, has a positive EMV), which leads to significant time optimization.

In summary, determination of the work phases for business-case realization was performed with respect to the following:

  • Ranking of traps by the degree of geological attractiveness (factor of geological success and the degree of readiness for exploration drilling)
  • Determination of economic efficiency
  • Alignment of the proposed exploration program with license obligations (concession agreements)

Conclusions

As a result of this case study, an exploration strategy was optimized that led to a reduction in exploration time of greater than 50%, lower capital expenditure, and an increase of EMV of more than 50%. The project team was empowered to make the decision to drill some of the exploration wells for specific traps without 3D seismic, which significantly reduced delays caused by difficult permit negotiations.

For a limited time, the complete paper SPE 187143 is free to SPE members.

This article, written by JPT Technology Editor Chris Carpenter, contains highlights of paper SPE 187143, “Maximization of Major Oil and Gas Project Value at Identification/Access Stage by Reframing of Exploration Strategy,” by V. Orlov, R. Oshmarin, A. Bochkov, SPE, and Y. Masalkin, Gazprom Neft, and S. Yakovlev, V. Ulyanov, and M. Danilin, NIS, prepared for the 2017 SPE Annual Technical Conference and Exhibition, San Antonio, Texas, USA, 9–11 October. The paper has not been peer reviewed.

Reframing Exploration Strategy Optimizes Project Value

01 December 2018

Volume: 70 | Issue: 12

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