Over the past three years, more than 100 oil and gas companies in North America with almost $80B in debt have filed for bankruptcy. While these companies would like you to believe they were all victims of low commodity prices, many failed because of the way they approached appraising and developing opportunities. Two of the most common mistakes have been focusing on production attainment instead of value creation, and incorrectly thinking that enough was understood about a given reservoir to push ahead with development.

To mitigate these errors unconventional reservoirs must be evaluated in a series of stages. In each stage we need to; (1) identify the key uncertainties and risks, (2) collect the data needed to quantify these, and (3) generate a probabilistic assessment of potential outcomes and their associated values. A key aspect in this evaluation is not only using rock and fluid data to identify the area with the greatest potential, but drilling enough wells to understand the production variance (irreducible uncertainty) and whether the average well will be economic. This includes quantifying the range of the average well and the confidence of achieving some minimum rate.

This process requires discipline, including maintaining consistent drilling and completion practices so variations in reservoir quality can be understood. To help ensure this process is followed it is important to implement an assurance process consisting of; 1) guidelines and workflows, 2) peer reviews and assists, and 3) periodic performance lookbacks. The time to do this is NOW, before prices rise again and we revert to our destructive habits.