ABSTRACT

Exploration technology has changed dramatically with the advent of the personal computer over the past 20 years. With this change has come a dramatic increase in the number of exploration programs, size and cost of exploration projects, enhancement in seismic acquisition techniques, visualization of subsurface reser voirs, and an adjustment in joint operation agreements and relationships that can be viewed as a 3-D Exploration Wheel over time. One must recognize wheel imbalances, wheel placement, and the impact of first, second, and third-order derivatives on the wheel to treat or prevent economic pain in any 3-D exploration program. This pain is due to a reduction in reserve expectation accompanied by several magnitudes of derivative issues and change in wheel shape that exist over time. Recognizing wheel shape and where it resides in time will aid all exploration disciplines in understanding expectations of any project.

Discussion

Seismic and gravity exploration evolved in the 1930's whereby exploration companies were trying to predict reservoir geometry before drilling. Seismic exploration relates to forcing a sound wave through the earth and listening to the reflections as it bounces off the layers and back to the surface. Gravity exploration was similar, but it related variations in the earth's electro-magnetic/density fields to predict subsurface structure. The 30's to the 60's evolved to primarily seismic exploration using single charges recorded into a single line of listening devices (receivers) gathering dozens of points of control. The 60's to the 80's extended this to multiple charges and longer lines of multiple receivers gathering hundreds of points of control. The 80's to present evolved to multiple charges recorded into a grid or matrix of receivers gathering millions of points of control. An exponential growth in resolution over 60 years (Fig. 1).

Figure 1. Increase in size and density of seismic common depth points with time and computational power.

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With this growth in subsurface resolution came more robust exploration programs that eventually evolved into the 3-D projects that we see today. Accompanying the technological evolution is a disciplinary growth and learning curve (LC) associated with these larger projects. The LC applied not only to geological and geophysical departments but also to departments of accounting, land, drilling, completion, marketing, joint operating agreement (legal), executive, and importantly the operator/investor working interest relationships. To graphically illustrate this issue, a wheel has been devised to show the integral relationships among these disciplines (Fig. 2).

In the "wheel" (Fig. 2) one can see a traditional role of disciplines in any given 3-D project controlled by the operator of the group. The spokes of the larger wheel are the disciplinary groups that are necessary to make a project function; they are much like the individual treads on a tire. Depending on the size of the organization, one, two, three, or sometimes all of the disciplinary groups can be combined, which is a function of the size of the company. Figure 2 represents the case of a mid-size independent. The inner spoke of the wheel or "hub" is made up of the investment funding that is provided by the operator and commonly non-operator working interest (WI) owners (A-E), which can be labeled as bearings to the wheel. During the startup of any project, it is perceived that the tire and bearings make for strong traction and forward movement.

Note that if any one discipline or tread becomes weak, the tire can wear unevenly, or conversely, if bearings (WI) get lost and have to be replaced, the tire can become unbalanced. An example is the case in which the wellfinanced bearings fund the geological and land teams that coordinate with drilling, completion, and accounting to find an economic reservoir, but then an available product market, pipeline, or production facility may not be present, leading to poor tread and traction. This is often the case with foreign exploration programs whereby one can find a sizeable reservoir, but a producing infrastructure may have to construct to sell the product, leading to extra time to revenues (Fig. 3).

Figure 2. The exploration wheel, showing the relationships among disciplines.

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Alternatively, the best operations and initial funding can lead to finding an economic reservoir, but during the development of the program, one of the Wl bearings is lost and adequate financing must be replaced, or more commonly burdened by the remaining bearings, leading to a program that just does not roll properly and eventually slows down. This is often the case with domestic exploration programs in which one may not find an economic reservoir during the early phase of exploration, some of the Wl loses faith and either does not participate or sells out, leading to a slowdown in the exploration pace and increases in individual Wl budgets to pay for the time and pro-rata share of the missing bearing (Fig. 4).

From either the foreign or domestic alteration in the wheel, one can easily see that the burden, more accurately, the economic burden, which is herein described as "economic pain," falls squarely on the hub. This pain is in loss of revenue due to time or increase in budget due to pro-rata shouldering of financial obligations. The pain often occurs in cycles. The pain is due to the learning curve found in all 3-D domestic, and many foreign, exploration projects. The pain is caused by variations in expectation over time (Fig. 5).

The pain is sinusoidal and can have several orders of derivatives. The derivative is defined as "the change in the rate of change." Exploration programs can have first- through third-order derivatives just like the stock market. The red curve above shows that with time, the cycles of exploration can go through several, time diminishing, levels or tiers of high expectation separated by lulls of low expectation.

An example is the expectation in the first tier before drilling the first well or wells, followed by the loss in expectation caused by problems such as waiting on pipeline, poor test due to bad cement jobs, reserve revisions, pipeline tariffs or capacity curtailments, unitization, or joint-interest billing problems. An example of the second tier may be increased level of expectation such as the case if one or more Wl parties fall out after the first lull, followed by the expectation increase due to new Wl owners or even a new farmout candidate. The third tier example can be the renewed expectation of a salvage operator after buying out the second tier owners. Note that the expectation tiers fall over time--quite common in domestic and foreign programs as the later tiers usually are not as "hyped" about the potential as were previous tier owners. This drop commonly parallels reserve estimation change with time.

Figure 3. Variation in the exploration wheel shape due to a common foreign operation pitfall.

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Figure 4. Variation in the exploration wheel shape due to a common domestic operations pitfall.

Figure 5. Economic burden on the exploration wheel is shown by variation in expectation over time cycles and diminishes with the age of the exploration program.

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Note also that the duration in time of the tiers reduces with age. This is attributable to the number of potential drilling, workover, completion candidates, active leases, or even financial strengths reducing over time. Again this is common in both foreign and domestic markets. Finally, there are higher order derivatives found on any tier, as shown above. The example highlighted above may be the first-order lull after the first expectation wave (tier) of exploration in a domestic 3-D program that targeted low-risk bright spots created by market or completion delays or even wells quickly going to water. The second-order derivative can be caused by a WI owner selling out after the first tier that creates an uneven bearing (financial) burden. The third-order derivative can be division order/title opinion delays caused by the legal department during the sale of one WI owner.

Obviously a myriad of tread wear problems (disciplinary issues), bearing adjustments (WI argument, change, or operations maneuvers), and causes for derivatives (joint-interest billing discussions, operator meeting conflict, WI executive clashes, geological/geophysical disagreements) can occur. Let us not forget the impact that a dry hole has on the tread and bearing of the wheel; sometimes this can cause a flat or rupture in the tire that cannot be repaired. Note how the wheel rides the LC below and shifts in size and shape with time (Fig. 6).

Summary

There is economic pain in the learning curve. All participants in this business must recognize this fact. This is due to a reduction in expectation with time accompanied by several magnitudes of derivative issues and change in disciplinary/WI relationships of any exploration program. This begs the question: "Is there a solution?" Just like the myriad of issues, there is no one solution for all programs--this must be custom fit. In my opinion, creating a better program requires 3 key issues: (1) having and keeping a good WI relationship through a healthy (and strict) jointoperating agreement, (2) recognizing that dry holes occur and we must learn, not run, from these occasions, (3) making the wheel smaller (interdisciplinary teams), reducing the need to have an abundance of bearings (WI), which reduces conflict and creates efficiency in the roll, and (4) considering acquiring 3-D for prospect-specific purposes with limited time constraints--not company-building purposes with all expectation and no timeline constraints. The ideal wheel is one that is compact and self-inflating to patch problems quickly--that is an exploration program that is funded by drilling success that leads to re-investment of product revenues over a manageable timeframe.

Figure 6. The exploration wheel shape varies with time as a function of how first- and higher-order derivatives affect the program, establishing a diminishing overall expectation punctuated by tiers of development. The general trend depicts how high or low the learning curve (LC) is shaped.

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