ABSTRACT

This paper presents an exploration portfolio management tool that Chevron Texaco is using in the Gulf Of Mexico Shelf Business Unit to maximize the probability of having at least one discovery every budget cycle. The tool is based on the calculation for cumulative probability of success:

CPOS = 1 - ((1 - POS₁) * (1 - POS₂) * (1 - POS₃) * (1 - POS₄)...* (1 - POS_N))

where CPOS is the cumulative probability of success (the probability of having at least one success), N is the number of attempts and POS_N is the probability of success at each attempt. The number of attempts is the number of prospects drilled in any one budget year, and is determined by the size of the drill budget and the dry hole costs of the prospects. If the POS is the same for all of the attempts, the equation simplifies to:

CPOS = 1 - (1 - POS)^N

The above equation can be put into graph form. For a particular budget amount, CPOS curves can be drawn on a chart risk versus dry hole cost. The prospects within our portfolio can be plotted on this same chart to show what prospects can be drilled while maintaining a desired statistical probability of making at least one discovery.

In the GOM Shelf Exploration Group, we have set our desired CPOS threshold at 90%. Prospects that plot in the area of the graph corresponding to a greater than 90% CPOS we are willing to drill with a 100% working interest. Prospects that fall in the area of less than 90% CPOS we typically will not drill at 100%. For those, we will either find partners, farmout, or not drill.

If an attractive prospect falls below the desired CPOS level, the prospect can be moved to the desired level by taking only a partial working interest (find partners). The same chart can be used to determine what percent working interest must be divested to move the prospect to the desired CPOS level.

CPOS calculations can be used to determine how many wells to drill before abandoning a new play to ensure that the play has been adequately tested relative to the independent risk factors of the prospects. CPOS calculations can also be used to help determine how much budget money should be requested at business planning time to ensure that our group is adequately funded to realize a high probability of success.

For groups looking to ensure making more than one discovery during a budget cycle, the same CPOS analysis can be expanded to determine the probability of making multiple successes. This is helpful for groups with larger budgets.

The concept of Cumulative Probability of Success is a basic principle, but it can be a powerful portfolio management tool to help select what wells to drill while ensuring a high probability of success within budget constraints.

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