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Oil and Gas Project Evaluation

Oil and Gas Project Evaluation
Robert K. Merrill Senior Exploration Advisor Ammonite Resources

Oil and Gas Project Evaluation

Ammonite Associates
Ammonite links the business and economics of petroleum exploration with the technical context.
¾ ¾ ¾ ¾ ¾ Uncertainty recognition and evaluation Oil and gas project evaluation Geological and geophysical interpretation Due diligence for financial investors Reserve reports’ audits
9 Assessment of known resources 9 Assessment of undiscovered resources

¾ Portfolio analysis ¾ Expert witnesses ¾ Management consulting

17 August 2007

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Oil and Gas Project Evaluation Keys to Success ¾ Geology and geophysics identify “favorable” areas ¾ “Risk Analysis” – Understanding the uncertainties 9 9 9 9 Geology Volume estimates Production estimates Engineering ¾ Costs 9 Efficient well drilling. stimulation and operating technology 9 Competitive costs ¾ Reliable markets 17 August 2007 Slide 3 . completion.

Oil and Gas Project Evaluation Oil and Gas Project Evaluation ¾ Assessing the uncertainty ¾ Project assessment 9 9 9 9 9 9 9 9 Geological & Geophysical interpretation Engineering Financial Management New venture Acquisition Divestiture Investigate management team track records and industry reputations ¾ Due diligence for financial investors ¾ Reserve report audits 9 Evaluate reserve uncertainty 9 P10 – P90 17 August 2007 Slide 4 .

Oil and Gas Project Evaluation Management Consulting ¾ Business plans ¾ Review reasonableness of business plan 9 Assumptions 9 Timing 9 Cash flow projections ¾ Economic modeling ¾ Competitive intelligence ¾ Contract negotiations 17 August 2007 Slide 5 .

Oil and Gas Project Evaluation Ammonite Clients ¾ Petroleum companies ¾ Oil service companies ¾ Utility and manufacturing companies with mineral interests ¾ Institutional and individual investors ¾ Banks ¾ Law firms ¾ Independent power developers ¾ Drilling and producing property income funds ¾ Government agencies 17 August 2007 Slide 6 .

¾ Widely distributed 9 Worldwide oil and gas “centers” 9 Financial centers of North America and Europe ¾ Ability to assemble diverse spectrum of skill sets 9 Quickly 9 Appropriate to project goals • Project overview • Full project evaluation 17 August 2007 Slide 7 .Oil and Gas Project Evaluation Ammonite’s Associates ¾ Virtual network of professional associates ¾ Senior industry E&P expertise 9 Most associates have 25+ years of petroleum industry experience.

Oil and Gas Project Evaluation Project Evaluation ¾ Scope and Time appropriate to project goals ¾ Probability of Success 9 9 9 9 9 9 9 9 9 9 Trap Seal Reservoir Source Timing and Migration Trap / structure mapping Definable depositional environment for reservoir Reservoir packages correlate Reservoir parameters are realistic and within definable ranges Reservoir geometry accounted for ¾ Geology ¾ Engineering 9 Reservoir engineering parameters • Recovery Efficiency • Formation Volume Factor 9 Drainage area 9 Reserves and Resources ¾ Financial Return 17 August 2007 Slide 8 .

Pg.Oil and Gas Project Evaluation Why Monte Carlo? ¾ Need to understand project uncertainty and risk to focus your efforts ¾ Determine what the important parameters are ¾ “Point Estimates” do not reflect the uncertainty in the parameters 9 They provide no information on the reality of variation. NPV. 17 August 2007 Slide 9 . 9 Hides the estimation (probability) of financial failure. IRR. 9 Your point estimates will hypnotize your team into believing the outcome and you become accountable for hitting that number. especially in the high risk areas of the project that drive reserves. costs. etc.

Oil and Gas Project Evaluation Probability of Success (POSg) ¾ Qualitative analysis results in range of probability ¾ Trap 9 Presence of a trap • 4-way closure • Fault closure • Hydrocarbon retention capability (lateral seal) ¾ Seal 9 Retention capability of top sealing unit ¾ Reservoir 9 Presence of adequate quality reservoir rock 9 Better than cutoff parameter values ¾ Source 9 Presence of source rock capable of generating hydrocarbons ¾ Timing and Migration 9 9 9 9 Trap formation / timing Hydrocarbon generation timing Hydrocarbon expulsion timing Route and distance of migration pathway 17 August 2007 Slide 10 .

Oil and Gas Project Evaluation Pg = Probability of Finding Hydrocarbons Trap Reservoir Seal Probability of Success Timing & Migration Source 17 August 2007 Slide 11 .

Oil and Gas Project Evaluation Pg Scatter Plots 17 August 2007 Slide 12 .

i.e. compartmentalization ¾ Depositional environment of reservoir ¾ Reservoir parameters within definable ranges 9 9 9 9 Net pay Porosity Water saturation Permeability ¾ Reservoir geometry ¾ Recovery Factor ¾ Drainage Area 9 Number of wells 17 August 2007 Slide 13 .Oil and Gas Project Evaluation Geology & Reservoir Engineering ¾ Trap mapped appropriately 9 Assess uncertainty of size 9 Define P10 and P90 range for potential Area of accumulation ¾ Define reservoir packages 9 Heterogeneity.

Oil and Gas Project Evaluation Reserves Calculation Prospect Area Net Pay Porosity Water Saturation Recovery Efficiency 17 August 2007 Slide 14 .

Oil and Gas Project Evaluation Risked Recoverable Resource Plots 17 August 2007 Slide 15 .

Oil and Gas Project Evaluation Total Unrisked Resource 17 August 2007 Slide 16 .

Oil and Gas Project Evaluation Total Risked Resource 17 August 2007 Slide 17 .

143 Prospect Mean about P60 17 August 2007 Slide 18 .987.098.Oil and Gas Project Evaluation Validate with Trend Reserves Trend Reserve Distribution P90 – 2.068.980.294.285 P50 – 27.790.347 P10 – 319.

Oil and Gas Project Evaluation Sensitivity – What’s Important 17 August 2007 Slide 19 .

Oil and Gas Project Evaluation Economics ¾ Resources ¾ Historical or analogous decline for reservoir ¾ Historical distributions for expenses ¾ NPV Forecast compatible with historical data ¾ Portfolio analysis 17 August 2007 Slide 20 .

Oil and Gas Project Evaluation Production Schedule & Price Initial Potential (IP) (Range of possible IP’s) Decline Rate Price 17 August 2007 Slide 21 .

Oil and Gas Project Evaluation Distributions Built from Historical Costs Acreage Seismic Cost Drilling Cost Completion Cost Operating Cost 17 August 2007 Slide 22 .

Oil and Gas Project Evaluation Net Present Value Dry Holes Expected mean value 17 August 2007 Slide 23 .

Oil and Gas Project Evaluation Portfolio Management ¾ Examine portfolio value ¾ Optimize portfolio given uncertainties of each project 17 August 2007 Slide 24 .

we also consider the business and economics of petroleum exploration. 17 August 2007 Slide 25 .Oil and Gas Project Evaluation Summary ¾ Virtual network of professional associates ¾ Globally distributed oil and gas professionals with diverse skill sets uniquely equipped to evaluate uncertainty in oil and gas 9 9 9 9 Geological and geophysical interpretation Oil and Gas Project Evaluation Due diligence for financial investors Reserve reports’ audits ¾ Management consulting ¾ Why Ammonite? Unlike most other E&P consulting firms we not only review the geoscience.