THE MOST CRUCIAL
DECISION:
SELECTING NEW PLAYS
“The Play’s The Thing!”
William Shakespeare,
as quoted to Pete Rose
KEY
MESSAGE:
Plays (aggregates of related prospects)
& large concessions can be systematically
and objectively evaluated for potential,
just like prospects
chance of success
reserves
value
SELECTING PLAYS TO PURSUE IS
THE KEY EXPLORATION DECISION
Play Investment Plan
Prospect Exploration
Seismic Program
0.01
0.10
1.0
10.0 100.0
Monetary Impact $ MM
MOST CRITICAL DECISION?
Which Prospect to drill
Which Play to enter
Companies routinely make new PLAY
decisions in ways that are often
isolated, haphazard, even superficial.
The results can be Disastrous !
NEW PLAY DECISIONS DESERVE
DISCIPLINED ANALYSIS
PLAY / CONCESSION EXPECTED VALUE
CHANCE OF PROGRAM
ECONOMIC SUCCESS, Pe
X
SUCCESS CASE VALUE
PLUS
CHANCE OF PROGRAM
FAILURE
X
PROGRAM FAILURE COST
POSITIVE EV = INVESTING; NEGATIVE EV = GAMBLING!!
COMPARING EV INPUTS
PROSPECT (5)
PLAY (7)
Prospect Res. Distrib.
FSD
for potential discoveries
Estimated
volume
(Area x Pay x HC RF)
Number of future discoveries
Geologic Chance
Geologic Chance
Threshold (MCFS)
Threshold (MEFS)
Dry Hole Tolerance
Failure Cost
Program Failure Cost
NPV per BOE
NPV per BOE
Due to uncertainty, most inputs are ranged (P90 : P10)
PLAY ANALYSIS PROCESS FLOW
1. DELINEATE ‘PLAY’
(Geographic Scope, Time, Company vs Industry)
2. ASSESS CHANCE of SUCCESS
3. ESTIMATE NUMBER OF DISCOVERIES
4. APPROPRIATE FIELD SIZE DISTRIBUTION
5. DRY HOLE TOLERANCE & FAILURE COST
6. ECONOMIC THRESHOLD & VALUE per BOE
PLAY ANALYSIS PROCESS FLOW
1. DELINEATE ‘PLAY’
(Geographic Scope, Time, Company vs Industry)
2. ASSESS CHANCE of SUCCESS
3. ESTIMATE NUMBER OF DISCOVERIES
4. APPROPRIATE FIELD SIZE DISTRIBUTION
5. DRY HOLE TOLERANCE & FAILURE COST
6. ECONOMIC THRESHOLD & VALUE per BOE
PROGRAM Pe,
THE ‘ON/OFF SWITCH’ FOR A PLAY
ON
Prospect Execute
Pe
Success
Case
Program &
Execute
Develop
One or More
Economic
Discoveries
Minimum
Program
OFF
Pf =
1 - Pe
Abandon
Play
All Wells Dry
or
Un-economic
PLAYS: SHARED AND LOCAL CHANCE

Shared Chance
Play Chance
Chance that the play exists, i.e., chance of finding a minimum
quantity of hydrocarbons capable of sustained flow in at least
one prospect through a discussion of dependent factors.

Local Chance
Prospect Success Ratio (PSR)
Given that there is at least one future discovery, the % of undrilled
prospects expected to contain hydrocarbons capable of sustained
flow, when considering independent factors.
Shared Chance x Local Chance = Average Prospect Pg
GEOLOGIC CHANCE ASSESSMENT
Shared Chance
Local Chance
1.00
Source
1.00
0.80
Migration / Timing
0.50
1.00
Reservoir
0.75
For example, 20% chance
that migration
pathway
1.00
fails for all prospects
in the play, that is, there
1.00
is only an 80% chance
that play exists.
0.80
Given that migration
pathway works somewhere
1.00only 50% of
in the play,
traps are located properly
to receive
hydrocarbon
0.80
charge.
Closure
Containment
Play Chance
PSR
Average Prospect Pg
0.24
0.30
PLAY ANALYSIS PROCESS FLOW
1. DELINEATE ‘PLAY’
(Geographic Scope, Time, Company vs Industry)
2. ASSESS CHANCE of SUCCESS
3. ESTIMATE NUMBER OF DISCOVERIES
4. APPROPRIATE FIELD SIZE DISTRIBUTION
5. DRY HOLE TOLERANCE & FAILURE COST
6. ECONOMIC THRESHOLD & VALUE per BOE
ESTIMATE # FUTURE DISCOVERIES
• USE ANALOGS
Based on areal density of fields in analog
play, estimate number of discoveries.
Validate plausibility of play area containing
at least that number of undrilled prospects,
(# Discoveries ÷ PSR)
• COUNT BUMPS
or
Estimate success case exploration activity
(# Undrilled Prospects x PSR)
Ex: 10 x 0.3 = 3
PLAY ANALYSIS PROCESS FLOW
1. DELINEATE ‘PLAY’
(Geographic Scope, Time, Company vs Industry)
2. ASSESS CHANCE of SUCCESS
3. ESTIMATE NUMBER OF DISCOVERIES
4. APPROPRIATE FIELD SIZE DISTRIBUTION
5. DRY HOLE TOLERANCE & FAILURE COST
6. ECONOMIC THRESHOLD & VALUE per BOE
ANALOG OR PARENT FSD
Mean beyond MEFS
= 840 MMBOE
Mean = 78 MMBOE
MEFS at P55
1
10
100
1,000
10,000
DERIVED OR PROJECTED FSD
Estimated maximum
FS possible = 1,000 MMBOE
Mean beyond MEFS
= 109 MMBOE
Mean = 9 MMBOE
MEFS at P30
Mean beyond MEFS
= 840 MMBOE
Mean = 78 MMBOE
MEFS at P55
1
10
100
1,000
10,000
PLAY ANALYSIS PROCESS FLOW
1. DELINEATE ‘PLAY’
(Geographic Scope, Time, Company vs Industry)
2. ASSESS CHANCE of SUCCESS
3. ESTIMATE NUMBER OF DISCOVERIES
4. APPROPRIATE FIELD SIZE DISTRIBUTION
5. DRY HOLE TOLERANCE & FAILURE COST
6. ECONOMIC THRESHOLD & VALUE per BOE
DRY HOLE TOLERANCE
& PROGRAM FAILURE COST
“How many consecutive dry holes
would YOU tolerate drilling
prior to abandoning this play?”
• Company’s track record in similar plays
• Number of geologic concepts
• In some cases, well commitments
Estimate all costs (wildcats, land, seismic, overhead)
associated with executing this minimum program –
the equivalent of ‘failure cost’ for a single prospect.
Ex: $140 MM
PLAY ANALYSIS PROCESS FLOW
1. DELINEATE ‘PLAY’
(Geographic Scope, Time, Company vs Industry)
2. ASSESS CHANCE of SUCCESS
3. ESTIMATE NUMBER OF DISCOVERIES
4. APPROPRIATE FIELD SIZE DISTRIBUTION
5. DRY HOLE TOLERANCE & FAILURE COST
6. ECONOMIC THRESHOLD & VALUE per BOE
PLAY / CONCESSION EXPECTED VALUE
CHANCE OF PROGRAM
ECONOMIC SUCCESS, Pe
X
SUCCESS CASE VALUE
PLUS
CHANCE OF PROGRAM
FAILURE
X
PROGRAM FAILURE COST
PLAY / CONCESSION EXPECTED VALUE
PROGRAM Pe = chance of making at least
one economic discovery before abandoning Play
= PLAY CHANCE
X
(1 – [1 – (PSR X PMEFS) ] #TESTS )
Chance of Program Failure:
Pf = 1 – Pe
SUCCESS CASE VALUE
SUCCESS CASE ECONOMIC RESERVES
X
NPV per BOE
SUCCESS CASE VALUE
Ex: 200 MM x $2.5/BOE = $500 MM
Burden this value with success-case dry holes
and, sometimes, additional success case costs.
PLAY / CONCESSION EXPECTED VALUE
CHANCE OF PROGRAM
ECONOMIC SUCCESS, Pe
X
SUCCESS CASE VALUE
= 0.26 x $500 MM = $130 MM
PLUS
CHANCE OF PROGRAM
FAILURE
X
PROGRAM FAILURE COST
= 0.74 x - $140 MM = - $103.6 MM
EV = $ 130 MM - $103.6 MM = $26.4 MM
PLAY / CONCESSION EXPECTED VALUE
PLAY ANALYSIS:
COMPARATIVE OUTPUT MEASURES
PROSPECT SCALE
PROSPECT Pe
ECONOMIC DISCOVERY SIZE RANGE
PROGRAM SCALE
PROGRAM Pe
PROGRAM FAILURE COST (Before & After Tax)
SUCCESS CASE VOLUMES & VALUE
NUMBER OF ECONOMIC FIELDS FOUND
EXPECTED VALUE
PLAY INVESTMENT EFFICIENCY
BUILDING A BUSINESS MODEL
FOR PLAY RANKING
Composite
50%
20%
15%
15%
PLAY
INVESTMENT
EFFICIENCY
PROFIT
POTENTIAL
POTENTIAL
RESERVE
ADDITIONS
POLITICAL
RISK
Parameters & Weightings
Determined by Company
STRATEGIC ADVANTAGES OF
SYSTEMATIC PLAY ANALYSIS
• Facilitate dialog and understanding of
play strengths and weaknesses
• Assist consistent comparison and
ranking of global opportunities
• Optimize and focus exploration spending
• Identify when to exit plays and minimize
failure cost
TACTICAL ADVANTAGES OF
SYSTEMATIC PLAY ANALYSIS
•
•
•
•
•
Easy, quick, intuitive
Tied to maps (leads & prospects)
Tied to opportunity strategy
Incorporates dependencies
Identifies accountability for program
execution
• Calculates value directly