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Planning exploration? Know how your discovery will make money first!

It’s easy to think of oil and gas exploration as the domain of a certain type of expert. Enthusiastic experts who live and breathe rocks, know their geosciences and can apply advanced technology to make discoveries with the potential to have company and national level impact.

However, an explorer has to be more than a fantastic geologist. Once they make a discovery, they need to be thinking commercially – with development, production and deals in mind.

To put it simply: there’s no point exploring for a reservoir if you need 1000 wells to extract what’s there – it won’t be viable. Alternatively, if a strong development case appears early, a commercially-minded team will fundamentally alter the way they explore and appraise.

 

By asking commercial questions early, you’ll see more value later

Ultimately you need to be asking how you can make money from a discovery before you start investing critical resources into it.

Are you looking to complete the discovery and then sell 50% of the field to realise value early? Is the pace critical – making a phased development and parallel working more important? Or are you planning to optimise the field through extensive appraisal – and if so, what size and quality of resource is needed to make it fly?

Once your explorers are considering development scenarios and commercial thresholds, they won’t spend time trying to find out everything about a field, which can cost a fortune. Instead, their appraisal programme can be focused on meeting minimum thresholds to move forward quickly and efficiently with key engineering aspects being worked in parallel.

The best explorers might do all the above before they even drill a well, dramatically speeding the time between discovery, approving development and delivering production – potentially adding substantial value to a project.

 

You want exploration and development to rub shoulders

Too often, explorers aren’t working with enough development or commercial context. This can be the case in larger organisations, which often silo their exploration, appraisal and development teams into separate divisions. Since they’re a little isolated, the exploration teams may not understand key value drivers (eg volume, productivity, pace, terms) to be commercially tactical.

It’s a bit of a sweeping statement, but in general, your developers won’t have the imagination to make amazing discoveries, and your explorers won’t have enough realism to make money out of what they’ve found.

If you can find opportunities for explorers and developers to work in a multidisciplinary environment, not only will they temper each other’s perspectives, they’ll also begin to acquire the qualities they can’t gain in siloed teams.

In the short term, you’ll have a much more realistic description of the value of the asset prior to drilling. Long term, you’ll have an upskilled team too – your explorers will learn to think more commercially, and your developers will learn to consider geological options they might have previously overlooked.

 

Smaller companies often know everything is riding on this

Commercially-minded exploration is more common among smaller companies, who are forced by necessity to be value-focused. However their approach also comes with its own risks, which we’ll delve into next.

While larger companies have the capability breadth and resources to put people with development experience into an exploration team, smaller companies only have who they have – and in an attempt to wear too many hats, their teams can make decisions without enough checks to their bias. It won’t matter that your explorers know how to think through the development scenarios, you could still end up with no money.

Bias is difficult to overcome when a company depends on one prospect – everyone’s job security might be hanging on it and it’s naturally hard to detach yourself from this.

It’s likewise hard to overcome inherent bias if the people who describe the prospect then do the development scenario. Since they’ve sunk time and hope into the prospect, they want it drilled, and with the best intentions, they may well underestimate cost and exaggerate value.

 

A value-driven approach needs agility

The final element to emphasise here is that understanding the key factors it takes to turn a discovery into a high value development doesn’t need to take a thousand years. Our multidisciplinary team recently did it for one client in just five weeks.

If you draw on external experts you can put a group of experienced people together – explorers and those with development experience and an understanding of reservoirs, wells, facilities and costing – and achieve a lot in a focused period of time.

You’ll get a long way towards understanding what your value drivers and thresholds are, and what you need to explore in a project for it to make money quickly and efficiently – all while derisking it and being aware of your company’s limits.

For more on this theme, see our articles on how to deliver technical quality under time pressure or why decision quality is important (and why it falters).

Making sure the work is of sufficient quality is also critical. As we discussed in our article, assurance and agility: are these two opposing qualities?, it’s possible to complete rigorous assurance on the fly without emptying the bank in the process.

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