Organic Portfolio Growth (Exploration): Importance of Value Creation: Part I
Updated: Nov 27, 2020
By Tariq Siddiqui: April 11 2018
Exploration teams plays critical role in the organic growth of the oil & gas companies portfolio. Development engineers provide critical support in the maturation of opportunity after the discovery; maturing the volumes, all the way to assessing the potential value of the opportunity.
This is the traditional and more well-known role of Development Engineering team, managed by a ‘Development Manager’ during ASSESS and SELECT phase of opportunity maturation in a capital project. is less defined but equally important role for ‘Development Engineers’ in the preceding phase (IDENTIFY), where the opportunities are brought in portfolio, either organically through exploration or inorganically through Mergers and Acquisitions (M&A).In this article, we focus on the role of ‘Development Engineers’ during the exploration phase. Exploration team identify and mature the volumes and the development team helps convert them to value. The exploration team identify opportunities through regional studies, assess them and bid for them in the lease sale, then high-grade the acquired lease acreage through prospect evaluations and rank them, finally leading to the drilling of the prospect by an exploration well leading to a discovery.
In large companies with sizable exploration portfolios, a dedicated development engineering team is embedded and co-located with explorers that help them develop the value proposition of the opportunity. The size of the team is scalable according to the size of the portfolio and consists of full time reservoir engineers, development planners and part-time concept engineers, facility engineers, well/completion engineers, cost engineers and schedulers.
The development engineering team, also referred as exploration support team relies heavily on analogue data and benchmarks for the evaluation of acreage and prospects. Reservoir engineers develop fluid correlations that relate subsurface volumes to stock tank volumes that underpin the development type i.e. oil, dry gas or retrograde gas field. They estimate recovery factors based on the drive mechanisms, estimate well count, well-spacing, assess initial well potential and develop a production function using integrated production models or other appropriate tools depending on data availability.
Development planners integrate the information on well/completion design and costs from well-engineers and facility and development layout and costs from concept engineers into a credible development scenario that is used by reservoir engineers in their models for developing production function. Team may evaluate more than one scenario, to either maximize the value or high grade the most affordable scenario, depending on available time, complexity and the headline size of the opportunity. The schedulers help to build the realistic development timeline. The economist and the development team use the forecast, costs and schedule to develop a value proposition (Expected Monetary Value or EMV). Details of the tools, workflows and databases have been omitted here for the sake of brevity, but all companies follow some exploration workflows or methodologies and a process to assure the technical workflows.
In identify phase, exploration team is in the driving seat and responsible for determining the volumes and de-risking the play. Exploration support team (Development Engineers) provides critical support in maturing the volumes to value and identify the technology to unlock these volumes. In the absence of this value creation support, a good opportunity may either be missed or a poor opportunity may be selected or worse a good opportunity may be inadequately understood taking much longer time in appraisal during the development phase depreciating the value of opportunity significantly.