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.
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

Portfolio analysis Expert witnesses Management consulting

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Oil and Gas Project Evaluation

Keys to Success
Geology and geophysics identify favorable areas Risk Analysis Understanding the uncertainties
9 9 9 9 Geology Volume estimates Production estimates Engineering

Costs
9 Efficient well drilling, completion, stimulation and operating technology 9 Competitive costs

Reliable markets

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Oil and Gas Project Evaluation

Oil and Gas Project Evaluation

Assessing the uncertainty 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

Due diligence for financial investors

Reserve report audits

9 Evaluate reserve uncertainty 9 P10 P90
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Oil and Gas Project Evaluation

Management Consulting
Business plans Review reasonableness of business plan
9 Assumptions 9 Timing 9 Cash flow projections

Economic modeling Competitive intelligence Contract negotiations

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Oil and Gas Project Evaluation

Ammonite Clients
Petroleum companies Oil service companies Utility and manufacturing companies with mineral interests Institutional and individual investors Banks Law firms Independent power developers Drilling and producing property income funds Government agencies

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Oil and Gas Project Evaluation

Ammonites Associates
Virtual network of professional associates Senior industry E&P expertise
9 Most associates have 25+ years of petroleum industry experience.

Widely distributed
9 Worldwide oil and gas centers 9 Financial centers of North America and Europe

Ability to assemble diverse spectrum of skill sets

9 Quickly 9 Appropriate to project goals Project overview Full project evaluation

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Oil and Gas Project Evaluation

Project Evaluation
Scope and Time appropriate to project goals 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

Geology

Engineering
9 Reservoir engineering parameters Recovery Efficiency Formation Volume Factor 9 Drainage area 9 Reserves and Resources

Financial Return
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Oil and Gas Project Evaluation

Why Monte Carlo?

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

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Oil and Gas Project Evaluation

Probability of Success (POSg)

Qualitative analysis results in range of probability Trap
9 Presence of a trap 4-way closure Fault closure Hydrocarbon retention capability (lateral seal)

Seal
9 Retention capability of top sealing unit

Reservoir
9 Presence of adequate quality reservoir rock 9 Better than cutoff parameter values

Source
9 Presence of source rock capable of generating hydrocarbons

Timing and Migration

9 9 9 9 Trap formation / timing Hydrocarbon generation timing Hydrocarbon expulsion timing Route and distance of migration pathway

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Oil and Gas Project Evaluation

Pg = Probability of Finding Hydrocarbons

Trap

Reservoir

Seal

Probability of Success

Timing & Migration

Source

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Oil and Gas Project Evaluation

Pg Scatter Plots

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Oil and Gas Project Evaluation

Geology & Reservoir Engineering

Trap mapped appropriately
9 Assess uncertainty of size 9 Define P10 and P90 range for potential Area of accumulation

Define reservoir packages

9 Heterogeneity, i.e. compartmentalization

Depositional environment of reservoir Reservoir parameters within definable ranges

9 9 9 9 Net pay Porosity Water saturation Permeability

Reservoir geometry Recovery Factor Drainage Area

9 Number of wells

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Oil and Gas Project Evaluation

Reserves Calculation

Prospect Area

Net Pay

Porosity

Water Saturation

Recovery Efficiency

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Oil and Gas Project Evaluation

Risked Recoverable Resource Plots

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Oil and Gas Project Evaluation

Total Unrisked Resource

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Oil and Gas Project Evaluation

Total Risked Resource

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Oil and Gas Project Evaluation

Validate with Trend Reserves

Trend Reserve Distribution P90 2,294,790,285 P50 27,098,068,347 P10 319,987,980,143

Prospect Mean about P60

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Oil and Gas Project Evaluation

Sensitivity Whats Important

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Oil and Gas Project Evaluation

Economics
Resources Historical or analogous decline for reservoir Historical distributions for expenses NPV Forecast compatible with historical data Portfolio analysis
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Oil and Gas Project Evaluation

Production Schedule & Price

Initial Potential (IP) (Range of possible IPs)

Decline Rate

Price
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Oil and Gas Project Evaluation

Distributions Built from Historical Costs

Acreage

Seismic Cost

Drilling Cost

Completion Cost

Operating Cost

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Oil and Gas Project Evaluation

Net Present Value

Dry Holes

Expected mean value

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Oil and Gas Project Evaluation

Portfolio Management

Examine portfolio value Optimize portfolio given uncertainties of each project

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Oil and Gas Project Evaluation

Summary
Virtual network of professional associates 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

Management consulting

Why Ammonite? Unlike most other E&P consulting firms we not only review the geoscience, we also consider the business and economics of petroleum exploration.
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