A new formula for oil and gas exploration
June 12, 2018
In today’s world of resource abundance, oil and gas companies are understandably focusing their exploration activities on low-risk, short-cycle opportunities. But near-field plays won’t necessarily generate the returns investors demand and will, on their own, not be sufficient to overcome production declines and drive new growth. Frontier plays hold a lot of resource potential. However, pursuing these opportunities—even in a recovering industry environment—is considered too risky and too expensive.
The ugly truth is that today’s approach to exploration is not delivering the returns that are needed. Our analysis of global trends shows that the productivity of exploration investments has declined sharply since 2006. Specifically, the resources discovered per dollar of spend have declined by 85 percent. The ratio of discovered volumes to production has declined 90 percent.
To position exploration as a key organic growth driver, oil and gas companies need to do two things: 1) improve the accuracy of their exploration analyses, and 2) significantly reduce the time it takes to produce the first barrel of oil. Digital technologies and advanced analytics can help companies achieve both imperatives.
Using today’s best practices, exploration accuracy tops out at just 50 or 60 percent. The cycle time of the asset (time to first oil) can take five to ten years. A huge portion of that time is spent evaluating the asset during the exploration phase and conducting geological and engineering analyses to mitigate risks associated with the asset’s production. Advanced analytics can help streamline and accelerate decision-making and allow companies to focus on overall asset economics in ways never before possible. That can boost exploration accuracy to 90 percent. At the same time, speeding up technical evaluations with digital and advanced analytics solutions can reduce cycle times to just one-tenth of what they have historically been.
This “90-10” model transforms three critical aspects of exploration:
A successful transition to the 90-10 model will require superior capabilities in several areas: data acquisition, storage, transmission, visualization and especially advanced analytics. New skills and new ways of working will also be key. Exploration teams must move away from performing analyses and towards validating recommendations generated by algorithms. As data starts flowing across functional silos, companies must re-imagine their exploration and production value chains. Changes in the way data is used will necessitate a redesign of how exploration works with other domains. Geoscientists and petroleum engineers must work alongside non-traditional functions such as data scientists.
The 90-10 model also calls for a new leadership mindset. Leaders must embrace this change, building a shared vision across their organization, reinforcing the need to heavily leverage new technologies and analytics platforms and skillsets, and guiding their teams as they adopt new ways of exploring the best resources rapidly from an abundant pool.
Implementing the new model will not be easy. But the ability to translate evaluation velocity and accuracy into profitability and growth will more than compensate for the effort required.