Exploring for hydrocarbons comes with substantial risk, with oil and gas companies annually investing billions of dollars to discover new resources. Typically, only 35-40% of exploration wells successfully locate hydrocarbons, and potentially only 25-30% of these wells result in profitable discoveries. In exploration frontier basins, the success rate is even lower, ranging from below 10 to 15%, with fewer than 10% proving commercially viable in anyway. However, the potential gains from successful wells can significantly outweigh the losses incurred from unsuccessful ones, given that a company maintains a sufficiently diverse portfolio of opportunities.
What are the factors that determine if a well may be a success or a dry hole?
There are five elements of a conventional petroleum field.
Source - Reservoir - Seal - Trap - Migration
For a successful discovery, all components need to function together; a failure in any one of them results in an unsuccessful outcome. Risk assessment involves calculating the product of estimated probabilities for the presence and efficacy of five key elements. These probabilities are expressed as decimals, with P=1.0 signifying certainty and P=0 indicating impossibility. Chart Below.
COS (chance of success) = Source*Reservoir*Seal*Trap*Migration*100
IE: COS= 0.95*0.65*0.75*0.75*0.70 = 0.243 * 100 --> 24.3% COS
This relies heavily on the methodologies and procedures adopted by individual companies. Typically, in larger corporations, the initial exploration/interpretation team assesses each parameter, forming subjective opinions. These opinions are then examined by a central review team with a broader perspective and less emotional involvement in the prospect - Exploration Review Teams (ERTs). Subsequent scrutiny from fellow geoscientists (ie. Peer Review) and involves a more thorough examination, with additional questions demanding answers. In my experience, a notable benefit has been the input from JV partners – skilled professionals from diverse companies providing valuable perspectives.
Numerous cognitive biases pose a threat to achieving genuine objectivity in risk assessment. These include relying on analogies that may or may not be suitable, tendencies towards optimism or pessimism, succumbing to groupthink or clique mentality, fixating too narrowly on one issue while neglecting others, and most significantly, overconfidence in our capacity to predict geological outcomes. A slam dunk prospect is anything but...