London Lecture: Risk and Uncertainty in Exploration for Oil and Gas January 2017

ladies and gentlemen good evening my name is Michael Young I'm on the counsel of the of the Geological Society and I'm very glad to be able to welcome you to the first of our 2017 series of London lectures and this is the first lecture in the series under our new annual theme which this year is risk and today's talk is entitled risk and uncertainty in exploration for oil and gas and it's to be delivered by Malcolm Brown our president now the assessment of risk in geological terms is something that is very much at the heart of the work of many of us of us as professional geologists and most commonly paths we think of risk in terms of danger to people or property and this is particularly very much the case for those of us who work in the engineering geology or contaminated land area we're concerned for example with ground stability and foundations that the safety of foundations we're concerned with mapping contaminated land and it's health effects we may be concerned with the geological effects of flooding and we may be concerned with earthquakes and volcanoes and volcanoes and a host of other geo hazards as we call them and you'll be hearing about some of these other risks and geo hazards later in the series later in the year and the concept of risk of course is very much also a financial concept and here two geologists have a very important role in assessing and mitigating risk and reducing levels of financial exposure particularly in when planning and developing large infrastructure projects and of course in exploration as we shall hear about tonight in the case of oil and gas the fundamental requirements for the entrapment of oil and gas are the presence of course as you know of them it's your soy sauce sauce rock a migration pathway for hydrocarbons and a trap comprising a porous or permeable permeable reservoir rock with a seal and once formed however these traps may be destroyed or leak and when prospects are analyzed and assessed by exploration ist's they are concerned with estimating or calculating the overall chance of success of a well if it's drilled in a certain place however there is always a risk that these estimates are wrong due to the uncertainty of the information that they are based on uncertainty continues of course when hydrocarbons are found you know an expiration well because then further appraisal wells have to be drilled under a multi-million pound program to develop a field and this of course carries a large degree of uncertainty about it and uncertainty doesn't stop there there are many other sources of risk and uncertainty associated with the exploration process fluctuations in the oil price varying government tax regimes political stability and so on now Malcolm Brown our speaker tonight is no stranger to these issues but he's very well-placed to tell us about them he graduated from Kingston and he worked for many years in Libya and Saudi Arabia before completing an MSC in petroleum geology at the Imperial College he worked at British Gas or the BG Group as we now know it for most of his career and saw it evolve from a state-owned utility to the successful international business that it is today recently Malcolm has been the executive price vice-president for exploration and has led BG's global exploration program for most of the last two decades and among among during which the company was successful in making 16 giant gas discoveries now because of a former chair of the petroleum group of the society and he received the petroleum groups medal in 2011 he sits on the Advisory Board of Energy Geoscience international and also of the sustainable gas Institute at Imperial College and he was awarded an honorary from kids to the University his alma mater in 2007 so ladies and gentlemen please welcome our president Malcolm Brown tortuous good evening welcome I hope today to give you a little bit of a insight into I suppose how we in the oil and gas industry think about risk and uncertainty and we think about them in sort of two different categories they're not it's just easier to think about in that in that that way many ways whenever I come to these lectures I guess what I enjoy is hearing about what somebody else and some other part of geology does all day I see what do you do one of the issues you face everything else I find this really fascinating because I've worked in one area most of my career but means I know about this much and there's another you know 90% of other jobs out there that I know nothing about which I always find good so hopefully I can tell to tell you a bit about what we do in the oil gas business I'm sure you probably think it's it's really straightforward or company drills for oil successful most of the time and life is easy we make lots of money and unfortunately not like that at all and it's been very tough recently but and in many ways its success rates as explorers has decreased in recent times which is an interesting sort of conundrum which we're sort of thinking about at the moment the good thing about it being so hard is it makes it really really interesting so it's fantastic work to be in I've really enjoyed myself it's like a detective story and the story started probably 200 million years ago so you got to work your way through from when things were first it was did what happened in all that time and what's the what's the rare chance of finding a trap that's still intact because most hydrocarbons actually just leaked and serviced over over millennium millenniums the average success rate is probably less than 25 percent and if you think about that so three out of four things we do don't work so here we are working in a business whereby you're trying to provide a steady supply of energy you keep it light so on allow people to drive to work pay dividends on shares pay taxes and three-quarters of what you do doesn't work gosh how many time did you try then to make all this actually still come together so I'm gonna start with a very simple question and we're going to come back to this at the end so hand up in the audience if you think oil is overpriced or underpriced at the moment so overpriced I won't take offense okay ninety-two people think it's overpriced and underpriced oh what a fantastic bunch and we can we'll come back and find out with your right later okay so and I must apologize I have one equation in this whole thing so but it's quite a simple one so acknowledgments a lot of this stuff came out of BG Group which I was at for many years we were very successful we were obviously suit to successful we were taken over by shell last year and many of my colleagues now work there so thanks to all those people thanks to Alex coffered for making a presentation and would Mackenzie for the physical charts so the presentation outline this looks a bit complicated but we're gonna have a safety moment to them and the next slide they're going to go through the key ingredients a bit about life cycle based on analysis prospect generation then actually when you think you've got a prospect what do you do when you think you've got somewhere that's worth exploring what do you do go through exploration programs appraisal and talk a bit about above ground risk and uncertainty so safety moments you may be surprised to know that most major oil companies we have a safety moment before starting most presentations which is often just one slide talking about an aspect of safety and why is that the case I think we work with an inherently hazardous product which requires continual respect attention and an absolute safety focus and we think about it all the time because it's necessary to think about it all the time all companies have got a zero harm target we don't ever hit that zero harm but actually we're pretty much better at it than most other industries I think worldwide oil and gas in all the countries you can think of has got a fatality rate half that of the UK construction industry which is a very regulated business in a regulated country so a huge focus on leadership and commitment risk management operation resident regice and safety moments are often just about driving to work or things at home or whatever is make people think about things and keep it in the forefront of your mind because if you don't bad things can't happen so this is Macondo and I wouldn't ever make this talk without talking about the worst disaster the oil industry has had in from the recent decade because we should talk about it this is what could happen when things go wrong and mistakes are made so in 20th April 2010 there was a blowout in the Gulf of Mexico 11 crew members lost their lives 17 people were injured I think these are the things we ought to remind ourselves can happen when mistakes are made and things go wrong it's it's a it's an inherent hazardous material which we actually work with so the life cycle villain gas field I mean this is I suppose can often be 50 years I mean 50 years when it works no time at all what it doesn't work we might cut things off very soon because what you're trying to do is invest the limited money you have and the things which you've got most chance of working so you're trying to reduce risk all the time by using the best science you've got and the best geologists you've got as well so the whole thing exploration may take five to ten years depending on how lucky you are how soon or whether you're unlucky altogether development may take another five years of studies and then actually actually building the project may take two or three years to production might last 10 years 20 years 30 years 50 years some of the all C fields have gone on that long and many of those fields now are going into the decommissioning phase which you'll read about in the papers and that's going to take 2 or 3 years probably for a big platform whatever and that will be a major industry actually because there's a hundred other platforms out there and then all see which was you know slowly but surely running out of oil to produce but actually produce for much longer than people ever said they would do in general I'm going to talk about the exploration phase so in the introduction we were talking about water than that what are the ingredients you must have well clearly a source rock we are including a complex organic carbon karagin and that over time will actually with burial and heat and pressure will break down to form two carbons this may be clay it miss maybe something like the kimbridge clay and Dorsett would be the best one you would know Jurassic age all ProSource rock which you see there seeing York shear it produces most of the ore than lore see quite a lot of the gas in the northern North Sea as it's being cracked to make gas down south we have the coal measures Carboniferous age gas prone source Rock source of all the gas and if you think about it whatever you see Carboniferous it made the same amount of gases that we had trapped in southern North Sea but most of it actually just went straight to surface at some time or other in the past so wherever you see coal meshes it wasn't as though there wasn't gas there was gas so I think a lot of people outside geology just think that actually it's only oil and gas ever found we found it it was trapped no actually the vast majority was never trapped it's a surface this is just normal part of the planets cycle so when we think about going into a new basin I mean to me I always think source is the most important thing of this of the whole sort of a sauce equation if I've got source I can chase around for reservoirs and see where I can make something work I've got something worth chasing for I haven't got source and then you're wasting your time stop so you think about source presence sp you're thinking about source effectiveness as well as two different things there was no point having a source if it was never mature and he never created hydrocarbons in the first place so if the presence and its effectiveness which is key which he looking for first of all once you've established that source rock you can really reduce that criteria in your equation to improve your chance of success now ERISA was all we really want and maybe I was just differentiate between conventional and unconventional exploration here at the moment in conventional exploration which are going to focus on the hydrocarbons move from the source rock into a reservoir rock in unconventionals which are say shale gas shale oil the things you have to frack for have to do reservoir stimulation for the hydrocarbons never generally never left or didn't all leave the source Rock so you're actually going in and taking your source rock is your source and your resin in many ways and the only reason that that's possible is by advanced and advances in reservoir stimulation that's what made that possible in the last ten years which didn't happen before so in conventional exploration so we have reservoir Rock so it can be clastic that can be sand stones they can be carbonate they could be numerous different fasces what you want you want porosity you have spaces between the pores and what you want is permeability allowing to flow into the into the reservoir in the first place and then when you drill a well in it to allow you to take the hydrocarbons out now key things about this you know you drill the world you think fine I may have found a wonderful Watling a league endures desert maoli in sandstone nice and thick continuous fantastic you know and that's all good stuff I think is you may not have done you may have found a sort of tidal bar which is going to be long and skinny so how big is your prospect how much of it that's got reservoir over if you draw the well and you found the bar great but how soon does it shale out into a deep water fasces or become a terrestrial passage on the other side so what is the variation on your reservoir thickness effectiveness so we don't know the fasces you're likely to find something different next time you drill so you've got to understand that through your original mapping and what you find in your first well and the last thing of course is what happened to your reservoir in the interim in the in the hundred million years in between when it was deposited and you looking for gas now in that diagenesis happens and died genesis is really caused by the flow of fluids through through reservoir rocks which happens all the time it can be silica rich it could be calcium carbonate rich but it will generally decrease your porosity decrease your permeability and make your reservoir worse so you know once by the time you might think what 10,000 feet is my economic floor and think deeper than that doesn't work these days it can be better because we have better completion technology we have better stimulation technology but overall the deeper it is the worse it is and I suppose a different thing actually is carbon it's at times die Genesis can actually make them better in that we for the example we've had these big discoveries in Brazil and pre-salt and they're the actual porosity and permeability has been enhanced by acidic fluids coming out of the source Rock and coming up to the base of the salt and actually can't get through any further than that and actually had dissolved the limestone there and increased the porosity and permeability and these these rocks are absolutely fantastic these rocks will flow at 25,000 barrels per well per day he's really really good to die Genesis can be your friend at times sealing trap types means seals fairly straightforward you need a shale a salt salt is particularly good because it flows as well as rather than it's more brittle and can fracture but what you also have to do too is have a trap so this is the oldest picture in the world of different traps which still works it actually has most of the traps we can we think about in many ways so you can have your standard anticline which is confirmed by a compressional regime with a seal above it you could have a stratigraphic pinch out which is really just now the reservoir in the blue and as it goes further to the to the you're right the fasces change and that gives you a pinch out and a trap and unconformity trapped in some of the ways most of the north sea fields are tilted fault blocks like this because you're in a rift basin where you've had a lot of faulting like that stepping down into the basin and it could easily be something like a salt dome which is much more Gulf of Mexico like in terms of again creating a compression or regime to give yourself a trap so traps all good stuff but the question was was the trap there when your oil migrated so if they weren't then actually you've just sort of kind of missed the bus so knowing knowing when when actually measuring your entire thermal history knowing when you're well migrated was your reservoir there was your trap there what you see all there was you trapped there and actually after all that may be trapped oil did something else happen such that the trap broke if you like leaked or whatever and there are plenty of examples of exhumed oil fields around the world with oil that surface for example the Canadian tar sands is basically a failed trap and it all came to surface I mean we drilled in the right place simply 30 million years too late I mean I trapped may have actually existed and but for 30 million years ago it breached whoever Richard Bray was so again we think about this in trap presence can I see a trap on my seismic and trap effectiveness how long will it last and how good a trap is it so it's not very effective this will go in your risk equation to actually talk downgrade your chance of success so now I know what I want how do I look for it so there's a base and far away and a country far away where would I start what would I do now you might say the whole world's been explored and the whole world has been explored to some degree of degree or other but often different parts of the world were explored with you know 20 year-old size making Ewing knew much better than that these days they may be in deeper water than we could explore for twenty years ago so come so the basin's come and go in in the sort of life of things so what would I want to know or maybe for example the government said actually that my fiscal terms are much better than they used to be because I need some new investment so ok fine it's suddenly attractive when it wasn't attractive before cuz all the way through this this has got to be economic otherwise it doesn't work so fit you know what do we do first firstly get all the data you can get and this could be rubbish old 2d this can be you know bad quality logs but they're all you've got to work on so you have to get all the data and there's been there's been stories of data in the wrong place and countries bringing people in with a with data there wasn't really there and various what stories you need to get all the data and you've got to verify how good it isn't and what faith you can put in it the next thing is well actually what was the plate tectonics setting what was the basin tight we're in a rift basin what are we in a confessional phase what was there when you're when you're first ingredients were being laid down can I see a sauce walk do I have some old wells with oil and gas shows in there did I do that's good that's encouraging if I have a basement full of completely dry holes does that mean it's no good there would rule those in the wrong place so based on type and dimensions what are the what are the map tectonic elements were the major tectonic events because throughout this whole thing you're trying to build a over 100 million years 200 million years living the life of that basin such that you understand where that hydrocarbon went to what's the chance of it being trapped what's the chance of you being able to get hold of it so the magnitude and race of subsidence sedimentation what's the accommodation space what was the hinterland you know was it nice granite Italy Road nicely so I'll have five snow fell smiles will have a lot of quartz so quartz is a nice stable reservoir constituent or is it metamorphic a lot of Mike is in there which will degrade and not make a very good reservoir well it might do in which case I'd rather not be there I'd rather be somewhere else because I've got to think about what these things as I can was there uplifting erosion when did that happen actually was it after my all migrated and I've lost it or it's okay and what was the temperature what was a heat flow history you don't turn your basin on to under ninety degrees and go sit down he's done a variety of things through time he may have gone down it may have come up he may have frozen the generation until he was then very deeply more deeply again afterwards you got to build that story to understand where you're Heidi comers might might be so its surface temperature sea bed temperature so this is all God I'm talking about a slide here that I'm seeing here anyone you don't think I'm there this is wonderful so just talking about this is problem are doing two presentations in a day so what data do you have all these black lines here our seismic lines this is a map offshore somewhere I can't quite where it isn't so there is a database here which is quite dense so can you get all that data if you can how much would it cost you do you want to spend that money on that particular acreage to get all that data do you want to get a reconnaissance grid do you want you want to say we're giving an idea and I'll decide whether to buy some more so here's my Basin setting what are the mega sequences I've got you know where of my potential source rocks reservoirs and seals analogs analogs are fantastic at convincing your exploration managed to go and drill something no useful say you see tires before it's in this fantastic prolific province in your love you know it's just like that you know and analogs are very very useful things because they help you say well yeah I can understand what happened there and I can use that history to help me here when I haven't got anything at all yet potentially so this is one of our diagrams which we had and it's nothing shattering it's just all the things you need to think about on one diagram so which place we want to evaluate which place do we want to evaluate because you might want to have a Jurassic sauce with a myosin reservoir or Cretaceous reservoir whatever reservoir it is which thing is juxtaposed against which most basins are got more than one play and you might sort of be in the shadow on a deep one are you looking for gas are you looking for oil and are you going deeper than the previous place so and here is your structural and thermal history here now with this you might say well good I can't like I think it's being generated here that people haven't found so far which end of the basement do I want to be in which country do I want to be in this Basin may stretch across three countries in the fiscal terms are those change from country to country well actually which ones are the best ones for the company rather than the government so you get a better share of the pie because you're taking most of the risk which of the countries are more stable than the other ones well balance that into your uncertainty - so you're trying to focus in then and then you're into your prospect generation so roughly how you're thinking about where your prospects might be because you might then have to go and shoot seismic you saying I can see something I want to go and bid and get a license for so what's the prospect the prospect is recognized but not yet drilled trap which is believed to be potentially hydrocarbon bearing it's all in the eye of the beholder usually this stage so what plays may work what's my best chance of actually finding that prospect there's not some acronyms on here but I think things like the GD the grouse T position the environment different parts of this Basin at different levels so when was where was my source Rock richest you may be existing everywhere he's very very lucky or actually it may be great here and not so good here it may have been very more deeply here and be gasp roam when there's no gas market so that's no good you want to be over here so you are your original gross d positionally environment is very important for your reservoir for your source for your seal and actually do the overlay well they got reticle over there sauce over there and seal over there which case I'm nowhere I've got to have these things in the right juxtaposition to make this thing work and we come back to petroleum systems modeling when was the reservoir formed when was the seal formed when did maturation happen if they aren't done in the right order you just dismissed the boat again and common wrist segments I mean it's really is thinking about the existence and the risking of all those things in different parts parts of the basin but a bit that I think is particularly important which we tend to it's quite easy to sort of myths or not do enough of is well-favored analysis why did everybody else not succeed are you that much smarter or actually do you have much better data in which case you might say they couldn't see a trap they thought this as a prospect it wasn't because now we can see with this better data that actually it leaks and that's why they didn't succeed but often if you're not careful you can think you're smarter and you know smarter which already so the question really is make sure you understand I always ask the question who explored this before and why did they stop and why do they go away and even it's 20 years ago you might say well the data they had really wasn't good enough but if it's three years ago and the company's quite a smart companies just say well yeah come on guys are you sure we're that much smarter than those guys to actually sort of follow them up and bid three wells and a hundred million dollars worth of work you know you need to convince me that we have something that they don't have so get to our equation so we've got to multiply some things through to get risk okay risk my mind is does the prospect work okay uncertainty is what's the range of resources it might have in it and where are we on that uncertainty curve because we've made a prospect up I'll have a rough idea of what it is perhaps and you say it might be 100 million barrels P 50 it might be 200 million barrels P 10 and 35 it sort of P 90 or something like that so it's going to have a range because you got to put in different reservoir thicknesses you're going to put into your cut into your calculation of volumes different porosity 'he's different reservoir I think this is different hydrocarbon saturations different variety of things you'll have a range of how big that prospect might be is it fall to spill is it only half full all those things so how big might that prospect be that's uncertainty the real question is it doesn't work then all the rest is just guff it's just again uncertainty simple I mean there there's nothing there so we're multiplying through to get a chance of success reservoir presence times reservoir effectiveness time source presents time source effectiveness times trap presence times trap effectiveness so six multiples okay and each of these is between say naught and 1 so you might say in turn sauce if you were drilling in the North Sea next to a proven feel you say I'm pretty sure there's a source because it just created a hundred million barrels over there and I'm sort of next door okay fine well maybe stick one in for that or have naught point eight effectiveness well actually is the source here and all the other went that way and your prospects over here well I'm not sure you're going to get and get one for effectiveness from me and that one now if you put in somewhere between if you put in say 75 percent I'm feeling pretty good most of these things put in 75 percent six times and you multiply this through you get a chance at success at 18 percent so four out of five these things won't work okay even though you're a seventy five percent sure of all the ingredients that really kind of makes you think because you got to compare this against Joe's prospect Mary's prospect because actually in your company you'll be looking at ten basins and you'll have you know 100 geologists or whatever all work in these things and you say I've only going up money to drill ten of these things and I've got a prospect list of 200 or whatever it might be or a hundred which already or something 50 which you're ready probably so you're competing with somebody else and the question is you know is your prospect better than the other person's and how do I make it better so how do i how do i improve my chance of success now you might say if I choose the more seismic I can define that reservoir trap better good can i define the reservoir presence so the actual trap find the reservoir presence might help me with that will you tell me or the reservoir effectiveness when I need a well so there may be some things after well you can't get any better than what you've got and eventually you gonna have to go and drill something but overall you're going to use this and combine it with how big is the structure now if I've got an 80% chance of success of 10 million barrels I'm not very interested because actually it's not very big and it's quite a high risk if I got an 80% chance of billion barrels I'm much more interested I'll take that chance you know so for example when we've drilled the third a second well in the pre-salt in Brazil the cheapy prospects which is now the Lula field had a chance of success of 17 percent and that's about the best we could do with it we had 3d seismic had all sorts of stuff but actually we had no source rock pure presence actually I had no well through it so you could only say maybe 75 percent the reservoir gosh we really didn't know so again it was like a 75 percent you know we had a big structure so that was quite good but yeah Billy I she has bigger than a business value was about 4 billion barrels you know so that 17% I'll drill it so he drilled it they came in you know it came in it's good so it's size value versus risk so to move on so I like an area how do I get some acreage I think people don't understand quite often how do you do it it's very straightforward in general you know license are obtained through licensing rounds or direct negotiation with government and usually its highest bid wins so how sure are you of the potential of that acreage do you love it to bits would you think a she's not bad I'm not sure really how good are the physical terms in that country so the bid system usually you know you'll you invariably drill there you're very bid with other companies we do most things in joint ventures to spread risk because you wouldn't want to be drilling lots of hundred percent things really so what's the government want the government wants a competent reliable operator who's good at finding oil and gas because they'd like to find oil and gas because that pays taxes and creates national wealth and all such things and you may have people who specialize in certain areas better than other areas and whatever so reputation competency very important technology capabilities and such things but generally highest bid wins I think it's great I offer three wells which going to cost me 80 million dollars each and some seismic and some other bits and pieces I've just bid 400 million dollars three million dollars worth of work and if the next bid is less than that generally I will win and I've got this license how long have I got it for I may have it for three years plus another three years afterwards probably after three years or maybe it's five years it just depends I'm gonna relinquish half the acreage or third the acreage so as soon as you start relinquishing it you got to make sure that you haven't left something behind that the next guy is gonna pick up after you that's really embarrassing you know so I've done it too many times because really you get to this point saying you know I don't love it to bits for goddes you know it's 200 million barrels he's got chances I guess there's something do I want to drill it or do I want to leave it behind so so your exploration license may last three to ten years if you have a success you can convert it to a production license but your terms are negotiated up front when you don't know what you have at all so you've got physical terms and generally higher technical risk means better physical terms for your company okay because the government can ask for better fiscal terms for them when the risk is lower so where do you want to go to explore so here's a sort of a bit of a generalization this is a wood Mack slide this is government take for new licence awards in different countries so Algeria 91% government take do I want to go and explore there no I don't want to go and explore I'm not going to leave with the nine percent and take all the risk because you're paying all the money up front in terms of your exploration program the government's paying nothing okay so don't be there Venezuelan 89 not really either for a variety of reasons but as you work down you may say well actually Bulgaria is fantastic you know I get 81% but no one's found you all in Bulgaria for quite some time this is this is the thing you see Island Rhode Island these days yeah 38 islands usually sucked down the bottom there it always tells a good story but no one's found anything for quite a while but there's always this air of romance in Ireland UK is good 38% it's quite a good place to go and explore to make money but it's very very mature so what's the chance of you finding anything very big increasingly difficult as time goes on now this diagram would change continually and all it takes is often the industry and government get out of kilter with each other and they say the government thinks their acreage is too good or occasionally the industry thinks acreage is too good too and all it takes is two or three dry wells nobody goes out that's not very good either or a license round when no one comes to play and the government said oh god I put the terms too high and then those would re sort them so this is a continually interactive business and you're competing on a global basis so all companies will say that's too expensive for the prospectivity I see that because you can write so let's quickly canter through once having gotta a license what do you do well the first thing you'd be going to be doing is exploration program and with all these things you're trying to de-risk the acreage as efficiently and cheaply as possible so what would I be doing first gravity of magnetics field work then 2d seismic that's all quite cheap 3d seismic more expensive drilling big bucks generally so you'd be doing the cheaper stuff first because most of acres you look at and you say actually I don't think it's worth drilling wells on the prospects are big enough the risk is too high I'll go and do it somewhere else you're trying to high grade your acreage continually as you as you go through it seismic I mean seismic it's very simple in principle up there you pretend a wave down it bounces back up when you get an idea of what the structure is it is hugely more complicated than that marine seismic is fairly straightforward you can sail up and down and acquire huge waves of it if you're shooting seismic here which we were doing in Bolivia life is much more complicated but actually we managed to get some good seismic through here relatively good so seismic has just got so much better in recent years and I think really we've had this sort of surge of twenty years of much better seismic a few new provinces coming and coming onto the world market if you like like Brazil certain parts the you some parts of Africa so we had some very good exploration results and we kind of run run out of that that's team of those things there's no new provinces really Mexico maybe but not really many more than that and we haven't had a leap forward in technology either so seismic really just allows you to see better that's all it comes down to and therefore you can see and reduce your risk good you can see your trap you can see whether it leaks perhaps you might have even had direct hydrocarbon identification on your seismic in some cases not all cases at all sometimes it's still rubbish this is oblivion stuff here but actually when you back calculate it what it should be by doing sort of integrated into logical model and your structural model and this you can come up with an idea of what it might look like and actually we're putting about five wells into all this now and actually the model is really is actually very good high success rate so drilling this is where the big buck start so a land rig if you are unsure in the States the shale gas well these days will call you to cost you five million dollars or something or four million dollars or whatever they're doing them for these days to drill and complete a well hugely efficient machine with lots of rigs and lots of competition and lots of wells being drilled and lots of learning so that's all good we were drilling wells in Australia onshore and we had to we had to bring a rig in from America to go and drill the wells clay we just wasn't they weren't any rigs in Australia the right size and then you just bring one well and two wells and three wells you never get this sort of experience and this learning so it was always much more difficult so shallow water southern Aussie stuff jack up rig hey what's the well going to cost you twenty five thirty five million dollars something of that sort relatively cheap if you're into this stuff here this is a rig we used in Tanzania for a while deep-sea Stavanger this was probably half a million dollars a day to use plus another half a million dollars a day in terms of helicopters support all the rest of the stuff on board so you're into a million dollars a day program getting quite pricey so you want to be quite sure about your chance of success before you start doing these things this rig here deep sea metro was what we ended up using the second phase in Tanzania where we drilled 16 successful world on the trot so actually we had good size mate we had a good drilling machine we actually did very very well can drill you know in 12,000 meters plus and all this other stuff it's these are fantastic machines but this was costing us six hundred fifty thousand dollars a day then now with the lower oil price it's probably being rented out for three hundred thousand dollars a day so it's costs are being squeezed down quite quite reasonably success rates so this is success rates for exploration wells so had a you know a good purple patch through here 40 percent doing really well here a lot of wells being drilled and actually just declining overall success rate in recent times around about twenty percent here and volume size again you know finding some big things back in this literally naughties if you like some big discoveries in Brazil Brazil East Africa I mean things in Tanzania and Mozambique huge resources in Mozambique found but actually again much smaller now and this is an issue we need to sort of think what's going to be the next thing that changes things so you have a discovery this is great we're all happy what do we do now really your inter uncertainty how big do you really think this is before you go and make your decision to develop okay so far we've spent its offensive our tail and exploration poking might spend two or three in a million dollars which in our game is not very much but the next thing is you're going to spend maybe four or five billion dollars and that's a lot of money and you're actually deciding to be there for twenty years or thirty years or whatever so you know where where are you going to appraise it how many appraisal wells can you afford to drill so you know you made say I've drilled it in the middle of prospect either well here and I'll a well here and which make sure it's there your water contacts the same and it's ok good that's fine but how about the other side that fault I mean is the old water contact gonna be different gas water contact higher lower what about over here where the reservoir gets worse we think from a fasces modeling I better put a well there so how many worlds you gonna test to make sure that actually we does flow like we think it's going to flow because that takes quite some time as well so if you are testing some of these wells as a million dollars a day how long is your test program going to be that's always an interesting discussion with engineers and eventually how many how much can you afford to spend an appraisal before you say actually I think I'm there my range of reserves is big enough that I think might be 50 I'm happy I'm gonna get to my P 50 my P 50 is economic at my price scenarios again the decision you're going to take without it with less information youth wish you had so if I'm unsure in the States and this is why shale oil and shale gas worlds are so attractive individually nothing to it five million dollars tie into a pipeline make money or make make some money you know so in terms of the shale oil revolution in the States which is changing the exploration picture cuz it is now sort of marginal you know lowest marginal cost oil supply you can actually there's ten you know there's ten thousand mom and pop operations who can all do this whenever they want to do it it's not owned by a single government like Saudi Arabia if you're into wells in the southern North Sea you're into projects you know you may be spending five hundred million dollars depending on what you're doing there Gulf of Mexico you could be spending two to seven billion on deepwater very deep very long wells if you here in in Brazil I mean Santos basins or capital costs of a variety of fields which are all very large and doing very well possibly twenty nine billion dollars you spend they're quite large costs and you're doing these in individual parts but you into you there are different sort of segments for different sized Persis in many ways and what's this break-even cost and I think this is probably out of date you know unconventional projects used to be sixty it's probably now forty five dollars or something like that and Eagle for even forty dollars other parts outside the sweet spot he may still be sixty shallow water projects possibly in the order of 70 but generally they're not very big things so actually the real thing is what's the proximity to infrastructure to tie back to that's really your your look at the crux of it how long a pipeline what tariff do I pay having how much uncertainty have I got on those reserves and big ones and I personally think that's deep water and of the deep water I mean we had this figure of 50 it's got to be a world-class reservoir it's not a world-class reservoir it won't compete at these sorts of water prices anymore it's just got to be realistic so you see a Brazil which is the best fantastic you see some of these Mozambique gas wells are fantastic and they'll work the lots of things which are not quite good enough probably will sit on the on the shelf for a long time oil price other minor variation when you're making your next decision so this is the oil prices from what's January 13 at 110 down to lower 30 ish and this is a graph from last year and I'm impressed with what we actually saw within the range of what they were thinking about it's always good quite often we're not so today we're 55 or 54 whatever it is so when you're thinking about you know investing your five billion in your project well what major at me what may drive drive it lower you know well slow economic growth faster penetrate yeah penetration of vehicles so we don't use so much you know what are the ones which may make it higher well things going wrong you know with fields or mature fields declining further so there are drivers in both ways what makes you feel happy in terms of your range of scenarios you're putting in you know as we say here energy forecasting is easy it's getting it's right that's difficult and the other thing of course is where are we thinking about doing all this what kind of country is it so we might think you know we're in the North Sea it's fine political stability too bad fiscal stability not at all I mean we've had more changes in taxation in the UK on our fields over the last 40 years and any other country around the world ever I think it just changes the government wants more money this year it'll change it'll tweak it up to eat down its how life is and you kind of get used to it so it's not those countries far away to do this it's it's it's the ones closer to home so political stability how long is the government you just took out your license we've going to be around for and what's the alternative if they go away and somebody else comes in are they going to actually honor the contracts so things to think about access to energy markets competing fuels I mean where are we going to be now you got gas versus pipe gas versus LNG conventional versus unconventional you have renewables so actually what is the picture in 25 years time because I need to know that now what I'm making this decision and I don't know that now so I got to put this into my uncertainty environmental sensitivity oil and gas companies obey all laws and all regulations they do they don't people don't want to go to jail okay so they do what will those regulations change to in 10 years time or 20 years time I don't know you know but there's a fair chance they will change license to operate you know you've got to you're doing something amongst the community if you're unsure how do you get along with that community I mean you've got to think about am i doing things which which they are happy with their actually means I have good relations for the next 20 years this is a picture of us negotiating with communities in down in Bolivia which actually went went very well and climate change one of the rules going to be in 10 years time 20 years time you know is a gas a safer option to go to because it's part of the future and oil less so yes potentially what do we think and the answer is we don't know but we'll we'll find out when we get there so back to the original question good or bad value for money so here we have some comparisons so we have oil forty-seven dollars a barrel a snip milk 198 dollars a barrel okay that on you cereal water bottled water - in the $69 a barrel coke $480 a barrel okay you have a coffee this afternoon 806 dollars a barrel okay I hope you enjoyed it and that won't gossip wine later three thousand dollars a barrel so actually anybody's here he's wearing Chanel number five go home and give your husband a big big hug Glazer okay because he thinks the world of you because he just paid a million dollars a barrel for that stuff okay so overall it's just interesting to see you know generally our view of the pipe the price of oil and you actually gave me you were remarkably good about this normally how you were you better need at the earlier session but normally we think about oil as in petrol whereas the petrol price I mean two-thirds of that is just cutting it's just taxation it's got nothing to do with oil at all so so I hope what that beyond the demonstrate that's we have risk and we have uncertainty in the own gas business and actually the business has got to manage in a very sophisticated way both of these two things expiration you know 25 percent chance of success or even less it's it's a tough place to start from a company's expiration program will consist of high medium and low risk it'll have a mixture it'll be in numerous ventures at different equities it needs to to balance that risk otherwise what will happen is if you already drilled was drilled for great big elephant all the time you would go bust fairly quickly because the chance of success of those is not enough you want those in your portfolio but not too many so over a 20-year period you know we need to be balancing technical risk uncertainty in the subsurface project management risk in terms of actually building a thing and above ground risk including politics markets or price forecasts environmental climate and license to operate so a pretty wide and sphere of things to me it looks them a lot more difficult than coffee without I rest my case thank you very much [Applause] [Music] thank you for a very interesting talk and that list of licenses for different countries how much they're charging you probably quite rightly dismiss Bulgaria but the second cheapest one is Romania now that's a program oil-filled and it's an EU Kazakhstan 67% how does that mitigate against the costs of extracting or presumably they're now exhausted fields yeah as I said the Devils in the detail in a way could that's that's the what would Mac having that slide is is the government take for new licence rounds so it's acreage which is available for you to go and get now was you might say in Kazakhstan actually almost in my view almost all the oil is in licenses and being produced by existing licenses so actually the the license terms for open acreage in Kazakhstan I think it's quite tough to find oil in open acreage in Kazakhstan which doesn't mean say the Kazakhstan hasn't got a fantastic oil industry it's just that most of it's been founded is held so we're Romania again are you going to find 2 million barrels are you gonna get costs are you gonna find five or you need to find a hundred its size it's all those things that you're trying to sort of balance these things these are factual things so it's I'm just thinking that the Nazis relied almost entirely on remaining oh yeah no it was it's been a great hydrographic province for a long time but it's probably pretty mature now so they need to get more money more people in so therefore they offer a very low government take now if five companies all jumped in and picked up all the spare acreage then that government take would then increase for the next license round because they could very interesting on two questions please what technology looking for in the future to reduce the risks to keep the discovery exploration phase and the second one is given the complexity of the variety of these risks how do you actually assess them and play them off gates one another to get some numerical answer at the end is this conveys Ian's thing we terms of the discovery phase we're always looking for the next bit of good seismic but question is what is the next thing I feel like we're sort of not exhaustive but we've sort of come to an end of a sort of an improvement phase so what is the next thing I don't know and the trouble of course is that most the seismic companies are in dire straits because actually because the price of oil fell everybody stopped doing exploration and buying data and the seismic companies have got these huge array of fleets of boats which they they've you know built in good years and now going bust because there's no work so how can we expect them to suddenly come up with a next solution it's a bit of an ask in many ways in terms of your what are you going to do with these projects I mean I've talked about chance of success which you'll work through versus your wrist reserves okay so in theory over a decent portfolio you should find your wrist reserves otherwise you if you're estimating if you're finding less you either overestimating your chance of success or you're overestimating your volumes in your traps so you really you should be checking this every now and then say actually am i doing it you won't do it every year because you'll just get a certain sequence of Wells you need about five years to do it but overall the industry I think at the moment is not finding its wrist reserves that's what I understand from talking to various people in terms of your project thing well then how many how many high-risk countries can you afford to be in as a company of a certain type and size so for example I mean when BG was involved in the cash agonda discovery back in about 2000 which is a bigger discovery fit was about 10 billion barrels we actually sold out of it after discovery because we were also involved in Kazakhstan in the carrot agonic field which is huge there was too many eggs in one basket so he said for us we can have 20% of our business in Kazakhstan we can have 40% of our business so for us we had to diversify if you're an excellent Obul or something like that you can do differing things another question is how much unconventional versus conventional do you want to have its portfolios its and what are you good at are you good at deep water gas so you've got a deep water something you got at high pressure high temperature most people aren't good at everything so it's a mishmash of all those things rather a numerical answer thank you and your graph of average size of field found over the past I don't know how many years I went back but obviously we don't know what what's coming but how much how much influence will oil price have on that so I only went to 2014 and obviously the the average size dropped off but the oil price is quite high probably lots of exploration presumably so through to 2016 when or 217 now when there's not much exploration you're only going to go for large fields because the economics work so how much how much influence do you think price has on that graph that that's basically my question well normally what would happen is your price goes down people stop exploring and and then there's a start to become a shortage of projects coming through because you know you have you haven't explored you haven't found things and then then the oil price will tend to sort of drift up a bit and then people have more confidence to go out and drill wells and we have this sort of cycle the thing that's changed that I think at the moment is is the creation of shale oil in the states or shale gas in the States so the unconventional drilling of wells in the states has created a different kind of input to those sums so as soon as the price of oil falls down below a certain it goes up above a certain point then shale oil wells will be drilled because in different basins there'll be economic at $45 $50 $60 and that production will come on very very quickly and then that'll levels or turn the price down a bit probably you know won't carry on going up because it's been associated by some more ore coming onto the market so life has changed because of that can the old days that used to be Saudi Arabia when you know times could turn things down the turn things up and did it to balance OPEC and all those things so I think the world has changed in that regard the other thing that's changed is gas prices from the States again because you have a almost indefinite supply of fairly cheap gas that can come out of the states from shale gas so I'm looking for LNG projects for example sand the old days BG was big into LNG obviously still is so I would go out and try and find big gas for us to make another G project out of and that would be part of our business we've got LNG projects in Trinidad in in Egypt so the more recent one we went out to do was in in East Africa so we found a lot of gas in Tanzania the trouble is how economic is that in terms of being in deeper water perfectly good reservoirs we found between ourselves and state'll next door we probably found 30 TCF i mean it's a lot of gas in your days but actually you're competing with gas coming out of the Gulf Coast as LNG at four dollars 50 Henry Hub price or three dollars or whatever it is and that's changed the whole gas equation internationally to because it's very hard to compete with other than GE now you know you okay we've had LNG on the east coast of Africa taking you to China to shorten short trip say you're taking it to India but you go take it from the Gulf Gulf Coast but the Gulf Coast I mean you're just building you know LNG plants on an American turf so none of those not many of those country briefs have gone away you know and you're just shipping it an extra 2,000 miles or whatever so it's I think the energy market is going to be quite different going forward just because the games changed a bit as well so we know we won't have the typical supplied supply demand thing won't be quite as obvious and clear as before because they're because of unconventional resources both oil and gas so there's a very long answer thank you for a fascinating lecture all the people that do these exploration projects around the world exciting stuff running the seismic vessels gang outlet looking at the source rocks given the very low level of investment at the moment and the V the very unique skills are required in this field of geology and the number of young people and mid-career professionals both coming into the profession and ultimately the other end of the resource pool leaving and retiring from the profession are we at risk of not having enough geologists to do exactly this kind of work in so a few years time when things pick up again [Music] I think recruitment of geologists into universities has declined and and it's not unreasonable because of you know most people will just say well what's the chance of a job and they'll talk to their friends and their cousins and the people are all of them and just say actually how many of you got jobs coming out of this and actually doesn't look very good I'll go and do something else I mean that happens often and that certain number of people will still go into it because they love it and they want to we used to talk about think all the great crew change probably ten years ago which was really a lot of people like me who went into the business you know in the in the 70s if you like and you know guess what we're all 40 years older so you're gonna get to retirement time around 65 and people say actually that's fine I'm off now and have we got all those have got people to replace all those people people who were predicting this 10 years ago and it hasn't really quite happened somehow either because I think we become more efficient so the computers and the software allow you to do more things less people people are working longer a lot of people don't retire and just carry on doing it because they enjoy doing it so we haven't quite had that crash you might have thought should be coming at some time it's got to be got to be coming but moment it's not particularly obvious in the moment there are a lot of people who are unemployed the consolidation in the industry so there's quite a lot of take-up of people who unemployed first without getting too short so long term I agree with you there'll be a sort of a there will be a gap but it's been just putting it was put you overestimate you ten years ago and hasn't had quite happened yet right any more from your walk last question another glass of wine I'm just going back an answer you gave before about the exploration future and what what's the landscape that you can see out they are given that exploration of the last 10 15 years it's kind of dwindled who are going to be the explorers in your mind and what rule does exploration have the gas companies it's funny if you look back over time I can remember 25 years ago thinking having having so nope oh yeah but 5 or 7 years ago having so much fun fun finding so much oil and gas that it was entirely different to 20 years earlier do you think well actually because I came in back in the 80s thinking we're gonna find anything around here so hard to find something that's economic you know you think you know we are we in the end game here and then what it takes is some you know some new provinces opening ups and better size mix and deeper drilling rigs and all this other stuff then you got a new area you know you've got some new things to sort of go and look at and that's what we've really enjoyed for the last 10 years going forward life will be different because I mean what we've also lost in between time we had lost all the medium-sized companies so if you look at the time between 2005 and 2010 12 it was the it was the mid-size independence who made most of the discoveries and my rationale for that was in 2002 2000 2:34 the big companies will merge with each other so BP took over our Co and amico excellent to go for mobile FINA totality of Athena and whatever it was an elf and they all then sort of spent two or three years bring you their portfolios to get together risking them sort of themselves out all the rest of it and dream the best stuff but didn't go out and get any new acreage the people went out and got a new acreage were mostly independence so BG was one and the darker was another there were a few others who went out and and you know the Talos of this world did really well because they they rode the wave of new technology in new areas for a while so I guess what I'm saying is I could I find it I kind of find it difficult say where would I go next really but I've often found that and like changes there's always there's always a new story as a new version there is something else we haven't thought of yet I think new car I think small companies will become important because all the medium-sized independence have all gone you know BT was taken over their shell and BP up here at 200 million and the next lot down here a tallow Ken and Sophia sort of three and a half or something so there's a big void in between so I think there is room for for pulley a grassroots LED expiration sort of thing to sort of research you know to come back again and that's just a lifecycle of our business I think I think the big companies will probably be relatively risk-averse and have part of their portfolio Nate and unconventionals and they'll be doing a bit of exploration but not very much but it's amazing how there's always money around to be spent on these things particularly when you can't make a decent return in lots of other investments people will come and invest in exploration companies again so I see a bit of it but I see a resurgence in the next two or three years it can take a little while of $55 plus but actually we are remarkable as an industry of actually sort of going through periods of renewal and resurgence actually when you are not quite sure what's going to happen next in something it does yes it would follow up on this this talk was about the next tens of years 50 years maybe maybe more do you have a private opinion when the oil and then gas we were an outlaw and guess what now it depends on the economics what's the price per barrel of oil it's hundred fifty dollars it will last much longer than at $50 because it's worth exploring it for a hundred and fifty fifty it's not worth exploring gas there is a huge amount of gas I mean really in which with with unconventional gas - I mean the world won't run out of gas in the next two or three hundred years okay my view I think what you have instead is you'll have the world needs to think about the climate impact of these things and think about when did it use oil and what for when does he use gas on what for and when's it use renewables and what for and nuclear that's that's that's the question that's coming and we own we all need to be part of this discussion because quite often it's like this is all your company's fault you said no I don't really think so we'd have been everybody's fault because we're all doing things right [Music] [Applause]

Channel: The Geological Society

Views: 7,498

Rating: 4.9285712 out of 5

Keywords: Science & Technology

Id: TeXpxXMsC-k

Length: 66min 22sec (3982 seconds)

Published: Wed Mar 29 2017