Integrating Unconventional Resource Opportunities into an Exploration and Production Portfolio

Abstract

Basin-centered and tight oil source rock reservoirs are abundant across the world, but their potential and contribution have only been recognized and considered for exploitation within the last 15 years. Fundamental differences exist between conventional and unconventional resources (UR) lifecycles; these differences require conceptual changes by management and strategic planners in energy companies.Unconventional resources lack a traditional exploration phase because the presence of shales and tight formations are widely known as a result of exploration activities for conventional resources. In addition, the variability of geologic properties in UR accumulations forces operators into a time-consuming appraisal phase to determine best practices for the particular character of the UR under study. After a development program has been sanctioned by management, the organization assumes a multi-decade program of drilling and stimulation, gathering system extension over a large area, and surface facility flexibility. Therefore, unconventional resources have been described as 'statistical plays.' This is true unless and until the operator has achieved static and dynamic models of the asset and is no longer hostage to local mean values and, more importantly, large standard deviations.Consequently, UR capital commitments differ from those of conventional opportunities. URs have much longer economic lives and require nearly continuous capital investment. URs provide management with the opportunity to begin a development program, and then suspend and resume it in the future because each investment in a UR can be considered to be a unique portfolio entity. This paper addresses the strategic planning issues associated with capital commitments, resource and reserve recognition, and production forecasting in each stage in the lifecycle of a UR opportunity. The paper uses a basic, probabilistic planning model to evaluate the various approaches. The intent is to understand how UR opportunities can be blended into a portfolio containing conventional portfolio entities.