Establishing Minimum Economie Field Size and Analysing its Role in Exploration Project Risks Assessment: Three Examples* Virendra Singh’, Elena leaguirre', Ivan Yemez', and Horacio Stigliano! Search and Discovery Article #41827 (2016)** Posted Jy 11,2016 * Adapted fom extended aseact prepare in conjunction with al presentation given at AAPG GEO 2018, The 12° Mie East Geosciences Confrence and Fxbisition March 710, 2016, Mssama, Balai **Datapags © 2016 Seal ahs ven by author. For ll ter ight contact autor dct Abstract The Upstream E&P industry is one ofthe most risky businesses to invest in and is dominated by different types of uncertainties: political, cevonomic, socal and technical. There are many areas that can lead to optimistic or pessimistic risk assessment, Overestimation, underestimation, misidentifying critical risks, overselling and underselling projects are some ofthe common problems that are encountered, For consistent exploration project risk analysis, # systematic approach has been used which includes geological risk, minimum economic field size (MEFS), resource size distibution, development cost, rate streams, commodity price, discount rate and cash flaw estimation, This approgch Fequites highly skilled geoscientsts and engineers lo estimate field development costs and generate the economic indicators to rank the exploratory prospects potential success and to suppor the informed business investment decisions, The “exploration success” contins two ‘main variables: (1) probsbilty of geologie success (P,), and (2) probability of economic success (P) To remove sub-economie volumes fom the volumetric distribution, the industry uses the estimation of minimum required (break-even) resources for the full project life eyele considering the mos likely development scenario in exploration projects, For eppraisal and development projects, the minimua required resources are used to benchmark the confidence level of already discovered resourecs with their chance of sueeess tobe an economically viable project. Despite several contributions made in the past and available in the literature, to the best of authors’ knowledge, most often a deterministic MEFS value is being used forthe exploration project risk assessment. This single MEFS value doesnot allow eapturing the risks associated with the different input parameter uncertainties which ee used for the MES estimation In this, article, an effort has been made to review and systematically describe the appropriate MEFS estimation methodology. The influence of key parameters on MEFS estimation, including some illustrative examples, have been used to demonstrate the MEFS criticality and its impact on exploration projects risk assessment to achieve an overall economic success.Introduction Successful exploration, efficient appraisal and profitable extraction of hydrocarbons are the three main phases of any E&P project; each in turm is dependent upon the previous one, Each phase ofthe E&P project carries significant uncertainties and hence makes upstream industry an extremely high risk business (Alexander and Lob, 1998; Dunn and Parnell, 2002). Usually the largest risk i the upstream oil industry is geological risk which, in comparison with other natural resources development, is extremely high. Worldwide hyérocarbon exploration has become so mature that exploration has been extended to new frontiers such asthe deep and ultra-deep water areas, remote areas which are difficult to aceess wit insufficient developed infrastructure; and areas with hazardous environments such as permafrost, deserts, swamps, ce However, these are not the only factors which have inereased the costs of exploration, the event upsurge in economic nationalism and the steep decline of suecess rates in mature areas have also increased the acquisition costs in new frontiers. Under these situation, risk analyses or feasibility studies for new projects, especially for exploration projects have increased in importance. In the pas, several articles (Woods etal, 1985; Grecco, 1987; Bradley and Wood, 1994; Antia 1994; Syabrir and Partowidagdo, 1996; Rose, 2002; Ferzo etal, 2014) have been published in this subject to describe the technical and economic evaluation of conventional and "unconventional resources. One of the inital efforts (Woods et al., 1985) was to use the field size distribution of development projects and generate an empirical elation forthe finding rate and cost of discovery, However, this approach des not account for any improvement which has taken place inthe last several decades. Inthe late 1980"s and early 1990"s, efforts were made o establish relationship between economic parameters, field size, new technologies, development strategies, impact of fiscal regime and hydrocarbon prices (Greccv, 1987; Bradley and ‘Wood, 1994. In 1994, Bradley and Woods have emphasized the need of building a detailed and integrated evaluation whieh ean allow relating liquid production (ol, gas, and water), CAPEX, OPEX and economic models in oder to forecast the economic performance. Some of the articles have illustrated the procedures for maximizing te value ofthe satellites and marginal deep water fields (Antia, 1994; Chitwood etal, 2004) but they did not eonsider any geological risks in these evaluation. Very recently, Festa etal. (2014) have analysed the impact of reservoir performance of two exploration projects (Onshore Unconventional Shale Oil and Shale Gas Resources, OfTshore conventional Oil) on economic analysis, using stochastic approach, taking into account the main input, resource, EURIwell and drainage area to determine the range of MEFS distribution, However, none of this published work has analysed the direct impact of reservoir characteristics in the economic forecasis, Given the problems inherent in transforming subjective data for decision making, a systematic process and set of principles is required to evaluate ¢ifTerent exploration prospects and place them in context which is described inthe next section Integrated Project Valuation Process For several decades, the most common form of E&P projec valuation has been the standard discounted cash-flow analysis in the petroleum industry which incorporates forecasts of (1) production volumes of oil and gas, (2) capital and operating costs, (3) product prices, and (4 fiscal regimes to calculate the stand-alone (non-portfolio) commercial value of a project. This evalusion requires an integrated project mode! with highly skilled geoseientst to transform elusive evidence into geologic prospec, reservoir engineers to convert subtle geologic concepts into potential rate streams, drilling and facility engineers to estimate development costs (CAPEX/OPEX) and economic analysts o calculate the net present and risked expected value needed to estimate the rskireward of projects (Bilderbeck etal, 2008). In general, there will always besignificant uncertainties atleast in some of these parameters which will directly affect she resultant determination ofthe projet value. Within the framework of integrated project evaluation, influence diagrams (Figure 1) are most often used to describe a decision indicator such as “Net Present Value (NPV)" or “Expected Monitory Value (EMV)" of a business decision in relation to uncertain variables, inluding inter- dependencies and correlation berween these variables, To be successful, geologically and economically, it is necessary to understand E&P business from te concept to the point of consumption, the variables and constraints that affect pring forthe seller and buyer, c transportation and methods to stem volatility and risk. Exploration Prospect Risk Assessment Process In order to understand the exploration evaluation risk assessment, it is necessary to describe some ofthese key concepts for estima A) Probability of Geologic Success Probability of the presence of attic accumulation of atleast minimum resource size (or greater) to sustain the flow of hydrocarbons. It does not include any consideration ofthe size ofthe accurnulation beyond the volume being sufficient forthe well to be described as discovery, i. t0 have demonstrated the existence of movable petroleum, The geologic suecess for any prospect is assessed by considering the probability that the following five groups of independent factors exist Hydrocarbon source rack components (Pixs) ‘Timing of trap formation, hydracarbon migration and preservation (Piningngsio) Reservoir rock components (Pra) Trap geometry (closure) components (Paap) Seal effectiveness (Pas). The Py is obtained by multiplying the probabilities of the oceustence of each ofthe five factors of the play concept. P= Pana X PininnieioX Prowse X Pap X Pa The geologic succes is defined as having some flow of hydrocarbon on well testing, For better understanding of Py, the checklist of eritcal factors is Summarized by Otis and Schneiderman (1997). More recently, Milkov (2015) has published an excellent review summarizing several methodologies used for evaluating the exploratory prospect risks. B) Resources Distribution Based on G&G studies, once the geologie risks are defined for he identified exploration prospect, the OHIP and recoverable resources distribution are estimated usin inputs datainformation from analogues (PRMS, 2011). The ranges ofthese parameters should cover all the possible values and benchmarking ofthe extreme ends for each input. The main reservoir parameters to be considered forthe OHIP andrecoverable resources distributions are: porosity, water saturation, permeability, gross rock volume, are, net pay thickness and their respective distributions, Nuid properties and composition, recovery factor range. All these factors and their associated assumptions will have tangible effects on the estimated recoverable resources and overall field development economics. The recoverable resources will control the following design parameters for the facilities, schedule, CAPEX, OPEX ang economies: the maximum sustainable field production rats, number of wells tw be drilled (producers/injectorsdisposals), recovery by well, requirement of reservoir-pressure maintenance, requirement of assisted lift in production and anticipated field life, For different inputs and outpus, the probabilistic distribution boundaries limits are represented by the Pl and P99 which require thorough validation using realty checks. These input distributions can be visualized in linear/logaithmic seals (X- axis) and probability of ceurrence (Y-axis). © Mi uum Economic Field Size (MEFS) The MEFS is defined as the minimum volume of recoverable oil and gas necessary to make the project an economic success, Some of the most important variables used in MEFS estimation include: the value of oil and gas, the finding costs, the produetivty, recovery by wel, the proximity to and cost of infrastructure, development option, the cost of applicable technology, royally payments, transportation tris, regulatory costs and tax structure, The MEFS is used as input to truncate the low end of recoverable resources probabilistic distribution and to eliminate those esources which are non-economic. This truncation becomes extremely citical forthe areas (e.g ultra~deep waters) where very large investments are involved. One of the identified major steps in evaluating the exploration projects isthe estimation of MEFS and the probability of economic success (P,). Industry uses the estimation of minimum required resources which provide Net Present Value (NPV) ‘equal to zero forthe fll project lifecycle considering the most likely development scenario. In other words, itis the step where a risk analysis is performed by the Exploration Team introducing a cut off onthe estimated resource distribution through removal of valumes below MEFS value and estimating the corresponding probability of economic success which will always be lower or equal to P, D) Probability of Economic Success “Probability ofan economic field (or large) in the play given at least one or more discoveries of sufficient reservoir hydrocarbons to at least sustain commercial flow”. The Probability of Economie Success (P,) isthe probability of fining afield in excess of the predicted Minimum Economic Field Size accumulation, ean be obtained by multiplying P, with the Probability of MEFS (Pa). Pe = Px. ‘The generic definition of probability of geological success for onshore and offshore projects isthe same, However, to make the offshore projects economically viable, the required minimum resources must be higher duc to variations in CAPEX and OPEX. E) Expected Monetary Value (EMV) Once the Py, resources distribution and P. are established, itis important to assign some monetary value to compare the evaluation outcomes, ‘They can be estimated using the concept of NPV, where the NPV represents the present day discounted equivalent ofthe cashflow stream.associated with the outeome, So this will provide us a NPV of success and NPV of failure, For the case where the expected outcome are expressed as profits and losses, the expected monetary value (EMV) can be expressed as: PAANPY (Success ease) —(1-P,)* NPV (Failure Case)] ‘As MEFS is one ofthe five identified steps for the exploration prospect risk evaluation and is least deseribed in the literature, understanding the ‘major pitfall and challenges in MEFS estimation and MEFS methodology is necessary fora consistent exploratory project risk analysis. These aspects have been described in the following sections and illustrated tarough three examples, MEFS Es Methodologi All he data tobe used as input in MEFS estimation should be collected from the different sources of project activities validated and analysed, ‘The MEFS estimation isan iterative process which requires inpus ftom @ multi-diseipinary team to calculate a resource size associated to 7210 NPV. Different methods (analogue based, graphical, probabilistic and analytical), used for MEFS estimation, are described below: A) Analogy Based ‘This methodology allows adopting « MEFS for a project based on the analogy. In these regions or basins where the exploration and exploitation activities have not yet begun, occasionally a minimum amount of hydrocarbon that would make a project economic is defined Recognized international financial institutions estimate a MEFS using statistical evaluation from the availabe global database and this MEES value is assigned to the projeet under study as a reference. This methodotogy is used at an early stage of exploration where costs estimation sociated to exploration and development activites is purely assumed. There is no reference availabe inthe region or busin to validate these assumptions and the cost accuracy of extrapolation from the existing matured asses, located at some distance away from the area, is difficult. ‘As a consequence, the MEFS estimate obtained through this methodology carts a igh degree of uncertainty ané there could be significant diference (in excess or deficiency) wher the actual exploration and development projec is executed. Its important 1 note thatthe MEFS, oblained from analogy cas be used asa starting point for deterministic and probabilistic methodologies B) Graphical ‘The most commonly used method in the industry isthe graphical method which include the following steps: © From the estimated resources distribution ofthe identified prospect, choose a resource size whieh is expected tobe clase to the minimum economic field size for potential development, considering the nearby or similar development projects. Using reservoir inputs (e.g area, net pay), estimate the production profile, number of producer and injector wells forthe selected resource cas© Estimate the drilling and facies CAPEX, OPEX including drilling and development schedule for overall project life eye. Calculate the NPV of the subject case following intemal company’s norms. © Repeat fist three steps (given above) inereasing or decreasing the resource sizes, Ensure that at least one resource size provides negative NPV of the project. © Draw a regression line using postive and negative NPV cases (Figure 2). Make the preliminary assessment ofa resource size which will yield NPV close to zero. As the NPV versus resources regression isnot linear, iterate this process several times until few positive and negative NPV's (ninimum three values) are obtained to estimate a case having NPV equal to zer0. The use of P90, P50 and P10 resources values for MEFS js not recommended as the relationship between NPV and resources is often nonlinear. To overcome the nonlinearity problem, it is more prudent to use three cases (Tow, mid and high) close tothe expected MEFS. ©) Probabilistic In this methodology a simulation technique (Monte Carlo) is being used to generate the multiple development seenarios assuming different exploration, drilling, development and exploitation costs plus fiscal terms and conditions of the project. Regarding those last two inputs, diferent fiscal terms and conditions could be assumed only wisen it is permitted or subject to negotiation; otherwise they ae fixed as per contract terms, The relation between NPV and recoverable resources [NPV = (Resources) is established to obtain the MEFS value, using the analytical functions suitable to fit onthe data points instead of linear regression function. This methodology allows estimating a range of MEFS values to capture the variance of MEFS due to the changes inthe development assumptions. The range MEFS values obtained from this approach can be validated using MEFS value obtained from analogy of matured basin projects, if appropriate D) Analytical ‘This methodology is based on the elaboration ofa function of NPV versus Resources Volume, NPV ~ f (Resources), where NPV isnot linearly related with the resources, The methodology is applicable in a mature basin or region where some discoveries are small and considered non- economic fields, but they ate being developed as commercial ones. Taking into consideration exploration, drilling development and exploitation costs, fiscal terms and conditions of the projet, itis possible to establish a relation between NPV and Recoverable resources [NPV =f (Resources)] using an analytical function. MEFS isthe value of resources that makes ths funetion equal to zero. Te MEFS value obtained from this approach can be validated using MEFS values obtained from analogy of matured basin projects, fiting the current scattered points of all producing discoveries inthe region,{As part ofthe common procedure, and in order to estimate the P. for a stand-alone expioration project, the MEFS is used to truneate the resource distribution below the economic limit. This provides increased mean resources with a reduced P, for finding larger accumulations. P, is always lower or equal tothe Py for an exploratory project. Truncated resources are used as input for estimating the project economics. Some Hlustrative Examples To illustrate the impact of MEFS estimation on the overall exploration project and decision making, a graphical method (deterministic) for MES estimation, as deserted in the previous section, has been used, Multiple scenarios have been developed to help understand the impact on MEFS results due to uncertain variables. For this purpose, three examples have been generated and are diseussed in detail below. Example 1 The evaluated exploratory prospect is located in shallow water offshore at a water depth of around 110 m. The reservoi is located at 2744 m TVDSS depth. Based on the offset analogs, Table shows the summary ofthe reservoir and fluid input parameters. The initial reservoir pressure is around 5200 psi temperature is around 210 °F. The assumed fluid is black oil with 30° API and GOR of 350SCP/BbI, There is no (CO: and H:S content in the reservoir fuid The assumed production mechanism for all cases was natural depletion. The produced water will be disposed using an injection well ina specific formation on land. The production constrains used for genereting production forecasts assumes minimum manifold pressure of 50 psi, ‘maximum oi rte in the range of 12-16% ofthe recoverable resources and a maximum production durin the plateau of 50% ofthe recoverable resources, The dawn time assumed around 5% an minimum oil rate is around 500 Bbls/day. For the NPV calculation of each resource case the fiscal terms and conditions assumed are: Production Sharing Contract (PSC) with Cos oil limit $% (in this case, 100% of CAPEX/OPEX and Exploration costs are considered as recoverable), Profit il is 25% of Sharing Oil, Inflation 2% iyear, Income Tax 30% /year, Royalty ‘year and oi price constant 100 USS/BDI and it escalate by 2% every year until the end of production life, The other legal and economic conditions are assumed similar forall the evaluated cases, In order to analyze the impact of different development assumptions on the MEFS value, the evaluated cases assume: Different development scenarios, permeability variation, oil grevty variation (API) aquifer strength variation, presence of pollutants and Oil Price variations. A) Development Scenari Following three development scenarios (Figure 3a) were analyzed: + Scenario A: Platform with dry tree connected to Production Fluid Treatment on land. The distance between Production Fluid Treatment and platform and is 10 km while the delivery point is located ? km ffom the center. This scenario is the most likely Base Case development option based on the assumed economic scenario,Scenario B: Platform contents dry wee and Production Fluid Treatment, The delivery point i Jkm from platform Scenario Platform contents dry tre and Production Fhuid Treatment, subsea wel production ‘ied in platform, The delivery point is o 12 km trom platform, Using MEFS estimation methodology described in the previous section, MEFS value forthe three development scenarios were estimated which were 32, 40 and 45 Million BO, respectively (Figure 3b) These differences are mainly due to the changes inthe investment and maintenance costs (CAPEX/OPEX) as production profiles are similar forall the tee cases. Therefore, the selection of appropriate development scenario is critical when evaluating the MEFS and development assumptions for the exploratory prospects, Figure 3c shows the truncated resources and corresponding P,. For analyzing the impact of other parameters on MEFS, Scenario-A development option has been assumed a the most likely Base Case scenario, B) Permeability Impact Formation permeability is one ofthe most critical reservoir properties to determine and distribute throughout the reservoir, It is a measure of the ease with which fluids can pass through the reservoir, and hence is needed for estimating well productivity, reservoir performance and hydrocarbon recovery. The permeability for exploratory project evaluation is normally taken from analogue fields or from discovery wells This single permeability value, used for generating the production profiles, often does not account for any variance inthe permeability distribution (ie. its anisotropic bebaviour) and hence does not represent the mos likely average value. Any change in the permeability will have impact the reservoir performance, number of wells required to develop the reservoir and hence in the production forecasts aad associated costs. To assess the impact of the permeability changes in terms of wel productivity and number of wels in the development assumptions, @ lognormal probability permeability distribution was considered forthe targeted reservoir to generate the production profiles for P99, P90, PSO, P10 and PI permeability values, The mean permeability value is around 151 mD, ‘The estimated MEFS Values forthe different permeability cases which range from 29 Million BO to 40 Million BO along with truncated resources and corresponding P.. Permeability values lower than the mean Value increase the MEFS significantly (up to 40%) and higher than the mean decrease it (up 1 8) with reference to mean permeability case. This analysis emphasizes the need of using appropriate permeability value forthe Base Case development assumptions © OW Gravity Impact The reservoir fluid viscosity plays en important role not only in the well productivity but also in the reservoir fluid displacement efficiency Which affect the final recovery ofthe Original-Oil-In-Place (OOIP). To analyze the impact of fluid properties (ol viscosity, GOR and API ravi) in the MEFS estimation due to changes in the well productivity and reservoir production performance, several cases were evaluated: () heavy oil with 22° API, GOR of 100 SCF /Bbl and viscosity 4.6 eP, (2) Black oil 26° API, GOR 220 SCF/Bbl and viscosity 2.1 eP, and (3) Volatile Oil with 36° API, GOR 1000 SCF/BbI and viscosity 0.3 eP. The Base Case oil gravity was assumed around 30° API and 350 SCP/Bb1and viscosity 1.0 ¢P. The variation in the oil API gravity, the MEFS value has changed from 31 10 43 Million BO. For the heavy oil case, the MEFS has increased 40% wit reference to black oil Base Case mainly due to lower recovery, more aumber of wells and higher investment. To analyze the combined impact of el gravity and permeability on MEFS estimation worst case scenario), the development assumptions were generated fortwo extreme cases: (1) oil with 36°API and permeability of around 800 mD, and (2) oil with 22° APL and permeability of around 13 mD. The estimated MEFS values for these eases were 27 Million BO and 58 Million BO, respectively. This variation is around 16% lower value forthe frst ease and 81% higher valu second case with reference fo original Base Case MEFS value (32 Million BOE), D) Impact of Drive Mechanism and Presence of Hydrocarbon Impurities For this specific example, the impact of change in aquifer strength and hydrocarbon impurities (CO; and I1sS) in uid composition was relatively very small in the estimated MEFS value as compared to other variables. When the rato of radius equivalent for aquifer and reservoir vary from 0 to 16, the change in MEES value is from 31.8 Million BO to 30,6 Million BO (je, around - 4%). Due tothe change of COs content from 2.2% to 4.8% and HS content from 00 ppm to 5210 ppm, the MEFS Values are 32.2 Million BO and 34.2 Million BO, respectively which represent 1-8% difference with reference to Base Case MEFS value. However, iti important to note that in this case the effect of hydrocarbon impurities is not so relevant but in other cases it may have significant impact ifthe concentrations of these components in the fluid are higher than 5% for CO; and $500 ppm for HS. Therefore, as a best practice itis always useful to analyse the impact of contaminants based on each assumed development scenario, The Table 2 shows the summary of estimated MEFS values forthe different analysed cases. E) OPrice Impact The oil price is one of the most important parameters which is most oflen volatile and has significant impact on the any E&P project NPV and its overall value. In order to capture the oil pice issue, tree oil prices (US $50/Bbl, US $75/B and US $125/Bb) were assumed, keeping all other inputs the same. The estimated MEFS for these eases are 76, 42.8 and 20 Million BOE, respectively. The truncated resources for these ceases are 147 Million BO (17.1% PQ, 187 Million BO (13.1% P.) and 229 Million BO (9.1% P.), respectively. These resourees and corresponding Pare significantly reduced (see Table 2) with reference to the Base Case Values (MEFS 31.8 Million BOE, truncated resources 164 Million BO and 15% Po, Inorder to capture complete range of MEFS values, probabilistic method was used considering the Base Case development scenario-A and key inputs variability (eg. subsurface inputs recoverable resources, numberof wells, CAPEX/OPEX, Oil Price, Project schedule, frst production. sensitivity cases). Around 500 realizations were made and MEFS values were estimated. A Gaussian MEFS distribution was generated which has provided P90 (264 Million BOE), P50 (51.8 Million BOE) and P10 (101.4 Million BOE) MEFS values. Based on this method, the most Likely MEFS value is around 51.8 Million BOE which is around 62% higher than deterministic Base Case MEFS value (32 Million BOE). The truncated resources for these cases are 156 Million BO (15.9% P), 194Million BO (12.0% P.) and 262 Million BO (7.7% P,), respectively (Cigure 4), The extreme values (low as wel high end) were validated based on the offset analogues. These analogues indicate that several discovered fields in the area, wth less than 25 Million BOE recoverable resources and similar fluid characteristics, heve not yet been ‘developed. On the other hand al the fields with more than 100 Million BOE Recoverable resources are under production, Therefor‘comparison of different MEFS methods allows validating the most likely MEFS value and helps to improve the overall confidence on the exploratory suecess. Comparison of P,, MEFS with Pays, P, and truncated resources with probability of occurrence between different exploratory prospects allows to rank and prioritize the exploration portfolio based on thei risk and confidence leve! Example 2 To illustrate the importance of MEFS estimation and its impact in project with associated high level of investments, forthe most likely Base Case development assumptions forthe targeted reservoir, including new data acquisition and associated CAPEX and OPEX, th fll life eycle ‘the evaluated project is evaluated, The development assumptions consider finding an ol reservoir witha gas eap, The producer wellheads are planned to be connected witha subsea system tied back to a FPSO. For economical evaluation purposes, only th ol resources are considered. In this example, between the preliminary evaluation and the final economical evaluation before the spud ofthe exploration well, the project team performed different evaluations considering newly reprocessed seismic dats, different uid assumption, production strategy and consequently revised production profiles, cost estimation forthe economic evaluation which resulted in different MEFS values. The input parameters for diferent economic evaluations (untruncated truncated resources, P,P, exploration cost, Development CAPEX/OPEX, Abendonment cost, et.) ae summarized in Table 3. This example clearly shows the change in MEFS as inputs are updated over the time, A) Original Case: Original MEFS Calculation for Prospect A (Preliminary evaluation) The project team considered producing only the oil zone. The appraisal wells will be completed as water injectors, The discovery is assumed in 2013 and frst ail is expected after 7 years (in 2019). The untruncated Pons resources were estimated around 282 Million BO with Py of 17%. Figure Sa shows the MEFS estimation (92 Million BO) for the project and Figure Sb the truncated resources probability distribution that would bbe economically viable forthe development (Table 3). The P, ofthe project was estimated around 11.8%. B) Revision 1 Case MEFS The project team reviewed the appraisal strategy and decides not to use the appraisal wells as water injectors due to their location and included. additional wells to be used as injectors, Figure 6a shows the revised MEFS (96 Million BO) which additionally included the cast of the injectors inthe project evaluation and Figure Gb shows the truncated resources probability distribution that would be economically viable (Table 3) This indicates that there was no impact on the truncated resources as MEFS increase was relatively stall. ©) Revision 2 Case MEFS al wells to be used as injectors, delay the first ol two years (frst oi: 9 years after discovery) and additional wells to mitigate the impact of early gas breakthrough in the producers. Cash flow was delayed for 2 years. These changes affect the production profile and reduced the plateau from 4 to 3 years. The number of development wells increased from 36 to 54 due to increased producers and. Injectors, Additionally, the CAPEX, OPEX and Abandonment cost were inereased. The changes significantly ineeased the MEFS to 143, Million BO (see Figur® 6a) ftom 92 Million BO. The truncated resourees probability distribution (Figure 6), to be economically viable, wasreduced (Table 3), The Pe ofthe project was reduced from 11.8% to 8.4%, In general, based on authors" experience, the probability of evonomic success below 10% is considered high to very high risk projects. Such projects have rarely been commercially successful. lowever, in addition to technical and economic evaluation, the investment decisions forthe exploration projects are taken based on several other factors ‘which are related to company short, mid and long-term exploration strategy, fiscal terms and conditions of the exploration block including ‘minimum commitments and penalties due to noncompliance, risk taking appetite ofthe company. D) Revision 3 fase MEFS The team obtained new information fom a new field discovery; reprocessed and reinterpreted the 3D seismic data, This new information permitted an increase ofP, ftom 17% to 20%, without major changes inthe field size distribution (FSD). The mean untruncated resources were reduced from 282 to 227 Million BO forthe Base Case of project. The development assumptions are similar to Revision 2 but include additional appraisal wells that are not used as injectors, The cost of he exploratory well was increased with respect to the previous estimate Furthermore, Weighted Average Cost of Capital (WACC) increased from 7.67% to 8.42%. Adaitionally, the oil price was also updated. The CCAPEX for this case shows an increase, mainly due to an increase in number of wells. The revised MEFS (Figure 6a) has inereased from 143 Million BO (revision 2 case) to 207 Million BO. The resources probability distribution (Figure 6b) has been revised (Table 3 Pmean Uniruncated and P,). Figure.6 shows the resources and risk assessment using Fisk assessment too including the MEFS plots forall cases, This figure shows the increase in MEFS value due to the changes inthe development assumptions and cost estimates. This inezease in MEFS value (Grom 92 to 207 Million BO) has removed the non-economic part of recoverable resources distibution significantly (Le. low-end of the truncated resources distribution starts from estimated MEFS Value with P, of 0%). As a result the mean truncated resources have increased to 515 Million BO compared to 383 Million BO. This higher truncation in the resource distribution has resulted in a reduction ofthe P10 6.6% compared 10 11.8%, In order to understand the easons of the decrease in P, between the resources of the Original case and Revision 3 case, itis important to analyze the behaviour of Pacs (Probabilities to find MEFS) as the P directly depends on Py and Pac The Paes docrease can be divided in two ‘components: First ane is originated by MEFS value which has incteased duc to decrease of Pmefs from 70% to around 47% (Figure 6), and second component is FSD shift towards lower range. During revised G&G evaluation (Revision 3 case), the FSD (PI and P99 values) bas reduced compared tothe original G&G evaluation (Figure 6h) but the associated P, has increased from 17% to 20% based on new 3D seismic data. On the other hand, the regression line has moved towards left and reducing the Poss, Which gives a final valuc of 33% Example 3 This example illustrates the impact of different possible development scenarios on MEES estimation and overall project value. Given the exploration immaturity ofthe Basin, the development assumption considers the possiblity of finding the volatile oil (35-39° API and GOR 1800 SCF/Barel with 65 ppm HS, and 12.5% CO,, 1.17% N2, no wax and asphaltenes) based on the modeling studies and offset discoveries, The prospect (a 4-way dip closure located at water depth of 900 m) is interpreted using 3D PSDM data and offset well information. The identified targets are pre-salt carbonate reservoirs, The pre-drill un-risked mean OOIDP is around 496 Million BO and the mean recoverableresources are 232 Million BOE (172 Million BO of Oil and 336 BCF of solution gas) with a P, of 39.7%. The reservoir quality is considered as the main risks (due to poor seismic image quality, unknown diagenesis, performance). For analyzing the economic value ofthe Project Base Case, the MEPS, P, and truncated resources have been estimated for three development cases (Gas and water re-injection, Gas and water re- injection with higher permeability and water injection with gas export) with 2 first Oil scenarios (aggressive - 5.5 year first il from discovery and realistic project schedules - 8.5 years from discovery) according to the identified key uncertainties. One appraisal well assumed for appraising the field in ease discovery will be converted as injector. The faites development assumptions are subsea wells with tie back to a leased FPSO vessel with production facilities on board. For the first two development cases, the produced water and gas is planned to be reinjected in the reservoir, Third case assumes Water injection and produced gas to be exported to onshore facilities located at around 150 km away fiom the prospect. The estimated MEFS for these cases varies from 151 to 246 Million BO, mean trncated resources from 422 to 488 Million BO and the P, from 12 to 20%. Table 4 shows the summary of different development seenarios and their impacts on MEFS estimates. This analysis clearly demonstrates the criticality of MEFS estimation on high investment project during exploration phase when this is updated with new datalinformation, cost estimation and revised development assumptions overtime, Conclusions The MEES estimation is atime consuming and complex process which requires coordinated and iterative efforts between diferent technical disiplines as it depends on many variables with large uncertainties. Use of appropriate analogues in generating the reservoir inputs and their ranges, the fui type and composition, the drilling and facilities costs and the selection of the Base Case development scenario ar critical in obtaining a reasonable MEFS value. Understanding the dependency between diferent inputs used in MEFS, eliminating bias, checking for misinterpretation and maintaining consistency inthe evaluation is essential, Before generating the production forecasts to be used as input in MEFS, itis essential fo define the most likely exploitation strategy (natural depletion, pressure maintenance, etc), criteria for the selection of production scenario (economical, availability in market, others) Sensitivity analysis for the most uncertain key parameters should always be Performed as part of standard procedure to assess the impact of MEFS uncertainty on overall truncated resources and therefore probability of| economic success which directly impacts project economics, In case of significant MEES input parameters uncertainties, simple graphic approach of MEFS estimation based on linear regression, described inthis atile, may not be appropriate as NPV could be nonlinearly related to the resources and it may not allow capturing the impact of particular variable of interest. Under such situations, other methods (analogue based, stochastic approach, et.) would be required to validate the outcomes of deterministic (single and or limited multiple scenario based) methods. The Minimum Economic Field Size should be used as a powerful tool to benchmark and assess the profitability of the Exploration project, Comparison of key parameters such as P,, MEFS (Eeonomic Threshold), key economic indicators (NPV, Unit cost per barrel, IRR -risked and risked, EMV, and P, ete.) for different exploration projects ean be used as the basis to improve ranking and portfolio management, Such comparison, as demonstrated through examples, has proven to be a highly efficient and comprehensive way of ensuring more informed investment decision makings.Acknowledgements ‘The authors thank Repsol management for providing the facilities, guidance and encouregement during the execution ofthis work and permission to publish this material. Sincere thanks to Delfin Fidalgo, Director Direecién de Calidad Técnica (DCT), and Alvaro Ravero, Direccién Ejecutiva de Desarrollo Técnico (DEDT) for their support in exchanging the ideas and formulating the strategy for this work, References Cited Alexander, J.A., and J.R, Lob, 1998, Risk analysis: Lessons learned: SPE 49020, presented at ATCE in New Orleans, U.S.A, September 27- 30 Antia, D.D.J., 1994, Beonomic strategies to maximise profit from satellite field developments: OTC #7429, Presented at the 26% Annual OTC in Houston, Texas, US.A., May 2-5 Bilderbeck, M.G,, and LV. Beck, 2005, Using integrated project models to evaluste field development options: SPE 93554, presented atthe 148 SPE Middle East Oil & Gas Show and Conference, Basain Intemational Exhibition Center, Bain, March 12-16 Bradley, ME, and A.R.O. Wood, 1994, Forecasting oilfield economic performance: JPT, November Issue Chitwood, ., L. Wanvik, ¥. 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Violas, 1985, Development of feld-size distribution for undiscovered hydrocarbon resources in the Lower 48; SPE 16155, presented atthe 80th ATCE, SPF held in Las Vegas, NV, U.S.A., Seplember 22-25,SEY Gemma) aD Pee ling APEX ze Economic indicators EMV, NPV, IRR, etc., Figure 1. Influence diagram for Integrated Risk/Opportunity Analysis of an E&P Project,150 4 CaseA 100 MEFS ” a Case C Resources (Million BOE) 50 100 150 200 —____ > - 100 -150 Figure 2. Graphical method of MEFS estimationDevelopment Scenario Options Impact Scenario A Scenario B Scenario = a ree ‘amalterobabty Figure 3. (a) Schematic diagram showing thre possible developmen, (b) Different development scenarios lead to different MEFS (Cable 3), and (¢) Truncated resources and corresponding P for Development Scenario A which is Base Case (Green line, MEFS = 32 Million BOE) and Development Scenario C (Bive line, MEFS = 45 Million BOE), For development Seenario B the distribution (MEFS 40 Million BOE) will be between green and blue curves. The Untruncated resource distribution is represented with red line.2 + ; 2 + j- = | z 1 7 = Wal it Figure 4. (a) The P90, P50 and P10 MEFS values, obtained from the Probabilistic MEFS estimation method, are 26.4 Million BOE, $1.8 Million BOE and 101.4 Million BOE, respectively. The PI and P99 ranges between 15 to 154 Million BOE. (b) Truncated resources and corresponding P, for these Cases: Green line (P90 MEFS value ~26.4 Million BOE) and Blueline (P1O MEFS value ~ 101 Million BOE). The Uniruncated resource distribution is represented with redlineFigure 5. (a) MEPS estimation, and (b) Truncated Resource Estimation using risk assessment tool for MEFS of 92 Million BO. pg 100 . runner Osun oy i P20 ¢ ‘gn BO === re 5 \\ Arrwsorees ition 80) i P50 2 be Po ‘00 10 | rs 7 P20 300, = 10 100 1,000) 10,000MEFS affects both mean resources and P, Resources 20" BOE) ET Pmean untrunc Puwers decrease I Aa ZZ @ 4 ernean tranc MEFS207 ~ 51SMBO Fast component MEFS Variation fF omean trunc MEFS143 = 453MB0 =e >timean une MEFSSG = RE3MBO P50 70% econd component: Resources Distribution Variation ' second eR srk vari i} - 4 ps0 1 1 : 1 i ' : : © poe 434348 “33 338% FSD_ Original, Revi and Rev? Cases aa eres —— 150 _Rev3 case tera} te hee) Figure 6, (a) Comparison MEFS estimation, and (b) Comparison Truncated Resource Estimation forall the cases (Original, Rev 1, 2 and 3)Productive Area ‘Average Net P Porosity Permeability Hydrocarbon Saturation: Solution Gas| a7 ‘Untruncated Resources 78 187 ‘Table 1. Reservoir input parameters used for estimating oil-in-place an 229 1.089 1516 4802 recoverable resources.‘Table 2. Summary of MEFS estimates made using different parameters for Example 1 (Untruncated mean Resources 192 Million BOE with P, 0 19.2% forall evaluated cases).ioe nr) re) [Base Case Description [concept Development Subena + Tie bak F990 | Subsva Tie backtoFPSO | Subsea Te backto FPSO | Sobeea Te Baska FPSO |wel strategy ‘eptisal converted | Appraisal no converted | Appraisal no converted | Appraisal converted |wett appraisal 4 “ 4 6 First Om ‘one 2019, 2019, 2021 2021, rorecart Production Behaviour ‘Noges cap impact | Nagas eap impact ‘Gas cap impact (Gas cap impact Plateau duration ra 4 a 2 2 Resources Pmean untruncated ae 7a 7a 2 2, Pe * a7 a7 a7 20 Production [cumulative OW Production a a 7S m7 wr [as nate (Peak Production) nt 250 250 107.8 730 [ou rate (Production Plat ve 70.008 70.005 75.0 o.000 mss 5535 5593 6107 6130, oe 5200) 5200) 5400) 2923 lrorat cost, sie 45 45 50 2 Resources Truncated Case mean truncated Tae = 3 rT a lwacceas * 3.57 367 3.57 2042 Mees. 7 32 6. a3 207 Pers 700 709 550 33.0 Pe a8 148 34 66 Table 3, Key parameters used in MEFS estimation indifferent revisions for Example 2,porate snares pscnee a Ses Te ba TG TSS rodeo inesourearTaneated are Table 4, Summary of different development scenarios and MEFS Estimates for Example 3.