Determining commercial value of yet-to-find resources with POR

Authors:

James Veron, Executive Director, Business Strategy, S&P Global Commodity Insights

Ian Longley, Director, GIS-pax

The number of oil and gas discoveries has declined in the past ten years, as the industry dealt with downturns, a pandemic and shifting energy policies. Despite this, there are still plenty of resources being discovered. History shows that the volume of global discovered resources is correlated to oil price, which is good news for E&P companies. In mid-year 2022, Brent crude oil prices were more than double the lows of 2020. In 2021, discovered resources totaled more than 13.8 Bboe from 197 greenfield discoveries (S&P Global Commodity Insights, 2022).

Accurately estimating the value, volume and risk of the world's undiscovered resources is a challenge for all E&P companies, given that it is impossible for any single company to map and evaluate every basin and every prospect. Consequently, every company is making decisions with their own subset of prospects/opportunities and they all know they are making sub-optimal decisions.

S&P Global Commodity Insights and GIS PAX developed Portfolio Opportunity Ranker to address this challenge. The tool estimates the number and size of the missing prospects globally and includes them in a commercial evaluation and ranking process. This enables users to rank and evaluate the subset of identified opportunities in context. The tool also provides an estimate of the commercial yet-to-find volumes and values in polygons at the basin, country, license and block level.

Undiscovered - for now

Global yet-to-find (YTF) is an estimate of the volume of the worldwide undiscovered hydrocarbon potential. Although estimating YTF has its challenges, it is a critical piece of oil and gas portfolio management. Exploration companies can use these estimates to help decide how to focus and allocate their time, effort and budgets into areas with significant portfolio depth and value.

YTF also provides valuable insight into a company's current portfolio. Is there potential for growth, or is it time to divest? Some assets may be fully developed, while others could be good candidates for a farm-out. If a company's portfolio overall risk profile needs to be adjusted, YTF estimates can help inform the right decision.

AI estimates volumes and values

New advances in information science make it possible to estimate YTF for areas with relatively thin datasets. These YTF estimates are a combination of identified prospects and as-yet unidentified prospects calculated from a predictive Artificial Intelligence (AI) model.

Even in mature areas it is really rare that a company has all the mapped prospects, so we are always working with a subset of prospects. We need a way to estimate the other ones and that is what Portfolio Opportunity Ranker is doing, filling up the full opportunity data sets.Portfolio Opportunity Ranker is estimating the risk volume and value for all known prospects and has a methodology to estimate the yet to discover prospects.

The model is created from measures of exploration efficiency and geological attributes of global plays (basin, reservoir, seal trap and charge attributes from the S&P Global Commodity Insights database). The key measure of exploration efficiency is based on the observation that simple basins cream early and complex basins do not. Complex basins still deliver material discoveries late in their exploration lives because of the inherent complexity of the local exploration process. To separate this geologic attribute from technological advances through time, this measure is calibrated separately in contiguous areas of proven charge within bathymetric/elevation bands. The calibrated efficiency and geological measures are combined to build a predictive AI model in proprietary software that estimates the missing prospects and the future commercial feature counts and values in these areas.

Commerciality of YTF resources

Distinguishing between geologic, commercial and economic volumes becomes critical when estimating yet-to-find volumes and values.

Geological volume:

● The predicted volumes of hydrocarbons that will be found in a defined area using currently available technology and industry practices. This estimate does not consider any economic or accessibility constraints.
● These estimates are generally considered to be academic theoretical numbers.

Commercial volume:

● The predicted volumes of hydrocarbons that will be found in a defined area using currently available technology and industry practices above a volumetric threshold. It is typically expressed as an oil-equivalent threshold volume for oil fields and gas fields accordingly.
● This volume is estimated for oil fields and gas fields separately in areas of perceived equal value (i.e., same bathymetric band and distance to pipeline range) from detailed evaluations of undeveloped assets where an estimate is made of the minimum volume required to be NPV=0.

Economic volume:

● For each polygon above the low/base/high value estimates, the calibration data are used to predict a range of value metrics for different oil prices. When combined with well costs and tax factors, these data can be used to calculate the risked NPVs (EMVs) for all the prospects and missing prospects in each polygon. The EMV positive outcomes are then added to show the YTF estimate at different oil price assumptions.

Realizing commercial potential

Knowing the commercial value of YTF resources can help companies make better exploration and investment decisions. Companies can explore all of their options for potential investments or purchases and see how they would affect their portfolio in a range of oil price scenarios. Global maps of commercial cutoffs can help companies understand economic differences in different regions, and if there are YTF resources near their current assets. YTF estimates ensure that companies will not overpay for new acquisitions or undersell their own assets.

New from S&P Global Commodity Insights and GIS PAX: Portfolio Opportunity Ranker

Portfolio Opportunity Ranker uses the world's best E&P data, spatial analytics and machine learning to predict and rank the remaining conventional exploration potential of the entire planet (outside of onshore north America). It risks, values and ranks 30,000 oil and gas prospects, and integrates this with an estimate of missing prospects. These estimates are commercially based and thus provide a meaningful basis on which to plan M&A acquisition and divestment decisions.

The tool is fully customizable, allowing users to incorporate their own data and local expertise. All calculations are editable and auditable.

Key features include:

● Polygons at the country, basin and block levels in a spatial platform
● YTF volumes values and rankings of the exploration potential in every proven charge area
● Risk, volume and value estimates of the world's known prospects
● Spatial predictions of volumes and values for global unidentified prospects
● Estimates of commercial yet to find volumes and values for all proven charge areas

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.