It's a Great Time to be Prudent

Costs, Risks Rising

It’s a complex and competitive world for exploration.

Expensive, too.

Kurt Rudolph grapples with those issues and many more as chief geoscientist for ExxonMobil Exploration in Houston.

Rudolph will present the Michel T. Halbouty Lecture at AAPG’s annual convention in Long Beach, Calif., on “Current Exploration Trends: Prudent Investments or Irrational Exuberance.”

His main message?

Prudence and balance are necessary, now more than ever.

As the company’s top earth scientist, AAPG member Rudolph reviews ongoing programs and works on special projects for ExxonMobil Exploration.

He also serves as an adviser to senior management on upstream opportunities and technical matters -- a job that requires an in-depth, up-to-date view of global exploration.

Rudolph describes six trends in exploration today:

An increasingly competitive environment with a changing political and commercial context.

He said this climate continues to drive up the cost of opportunity capture for the industry, because of increased competition for exploration blocks, the rising expense of doing business and higher profit shares by host governments.

While recent oil and gas prices have spurred exploration efforts, Rudolph said the commercial context of operating can’t be ignored.

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It’s a complex and competitive world for exploration.

Expensive, too.

Kurt Rudolph grapples with those issues and many more as chief geoscientist for ExxonMobil Exploration in Houston.

Rudolph will present the Michel T. Halbouty Lecture at AAPG’s annual convention in Long Beach, Calif., on “Current Exploration Trends: Prudent Investments or Irrational Exuberance.”

His main message?

Prudence and balance are necessary, now more than ever.

As the company’s top earth scientist, AAPG member Rudolph reviews ongoing programs and works on special projects for ExxonMobil Exploration.

He also serves as an adviser to senior management on upstream opportunities and technical matters -- a job that requires an in-depth, up-to-date view of global exploration.

Rudolph describes six trends in exploration today:

An increasingly competitive environment with a changing political and commercial context.

He said this climate continues to drive up the cost of opportunity capture for the industry, because of increased competition for exploration blocks, the rising expense of doing business and higher profit shares by host governments.

While recent oil and gas prices have spurred exploration efforts, Rudolph said the commercial context of operating can’t be ignored.

“Everybody has been focused on oil and gas commodity prices, but if you look at the other aspects affecting our industry -- like the cost of steel, or drilling day rates -- they’re going up at similar rates,” he said.

The proliferation of large and varied data sets and the associated tools to interpret them.

“There’s been some debate in AAPG about what people are calling ‘Nintendo geology.’ But we really have no choice but to use the computing tools to interpret and integrate more and more information,” Rudolph said.

Exploration will need all the tools enabled by large data sets, according to Rudolph, but the use of data should enhance geological understanding and not replace it.

“It’s basically a pragmatic imperative to deal with these high-end data sets,” he said. “But as we continue to use very large data sets, we can’t stop recognizing the importance of geoscience fundamentals.”

The importance of understanding basin and play characteristics and being able to forward-model the earth.

“As we move into unproven areas, our ability to understand and forward-model petroleum systems is becoming more important in terms of high-grading prospects and dealing with risk,” Rudolph said.

He emphasized the necessity of ground-truthing and calibrating current knowledge, for both frontier exploration and play development.

“As we more fully exploit some of these plays -- say, in West Africa, Brazil and the Gulf of Mexico deepwater plays -- we’re also going to continue to move out into more remote and higher-cost areas,” he said.

ExxonMobil has recognized the need for an evergreen understanding of play settings around the world, according to Rudolph.

“Over the past 20 years we’ve done dozens of studies revisiting areas, working to understand the regional characteristics,” he said.

The need to recognize and develop near-field potential.

“Maturing fields in well-known producing areas do not seem ripe for development, but there is a tremendous potential for additional recovery from these fields,” Rudolph said.

Developing near-field opportunities also avoids the competitive cost of acquiring new acreage, he noted.

“Exploiting new reservoirs in known fields and plays usually implies a paradigm-shift, often driven by new concepts, technology or data,” he observed.

The pursuit of deeper and more subtle plays in known areas.

Today, the industry can extend plays through improved seismic imaging, reservoir quality concepts that recognize deep porosity preservation and improved drilling and production capabilities, Rudolph said.

One challenge for the industry is identifying basins where deeper plays may emerge, he said.

“There is usually more promise in a basin that is more complex, has multiple petroleum systems and has also seen inefficient exploration because of the leasing history,” Rudolph said. “Basins that have these characteristics, such as the Gulf of Mexico, have a long history of generating multiple plays.

“Simpler basins are more efficiently creamed, and often see significant value-destruction as exploration continues with little material success,” he added.

The development of non-conventional resources -- tight gas, heavy oil, shale gas and coalbed methane.

“These resources have very different characteristics from more conventional resources. They tend to have a long asset life. They require integration of subsurface engineering and commercial aspects,” Rudolph said.

“They are operationally very intense and they lend themselves to a constant learning approach. The development and introduction of new engineering technologies are very important here,” he added.

Rudolph believes the nature of non-conventional resource plays will require a longer-term and more integrated model for exploration.

“Basically, you’re exploring while you’re developing while you’re producing,” he noted.

Finding the Balance

In the Halbouty Lecture, Rudolph will present specific examples related to each of these trends, drawing from exploration and development work in North America, West Africa, the Middle East and elsewhere.

He plans to close with a summary of today’s realities and a more philosophic look at the future of the industry.

“I think everyone’s aware of the discussions about Peak Oil that have been going on. The bottom line is, we’re going to be in a challenged time for meeting the world’s energy demands,” he said.

Tackling that challenge in an increasingly complicated world will require an ever more integrated approach to exploration, one that utilizes information across areas, business stages and disciplines, and across geoscience, engineering and commercial considerations.

No one knows everything the future will bring, Rudolph said. The industry faces numerous uncertainties, so managing these uncertainties in a thoughtful way is a key to success.

“If you look at the classic learning curve, with knowledge and understanding increasing with time, the key opportunity for success is when that curve is steepest, and your understanding is the most volatile,” Rudolph said.

“If you wait until your knowledge is more complete, it is often too late -- options for action have closed and the opportunity has been lost,” he noted.

At the same time, meeting the world’s future energy needs will require big investments, with continued pressure on the industry to perform at very high levels.

“But on a hopeful note, the industry has a long track record of meeting these type of challenges,” he said.

In a complex, competitive and expensive climate for exploration, the industry needs a prudent, balanced approach.

It might be a good time to hedge your bets, Rudolph thinks.

“In this uncertain environment, you need to spread your investment over these various elements of the portfolio,” he said. “That’s always been important, but it’s going to be even more important in the world we live in now.”

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