Beruflich Dokumente
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Earth-Science Reviews
journal homepage: www.elsevier.com/locate/earscirev
Risk tables for less biased and more consistent estimation of probability
of geological success (PoS) for segments with conventional oil and gas
prospective resources
Alexei V. Milkov 1
Sasol, Johannesburg, South Africa
a r t i c l e
i n f o
Article history:
Received 17 October 2014
Received in revised form 15 August 2015
Accepted 18 August 2015
Available online 24 August 2015
Keywords:
Exploration
Oil
Gas
Probability of success
Risk assessment
Decision making
a b s t r a c t
Oil and gas explorers routinely estimate the probability of success (PoS) of exploration projects, which is used for
the calculation of risked prospective resources, their expected monetary value, ranking of the prospects and
exploration portfolio management. Most often, the estimation of the geological PoS is based on subjective
judgments about probabilities for individual geological risk factors. However, such subjective probabilities are
not reliable in the low-validity environments with signicant degrees of uncertainty and unpredictability, to
which many exploration projects belong. When explorers assign probabilities for risk factors, they are geared
by their variably incomplete knowledge and fragmentary experience, use judgmental heuristics under the
inuence of cognitive and motivational biases, and are prone to logical fallacies (unless they are aware of these
limitations and account for them in scientically responsible ways). As a result, assessments of geological PoS
tend to be inconsistent across an exploration company, which leads to biased portfolios that fail to deliver on
promise. Recent research and experience from other industries suggest that algorithms are superior to expert
judgments in low-validity environments. This paper presents a review of relevant literature on the psychology
of decision making and risk assessment methods used in petroleum exploration, and proposes a new algorithm
for geological PoS assessment, realized in the form of systematic risk tables for probabilities of six geological risk
factors (structure, presence of reservoir facies, reservoir deliverability, seal, source presence and maturity, and
migration). The risk tables enable explorers to convert geological information into quantitative probabilities
while counteracting the deciencies of expert judgment and reducing the effects of biases. The risk tables take
into account both the data-derived and model-derived positive, negative and neutral evidence for each of the
risk factors, utilize the most elementary, fundamental and relevant subsurface information and can be used in
a wide variety of exploration projects. The risk tables shift the focus of geological risk assessment from arguing
about the probability values to a more objective and consistent evaluation of subsurface data and models.
Probabilities are extracted from risk tables in a manner transparent to all involved, including peers, managers
and investors. Implementation of the risk tables will allow explorers to dispassionately and consistently put
high PoS values on relatively low-risk prospects and low PoS values on relatively high-risk prospects, and
would enable managers to make well-informed drilling decisions. The use of risk tables will lead to less biased
prospect inventories, effective portfolio management and better long-term exploration performance.
2015 Elsevier B.V. All rights reserved.
Contents
1.
2.
3.
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Denitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common ways of estimating geological PoS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
454
455
456
Abbreviations: 2D, two-dimensional seismic; 3D, three-dimensional seismic; CRS maps, common risk segment maps; cCRS maps, composite common risk segment maps; CSEM, controlled source electromagnetic method; DHI, direct hydrocarbon indicator; EMV, expected monetary value; FSD, eld size distribution; FVF, formation volume factor; GDE, gross depositional environment; HC, hydrocarbons; MEFS, minimum economic eld size; PoS, probability of success; PoSg, probability of geological success; PoSe, probability of economic (commercial)
success; So, oil saturation; YTF, yet to nd hydrocarbon resources.
E-mail address: alexei_milkov@murphyoilcorp.com.
1
Present address: Murphy Oil Corporation, 9805 Katy Freeway, Suite G-200, Houston, TX 77024, United States.
http://dx.doi.org/10.1016/j.earscirev.2015.08.006
0012-8252/ 2015 Elsevier B.V. All rights reserved.
454
3.1.
Number of risk factors . . . . . . . . . . . . . . . . . . . . . .
3.2.
How probabilities are assigned to risk factors . . . . . . . . . . . .
4.
Common fallacies in estimating geological PoS . . . . . . . . . . . . . . .
4.1.
Geological and psychological subjectivities . . . . . . . . . . . . .
4.2.
Common individual heuristics, biases and fallacies . . . . . . . . . .
4.3.
Common group biases, heuristics and fallacies . . . . . . . . . . . .
4.4.
Consistency is the key to portfolio management . . . . . . . . . . .
5.
A better solution: risk tables . . . . . . . . . . . . . . . . . . . . . . .
5.1.
Expert judgment versus an algorithm. . . . . . . . . . . . . . . .
5.2.
Risk tables . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.2.1.
Risk table for probability of structure . . . . . . . . . . . .
5.2.2.
Risk table for probability of reservoir facies presence. . . . .
5.2.3.
Risk table for probability of reservoir deliverability . . . . .
5.2.4.
Risk table for probability of seal . . . . . . . . . . . . . .
5.2.5.
Risk table for probability of source rock presence and maturity
5.2.6.
Risk table for probability of migration . . . . . . . . . . .
6.
Benets of the implementation of risk tables in an exploration company . . .
7.
Validation of risk tables . . . . . . . . . . . . . . . . . . . . . . . . .
8.
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. Introduction
Petroleum exploration companies create or destroy monetary value
by drilling and testing wells on subsurface prospects. Drilling decisions
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457
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are preceded by numerous activities and depend on the results of subsurface studies and economic evaluations as well as company strategy,
commitments, political factors, and tolerance to risk. In the subsurface
domain, explorers enter frontier or mature basins, nd the opportunities (prospects) and characterize them by performing geological and
geophysical studies rst at the basin level, then at the play level and
nally at the prospect level (Fig. 1). Subsurface studies culminate in an
opportunity list (prospect inventory), in which each prospect is characterized by prospective resources in the case of discovery (success case)
Fig. 1. The exploration process triangle listing data and products that oil and gas explorers gather, create and evaluate to make an informed drilling decision (signicantly modied from
Fraser, 2010). Exploration starts at the basin and play levels where explorers create fundamental understanding of the geology using regional data and integration tools such as gross
depositional environment (GDE) and common risk segment (CRS) maps. Play atlas is a common product of such a regional subsurface evaluation. Explorers then focus on the leads
and prospects within selected high-graded basins and play fairways. The geological probability of success (PoSg) is obtained near the end of the exploration process. Other acronyms
used: FSD eld size distribution, YTF yet to nd hydrocarbon resources, HC hydrocarbons, DHIs direct hydrocarbon indicators, cCRS composite common risk segment
maps, CSEM controlled source electromagnetic method, MEFS minimum economic eld size, EMV expected monetary value, PoSe probability of economic (commercial) success.
455
456
457
Fig. 4. Typical process of probabilistic (stochastic) assessment of oil volume (stock tank oil initially in place (STOIIP), million stock tank barrels (mmstb)) in a prospective segment.
The volumetric equation is known, but input reservoir and uid parameters (gross reservoir volume, ratio of net reservoir to the gross reservoir (N/G), porosity (), oil saturation (So)
and formation volume factor (FVF)) in the success case (discovery) are uncertain and therefore are described as probability density (distribution) functions. Success case (discovery)
probabilistic volumes in the segment are calculated stochastically using, in this case, Monte-Carlo simulation with 10,000 runs. The total geological PoS for the segment is estimated by
the explorers. The economic PoS is then calculated based on the risked volumes curve and the estimated minimum economic eld size (MEFS).
458
Table 1
Risk factors considered in different methodologies of estimating the total geological probability of success (PoS).
Authors
Company
White (1993)
Number of
risk factors
Goldstein (1994)
Bridge Oil
PetroFina
Statoil
4
7
Conoco
Chevron
Unocal
McMaster (1997)
Amoco
Santos
BHP
Petroleum
CCOP (2000)
Texaco
it is vital that only the truly independent risk factors are multiplied and
that none of the risk factors that inuence the event (geological success)
are omitted. This is needed to satisfy the mathematical meaning of the
PoS calculation via multiplication (CCOP, Coordinating Committee for
Offshore Prospecting in Asia, 2000).
From the practical perspective, a larger number of risk factors may
result in lower total PoS, especially when it is prescribed that probability
for individual risk factors must be below 1.0 (Otis and Schneidermann,
1997). This has two major implications. First, it is psychologically difcult for the management to approve drilling of prospects with low PoS
values. Second, EMV calculations use PoS values, and lower PoS will
lead to lower or even negative EMV. Both of these are not critical issues
if the management understands that PoS values are best used to rank
prospects and to decide on their t in the exploration portfolio and
chose to drill rst the prospects with higher mean risked volumes or
higher EMV or higher investment efciency, given that other economic,
strategic, licensing and political issues are not inuencing the drilling
decision.
3.2. How probabilities are assigned to risk factors
There is little published information on exactly how specic probability values for each independent risk factor are dened before they
are multiplied to obtain the total geological PoS. The process seems to
depend on the size of the company, available expertise and accumulated
experience. In small and/or less technically advanced companies,
assignment of probabilities to individual risk factors is often a formal
and quick process performed by a single explorer without carrying out
detailed studies, team discussions or expert peer reviews. It is commonly an after-thought process completed quickly after the segment is
mapped. In major and/or more technically advanced companies, a
signicant amount of time may be spent on risk evaluations. This is
performed according to a specied process with the help of various
tools such as checklists (Schwade, 1967), risk assessment forms
(White, 1993), worksheets (Otis and Schneidermann, 1997) and risk
matrices (Fugelli and Olsen, 2005; Sykes et al., 2011). Commonly,
probability values for individual risk factors are assigned in discussions
within a multi-disciplinary exploration team. The probability values are
then presented to the exploration technical review team and/or the
management, who may further modify those values.
However, there is always one explorer who announces the probability value rst. Other explorers and management may modify the probability value later. Most often, these announcements and later changes
are based on subjective expert opinions (judgments) (Harbaugh et al.,
1995). Exploration companies and relevant literature provide relatively
little guidance on how to come up with the probability for each risk
factor. Rose (2001a) describes two tools designed to help an explorer
to estimate probability values. The rst tool is a scale that relates subjective expressions of condence to probability values. For example, the
expression more likely to be present than absent equates to probability from 0.6 to 0.8. Other versions of this tool are presented by Goldstein
(1994), Duff and Hall (1996), Otis and Schneidermann (1997) and
Alexander and Lohr (1998). The second tool is a chance adequacy
matrix which suggests different probability values based on condence
level (data quality and quantity) and conclusions interpreted from
those data (bad news or good news). For example, moderate condence
level in data which indicate good news equates to probability from 0.7
to 0.9. Similar or modied versions of this matrix are presented by
Lowry et al. (2005) and Sykes et al. (2011). Both of these tools can be
used to guide the thinking process about geological risk factors and
help translate subjective opinions into numerical probability values.
However, these commonly used tools have at least three shortcomings.
First, they do not contain any geological information and do not provide
specic guidelines of what probabilities to use in a given subsurface situation (what exactly is good news for the risk of reservoir presence?).
Second, they are too vague and leave signicant uncertainty in picking
459
Table 2
Probabilities for specic geological risk factors and the total geological probability of
success (PoS) assessed by seven teams for the same segment using the same data in a class
setting.
Team
Probability of
reservoir
Probability
of seal
Probability of
petroleum charge
Total
geological PoS
#1
#2
#3
#4
#5
#6
#7
0.68
0.70
0.50
0.70
0.60
0.70
0.70
0.78
0.80
0.90
0.80
0.85
0.55
0.50
0.85
0.55
0.90
0.95
0.80
0.85
0.85
0.45
0.30
0.41
0.53
0.41
0.33
0.30
460
that downplay that newly identied risk factor and support his/her
initially favorable view of the segment, while ignoring evidence that
contradicts his/her preconceived notions.
Conservatism (or regressive bias) is the tendency to underestimate high
values and high probabilities and overestimate low ones (Fischhoff et al.,
1977). Some explorers nd it hard to assign probabilities of 1.0 or 0.05 to
individual risk factors, even when favorable or unfavorable evidence for
that factor is abundant and convincing.
Endowment effect is the tendency of people to value the asset more
when they own it than when they do not (Thaler, 1980). Explorers
may assign higher geological PoS to segments in the license blocks
which the company owns and on which they worked for a long
time than to similar segments offered to the company as a farm-in
opportunity.
Expectation bias is the tendency for people to believe data that agree
with their expectations of the outcome and to discard or downgrade the
data that appear in conict with those expectations (Jeng, 2006). For
example, an explorer evaluates a segment in a promising frontier play
that his/her company wants to access. Because other companies appear
to be very successful in that play, the expectations are high. As a result,
the explorer is likely to assign higher probability to risk factors for
segments in that play, even if the evidence for the specic segment is
rather discouraging.
Optimism bias is the tendency to overestimate favorable or pleasing
outcomes (Baron, 2007). Inspired (and misled) by the Prospector
Myth, most explorers are inherently overoptimistic about their
segments, prospects, plays and basins (Rose and Citron, 2000). This
optimism is delusional: the majority of exploration wells fail
(WoodMackenzie, 2012). Just like other humans (Lovallo and
Kahneman, 2003), explorers may misperceive the causes of certain
events (e.g., take credit for discoveries and attribute well failures to external factors) and discount the role of chance and luck. Interestingly,
explorers may also display a pessimism bias when they exaggerate the
likelihood of negative outcomes (Alexander and Lohr, 1998; Johns
et al., 1998).
Overcondence effect is a bias in which person's subjective condence in his judgment is excessive (Hoffrage, 2004). Professionals may
be overcondent because they do not recognize the limits of their
professional skills (Kahneman, 2011). Overcondence effects are documented for explorers assessing the uncertainty of reservoir parameters
and prospective resources (Rose, 2001a). In geological risk assessment,
the overcondence may arise from the quality and coherence of the
subsurface story that an explorer creates the story explaining how
and why an evaluated segment may contain petroleum. When people
construct a simple and coherent story, they will feel condent regardless of how well or poorly grounded it is in reality and can lose the
ability to think about the evidence critically (Kahneman, 2011; Silver,
2012). Overcondence often results from the fact that professionals do
not truly have accountability and do not suffer themselves from their
predictions. The Romans forced the engineers to spend time under the
bridges that they built (Taleb, 2012). In contrast, modern explorers,
especially those working for large companies, are not risking their
well-being when making predictions of geological PoS and prospective
resources. Most explorers would benet from humility concerning the
limitations of their expertise and knowledge and from some forced
accountability.
Base rate neglect is the tendency of people to overvalue new or
specic information at the expense of the base rate (general statistical)
data (Baron, 2007). Inuenced by that bias, explorers may maintain an
inventory of newly identied segments with average total PoS signicantly exceeding the historical drilling success rate in the play.
Sunk cost fallacy is committed when we let unrecoverable costs inuence our current decision-making (Arkes and Ayton, 1999). Explorers
may assign higher PoS to the segments and prospects on which they
spent signicant amount of effort and money, for example, just acquired
an expensive and logistically challenging 3D seismic survey. They may
461
think that all that time and work and money will have been for nothing
and assign to their prospect a PoS higher than is justied by the data and
models. The prior investment becomes a reason to carry on with the
evaluation and drilling, even if they are assessing a poor prospect. The
sunk cost fallacy often operates alongside with effort justication a
special case of cognitive dissonance, in which humans overvalue the
results of tasks, in which they put a lot of energy (Dobelli, 2013).
The affect heuristic is the tendency to make poor decisions and ignore
odds in favor of the gut feeling (Finucane et al., 2000) When faced with a
new venture opportunity, most explorers would do a loose screening
assessment and develop undocumented assessment of segment attractiveness frequently called a gut feel (Goldstein, 1994). Explorers quite
quickly like or do not like the evaluated segment, and then it may take a
signicant amount of data and evidence to change their rst impression.
Moreover, when explorers sense a segment as good, they commonly
tend to downplay the evidence suggesting that it is risky as well as
exaggerate its prospective resources.
Anchoring bias is the tendency of people to base estimates on any
value they have at hand (Tversky and Kahneman, 1974). Most explorers
are aware that the current industry-average geological success rate of
exploration drilling in the world is around 35% (e.g. WoodMackenzie,
2012). Therefore, many of them think that the average prospect should
have a total PoS of around 0.35 and push their estimation towards that
value (this also may be a result of probability matching heuristic,
Baddeley et al., 2004). There is, however, a fallacy in this logic: 35% is
the average success rate for a very large number of wells drilled by
many companies around the world, and PoS of an individual segment
has nothing to do with that number. Many explorers feel good and
safe when they produce a total geological PoS for their prospect of
around 0.35 that feeling comes from the realization that they are
likely to be right if a large number of their wells is drilled. However,
they are actually not helping the manager, who needs to distinguish
the good prospects from the bad ones to enable the drilling decisions
and a sequential drilling program and would clearly prefer a prospect
inventory with high and low PoS values rather than the inventory
where all prospects have PoS around 0.35.
Motivational bias is the conscious tendency of people to overestimate
the probability of the events with a positive return to self, and underestimate the probability of events with a negative return (Merckhofer,
1987). People with motivational bias have a vested interest in a particular outcome of the decision. Individual explorers and their managers
may desire to drill a particular exploration well for curiosity reasons,
to prove a point, keep their jobs/assignments, build an empire etc.
and may falsify their assessment of the PoS (and prospective volumes),
purposely giving the prospect a better chance to be drilled (Grayson,
1960). After all, they spend signicant amount of time and effort evaluating the prospect, fell in love with it and are genuinely interested in
testing their models and predictions. When explorers are interested in
seeing their prospect drilled, they can back-calculate the geological
PoS and the distribution of perspective resources necessary to justify
the project. However, they forget that explorers' job is not to drill
wells, and not even to nd oil and gas, but to discover economic petroleum accumulations and add value to the company (John, 1992; Rose,
2001a). Company politics often enhance the motivational bias. Every
company has a limited amount of money to drill exploration wells. If
the company has a policy or history of drilling prospects with total
PoS not lower than 0.25, then explorers would be motivated to make
sure that their prospect meets that hurdle. If the company allocates
the drilling budget to different exploration teams based on PoS of
their prospects (or EMV, which is calculated using such PoS), then the
teams will be motivated to come up with a PoS as high as they can get
away with. Explorers use their presentation skills, charisma and connections to sell the prospect. Citron and McMaster (2006) stated that
salesmanship plays a major role in the approval process. As a result,
exploration companies may have biased portfolios in which similar
prospects receive very different valuations, which leads to exploration
462
In such environments, the situations can be recognized and remembered, and the moves that people make result in a quick feedback
that can be assessed. Driving around a curve and playing chess are
examples of high-validity environments. There are also zerovalidity environments, where the potential number of situations is
innite, for which we cannot calculate the probability, and the
outcomes of which we simply do not know. Examples are longterm forecasts of stock prices and political events. The low-validity
environments are somewhere in between. They are characterized by
a signicant degree of uncertainty and unpredictability. Predicting the
winners of a football game and long-term forecasts of weather and
earthquakes are the examples of low-validity environments. In my opinion, predicting success of an exploration well often belongs to this
category.
Kahneman (2011) showed that in low validity environments, people
almost always make better decisions by following a simple algorithm
rather than by using their own judgment. So, what are the problems
with experts? Expertise is a collection of skills, and many professionals may be experts in some tasks in their domain while remaining novices in the others. When faced with a problem, experts often
suffer from de'formation professionnelle and try to solve it with the
tools and methods normally used in their area of expertise
(Dobelli, 2013). Many experts try to be clever and comprehend in
their minds complex combinations of data and interpretations,
which does not work properly in low-validity environments. As experts acquire more knowledge, they tend to develop an illusion of
their skills and become overcondent. They also suffer from the expert motivational bias (Merckhofer, 1987), which occurs when a
person learns that he/she has been designated as expert and decides
that, as an expert, has to appear knowledgeable, be certain and bold in
his/her judgments and cannot admit that he/she just does not know.
463
Table 3
Some biases, heuristics and logical fallacies and brief examples of how they may affect individuals and groups assessing geological PoS. See text for the denition of these biases, heuristics
and fallacies, additional examples and references.
Bias/heuristic/fallacy Brief example relevant to the assessment of geological PoS
Individual assessment of the PoS
Affect heuristic
Explorer may explain the low geological PoS by his/her gut feelings rather than by justifying his/her conclusions with data and models.
Anchoring bias
Explorer may assign the total PoS to the segment in a similar way as for the other segments in the play without fully considering what may be different
about this specic segment that he/she currently evaluates.
Availability bias
Explorer with background in sedimentology/stratigraphy may see lower probability for reservoir being present than for migration because he/she can
think of many reasons for reservoir absence but is less experienced with the evaluation of petroleum migration.
Base rate neglect
Explorer may assign probability of effective seal being present in the evaluated segment to 1.0, even though half of the segments in the play failed due to
the absent seal.
Conrmation bias
Explorer may look for evidence supporting his/her assessment of high probability of structure being present and does not look for or downplays the
evidence that structure may be absent.
Conservatism
Explorer may not wish to assign the probability of 1.0 to the source rock presence even though the evaluated segment is surrounded by discoveries and
wells in segment's fetch area have petroleum shows.
Endowment effect
Explorer may assign higher PoS to segments in his/her asset than to similar segments in a different asset.
Expectation bias
Explorer may assign higher PoS to segments in a newly discovered hot frontier play, even though the play is still poorly understood and the well data
are limited.
Motivational bias
Explorer may consciously assign higher PoS to the segment and makes it look economic so he/she can keep working on this project rather than move to
another, less desirable ofce location if this project is stopped.
Optimism bias
Explorer may be too optimistic about the PoS for the segment in spite of data and models suggesting that the assigned PoS is too high.
Overcondence
Explorer may assign a higher probability to reservoir presence after he/she creates a possible depositional model for reservoirs in the segment, but does
effect
not check it against analogues and all the dry wells in the play.
Primacy effect
Explorer may assign a higher probability to all risk elements when he/she sees a prominent DHI in the evaluated segment.
Recency bias
Explorer may assign a lower probability to the presence of structure because his/her most recent well failed due to lack of structure.
Sunk cost fallacy
Explorer may assign high total PoS to segments located on the blocks for which the exploration company paid a very large signing bonuse.
Group assessment of the PoS
Ad hominem fallacy When assessing the PoS, the group members may pay less attention to the arguments of a person from a different cultural background than most
members of the group.
Anchoring bias
When one explorer rst announces that the probability of reservoir being present is 0.8, it may become difcult for the group to adjust that probability to
a signicantly lower value, even though there are good geological reasons for doing that.
Authority fallacy
When the CEO of the company think that the segment has a low risk, explorers may nd reasons to justify that opinion.
Herding effect
When the basin modeler thinks that the risk of migration is low, most other explorers may quickly agree with that view rather than discuss various data
and models on migration.
Halo effect
When the recently hired explorer previously worked at one of the most successful exploration companies, his/her opinion on the geological risk may be
trusted more than the opinion of the other explorers in the group.
Trust heuristic
When discussing the geological PoS for the segment, an exploration manager may put more weight on the PoS value suggested by the person with whom
he worked for the longest time on many other projects than on the opinion of the other explorers.
464
Table 4
Risk table for estimating probability of structure (closure, geometry, container) being present.
the estimation of geological chance scores using the risk tranches method
(Duff and Hall, 1996), and the CCOP Guidelines for Risk Assessment of
Petroleum Prospects (CCOP, 2000). Watson (1998) described an
algorithm used at BHP Petroleum (at least in the 1990s), but the exact
details were omitted from his paper.
In 2012, the author developed an algorithm for the estimation of
geological PoS for segments with prospective resources of conventional
oil and gas. The algorithm is realized in the form of risk lookup tables
(similar to the approach presented in CCOP, 2000). There are six
evaluated geological risk factors: presence of structure, reservoir facies,
reservoir deliverability, seal, mature source rocks, and migration.
Numerical values of probability for each of these risk factors can be obtained from Tables 49 using qualitative geological descriptions of the
specic segment. The total geological PoS for the segment is calculated
by multiplying probabilities for each of the six geological risk factors.
The risk tables abide by three main broad principles. First, tables are
based on existence/reliability of both data and models, and evidence
from both data and models. The data/model approach clearly separates
and combines what we know (hard data) and what we model (how we
envisage things may work). Positive, negative and neutral evidence for
each risk factor are considered. Data-based evidence is derived from
outcrops, wells and remote (mostly geophysical) data. Model-based
evidence is derived from structural interpretations, maps of gross
depositional environment (GDE), source rock maturity maps and
other relevant subsurface models. The probability of each risk factor is
465
Table 5
Risk table for estimating probability of reservoir facies being present. Acronyms used in the table: GDE gross depositional environment, AVO amplitude versus offset, DHI direct
hydrocarbon indicator.
maximum (as high as 1.0) when both data and model are available and
point to positive evidence for that factor and is minimum (as low as
0.05) when both data and model are available and point to negative evidence for that factor. The risk tables also assign probabilities for
conicting information (e.g., when data evidence disagrees with model
evidence). The approach of combining evidence from both data and
models is similar to the one advocated by Otis and Schneidermann
(1997) and Fugelli and Olsen (2005).
The second principle follows Albert Einstein's suggestions to make
things as simple as possible, but not simpler. The subsurface conditions
are extremely complex and all exploration segments are different.
When explorers evaluate a subsurface segment, they build a model
(numerical, conceptual drawing, mental) of why and how that segment
may contain recoverable petroleum. When building the model,
explorers use incomplete and possibly inconsistent geological datasets
limited in space and resolution. Such model carries both the interpretational uncertainty (Rankey and Mitchell, 2003; Bowden, 2004; Polson
and Curtis, 2010) and the conceptual uncertainty (Bond et al., 2007,
2012). By denition, a model is an imitation of reality, a simplication,
an abstraction, a selection inevitably incomplete, incorrect wrong
(Sterman, 2002), and certain details may have been excluded. However,
such simplication is not necessarily a bad thing decision makers
apparently do not improve the quality of their decisions simply because
the amount of information is increased (Bratvold and Begg, 2008). As
Nassim Taleb (2012, p. 210) noted, people with too much smoke and
complicated tricks and methods in their brains start missing elementary, very elementary things. The risk tables are designed to include the
most basic, fundamental, relevant and important information about
each geological risk factor while avoiding endless real and perceived
complexities which would make the tables too complicated and frightening for implementation in an exploration company. Still, the risk
tables are designed to be sufciently comprehensive because, to truly
serve their purpose, they must represent an epistemic base (Mokyr,
2002), the repository of knowledge and geological heuristics that
embeds time-tested and up-to-date practical (trials and errors of exploration companies) and theoretical (academic and industry research)
ndings about the factors that control petroleum accumulations and
evidence that points to the existence of petroleum accumulations.
The third principle is that the tables should be applicable to segments in various geological settings and in plays with different levels
of subsurface understanding (from frontier to near-eld exploration,
from company heartlands to new ventures and farm-ins), and accommodate varying availability of data and models. In this way geological
PoS values can be used for ranking exploration segments based on
risked prospective resources and EMV within the entire exploration
company.
A recent global industry study showed that 10% of exploration wells
fail due to lack of structure, 15% due to lack of reservoir or its poor
effectiveness, 30% due to lack of charge, and 45% due to absent or poor
top or/and lateral seal (Laver et al., 2012). The relatively low proportion
466
Table 6
Risk tables for estimating probability of reservoir deliverability (RD) for (A) clastic reservoirs and (B) carbonate reservoirs.
467
Table 6 (continued)
distribution of data with respect to the evaluated segment. The important factors to consider are distance to the nearest wells with data and
indications for potential changes in seismic facies towards the mapped
segment. Probability of reservoir facies presence also depends on the
geological model developed for reservoir facies. The risk table reects
that reservoir presence is more difcult to predict in some depositional
environments (e.g., fractured basement) versus others (e.g., shallow marine blanket deposits) (CCOP, Coordinating Committee for Offshore
Prospecting in Asia, 2000).
5.2.3. Risk table for probability of reservoir deliverability
Explorers need to nd not only reservoir facies but a reservoir which
freely ows hydrocarbons into the well, i.e. a reservoir that has high
enough permeability/porosity and contains petroleum with low enough
viscosity to ensure uid mobility. The objective is therefore to estimate
the probability of reservoir deliverability (quality, effectiveness).
Explorers should evaluate all relevant wells in the play for reservoir
presence, facies, depth, porosity, permeability, hydrocarbon saturation,
ow rates as well as establish relationships between these parameters.
The data evaluation should answer the question if the wells adjacent
to the evaluated segment have reservoir deliverability data and if the
reservoir deliverability is good or poor. Good reservoir deliverability
means that the reservoir is sufciently porous and permeable to ow
the contained uids of given viscosity without the need of additional
stimulation. Poor reservoir deliverability means that the reservoir
468
Table 7
Risk table for estimating probability of seal being present. Acronyms used in the table: SSF shale smear factor, SGR shale gauge ratio (see text for details and references).
(2005) and Nadeau and Steen (2007), who demonstrated that the majority of oil and gas accumulations occur in the temperature interval
60120 C (so called Golden Zone). However, probability values can
be signicantly more polarized when reservoir deliverability is assessed
using integrated datasets and numerical modeling with specialized
modeling software such as Touchstone (Tobin et al., 2010).
5.2.4. Risk table for probability of seal
The objective is to estimate the probability that the mapped segment trap has efcient sealing units. To estimate the probability
of seal presence, explorers need to evaluate the permeability of geosurface(s) enclosing and limiting the reservoir volume, i.e., depositional
surfaces, tectonic surfaces, and surfaces related to facies changes
(Smith, 1966; Milton and Bertram, 1992; Harper and Lundin, 1997).
Sealing effectiveness depends on the nature of these surfaces and the
sealing lithology. The top, bottom and lateral seals should be considered
equally important.
Explorers should start evaluation with the analysis of well and
seismic data that prove the presence of the top seal in the play.
Sealing effectiveness increases from thin to brittle shales, to salt
and anhydrite lithologies (Table 7). Then, all traps may be broken
down into two main groups based on the trapping mechanism
(Milton and Bertram, 1992; CCOP, 2000). The rst group includes
one-seal traps with a simple sealing mechanism. These are traps
dened by a sealing top surface with a 4-way closure, such as anticlines, sedimentary build-ups (submarine fans, reefs, barrier
banks, etc.), and structures where the fault plane is part of the
sealing top surface (e.g., horst blocks). The second group includes
poly-seal traps, i.e., traps that require either lateral and/or bottom
seal mechanisms in addition to the top seal in order to seal petroleum. The risk increases as the number of required seals increases
and as the sealing surfaces become more heterogeneous (onlaps,
subcrops).
Frseth et al. (2007) presented the scheme for risking fault seals,
which is incorporated into the seal risk table (Table 7). In that scheme,
the probability of the seal presence is highest for the juxtaposition seal
(faults juxtapose reservoir sandstone against an impermeable lithology
across a single slip surface). The probability is lower for clay-shale smear
(fault rock is a smear from a thick clay-shale source layer), situations
when petroleum leak windows caused by sandsand juxtaposition are
possible, and when there are more than one fault planes. The lowest
probability of seal presence is assigned to situations where clean reservoir sandstone is self-juxtaposed across a single slip zone at relatively
shallow (b2500 m) burial depth. Numerical values for shale gauge
ratio (SGR = (Shale bed thickness)/Fault throw) of Yielding et al.
(1997) and shale smear factor (SSF = Fault throw / Shale layer thickness) of Lindsay et al. (1993) also can be used as an input for estimation
of the probability of seal presence. Juxtaposition and seal diagrams
469
Table 8
Risk table for estimating probability of source rock (SR) presence and maturity. Acronyms used in the table: GDE gross depositional environment, DHI direct hydrocarbon indicator.
See Peters (1986) for discussion of source rock types I, II, and III and Pepper and Corvi (1995) for discussion of source rock classes (organofacies) A, B, C, D/E, and F.
(Allan, 1989; Knipe, 1997) provide additional means for the evaluation
of fault seal risks.
5.2.5. Risk table for probability of source rock presence and maturity
The objective is to estimate the probability of mature source rock(s) of
required quality being present in the fetch area of the mapped structure.
The source rock type and maturity should support the petroleum phase
(oil, gas, oil leg with a gas cap) used in the segment volumetric model.
The presence of effective source rock is rst assessed based on the analysis
of available regional data in the basin such as discoveries, seeps, shows,
outcrops and oil/source rock correlations (Table 8). Valid DHIs
(Rudolph, 2001; Forrest, 2010) increase the probability of mature source
rock presence. In the absence of the direct data, a GDE map describing the
depositional environment of the source rock is necessary in order to predict its lateral extent, thickness, possible organic facies changes and the
quality (kerogen type, total organic carbon (TOC), hydrogen index (HI)).
In establishing the regionally present and mature source rock(s), it is
necessary to model the maturity of the fetch (drainage) area for the evaluated segment. Simplied conceptual models can be used to infer source
rock maturity using source rock organofacies (Pepper and Corvi, 1995)
and inferred temperature history. However, comprehensive numerical
modeling of the maturity using industry standard software (Zetaware,
Petromod, Temis etc.) will help to fully polarize the maturity risk
(Table 8).
470
Table 9
Risk table for estimating probability of migration from mature kitchen. Acronym used in the table: DHI direct hydrocarbon indicator.
471
Fig. 5. Conceptual petroleum migration model illustrating migration losses in the mudstones between the mature source rock and the rst regional carrier bed and in the micro-to-small
accumulations and pores of the carrier bed. There are no vertical and horizontal scales in this gure, but it is apparent that longer vertical migration in the mudstones and longer lateral
migration within the carrier bed reduce the probability (increase the risk) of petroleum migration into the segment.
via a series of pulses in the form of stringers (Berg, 1975) along focused
and restricted pathways dened by the balance between driving (buoyancy) and dissipative (capillary) forces (Carruthers, 2003). Migration
continues when all petroleum stringers are interconnected, for which
a continuous supply of petroleum is required (England et al., 1987;
Catalan et al., 1992). When no further petroleum is supplied into the migration pathways, migration ceases and some petroleum is left in the
pore space. The above principles are well-established for secondary migration within sandstone/siltstone carrier beds, both theoretically and
in laboratory experiments (see review in Carruthers, 2003). However,
the same principles should apply to secondary migration within the
mudstones. Moreover, migration losses in the mudstones may be significantly larger than in sandstone/siltstone carrier beds because of higher
capillary entry pressure and larger number of migration dead-ends than
in sandstones/siltstones. The envisioned process of migration from the
source rock through mudstones is depicted in Fig. 5. The amount of petroleum that can migrate from the source rock into the rst carrier bed
depends therefore on the amount of expelled petroleum and migration
losses. The source rock may be so lean or have such a low maturity that
all petroleum expelled will be lost within the rst several hundred meters above the source rock. For a given amount of expelled petroleum,
mudstone characteristics dene the migration losses (Mackenzie and
Quigley, 1988) and how far petroleum may migrate. These characteristics include volume of the mudstone rock through which petroleum migrates, porosity, residual saturation, critical threshold pressure
controlling the column height of stringers and migration (Carruthers,
2003). Migration losses during vertical migration in mudstones may
be signicant over a relatively short migration distance. Even for a
world-class mature source rock, more than 50% of expelled petroleum
can be lost in the rst kilometer of mudstones above the source rock
where numerous migration pathways originating in the source rock coalesce with each other in a dense network of interconnected petroleumlled pores. As the thickness and volume of mudstones increase, migration occurs only along selective focused pathways (Fig. 5), migration
losses increase and the amount of petroleum that can reach the sandstone/siltstone carrier beds decreases. Slujik and Nederlof (1984) studied a worldwide dataset and found that ~97% of petroleum pools have
vertical migration distance less than 3 km and ~70% less than 1 km. Vertical migration distance from source rocks through the mudstones to
the rst carrier bed is one of the easiest parameters to estimate, and it
is incorporated into the risk table for migration (Table 9).
472
Some explorers may have an attitude that the risk tables are
mechanical and rigid, painstaking and not much fun. The hero explorer
(wildcatter, oil-nder, visionary) from the Prospector Myth (Rose and
Citron, 2000) does not use procedures and protocols he/she dares, innovates, improvises, struggles and nally succeeds. Many professionals
are extremely proud of their skills, resist the demystication of expertise (Kahneman, 2011) and may be offended by the notion that they
can be replaced by an algorithm. However, the risk tables are not
intended to replace expertise with an algorithm, but rather to provide
a logical and systematic approach to risking. Detailed and focused subsurface mapping and sequence interpretations, innovative play and segment concepts, careful validation of DHIs, sophisticated basin models
etc. depend on the knowledge, experience, expertise, talent and genius
of explorers. These are inputs for the risk tables the probability assessment cannot be done till the relevant subsurface data are collected
and interpreted and models are built, calibrated and interrogated. And
that is where explorers should have creative freedom and be daring,
innovative, optimistic, enthusiastic and visionary but not in the
obtaining probability values, which is better left to the algorithm in
risk tables. The key to long-term exploration success is to develop and
harvest the exploration genius of individuals and teams while adhering
to a systematic and disciplined process of geological PoS assessment,
volumetric assessment and portfolio management.
When using the risk tables, the most important practical problem
the explorers face is obtaining input data. If the risk tables do not
work, i.e. if they fail to discriminate the low-risk segments from the
high-risk segments, it is not the fault of the approach, but the fault
of the inputs. The garbage in, garbage out principle still applies.
Explorers may misinterpret the data, fail to recognize the available
clues, bias their judgment of the geological situation. They may exclude
important stakeholders (other explorers experienced in the play or
specialists) in the preparation of the inputs and as a result fail to compile
the comprehensive dataset and fail to build the best possible model
accounting for all data and uncertainties. Peer-assists and formal exploration technical reviews serve to assure that does not happen in the
company.
Some explorers may feel that the risk tables are restrictive and do
not allow description of all nuances of the local geology. They are correct. Subsurface is extremely complex, each segment is unique, and no
algorithm is going to fully describe subsurface variability. Risk tables
capture only the most elementary and fundamental principles of our
current understanding of how petroleum pools form. They are designed
to not be perfect, but rather to provide fast and frugal (Gigerenzer and
Todd, 1999) geological heuristics that enable explorers to make good
geological PoS assessments despite limited knowledge, time, data etc.
As such, the risk tables should be used as guidelines for risk assessment,
not as a bible. If explorers justify with data and models that the segment
has a probability value somewhere between two cells in the risk tables,
they should use such intermediate probability value. If there are good
arguments that certain enquiries are not applicable to the basin of
interest, then the enquiries should be modied. The key is to discuss,
justify, agree with the review team and document the thinking behind
proposed deviations from the risk tables. Still, the initial experience in
Sasol showed that geological PoS for most segments from a variety of
conventional oil and gas plays can be readily estimated using the
current version of the risk tables. Obviously, all attempts by explorers
to change the numbers just because they have a good feel about a
certain segment but cannot place that feel within the evaluation
framework set by the tables must be rmly stopped.
The risk tables incorporate the current understanding of most fundamental and accepted principles of how petroleum accumulations form.
They help explorers to get the basics right, which is absolutely central
to great exploration performance. The amount and complexity of
multidisciplinary data that an explorer needs to gather and integrate
to thoroughly evaluate a segment is enormous. It is very easy to get
lost in the complexity and uncertainty of data and interpretations,
473
Fig. 6. Comparison of total geological PoS values estimated using industry traditional
assessment approaches and using the risk tables.
The risk tables can help to nd a common ground in the PoS assessment, and turn the discussion from opinions and emotions back to
geology.
7. Validation of risk tables
The best measures of the success of the risking scheme are that
1) success of the drilling program corresponds to the average PoS
values for the evaluated segments/prospects (Alexander and Lohr,
1998); and
2) segments/prospects with low PoS mostly turn out to be dry and
segments/prospects with high PoS mostly turn out to be discoveries
(McMaster, 1997), over a sufciently large drilling program (30+
wells).
At the time of writing the risk tables have not been tested and tried
extensively enough to demonstrate that the long-term exploration
performance is in line with the predicted performance. Instead, Fig. 6
shows the comparison of the total geological PoS values for 57 oil and
gas segments, estimated independently by the author using the risk tables and by ve other companies. These companies used their internal
risk assessment methodologies, details of which are not known to the
author. The segments were located in six different emerging and mature
offshore basins with proven petroleum systems along the passive margins of Africa and Australia. This comparison suggests that geological
PoS values estimated using the risk tables are broadly similar to those
estimated using traditional industry methods. It is not known from
this comparison if geological PoS values from risk tables are better
than those from traditional methods, but they are all internally consistent, which is one of the main objectives of the PoS assessment. It is
quite possible that the proposed algorithm would not deliver the predicted average success rate for many wells. Experience gathered during
an extensive global drilling program can, however, be used to calibrate
and adjust the risk tables and improve their predictive ability.
8. Conclusions
Explorers evaluating a subsurface segment have a daunting task. The
object of their evaluation a pool of petroleum may not exist at all, or,
if it does exist, is uncertain. They use methods of geology, which is not
an exact, but an interpretive and historical science (Frodeman, 1995).
474
Fig. 7. Geological (A) and commercial (economic, B) success ratio as a function of the
number of drilled exploration and appraisal wells for top 34 oil and gas exploration
companies over the 10-year period (20022011). Companies drilling the largest number
of the wells approach industry-average success ratios.
The data are from WoodMackenzie (2012) (data for one company are excluded because of
unusually large number of drilled wells).
Explorers use subjective probabilities in the search for oil and gas, and
subconscious biases and heuristics play games with the minds of
explorers without them even noticing it. If all that was not enough,
business context creates various constraints (time, funds, availability
and quality of data and tools etc.) and stimulates conscious (motivational)
and group biases. It is no wonder that most exploration projects fail!
However, as an industry, we are doing better than ever: the exploration
technical success rate increased from around 20% in 1950s (Grayson,
1960) to around 35% at present (WoodMackenzie, 2012). Explorers
constantly enhance and expand their toolkit to nd oil and gas, applying
technologies mostly from physics, mathematics and chemistry. Further
improvements in exploration performance can be expected if we reduce
the psychological weaknesses and inadequacies that impact explorers'
assessment of geological risks.
Traditionally and commonly in industry, explorers estimate geological PoS using their expert opinions. However, most exploration is done
in hard-to-predict low-validity environments, where experts are prone
to overcondence and inconsistent judgments. Inconsistent assessment
of geological PoS within an exploration company leads to a biased
prospect inventory, sub-optimal drilling decisions and poor long-term
exploration performance. The limitations of the subjective probability
often go unrecognized by many who employ it and make decisions
based on its use (Megill, 1984). Algorithms are an alternative way to
subjective judgments, and their superiority in low-validity environments has been proven in many situations and industries (Gawande,
2011; Kahneman, 2011). Risk tables discussed in this paper represent
such an algorithm for estimation of geological PoS. They are designed
to cover the basic and most important data and models that explorers
should analyze to estimate the probability of six geological risk factors
(structure, reservoir facies presence, reservoir deliverability, seal,
mature source rocks and migration). The risk tables emphasize the
quality of the risk assessment process, make it more transparent and
more auditable. They force explorers to systematically collect and
evaluate data and models relevant to risk factors. Probability values
obtained from the risk tables are based on specic geological information and are precise (although the subjectivity still exists in how the
specic values are assigned to cells in risk tables). Segments with
varying subsurface knowledge from new ventures and frontier basins to
company heartlands and infrastructure-led projects can be evaluated
in a consistent manner. While leading to standardization, the risk tables
allow enough exibility in the PoS assessment. Most importantly,
the risk tables allow the exploration company to outmaneuver human
weaknesses of explorers. They remove psychology and inuence of personalities from the denition of probability values and restrict subjectivity
to the gathering and interpretation of data and to the construction,
calibration and analysis of subsurface models. The risk tables are thus
compatible with explorers' abilities to evaluate subsurface but counteract
their deciencies in expert probability judgment.
Implementation of the risk tables alone obviously is not going to propel the company into the position of industry-best explorer. There are
more ingredients in the success recipe. Exploration companies with
geological and commercial success ratios above industry average tend
to focus on a small number of the right plays (e.g. emerging oil plays
in Africa in 20002012, Petroleum Review, 2012). Exploration companies with success ratio below industry average tend to focus on a
small number of the wrong plays (e.g., mature gas plays in Australia
and South-East Asia in 20002012). Drilling a large number of wells
all around the world reduces company's chances to be very successful
or very unsuccessful. The more wells the company drills, the more likely
it is to achieve the industry average success ratio (Fig. 7). This fact is in
line with the law of small numbers and De Moivre's equation (Wainer,
2009), and conrms that luck plays an important role in exploration
(Mauboussin, 2012). However, explorers enable exploration success
by skillfully choosing the right plays and by steering the company
away from drilling poor prospects. Risk tables should be used close to
the end of an exploration process (Fig. 1) and they can help explorers
to put high PoS values on the really good segments and low PoS values
on the poor ones. They dramatically improve the consistency of PoS
assessment within an exploration company and enable managers to
make the best possible investment decisions within the prospect inventory the company has at any given moment. Furthermore, the risk tables
help to identify the biases or gaps in the exploration portfolio and direct
the new venture work to ll such gaps.
Acknowledgments
I acknowledge all Sasol (D. Garrad, J. Kusiak, R. Paterson) and industry
(A. Lewis, N. Tkacheva, J. Moffatt, M. Scherer) colleagues who provided
ideas and feedback for this article through many stimulating discussions.
I would like to thank the reviewers (Dr. Steve Bergman, Dr. Andrew Curtis
and Dr. Martin Cassidy) for their valuable suggestions. I am thankful to
Sasol for the permission to publish.
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