Powerpoint used for IPAA event in Houston 2011

1. PetroChallenge IPAA 2011

2. Purpose You are an exploration team in charge of a new petroleum province. Multidisciplinary challenge: Enhance your overall understanding of petroleum exploration and field development. Create a Return on Investment

4. You will learn Where and how to find hydrocarbons Licensing rounds Farm-in and Partnerships - negotiations Drilling rigs Sub-contractors Environmental issues Economically viable volumes Team work, Critical decision making, analytical skills Multi-tasking

5. Oil and Gas Value Chain Gas Oil

6. Login www.oilsim.com

7. Login www.oilsim.com

8. Main screen

9. Map Columns e.g C1 to C112 Rows e.g. R1 to R144 Block Blocks are dividedinto 64 smaller cells e g. R52C110

10. First task Challenge: Find three sedimentary basins Procedure: Buy and study magnetic and gravimetric surveys Submit the coordinates for each centre Column and row number for each basin centre

13. Magnetic surveys Magnetic surveys show anomalies in in the expected magnetic field of the Earth in particular areas. Sedimentary rocks in the basins have a lower concentration of magnetic materials and lower magnetic field than the surrounding crystalline rocks.

14. Survey in OilSim Magnetic survey:North-west quadrant

15. Survey in OilSim All four quadrant surveys in map context

16. Finding the Midpoint

17. Survey analysis Locate edges of the continous basin structure Locate the diagonals and thus basin centre

18. Centre may not be the same Example: Top basin on both maps Calculate the midpoint between the gravimetric and magnetic centres found = C55 and R105 C50 R100 C60 R110

19. Centre Midpoint calculation 3 centres – one Centre midpoint for each basin Example: C55, R105 Solve before deadline. All submissions are evaluated after the deadline (and not before). You may get 0-100 CPs. All three centres must be located to get full credibility points.

20. Task 1 solved Message in Inbox: Shows results Answers submitted CPs awarded

21. Task 2 license round The government has decided to put the blocks in one of the basins on offer. Challenge: Identify the 3 most promising blocks and offer an amount for each of them. Licensing area

22. Task 2 license round Any restrictions involved?- Spawning grounds What are we looking for? - Prospects Where do we find prospects? In basins, where hydrocarbons have been 1) are produced and 2) trapped How do I find them? - Geoscientific analysis Common Risk Segment maps and 2D seismic

23. Source and migration 2. MIGRATION ROCK where hydrocarbons are driven through 3. CAP ROCK Impermeable rock that stops migration of hydrocarbons 1. SOURCE ROCK where organic material is put under sufficient pressure 4. PROSPECT

25. Environmentally Sensitive areas Red areas You will not be awarded blocks that contain any red spots (spawning grounds) Blue areas Blocks in area may be awarded

26. Common Risk Segment CRS. Common Risk Segment surveys tell you about the probability of a structure in the block/cell containing oil or gas Surface Layer 3 Eocene 1500m below the seabed Layer 2 Paleocene 2500m below the seabed Layer 1 Cretaceous 3500m below the seabed

27. 2D Seismic surveys Traps can be found with seismic surveys and sound waves bouncing off structures 2D seismic survey is a vertical cross section of the geological layers along either a column or a row

28. Real Seismic

29. OilSim of 2DSeismic Unprocessed Processed Red is top of the sealing rock Green is top of the reservoir rock Interpreted

31. Unprocessed or processed data

32. Interpreted or notOnly buy maximum of 1 block of data at a time to speed up processing

34. Created to order

36. Fault traps Leakage?

37. Leakage? Leakage?

38. Cross-sections Column Row Prospect, Reservoir Basin,Source

40. Three amounts

41. Min: $1M

42. Max: $30M

43. You will only getawarded one block – and only pay for one

44. Highest bid wins

46. Task 2 solved Message sent to all Results and CPs One license per team

47. Task 3 Exploration Drilling The headquarters of your company has evaluated the license that you were awarded. Although the possibility of finding oil is fair, the costs involved are large. Thus the headquarters want you to spread the risk. Challenge: You shall farm-out minimum 20% from your license – and farm-in as much as you can in other good licenses.

48. Task 3a Partnerships Acquire 3D Seismic interpretations for the block you operate, and study the results from the licensing round Farm-out: Get others to invest 20% or more in your license – you can send them surveys Farm-in: Send offers to other teams to buy shares in their viable licenses. Submit an offer for each viable license, with amount offered and share wanted in whole %.

49. Real 3D Seismic Shows the subsurface structure in a cube.

50. 3D Seismicin OilSim Prospects are no guarantee of oil or gas Layer 3 Eocene Layer 2 Paleocene Layer 1 Cretaceous

51. Partnerships Spread the risk: e.g Investing in other blocks divides the risks amongst all partners, much more preferable than keeping 100% of one field and all the risk. Increase probability of profit: investment in only 1 field which could be a dry prospect is possible, whereas the likelihood of investing in 5 fields which are all dry is unlikely.

52. Licences

54. Add a message to the seller

55. Press “Send offer”

57. Farm-in license OWNER decides whether to ACCEPT or REJECT the offer Partnerships established every time a license owner accepts an offer. Overview: On the main page, you can see all licenses. 1) licenses you operate, 2) licenses you have invested in, and other licenses.

58. Farm-in All your farm-in offers to other teams are shown under “Investing” on the right-hand side of the homepage . This is where a team offers investments to other teams for a % of their blocks

59. Partnerships Partners pay a proportional share of all future costs incurred by the partnership Partners receive a proportional share of the net proceedings from any oil or gas found on the license. The operator team makes all decisions regarding acquiring 3D seismics, drilling of wells and testing of wells. Information: partners in a block can access info about drilled wells and discovered oil and gas fields.

61. Choose Rig Choose the right rigs for your water depths Jack-up rigs for shallow waters Semi-submersible rigs for middle waters Drillships for the deepest waters Rig cost = drilling days * day rate

62. Rigs Few: limited number of rigs available. If you get one: start using it within 20 minutes. If you don’t: wait in a queue, if another team is using the rig. Price can change: rig day rates are dynamic.

63. Service Providers Upto 9 Star quality- Good: normally costs more Bad: cheaper, but reliability is low, so you risk extra drilling time and extra costs

64. Environmental Impact Assessment EIA survey: more credibility about the area. Less probability for drilling problems. Less severe consequences if you run into problems.

65. Drill Position EIA: enviromental impact analysis shows where not to drill. Place your mouse where to drill

66. Penalties & Fines Certain problems can occur if Service Provider Selection is poor quality Other penalties can occur if you drill in areas indicated as problematic in the Environmental Impact Assessment As in real life, problems can occur randomly and these are also applied with fines levied accordingly.

67. Drilling Position Layer 3 Eocene Layer 2 Paleocene Layer 1 Cretaceous

68. Drilling Days

69. Estimated cost

70. Drilling Result

71. Drilling Result Proven volume (MBOE) counts Test may increase proven volume Remember to tick the boxes!

72. Testing Only if you discover a field – find Oil or Gas You decide whether you want more information about that field More information by doing a production test (and other tests) Tests costs: Tests take 10 days per field. Tests have the same day-rate as the drilling if you use the same providers.

73. Value and ROI

74. Discovered prospects

75. Assumptions

76. Value calcuation 25% of 8 MBOE @ $50 12% $39.9M Expected costs if you developed thefield (capex) andproducedthe oil (opex) If total expenses arehigher than the salesvalue, the value of thelicense is zero

77. Appraisal From Probable volume to proven reserves

78. Narrowing ranges First well: 0 to 1572 MBOE (after drilling) 11 to 1266 MBOE (after testing) Second well: 25 to 1033 MBOE (after drilling) 34 to 910 MBOE (after testing) Only proven MBOE counts

79. Apply For More Funds Click on Apply for More Funds Tab. 1 CP for each $100,000 applied for. Answer the questions: All correct gives cash and you can keep CPs. One wrong gives cash and you keep ½ of your CPs. Two wrong gives ½ cash and you lose all CPs. All wrong, you get no cash and lose all CPs. Expensive money if less than 10 credibility points: Apply for cash and be fined $5million for each $20million requested.

80. Continue... Narrow uncertainty: Drill appraisal wells to get proven volumes Drill into other prospects to find more proven volumes. Farm-in and -out: Get into other good blocks. Two additional licensing rounds: Repeat the processes. Money: Apply for more money, if you run out of cash.