Prospects

While all of the parameters mentioned above must be met before drilling for hydrocarbons can begin, a key element that had to be determined before leases and permits were obtained is to decide WHERE to drill. Anyone can drill an oil well anywhere given enough money, but the primary purpose is to locate hydrocarbons. Thus finding the right location, one where there is a propensity of information supporting the idea that oil exists beneath it, is of paramount importance.

Oil sites have been sought using a variety of different techniques. For example, in the early days oil was found by wandering about the countryside with an open flame, a little optimism, and a lot of adventure. Others have used an exploration philosophies ranging from drilling old Indian graves to putting on an old hat and galloping about the prairie until the hat comes off and drill where it lands. One of the earliest exploration tools was referred to as Creekology. Early drillers recognized a connection between river bottoms and the occurrence of hydrocarbons, but didn't understand why. It wasn't until later that the anticlinal theory was developed which explained the phenomenon.

This random approach to hydrocarbon exploration has resulted in locating oil, but more often than not, the culmination has been a dry hole. The application of geology to hydrocarbon exploration is a recent development, and even now there are those that question the need (Harbaugh et al. 1977). But costs and required capital to fund a drilling program and the return expected by investors on their investment have hastened the utilization of the scientific approach to exploration.

Evaluating a prospect (a location where a well could be located to discover hydrocarbons in commercial quantities) relies upon the answers to two questions: What is the likelihood of finding hydrocarbons at this site and are the economics such that it will create a sufficient profit margin to justify the expense of drilling? Geology is used to help answer the first question while economic projections and market analyses help answer the second. Even though geological methods are utilized in the hunt for hydrocarbons, it doesn't always provide all of the answers to all of the questions. For example, the probability of a well finding commercial quantities of hydrocarbons is between 1 (oil and gas are certain to be present as in the case of drilling in an existing oil and gas field) and 0 (oil or gas are certain to be absent). While the scientific method is a valid approach, the results are only as good as the information that was used.

Review:

QUESTION: What are the 4 critical elements needed for a commercial hydrocarbon field to occur?
ANSWER: Source Rock, Reservoir Rock, Trap (including Cap Rock), Sufficient heat to generate hydrocarbons, but not destroy them.

And the same holds for the economic analysis. World demand for oil and gas is in a constant state of flux. Political stability (the Gulf War), weather (cold winters in the northeastern United States), consumer demands (increased travel during holiday periods), and supply (artificial controls such as Organization of Petroleum Exporting Countries [OPEC]) control prices. The object of an oil company is to return a profit to it's shareholders. Therefore the financial risk versus potential profitability must be established and this requires the probability of geological success (discussed earlier) and three commercial parameters:

Potential profitability of venture,
Available risk to investment funds, and
Aversion to risk. The interplay of all three criteria produce a subjective evaluation of the economics of the prospect.

But one other aspect of the prospect is also important and that is whether the well in question will be drilled in an existing field (where producing wells currently exist) or is a new prospect (an area where no oil or gas wells exist) . This is where the concepts of reserves and resources is important. Resources are industrially useful natural materials (water, aggregate, minerals) which includes hydrocarbons. Resources can be defined by two criteria: economic feasibility of extraction and geological knowledge. Reserves are resources that can be economically extracted from the resource base. So as the price of a barrel of oil fluctuates, oil in a marginally commercial field may be a reserve one day and a resource the next. Similarly, as technology improves, some resources become reserves.

The tricky part in all of this is assessing the total recoverable reserves possible in a basin and the economic worth of those reserves. One method developed in Louisiana is to divide reserves into three categories: speculative, possible, and probable. But whatever method used, it is difficult to arrive at an estimate because of the great number of variables. So defining the prospect is a difficult and an inexact science.

So how are prospects determined? Where does one start? We mentioned earlier that a prospect required economic as well as geological inputs. We briefly discussed the economic issues, but what about the geologic issues. The primary question to resolve when defining a prospect is: What is the likelihood of finding hydrocarbons at this site? Exploration techniques utilizing geological methods are the primary means used to locate prospects.

REFERENCES

HARBAUSG, J. W., J. H. DOVETON, and J. C. DAVIS, 1977, Probability Methods in Oil Exploration: London, Wiley, 269 pp.

BERGER, W. D. AND K. E. ANDERSON, 1992, Modern Petroleum - A Basic Primer of the Industry: Penn Well Publ. Co., 3rd Ed., 517 pp.

EXXON CORPORATION, 1982, A Guide To Petroleum Exploration and Production: The Upstream Magazine, Dec 1982, New York, NY, 29 pp.

____________, 1993, Understanding Petroleum Exploration and Production: National Energy Foundation, 5160 Wiley Post Way, Suite 200, Salt Lake City, UT., 11 pp.

____________, 1983, Basic Oil Information: Organization of Petroleum Exporting Countries, Obere Donaustrasse 93, A-1020, Vienna, Austria, 41 pp.

____________, 1988, Oil: Shell Corporation, Houston, TX., 47 pp.