Robust Appraisal Planning – Link

Between Discovered Resource and

Field Development
Kolade Adeleye
June, 2016
NAPE TECHNICAL MEETING

© 2016 Chevron Corporation

 Outline

 Introduction

 Business case for an appraisal program

 Scope of an appraisal program (Methodology)

 Case study of Kappa Resource

 Common pitfalls in developing a robust appraisal program

 Lessons learned and best practices

 Acknowledgements
© 2016 Chevron Corporation 2
 Field Appraisal Program

 What field appraisal is NOT

 Drilling an additional well to meet up with regulatory
requirements
 Seeking to know the down-dip limit of the hydrocarbon
discovery
 Drilling to get additional data point
 Appraisal well is NOT drilled to add resources to an
already discovered volumes

© 2016 Chevron Corporation 3

 What Field Appraisal is

 What field appraisal is

 Understanding the resource and how viable it is for
development is the goal of the appraisal program.
 It is mostly a data gathering drive to help manage the
uncertainties associated with a new discovery.
 The end goal here is to support the field development
decisions.
 Appraising the field to know whether or not to proceed
with development.
 If we then decide to proceed, how do we develop?

© 2016 Chevron Corporation 4

 What Field Appraisal is

 What is an Appraisal Program?

 Appraisal program are activities that are carried out
after the discovery of oil and gas to assess the:
 Field extent
 Reserves,
 Producibility,
 Production rate
 Properties of the oil and gas
in order to support the field development decisions.

© 2016 Chevron Corporation 5

 Appraisal Phase – is the link between
Exploration and Development

Appraisal • FEED and FID

• Technical Maturation • Field Development Plan
• Prospect drilling • Characterize resource • Drill development wells
• Results (Discover • Surface Facilities
resource) • Define uncertainties • Production operations
• Resource Estimation • VOI Analysis • Abandonment
• Determine commerciality
• Acquire Data
• Development strategies
Exploration Development

© 2016 Chevron Corporation 6

 Approach to Appraisal
Expectation Curve (1-CDF)

90% Certainty
B OHIP > 601 BCF of gas
Static alternatives
A Low Case = A
C Base Case = B
High Case = B + C
(Connected scenario)
Exploration Opportunity = D
P10 P90

 When to appraise a resource

 Soon after a discovery of Oil and Gas has been made,
helping to understand commerciality
 The main driver of appraisal is so we have enough
D confidence to make the next investment decision.

 Resource deterministic case

 Identify the baseline – if this baseline is all we
have, can we still go ahead to develop?
Low High  Generate alternatives (geologic models) to drive
Pre appraisal uncertainty the appraisal program.
 Have a L-M-H cases for the alternatives
Post appraisal uncertainty  Appraisal increase the low case volumes and to
narrow the range of uncertainties

© 2016 Chevron Corporation 7

 Key Aspects of an Appraisal Program

The Resource Estimation Data Acquisition

• Reasonable base case estimate
• Identify what project opportunity • Data inventory
exists • Data needs
• Define static and dynamic • Data acquisition plan
scenarios • Analogs and studies
• Obtain L-M-H estimates
Uncertainty Management Plan Value of Information
• Uncertainties from the Discovery • Do nothing scenario
well • Imperfect information scenario
• Impact and Resolvability of the • Perfect Information scenario
uncertainty • Current and Future decision
• Categorize the uncertainties and data needs

© 2016 Chevron Corporation 8

 Uncertainty Management Plan

 An Issue-raising session involving a

multifunctional team to: Tornado Chart
 List the uncertainties
 Categorize the uncertainties – Static, Dynamic,
facilities and drilling
 Determine their impact on the current and future
decisions
 Design resolution strategies
 Plan for upside realization and downside
mitigation
 Identify and rank uncertainties with the most
impact based on their potential impact UMP spreadsheet
 Apart from being a communication tool, a
UMP is a great planning tool
 The UMP should drive the data acquisition
program

© 2016 Chevron Corporation 9

 Data Acquisition Program

Seismic
• Seismic analysis / re-interpretation
• New acquisition
• Re-processing

Well
• Well logs
• Coring and Core analysis
• Biostratigraphy

Engineering Information
• PVT data
• Permeability
• Pressure Data
• Well Tests
• Recovery information

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 Drilling Appraisal well(s)

 Number and sequence of appraisal wells

 Assess for when drilling more than one appraisal well will erode
value

 The location of the appraisal well(s)

 Move up resource from low uncertainty to highly certain
 To test down-dip hydrocarbon limit, Different stratigraphy
 Compartmentalization

 Data acquisition strategy:

 Allow each function to identify key uncertainties to be resolved.
involve engineering, petrophysics, geophysics, reservoir modelers
etc.
 This needs must agree with the UMP list
 Conduct a VOI assessment on the data list
 A data type needed by more than one function or can resolve more
than one key uncertainty takes priority.

 Consider planning the well as a keeper/expendable

 Appraisal well results - plan for upside realization
and downside mitigation

© 2016 Chevron Corporation 11

 Seismic Data in an Appraisal program
 Reinterpret the seismic data incorporating the well result
 Conduct a seismic analysis and possibly reprocess
 If the discoveries were made on 2D seismic, such will require a 3D Seismic acquisition for
appropriate characterization before development
 If a 3D seismic volume exist already, is it of good quality sufficient to define structure and
stratigraphy, image the key discontinuities, delineate boundaries and preserve amplitudes?
 Timing is critical. Seismic should be seen as a long lead item

Was the Quality

discovery Y good Y Reinterpret / Reprocess
Discovery made on
enough for seismic, incorporate
characteriz well results
3D? ation? VOI

N N

Reprocess or
Acquire 3D Acquire New
Seismic
VOI
VOI
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 Engineering Data and Uncertainties

Rock
(Whole/SWC) Fluid Pressure Rates
Dynamic Uncertainties
PVT
• Rock Mechanics • Water • PVT • Well Tests
• Special Core Samples • RFT/ MDT • DST Relative Permeability
Analysis (SCAL) • Oil Samples • MDT kv/kh
• PKS • PVT Pore Volume Compressibility
• Compressibility Aquifer Size
Aquifer PI
Trapped Gas Saturation
Mechanical Skin
© Chevron Corporation Condensate Banking
GOR / Yield
Viscosity
Formation Volume Factor
Fault Transmissibility
boundary identification
Bubble point
Drive Mechanism
Secondary recovery technique

© 2016 Chevron Corporation 13

 Value of Information (VOI)

Value of Imperfect Information (VoI) = (Asset Value with Information) – (Asset value without Information)

 We estimate what would be the project value if we develop the reference case
based on the available information.
 What is the uplift to the project if we acquire this data? - VOI
 When to stop appraisal (Up to a point where it begins to erode value rather
than create. Where the cost of the data acquisition is greater than the value to
be derived)
 ‘Do-nothing’ scenario reference case

© 2016 Chevron Corporation 14

 Case Study of Kappa Field

© 2016 Chevron Corporation 15

 Kappa-01 Resource Appraisal Program

 Structure is a 3-way NE-SW trending closure against a normal fault

 Resource is ~200MMBOE spread among 5 Main hydrocarbon intervals

 Appraisal well will seek to move/prove up current Pmean volumes estimates to P10

 Appraisal program has been designed to address key uncertainties – Reservoi

quality and connectivity, EOD, Fluid contact and well deliverability

 Well to also provide additional calibration point for seismic amplitude

 Acquire conventional core

 Economics supported drilling an appraisal well

© 2016 Chevron Corporation 16

 Kappa Appraisal – Strategy Table

Focus Decisions ----->>>

Perform
Wireline program Well Need for well Number of
Well type coring
types Utility test (DST) Appraisal Wells
operations

Deviated Basic Logging Yes Keeper Yes 1

Vertical Advanced Logging No Disposable No 2

Multilaterals >2

© 2016 Chevron Corporation 17

 Kappa Appraisal – Strategy Table

Focus Decisions ----->>>

Perform
Wireline program Well Need for well Number of
Well type coring
types Utility test (DST) Appraisal Wells
operations

Deviated Basic Logging Yes Keeper Yes 1

Vertical Advanced Logging No Disposable No 2

Multilaterals >2

© 2016 Chevron Corporation 18

 Kappa Appraisal - List of Uncertainties
• Pore pressure/Wellbore Stability  Reservoir compartmentalization -  Avg. Permeability
Fault
• Velocity model - hitting objective  Fluid Contacts
section within prognosis  Reservoir compartmentalization -
Stratigraphy  Velocity Model
• Accelerated Drill Schedule and  Reservoir Drive
scheduling issues  Depositional model
 Porosity
• Logistics and Long lead items  FVF
 Aquifer Activity
• Rig Availability  Reservoir continuity
 Reservoir pressure  KPA resource is sufficient to aid the
• Telecommunication breakdown start-up of Kappa project
• NPT (Non Productive Time)  Reservoir thickness
 Fault seal
• Political Unrest  reservoir top and base
 Productivity Index
• Organizational Strike  Asphaltenes, emulsions and
 Recovery Factor, Primary
other flow assurance issues
• Filled Area / Reservoir  Relative permeability
compartmentalization  Drilling and completion timing
and cost  Vertical perm heterogeneity
• Recovery Factor
 Fault location,  Water compatibility
• EUR/Well compartmentalization
 Water Saturation
• NTG  Fracture characterization
 Well to seismic tie quality
 How do we use perm multipliers
for fracture characterization- are  Wireline log quality
physics honored by model?  Flow unit determination sensitivities

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 Key Subsurface Uncertainties

 Reservoir
 Geometry and size (seismic amplitude ambiguity could be lithology, thickness or
fluid induced)
 Quality (wide range of porosity:16 – 34% and permeability: 61 – 5,874 mD)
 Connectivity: lateral extent multi-lobate reservoirs, shale separation ranges <5ft
to >70ft
 Environment of Deposition, No conventional core

 Hydrocarbon
 Fluid contact (Most of the discoveries have LKO and HKO, only one fluid
contact)
 Flow assurance (some intervals are heterolytic)

 Compartmentalization
 Well count – Crestal faults and stratigraphic (channel system) compartments

 Recovery
 Preliminary estimates ranges obtained from MDT

© 2016 Chevron Corporation 20

 Kappa Appraisal UMP table
Key Subsurface Risks and Uncertainties
Probability of
Occurrence Impact
Risk or Issue (H,M,L) (H,M,L) Mitigation Strategy
Lateral reservoir
Offset wells to discoveries, Stratigraphic modeling using analogs, acquire core
continuity/compartm H H to determine environment of deposition
entalization

Hydrocarbon contact Advanced logging, Fluid identification logging tools e.g. MR scanner, acquire
and type
H H MDT data,

Permeability cut-offs
Flow test wells and zones of varying permeability, SCAL analysis for relative
for commercial flow M M permeability
rates
Effective Reservoir
Area and geometry
H H Seismic stratigraphic analysis, isopaching, integrate with core data

Effective Porosity M H Collect whole core over reservoir intervals, compare analysis to logs

Column lengths M M Column calculation work , offset discoveries, Well test information

Leverage DST information obtained from Kappa main, Acquire DST, obtain
Recovery Factor H M analogs from producing assets and similar depo-environments

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Well Data Inventory and Planned Acquisition
Lithology Fluid Velocity Hole and Rock-Fluid Well Special logs Remarks
casing Test on data
integrity quality

DATA ACUIRED FROM KAPPA EXPLORATION WELL

Gamma ray Resistivity Compressional Caliper SWC MDT Special Resistivity
Sonic Rv Rh for thin
beds

Neutron MR Shear Sonic CBL Mud log Magnetic

Scanner Resonance

Density RT VSP Lithologs for

Scanner mineralogy, TOC
and TIC

Spectral GR OBMI OBMI only

for some
intervals

ADDITIONAL DATA EXPECTED TO BE OBTAINED WITH THE APPRAISAL WELL(S)

GR, Neutron, Resistivity Sonic (Shear Caliper, Conventional MDT OBMI
Density, and CBL Core
SGR Compressional),
VSP

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 VOI: KAPPA Appraisal Program
Incremental Economics

Economic considerations NPV10 ROR Value Creation

DPI10
($MM) (%) ($MM)

Develop but Do not Appraise 377 1.30 18% -2

Assumes Imperfect Information 402 1.35 18% 58
Value of Imperfect Information (VOI)
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 Lessons Learned and Best Practices
 Lessons Learned
 We need to keep the upstream resource factory going by actively replacing our reserves.
 Standalone developments of discovered resources may be economically challenging.
Creative alternatives such as tie-backs to existing infrastructure or co-development of
satellite fields could help improve project viability.
 An appraisal plan should be robust and sufficient to enough to address key uncertainties
that will impact the next development decision , FEED and eventually the FID

 Best Practices
 After a commercial discovery it is expedient to follow an appraisal plan that will address
the uncertainties associated with the discovery and the resource estimates
 Let the UMP drive the data acquisition program
 Let the VOI drive the data acquisition decision
 It is key to constitute a multi-functional appraisal team with a mandate to developing an
appraisal plan which may also include development scenarios.

 Challenges
 Lower crude oil price and high costs is a challenge for project viability
 Large discoveries are getting rare, while smaller discoveries are less viable as
standalone developments.

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 Common pitfalls in developing a robust
appraisal program

 Start drilling appraisal wells without a definite pre-determined

fit-for-purpose number of wells
 Not involving key stakeholders in the design of the appraisal
program
 Anchoring and bias in EUR estimates reference case and not
capturing a proper range of uncertainty could lead to poor
investment decisions
 Lack of proper data inventory
 Lack of value of information analysis
 Being schedule and/or activities driven can lead to suboptimal
appraisal program e.g. acquiring less impactful data.

© 2016 Chevron Corporation 25

 Acknowledgements

• Special thanks to the management of Chevron Nigeria

Limited / NNPC Joint Venture
• Chevron NMA Exploration Team

• NAPE

© 2016 Chevron Corporation 26