American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc.
Described herein is a model developed for use in corporate long-range planning. The model projects future income from and development projects future income from and development capital required for discoveries resulting from current and future exploration expenditures. Risk is implicitly considered. It is designed for use by top management and provides a tool by which various exploration strategies can be tested and their sensitivities measured.
One of the more important tasks any oil and gas company faces when developing long-range plans is estimating the impact, both financial plans is estimating the impact, both financial and operating, of discoveries resulting from current and projected exploratory expenditures. Such an estimate is necessary in determining whether the expected results of these expenditures will conform to corporate goals and objectives. Also, the estimate will show whether the capital required for development of exploratory successes will unduly strain the company's capital structure. Described herein is a model constructed solely for the purpose of deriving such estimates. This model, entitled the Exploration Success and Production Development Model (ESM), has been used by Aminoil USA, Inc. for several years and has substantially improved our planning. It should be stressed that ESM is a planning tool, not an evaluation tool.
Before describing ESM, we should first discuss other methods of achieving the goal for which it was developed. We have reviewed industry publications, but have not discovered any articles dealing with this specific subject. Many articles have been published discussing methods of evaluating specific exploration prospects, projects, and/or geological/ prospects, projects, and/or geological/ geographical areas. None of these, however, are truly appropriate for the micro-type problem described above. Thus, other approaches need investigation. Intuitively, it would appear that the best method of deriving the required estimate would be to evaluate each extant exploratory project individually and sum the results. However, for even moderate size companies, this approach entails several problems such as (1) the process would become problems such as (1) the process would become extremely cumbersome as the number of projects increased, (2) the sum of the individual projections would likely be optimistic, (3) it would projections would likely be optimistic, (3) it would be difficult for top management to exercise effective control, (4) sensitivity analysis due to changing geopolitical conditions would be difficult, and (5) the question of unspecified future projects remains to be answered.