A significant challenge in portfolio based decision making is to characterize an Unconventional Resource Program so that it is comparable with other investment opportunities in a company's portfolio: Exploration, Appraisal and Development.
Many companies separate the high risk, high impact, high individual CAPEX, deep offshore exploration portfolio from the onshore individual, lower risk well based opportunities. Unconventional and development wells, when added to a portfolio of high impact projects, show minimal bearing on the portfolio result and are often not selected for budget allocation. Most people know intuitively that an unconventional well program has impact but do not have a process for evaluating a risked "well" program that quantifies the program's phases and associated capital investment and performance. Some companies try to evaluate the well program using play analysis which gives you a picture of the potential reserves distribution, play opening economics and even the economics of the whole play, but does not enable quantitative capital investment values to be associated with a definitive potential reserve number.
" Necessity is the mother of invention" says Plato. This methodology was created to solve a very significant problem that occurred in a company's budget cycle after a recent acquisition. A large international independent oil and gas company purchased a mid-sized US regional oil and gas company. During the integration of the company's assets and programs, the smaller company was required to submit a Risk Assessment of their opportunities for inclusion in the parent's company Portfolio Management process. This was necessary to ensure a level playing field for comparison of the various types of projects from international exploration, GOM deep water, onshore exploration and development wells, appraisal, field development, unconventional, etc. Once the opportunities had been characterized and evaluated for probability and potential reserves uncertainty, economics were run and these data input into the Portfolio. Once corporate economics goals, constraints and strategies were proposed, the portfolio was run to ascertain project scenarios that optimized various economic metrics. The company used this process to aide executives in the budget decision making and capital allocation.