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  4. Calculating Risks

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- In order to convey the level of geologic risk for any particular project or prospect, we need to be able to put a number on it. Do we have a surefire development location with a 90% chance of success? Or are we looking at a wildcat project with a 10% chance? We also need to know where that risk resides. Are we talking about a specific prospect in a play, a known play, and only talking about the trap risk? Or are we talking about the existence of the source rock in a totally new area or a new play? In this section, we'll go through one method for putting a number on geologic risk. There are two major categories for risking, plays and prospects. Each risk category contains the same five geologic elements that have been discussed previously. In risking a play, we are looking at a more regional sense. Does the basin we are exploring have the elements required for a successful petroleum system? In prospect risking, we're looking at the specific location within a play and asking the same questions. In areas with a certain level of exploration maturity, we can say the play risk is 1, or there's a 100% chance of having a working petroleum system. In these cases, via previous exploration work, it has been empirically determined that a successful system is present in the greater area. As the geologic questions are the same for both plays and prospects, and risking prospects is much more common, this presentation will concentrate on prospects. But remembering the play risk needs to be understood. This slide is here as a reminder of the five geologic elements required for a successful prospect. First, we need a sedimentary interval that is rich in organics and those organics have matured to the point that hydrocarbons have been generated. Those hydrocarbons that have been generated in the kitchen, require a path to migrate from the source interval into a sequence that will serve as our reservoir. That reservoir interval must not only be present, but it must be in such a position that at our prospect if the hydrocarbons cannot migrate further they are trapped. And finally, all these elements must be in the proper order. Timing must be correct. You'll also remember that for a prospect to be a successful hydrocarbon accumulation, all elements are required so no one element carries greater weight than the others. This slide shows an example of a probability scale. This scale and its associated terminology are not unique and can be modified to fit a particular need. We find people more easily agree on terms such as a 50/50 chance, but not necessarily on the scaled value that should be associated with that terminology. What is important is to remember that the same scale should be used for a set of opportunties such that a fair comparison can be made. One warning. It's important when assigning risk values for each geologic element, that things such as seismic attributes are not given too much weight. Attributes such as seismic flat spots or direct hydrocarbon indicators, also known as DHIs, can be positive factors but they are not surefire tools for success. This slide shows a risk matrix which is one example of one method for assigning probability values for each of the geologic elements. Each of the five geologic factors will have a value ranging from 0.1 to 1.0. That value is dependent on two key factors, our level of confidence and GCOS or geologic chance of success. Note that we've placed confidence on the vertical axis and we've placed geologic chance of success on the horizontal. Note that with increased data, our confidence level also increases. Confidence is low if the only data we have is, say, regional geologic information and trendology. As our data set increases through the acquisition of seismic data, well results and the like, our confidence level increases. Further note that with high levels of confidence, we either have a low geologic chance of success or a high geologic chance of success. Either our play is working or it's not. A non-geologic example of this high confidence situation would be if we have an animal and our task is to identify that animal. With set data that we're provided, we're able to determine that our animal quacks, has webbed feet, and feathers, so we're highly confident that the animal that we're trying to identify is a duck. Now, with that same set of data, we are told for success, we need to find a dog. In this case, we are also highly confident that we're not successful, as our data set says it's a duck, not a dog. So, to calculate geologic chance of success, we simply need to define the risk value for each of the five elements in our prospect and then multiply the same. Note that in mature areas, items such as source, migration and timing can reach levels as high as 1.0 or no risk. When this is the case, we refer to these elements has having dependent risk. In other words, if it's worked in one prospect in the area, it will most probably work in others. With regard to geologic elements such as reservoir or trap and seal, these are normally considered to be independent. In other words, if they work or do not work at one location, it's no real bearing on whether they will be successful or unsuccessful at an adjacent location. As these two elements are most often independent, it's seldom that they'll reach risk levels of 1.0 or no risk. As it's very important, I will mention once again the idea of performing these risking exercises as a group and that group should contain individuals that are knowledgeable in multiple fields. I can speak from personal experience as an explorationist that one can fall in love with one's own prospect which willobjectivity to its level of risk. Get those whose responsibility it will be to develop a prospect, should it be successful, involved in the initial risking. By doing so you will not only gain another viewpoint, but also valuable support should the group think decide to move forward. To see how this all comes together, let's create a hypothetical prospect and then run a risking exercise on that prospect as an example. The key geologic elements for this prospect are, first, play risk. Placing play risk at 1 or 100%, due to the fact that hydrocarbons had been discovered and produced in our basin, in the area we're looking at, so empirically proven. Second, source risk also at 100% due to the empirical information from previous exploration. Migration risk is placed at .9 or 90%, which is very high. This is not 100% as there can be things known as migration shadows. A migration shadow is an area where hydrocarbons do not migrate due to variations in the migration pathways. Reservoir risk is 70%. Though reservoir has been found in the immediate area, it has varied in both quantity and quality, so it's not certain we're going to have sufficient reservoir at our location, though 70% chance of success is relatively high. Trap and seal is placed at 60%. The prospect we have does have analogs. These analogs are areas where hydrocarbons have been discovered and produced from the same sedimentary interval that we're exploring for and has structures similar to the one that we had mapped. But remember, structure's independent with regard to risking. Just because it works in one location does not mean it's going to work everywhere. We have 2D seismic data in our prospect area, but no 3D has been acquired. As such, the risk to mapping is present. There could be a fault with our mapping, which could put our structure at risk. Now, there's a big difference between 2D seismic data and 3D seismic. Not only does 3D seismic provide a much more dense grid, but it's also processed in a different fashion thus providing a much more reliable result. A proper review of seismic data is beyond this presentation. But will be the product of a separate Knowledgette presentation series at a later date. Finally, timing. We place the risk there at 1.0 or 100% based on empirical information from the immediate area. Now that we've defined our risk level for each of the five elements, we simply multiply those together and come up with a GCOS or geologic chance of success of 38%. From personal experience, I would consider a GCOS of 38% to be pretty good. Now, saying that, we can still take a look at the individual elements and see if there's any way we can increase our confidence. Can we improve upon our GCOS value? Trap and seal are our highest risk elements and that we said was due primarily to the fact that we only had 2D seismic data, thus, our mapping is not as accurate as it could be with 3D. By acquiring a 3D survey, we'll increase our level of confidence, but remember, that can have either a positive or negative effect on our GCOS. Also acquiring 3D seismic would require more time, delaying our exploration activities in the area and would also add substantially to the cost. The way forward is management decision to be made after they are well informed through a detailed presentation of how the GCOS value of 38% was reached and how that value can be further affected by additional work. If you've defined the GCOS through a group think exercise you should have your team's support for a value that has been well considered. You should also have a solid recommendation with regard to a way forward.