PetroChallenge Nigeria

You are an oil & gas company...

Your Role

…and your team’s challenge is to explore, develop and produce oil and gas in a fictitious petroleum province

Money and Credibility

You start with $400 million cashYou can apply for more money later.

Maximise profit Creating highest company value possible, measured by the net value of the oil and gas fields discovered MINUS all costs involved.

Correct answers and sensible decisions are awarded with Credibility Points (CPs)

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Course Challenges

Learning cycle

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Challenge 1

First task

Challenge: Nominate 10 blocks to be included in the licensing round

Procedure: Buy and study Environmentally Sensitive area map, magnetic and gravimetric surveys; consider water depth and block position in sedimentary basins

Blocks are divided into smaller cellse g. R45,C92

Columns e.g C1 and C54

Rows e.g R15 and R97

Map

Red areasYou will not be awarded blocks that contain any red spotsBlue areasBlocks in area may be awarded

Environmentally Sensitive Areas

Rock cycle and sedimentary basins

Source: http://www.geolsoc.org.uk/rockcycle

Sedimentary basin

Earth’s gravitational pull

The Earth experiences gravitational pull towards the Sun

Anomalies of the expected pull are found in different different sub-surfaces

Lower gravitational fields indicates likelihood of low density rocks

Sedimentary rocks are low density and porous

Can contain hydrocarbons

Gravimetric surveys

Real Gravimetric survey

The lower the gravitational pull – the thicker the sedimentary rock is likely to be

Red on a gravimetric survey indicates thickest sedimentary rock

Survey shop

Survey tab But Gravimetric surveys

South-east quadrant The red and yellow areas indicate basin

Earth’s magnetic fields

The Earth’s core creates magnetic fields

Anomalies of the expected magnetism are found in different sub-surfaces

lower concentration of magnetic materials can indicate sedimentary rocks

Can contain hydrocarbonsSource:

http://www.glossary.oilfield.slb.com

Magnetic surveys

Sedimentary rocks in the basins have a lower concentration of magnetic materials than the surrounding crystalline rocks

Basins have low magnetic field

Pink area is thickest rock of low magnetism

Magnetic survey:North-west quadrant

Compare basins and blocks

E.g. block 520

Inside basin?

Water depth?

Check water depth

To nominate a block – click on itTo deselect a block – click on it

Nominate 10 blocks

Recap

Environmentally sensitive? In a sedimentary basins? Water depth? Shortlist possible blocks you would be interested in buying 2d seismic for in next challenge

Click on a block to nominate Nominate 10 blocks Up to 100 credibility points awarded- based on water depth and position in basin

Challenge 1

Your turn

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Challenge 2

Identify promising blocks The government has decided which blocks to offer in the first licence round

Challenge: Identify the 3 most promising blocks and submit a bid to the Government for these licences

Bid includes 3 blocks, well commitments and CSR project completion

1. SOURCE ROCKwhere organic material is put under sufficient pressure and temperature

2. MIGRATION ROCKwhere hydrocarbons are driven through

4. CAP ROCKImpermeable rock that stops migration of hydrocarbons PROSPECT

Source and migration

3. RESERVOIR ROCKRock with porosity and permeability

5.STRUCTURAL OR STRATIGRAPHIC TRAP

(c) OLFAnticline trap

Fault trap

Stratigraphic trap

Salt dome trap

Geological “pockets”, that might contain hydrocarbons.

Traps

Play element mapping

Common Risk segment maps

Source: www.prweb.com

Play elements are converted to risk segment maps

Risk maps for each element are combined into Common Risk Segment map - CRS

Layer 3 Eocene1500m below the seabed

Layer 2 Paleocene2500m below the seabed

Layer 1 Cretaceous3500m below the seabed

Surface

Common risk segment maps

Highest probabilityModerate probabilityLowest probability

2D Seismic surveys

Traps can be found with seismic surveys

2D seismic survey is a cross section of the geological layers in one direction

2D seismic surveys are used for locating prospects

Order seismic

Survey Tab

Order from Survey

Shop

What type of data do you want? Columns or Rows Unprocessed or processed data Interpreted or not Move yellow hatched area to block you want to

order

Order seismic

View the Seismic

Unprocessed Processed

Interpreted Red is top of the cap rock

Green is top of the reservoir rock

2D seismic in OilSim

Anticlinal traps

Leakage? Sealant rock

Fault traps

Leakage?

The cap rock

R17

R19

R21

R23

R17

R19

R21

R23

Whole block seismic

1

1

2

3 4

5 6

2

5 6

Prospect counting

How many prospects can you see ineach block?

How many wells should be committed to?

Can deviate the drilling by one cell per layer

Cross section

Column

Row

Prospect, ReservoirBasin,Source

Enter bids

Chose which blocks you want to bid for

For each block, say how many exploration wells you are willing to drill

Do NOT promise to drill more wells than there are prospects

An estimated cost is shown

You will initially only be awarded one block

Corporate Social Responsibility Activities that oil and gas companies do to serve the communities they operate in

CSR projects usually to develop the local communities in education, social welfare, and business

In OilSim teams are rewarded with CPs when choosing their CSR projects

CPs a company has is considered by the Government when deciding upon license awards

CSR tab

CSR projects

Some are greyed out, because the team does not have enough CP, enough CSR budget, or enough cash to do them

Each has a cost, and a number of possible outcomes

Each outcome has a probability and either negative or positive CP

In the CSR tab you can see the minimum and maximum CP you can get, as well as the probability for getting the maximum CP

Project Example

This project costs $8M If it goes well, the team gets 40 CP

The likelihood of this is 60% If it goes badly, the team gets zero CP

Minimum required CP is zero

Results

Limitations

Lots of different types of Projects to choose from

You only have $30M budget for CSR in each licensing round CSR funds that you don’t spend in one round are transferred to the next

You cannot initiate a project if it has the potential to make your CP’s go into negative

You cannot initiate a project if you don’t have the cash for it

Each project can only be run once per team

Learning points

CSR is about caring for the local society – and making a difference for the people living where you operate

Not all projects are sound Bribery does not pay

Some projects cost a lot, but do not give so much return

Some projects are riskier than others

Recap on challenge 2

Environmental Sensitive Areas map to see which blocks to avoid

Common Risk Segment surveys to see which blocks to examine closer

2D surveys seismic to identify which ones have the most (big) structures

Check water depth, and go for shallow water blocks if possible

Remember to submit 3 bids Increase CPs with CSR project completion

Challenge 2

Your turn

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Challenge 3

Identify promising blocks The government has decided which blocks to offer in the first license round

Challenge: Identify the 3 most promising blocks and submit a bid to the Government for these licenses

Bid includes 3 blocks, well commitments and CSR project completion

Partnerships

HQ is happy with the license awarded. Challenge: Farm-out minimum 20% from your license – and farm-in as much as you can in other good licenses.

Acquire 3D Seismic interpretations for the block you operate, and study the results from the licensing round

Get others to invest 20% or more in your license – you can show/send 3D seismic

Real 3D seismic

Shows the subsurface structure in a cube.

3D Seismicin OilSim

Layer 1 Cretaceous

Layer 2 Paleocene

Layer 3 Eocene

Prospects are no guarantee of oil or gas

Why partner?

Spread the risk Increase probability of profit

Farm-in

Enter the percentage and total amount you have agreed to offerMinimum $100,000 per %Add a message to the sellerPress “Send offer”

Farm-in

When a team receives a Farm-In offer it appears under Financing. This is where a team can receive finance or money for a % of their own blocks

Farm-in

Farm-in

License OWNER decides whether to ACCEPT or REJECT the offer

Partnerships established every time a license owner accepts an offer.

All your farm-in offers to other teams are shown under “Investing” on the right-hand side of the homepage . This is where a team offers investments to other teams for a % of their blocks

Farm-in

Partnerships

Partners pay a proportional share of all future costs

Partners receive a proportional share of the net proceeds from oil and gas

The operator team makes all decisions regarding drilling

Operators can farm-out up to 70% of licence, but must keep 30%

Challenge 3a

Your turn

Water depth

Before choosing a rig, you need to check your water depth

Find this at the bottom of the BLOCK page

Choose Rig

Choose the right rigs for your water depths Jack-up rigs for shallow waters Up to 100m

Semi-submersible rigs for middle waters Up to 600m

Drillships for the deepest waters Over 600m

Rig cost = drilling days * day rate

Rigs available

Limited number of rigs

20 minutes to complete each drill

Queues Prices can change

Service providers

Up to 9 Star quality- Good: normally costs more

Bad: cheaper, but reliability is low, so you risk extra drilling time and extra costs

Environmental Impact Assessment

Layer 1 Cretaceous

Layer 2 Paleocene

Layer 3 Eocene

Drill

Selecting drill cells

Can choose a cell on all three layers Deviate by only one cell per layer,

either vertically, horizontally or vertically

Oil spill or Gas Blowout control

Estimated cost

Controls and estimated costs

Drilling days

Results

Volume Range in MBOE counts

Test may increase Proven MBOE if oil or gas found

After testing

Reinterpret seismic

Value

Discovered prospects

Assumptions

Value calculation

25% of 8 MBOE @ $50

Expected costs ifyou developed thefield (capex) andproducedthe oil (opex)

If total expenses arehigher than the salesvalue, the value of thelicense is zero

Appraisal

From Probable volume to proven reserves

Drilling – Wildcats & Appraisals

Drill into every prospect once (Wildcat)

Continue appraisal drilling if possible to increase the proven and reduce the potential

Wildcats Appraisals

Appraisal drilling

Increasing proven volumes Appraisal wells - proven reserves increase Range between proven and possible is decreased

Effect on calculation of licence

Expected costs ifyou developed thefield (CAPEX) andproducedthe oil (OPEX)

Now total expenses are lower than the sales value and so we have a positive licence value

Challenge 3 decisions

After your first drill into a prospect, reinterpret the seismic

Decide which discoveries to drill how many appraisal wells into

Ultimately, you should either: Get a positive net present value, Or a conclusion that additional appraisal wells will not result in a net present value

Challenge 3b

Your turn

Apply for more funds

Click on Apply for More Funds Tab. 1 CP for each $100,000 applied for. Answer three questions:

Expensive money if less than 10 credibility points: Apply for cash and be fined $5million for each $20million requested.

Outcome Cash Credibility Points

All Correct Full Amount Keep All

One Wrong Full Amount Keep Half

Two Wrong Half Lose All

All Wrong None Lose All

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Challenge 4

Challenge

Make a well plan for each reservoir in your block, choosing: Number of production wells Tubing size

Aiming to choose a plan that

maximizes value of block Increased sales value Decreased drilling costs

Highest well flow rate

Read the maximum well flow rate Most suitable Tube size

Most suitable tube

Nodal analysis

Sand production limit

Expected production profile

Click on Drilling Rig

Create well plan

1. Click the Reservoir tab

2. Click the magnifyingglass for the reservoir

Reservation information

Updated information

Amend well plan

Combined Plan

Improve value-revise well plan Submit plans with different number of wells

and tubing sizes Review Reservoir information after each

revised plan Aiming to maximize sales value and minimize

drilling costs, whilst increasing Recovery Factor You can amend your well plans until the

deadline Credibility points – upto 100 CPs if plans are

optimal for all your reservoirs After deadline – Value of Licence will be

adjusted based on final Well Plan submitted

Challenge 4

Your turn

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Challenge 5

Facilities planning

Plan the facilities to produce the oil and gas that has been found in the block

Maximize the value of the license block Maintain sales value Decrease facilities costs Reduce risk

Environmental surveys

Earthquake survey legend

Earthquake survey legend

Hurricanes

Finding Production Profile

Combined Production Profile

Facility selectionClick on facility List

Choose facility type

Platform parameters

Platform parameters

Connect pipelines to Gas terminal and an Oil terminal

No gas flaring allowed or shipping tankers available

Transport volumes

Estimated no. of barrels can be transported per day Different flowline (riser) and pipeline sizes = Different no. of barrels

Flowline size : Multiphase fluid to platform (acting as flowline and riser)

Pipeline size : Oil and condensate to storage tanks

Gas to processing plant

Flow overview

Challenge 5

Your turn

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Challenge 6

Challenge

PART APlan the construction of facilities required to operate your platformSubmit a financial summary of the plan

1. Maximum capital expenditure

2. Total local content budget

3. Expected time period in which First Oil or Gas to be reached

PART BExecute construction planMinimize capital expensesAmend construction plan as issues occurGet to FIRST Oil or Gas!

Planning construction

PART AActivity Hierarchy Survey – study activity dependenciesVendor report - compare providers/local contentPrepare construction planUse Challenge sheets and prepare Gantt chartSubmit Planning Summary

Choose only 1 activity – where a Dotted line connects activities

Where a solid arrow connects activities, commencement of an activity is dependent upon the preceding activity(ies) being completed

Activity Hierarchy

Vendor report

Considerations: Reach First Oil or gas within 11 periods of 180 days – TOTAL 1980 days

Time V. Cost Local Content

Planning summary

A possible tax credit from the governmentFor achieving the three objectives of project management: budget, time and quality

Recap

PART A Activity Hierarchy Survey – study activity dependencies

Vendor report - compare providers/local content

Prepare construction plan Submit Planning Summary

Challenge 6a

Your turn

Construction execution

Activities in 1st period

Activity completed

Delay in starting activity

Activity feedback

Activity in progress

Period information

Timeline

Updated hierarchy

First oil and bonuses

Recap

PART B Execute Plan - as many activities as possible within each period; provider for each activity

Check Timeline chart to see progress Reassess/alter providers as issues occur

Challenge 6

Your turn

Team review

Performance of company Effects of partnerships Economic viability of asset Learning experiences from course Important knowledge learning points or skills used