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Assessing Prospective Regions The crucial judgment for an exploration company is deciding whether an unexplored area is or is not a prospective

region. If it is supposed to be prospective, but turns out not to be, much time and money will have been wasted. If the unexplored province is supposed to be non prospective, but it turns out to be prospective, the exploration company will have forfeited a chance for profit. A province is rarely written off, however, before some wildcats are drilled. Indeed, several dozen dry holes may be drilled before a province is called noncommercial. Assessing prospectivity in producing regions is wholly different from that in frontier regions. In the former, you know you are in oil country, and the question is whether enough undrilled prospects remain between, beyond, above, and especially below known fields in order to justify further exploration. Much well information is usually available, and the main geological effort is geared toward answering local stratigraphic and structural questions before planning possible detailed geophysical surveys. On the other hand, in frontier provinces, the existence of the five essential factors (source rocks, reservoir rocks, migration paths, traps, and seals) for petroleum accumulation is a matter of speculation. Many, if not most, of the world's remaining frontier provinces lie in offshore regions. Large untested provinces on land are apt to be in areas that are geographically or politically inaccessible. While there are still some untested frontier provinces even in a mature producing region such as in the United States, several have disappeared from the list of potentially commercial provinces. The Lower Cook Inlet, Alaska, is one of these.

Data Needed
The most diagnostic exploratory tools in frontier provinces are wildcat wells and seismic surveys. On land, seismic is relatively expensive, and wildcat wells may be relatively less costly. In water-cove red regions, seismic is relatively less costly, but wildcat wells are very expensive. Photo geology is cheap but useful only over land. Aeromagnetic surveys are cheap and may be used either over land or sea to reveal basement structure and basin configurations. Gravimetric costs a little more and is a valuable prospecting and reconnaissance tool on land. Marine gravimeter surveys are inherently less useful because the magnitude of the corrections commonly exceeds the amplitudes of the anomalies. Other tools are helpful in exploring certain provinces. These include: side-looking radar, used like photo geology; particularly helpful in areas with heavy cloud cover and/or thick vegetation; side-scan sonar, used for mapping underwater topographic-structural features; Marine "sniffer" surveys, used to record and evaluate samples of hydrocarbon gases leaking from the sea floor;

soil hydrocarbon surveys, used to detect petroleum fluids leaking to the surface that produce halo patterns above buried reservoirs; Radiation surveys, used to detect surface patterns of uranium daughter elements concentrated above buried reservoirs (Morse et al. 1982).

Technical Factors
Assessing a frontier province begins with reconnaissance surveys on land, surface geology, coupled with photo-geology, is often used first. This is followed by aeromagnetic surveys, then gravimetric surveys, and finally seismic surveys. In marine provinces, after an initial aeromagnetic survey is made, a reconnaissance seismic survey is customary. The purpose of the geophysical reconnaissance survey is to uncover the kinds, depths, magnitudes, and relative frequency of buried anomalies in the province and to appraise the sedimentary sequence. It would be desirable at this point to make a preliminary inventory of indicated volumes and depths of potential traps. In practice, however, often the best one can do is to make semi quantitative generalizations and educated guesses about potentially productive closures and the total sediment thickness above basement. One or more of the most obvious of these anomalies is evaluated by detailed seismic surveys. The most promising is then selected for the initial wildcat test. In most cases, pronounced structural anomalies are the first to be tested. In some offshore waters of the United States, "stratigraphic tests" are drilled deliberately off structure to directly observe stratigraphy, prior to federal lease sales. Usually this is a cooperative effort by several competing companies. Until these initial tests are drilled in representative locations, it may be difficult to discern the practical significance of certain geophysical anomalies. Once drill cuttings, mud logs, and wire line logs are obtained from one or more wildcat wells, we can recognize the geological sequences present in the basin, detect hydrocarbon shows, and observe thickness and quality of reservoir strata. Moreover, it may be possible to determine the presence (or absence) of commercial source beds.

Model Prospective Region - Lower Cook Inlet, Alaska

The Lower Cook Inlet of Alaska provides a case study of an offshore prospective region. This province was thought to have commercial potential in the late 1970s. Figure 1 shows the situation at the time of the 1977 Federal Lease Sale.

Figure 1

In this case, the major job of geophysics was to map the shape, depth, and major structures of the province in order to compare the undrilled southern portion of the Cook Inlet basin with the productive northern portion. No attempt is made here to give either a history of the exploration of this province, or a full discussion of its geological problems. The only intention is to suggest how the exploratory prospects in the province were generated and what was learned from drilling. Several marine seismic programs were undertaken during the 1960s and early 1970s. Most were sponsored jointly by a number of exploration companies. Syndication of risk is common in offshore provinces. Some exploration groups purchased two or more seismic surveys, plus gravimetric and aeromagnetic surveys. Each group sponsored an independent seismic interpretation. Because of the difficult multiple reflections and velocity problems encountered, supplementary side-scan sonar and shallow-penetration sparker seismic surveys were purchased from service companies. The only published seismic maps of the Lower Cook Inlet were made by the U.S. Geological Survey, since all proprietary maps were kept confidential. Figure 2 displays the major positive structural features that were revealed, nearly all of which were investigated in much greater detail, revised, and confirmed by proprietary data.

Figure 2

Interested exploration companies decided which prospects were worth leasing and drilling partly by making an analogy to the Upper Cook Inlet. At long last, a federal lease sale was held. In October 1977, a total of 21 companies and groups of companies bid $398.5 million for 87 tracts (495,000 acres). By the end of 1979, dry holes were drilled on eight major prospects ( Figure 2 ). The Lower Cook Inlet province was found to be nonproductive. One can imagine a frontier province being dry or noncommercial because of inadequacy or absence of reservoir strata, traps, or seals to the traps. By using reconnaissance seismic surveys, plus drilling a few wildcat wells, the existence of these three factors can be determined with considerable reliability. The presence or absence of these features are fairly straightforward determinations, but it is quite different with source beds, timing, and migration paths. This point can be illustrated by a brief analysis of why prospects in the Lower Cook Inlet were dry. Although it is only a skeletal structure map, Figure 2 strongly suggests that large anticlinal closures (adequate traps) are common. Seismic cross sections, on which major reflection marker surfaces are identified stratigraphically (

Figure 3 , Seismic line 755, just north of Cape Douglas showing major reflection marker surfaces for stratigraphic correlation.

Figure 3

A horizon = base of Tertiary; B horizon = base of Lower (?) or Upper (?) Cretaceous; C horizon = Middle Jurassic (?) and minimum thickness of sedimentary rocks in basin), and structural sections ( Figure 4 ) both indicate that Tertiary rocks (Kenai Group) are present but thin in the Lower Cook Inlet.

Figure 4

Furthermore, the major oil pay of the Upper Cook Inlet (the Hemlock Conglomerate within the Kenai Group) seems to be present. It would appear then, that traps, seals,

and reservoir rocks exist, and the abundant faulting, both old and new, which were shown by seismic lines, should have provided migration paths that were similar to those in the productive Upper Cook Inlet. Evidently, source rocks that supply commercial amounts of petroleum are lacking in the Lower Cook Inlet. One obvious difference between the Upper and Lower Cook Inlet is that the lower Kenai Group, which is the principal objective, is very shallow (<1 km) south of the Augustine-Seldovia arch ( Figure 5 ), whereas it becomes progressively deeper towards the north.

Figure 5

The source beds of the Upper Cook Inlet oil fields are either the basal estuarine beds which floor the Tertiary sequence (Kelly 1968; Young et al. 1977), or the Middle Jurassic sequence which lies unconformably beneath the Tertiary (Claypool et al. 1980). Most oil companies seem to have accepted the idea of a Jurassic source, which was advocated by the U.S. Geological Survey. For either case, however, the sources in the Lower Cook Inlet are much shallower, hence much cooler and less mature, than in the north. In assessing the shallow Tertiary anticlinal prospects in the Lower Cook Inlet sale area, most companies were not hopeful of substantial migration from Middle Jurassic

source rocks as far upward as the Tertiary reservoirs. Tertiary seismic closures were regarded by most as secondary objectives at best. The Upper Jurassic clastic sequence was seen as a possible primary reservoir- if microfracturing due to recent uplift was adequate. The wildcat failures were evidence that microfracturing was inadequate for producing commercial-scale migration.

Estimating Hydrocarbon Potential and Calculating Risk

In Alaskas Lower Cook Inlet, an area once thought to have great potential, the industry drilled eight dry holes. Overall perhaps a total of $750 million dollars was risked over more than a decade by at least 30 oil companies. It was all lost. Assessing the risk and gross hydrocarbon potential of untested regions requires careful evaluation and complex analysis. A company can make a reliable estimate of how much money would be required to obtain a suitable position in a frontier province, but prior to taking that position, the company can't accurately forecast the expected rewards from the money risked. Substantial geophysical and geological reconnaissance, acreage acquisition, and wildcatting expenditures must be made before the region can be proved either commercially productive or barren. A major petroleum company must regard its share of the $750 million dollars spent in the Lower Cook Inlet as one of the costs of remaining in the exploration business. The effective exploration technology developed in recent decades has shortened the time period needed to evaluate a frontier province. It has also made initial wildcat drilling highly successful where these new provinces have proved productive (in some cases, a 50% success ratio in wildcat drilling). A company would rarely go into a new province and spend such vast sums as in the Lower Cook Inlet, unless it had hopes of finding large, and possibly giant fields. The number of giant fields, even in major provinces, is relatively small. They are, however, most often found in obvious traps, such as anticlines, salt domes, or reefs. Often their location can be readily determined prior to drilling by geological or seismic surveys. Frontier provinces commonly provide the best chances for finding such first class prospects, though the risks and exploration costs are proportionately higher. The Hepburn prospect (see the Example at the end of this section) is one such prime target. Its seismically mapped anticlinal closure with a "bright spot" assured it to be one of the first prospects drilled in the hypothetical frontier basin of the Southeast Spur. Prior to drilling, however, the findings of geological and geophysical surveys must be summarized in evaluation reports and prospect sheets. These present the fundamental geologic and economic facts concerning a prospect and also the initial estimates of anticipated reserves and economic returns. A sample prospect sheet for the Hepburn prospect is presented in Appendix A. On other prospect sheets, an attempt is made to assign grades or numerical ratings to the various factors in order to make the analysis more objective. Some formulas that are commonly used to calculate reserves, economic returns, and risk prior to drilling are presented below: Reserves Reserves = Oil-in-Place Percent Recovery Oil-in-Place

Oil-in-Place (OIP) = Gross Reservoir Volume* Net/Gross Porosity Oil Saturation k** FVF*** * Gross reservoir volume = productive areal closure reservoir thickness ** 7758 if acre-ft to bbl conversion *** Formation volume factor Potential Return (after tax) Future Net Revenue (FNR) = total reserves average price* - (operating costs + over total investment** + tax) * Over total payout time ** Cost of wildcat well, completion costs of discovery and any field development costs (sometimes this calculation excludes initial risk costs of wildcat well.) Return on Risk Investment Return on Risk Investment = Potential Return Risk Investment* * Predrilling cost + cost of wildcat well to casing point Risk Adjusted Return on Risk Investment Risk Adjusted Return = (Potential Return / Risk Investment) Success Rate* *based on past experience Return on Investment (ROI) Return on Investment = Potential Return / Total Investment In summary then, prospective regions that have seen little or no drilling may offer opportunities for some of the greatest rewards in finding and developing major new prospects and fields. The costs and risks, however, are significantly higher. Although potential traps, and reservoir and seal lithologies frequently can be detected through geophysical methods, often there are difficult fundamental questions to be answered. Some of these concern source rocks and their maturity, and the paths and timing of migration. These factors can make or break a potential prospective region. With appropriate planning, the technology is available to evaluate even a large frontier area rapidly, and either prove it to be an oil province or condemn it. Example: An Evaluation of Hepburn Prospect, Southeast Spur, Block 35, District #2 Petroleum Exploration Co. Exploration Dept. 5 Morrill Place Houston, TX 77036 Summary i) Prospect is an anticline with four-way closure partially bounded by faults. Target is probably Jurassic sandstone.

ii) Seismic configuration is very promising. Five seismic lines pass through the prospect. The potential reservoir is a good reflector. The larger of the two culminations shows a "bright spot." iii) Prospect is moderate to low risk with potential reserves of several ten million barrels. Introduction This report describes the geologic and economic assessment of the Hepburn prospect carried out in November of the previous year. Five seismic lines delineate the prospect. Figure 1 (seismic line 1) shows a possible gas accumulation at 1.9 sec with a two-way time thickness of about 10 ms.

Figure 1

Figure 2 is a structural contour map on the top of the reservoir (Unit A) based on the seismic data.

Figure 2

Geology Structure Low relief ESE-WNW trending anticline with two culminations. The structure is on a minor horst, bounded to the north and south by normal faults. Four-way closure, based on seismic data, has an estimated area of 4500 acres (18 km2) with 250 ft (76 m) of vertical closure. Reservoir Unit A, a Middle to Upper Jurassic sequence of uniformly bedded alternating sandshales throughout the 250 ft (76 m) of vertical closure. Unit thickness: 150 ft (46 m) Net/Gross Pay: Ranging from 0.3 to 0.7, most likely 0.5-0.6 Porosity: 12%-22%, most likely 17% Seal Shales in the basal part of Unit B are required to provide a vertical seal for the prospect. Reflectors indicate good continuity in this unit. Assessment of laterally sealing faults is difficult. Source Overlying Unit B shales. Prospect is well-situated for migration from these shales along down-to-basin faults.

Reserve Potential
Reservoir is estimated to be half-full to spill point (based on experience in Fowler basin): Productive areal closure* = 3050 acres (12 km2) Gross reservoir volume = 228,750 acre-ft (282 106m3)

Field Averages Net/Gross ratio Porosity Oil saturation FVF**

Minimum 0.3 0.12 0.6 1.5

Estimate 0.6 0.17 0.65 1.25

Maximum 0.7 0.22 0.7 1.1

Net Reservoir Volume = Gross Reservoir Volume Net/Gross Ratio Volume of Oil-in-Place = Net Reservoir Volume k***/FVF *Measured from maps by means of planimeter. **Formation Volume Factor is a factor that quantifies the change in volume of oil and gas when it is produced at the surface. It is mainly dependent on reservoir temperature and pressure. *** k= 7758 bbl/acre-ft

Porosity Oil Saturation

Oil-inPlace 106bbl (106m3)

Minimum 25.6 (4.1)

Estimate 94.1 (15.0)

Maximum 173.9 (27.6)

Reserves (for estimated recovery of 28 %)

106 bbl (106m3)

7.2 (1.1)

26.3 (4.2)

48.7 (7.7)

Economic Analysis Recovery is estimated at 26.3 million bbl with limited water drive. Life of field = 30 yrs Investment million $ Cost of 3000 m exploration well to casing point 1.95 (includes lease, geological, and geophysical costs)

Exploration well completion costs 2.32 Total costs, discovery well 4.27 Field development costs (estimate 10 wells) plus surface equipment Total Investment 54.27 Potential Return Potential gross revenue (based on 26.3 x 106 bbl @ $30/bbl) 789.00 Less: Operating Costs @ $2/bbl 52.60 Investment 54.27 Tax (50% net income after operating costs and investment) 341.07 Potential Future Net Revenue Potential Return/Risk Investment 341.07 / 1.95 175/1 Risk Adjusted Return (based on 1.6 success rate) 175/11/6 29 Return on Investment 341.07 / 54.27 6.3/1