Mike BowmanUniversity of Manchester

Deepwater Developments:Subsurface & Development Challenges

Finding Petroleum Forum London, September 2013

●Deepwater Developments since 1999 – an overview:

● track record, ●characteristics ●challenges

●Subsurface Context & Characteristics●Success Factors●Examples

●Summary & Conclusions

*

Deepwater Developments Track Record An astonishing track record of achievements that merit enormous respect

& celebrationMainly driven by Tertiary passive margins delta fed – deepwater systems but now stepping into tectonically influenced systems – Brazil, Angola …

●Western Margins (N Atlantic)●Palaeocene Plays (N Sea learnings)●Deepwater GoM & Subsalt●Middle Miocene Plays●Palaeogene●West Africa (Angola driven)●FPSO the next steps - standardisation●supra – salt controlled –> sub-salt●Step out to Ghana and others●Brazil Deepwater Basins●Early post rift carbonate plays●Sub Salt & Syn Rift

Trac

k R

ecor

d of

Lea

rnin

g &

Del

iver

y

Deepwater Developments ContextBut deep-water is littered with development wrecks

Industry track record of over promising & under deliveringInherently more complex technologically and often geologically

Why?●Challenges of stepping out – increasing uncertainty & risk●Implications of subsea – Recovery Factors, Costs, Flexibility●Technology Challenges – Imaging, Complex Geology, D&C, Engineering & Infrastructure●Strategic Imperatives of companies and industry – market driven and leadership inexperience●Drive for Pace vs. Costs, Profile and ?Safety●Poorly understood & communicated uncertainty and risks●Poor Integration & full Value Chain Awareness●Over optimism – faster, cheaper, better (despite the challenges)●If we can find it they will develop it!!

*

Development Wrecks

-15

15

30

45

60

-15

15

30

45

60

Cost Performance (% increase vs. FM)

Unrealistic Targets

Insufficient FEL

Technology Stretch

Within 15% Cost and Schedule

Sche

dule

Per

form

ance

(%

ext

ensi

on v

s. F

M)

Deepwater:●Strategic Projects●Under Delivery ●Over Promise●Destroy Value

Root Causes of Wrecks 2005 data

High

Degree of impact on wrecks

Low

People & leadership

Risk management

Quality(Operability &

Profile)

Costs & Econo

mics

Pace(Sche

dule)

Performance

Technical capabilty & competency

External relationships

Internal culture &

relationships

Technical definition

Contractor management

Targetsetting

Gov’t,Partner,

Commercial,geography

New Field Developments Portfolio 2000 - Present

Established Know How

Beyond Current

Capability

Recovery challenged(pilot / field trial options)

Do-

abili

ty: E

ngin

eerin

g G

aps

High recoveryconfidence

Productivity / Recovery Challenge

3Unconventional

Reservoirs(Heavy Oil, CBM, Tight, Gas, Shale

Gas)

1New fields in

established trends and basins

4Engineering, and reservoir

deliverability are both challenged and strongly linked

( GoM)

2Conventional reservoirs in an environment beyond current

engineering capability (Deepwater)

Deepwater - Working at the Boundary

*Sanction

INFL

UE

NC

E

EX

PE

ND

ITUR

ES

OPERATEDSP

Gate

DSP

EXECUTE Gate

High Influence

Rapidly Decreasing Influence

Low Influence

Front End Loading

DSP

SELECT GateAPPRAISEDSP

*DSP

DEFINE Gate

OptionsRisk (+/-)Uncertainty

GateACCESSDSP

Gate

World Class Execution

Creating a Distinctive Project

Wrecks - Poor Appraisal & Inadequate FEL

Deepwater Developments Track Record ●The average time from first oil to discovery is 7 years●Time to first oil from discovery has systematically decreased over

time from 12 to less than 7 years●The number of penetrations before sanction has also decreased

over time from an average of 10 in the late 80's to 3.75 in the late 90's●The uncertainty associated with ‘mid’-sized field (150-300 mmboe)

warrants additional Time (8.3 years avge) & Appraisal (6.2 penetrations) as compared with small and large-sized fields

●No systematic trend, on the number of penetrations and estimate of sanction volumes as compared with discovered volumes.

●Subsalt & Complex Geology Development significantly over/under estimate (by >40%) discovered volumes compared with sanction volumes. Extra-salt & Less Complex Developments discovered volumes are within +- 25% of sanction volumes

MP economics are sanction forward

Appraisal economics are 2004 forward

All data at $20/$3.500%

10%

20%

30%

40%

50%

0 100 200 300 400 500 600NPV $m

IRR

AngolaAngola

GoMGoM Tie-Backs

IRR Comparison

0%

5%

15%

20%

25%

30%

35%

40%

45%

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Deb

ottle

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Reserves Plot for All Discoveries

0

●Higher IRR driven by known geology & tie-back●Complex & Sub Salt - Higher Uncertainty & Lower

value

Deepwater Development Comparisons

Challenges of Deepwater

Fundamental Business Drivers

● Safety● Managing Risk● Value● Costs● Schedule - Pace

Enabled by Consistent and Standardised

● People (Capability & Capacity)● Process & Compliance●Technology (leadership in key areas & capability in fundamental areas)

Deliver Safe,Reliable & High Quality

Performancebalance: long term & short term

Risk ManagementSafety & IntegrityCompliance

Strategic FitMateriality

Understand & Embrace the Intent

Deepwater Development Examples

*

Deepwater Development SuccessUnderstand Key Levers

Safety

Profile (value)

Costs

Schedule – Pacea consistent key

pressure in deepwater

Effectively Managing Risk

*

Natural Pace – a pervasive challenge

Natural Pace is determined by a combination of both internal and external factors● Internal factors include the amount of work needed to inform investment decisions based on:

●reducing uncertainty and risk to an acceptable level●selecting a course of action from a suite of options that enables the

management of residual threats and capture of opportunities (value)● External factors include:

●Resource issues / availability (e.g. rig access). ●Partner and regulatory issues●Banks & Govt. loan pressures

Natural pace describes the optimum speed for a project to progress to create value and manage risk

appropriately.

*

IPA Mega-Project Study (Deepwater Dominated) Aggressive Schedules & Pace = Poor Performance

●Over half of the mega-projects were

wrecks.●100% of the fast-

tracked mega projects were

wrecks.

●Critical role of realistic execution planning.

●Aggressive projects, on average, tend to actually take longer, with more issues, than other projects.

Natural Pace – influences & controls

Natural Pace

Decisions

Standardization

Business Frame

Risk & Uncertainty

Relationships

Organization● Complexity● Value of Information● Technology Needs● Risk Tolerance

● Commercial / Partner● Market● Environmental /

Regulatory● PSCM

● Capability● Experience● Structure

● Timing● Sequence

● Concept● Component

● Greenfield / Brownfield● Resource Constraints

(e.g. capital and rig availability)

EfficiencyRigor

*

● “Fast Track Development” with inadequate time in Appraise and Select - concept was not fully selected and costs underestimated when entering Define.● Original planned 6 months Define duration totally unrealistic;

ultimately took 21 months, but the time was not effectively utilised to ready the project for sanction.● Contractor selected for fabrication withdrew shortly after sanction,

resulting in execution with different contractors from the sanction case.● The result was a forecast $1 billion (ca 30%) growth in the

sanction costs, although project schedule was held.● The sales and purchase agreement was concluded with X

before Select was completed when the project costs and schedule were poorly understood.

Pace Challenge Deepwater Example

Deepwater Success Factors

Deepwater Subsurface Success Factors ISD – recurring themes:●No silver bullet/corner cutting●Permeability Architecture Focus●Compartmentalisation

Understand, Characterise & Manage sources of Subsurface Uncertainty & Risk

Depletion Plan – LoF vs. investment decision

Benchmarking RF wet vs dry trees

Technology Challenges:●Surveillance●Imaging●HPHT●Front Load EOR●Automation●Working at the Boundary

Characterising Subsurface Uncertainty & Managing Risk

Sources of uncertainty

Impact & Risk to delivery

Integration

Resource

Rate

Profile

Subsurface Operations

Depletion Plan

Value Chain Decision Points

Access & Exploration to Development & Production

Example 1: Sanction assumptions

● Geology and performance similar to nearby producing fields

● Excellent connectivity, based on successful Extended Well Test

Total well count

12p/10i

Base Case

STOIIP (mmstb) 935Recovery Factor (%) 36

Reserves/well (mmstb) 28

Example 1: Reality

● EWT cited in atypical (sweet-spot) location – not representative – best in field well

● Subsequent wells accessed less oil than expected; additional wells required

● Reserves, reserves/well all down compared to expectations

● Higher STOOIP● Remaining downside related to adverse

water movement (poor sweep)

Expected Actual

STOIIP (mmstb) 935 1363Recovery Factor (%) 36 22Reserves/well (mmstb) 28 22

Total well count

12p/10i 14p/13i

At Sanction

Actual Performance

Example 1: Root Causes

● Pressures of Fast Track Development - Strategic● Downside interpretation of EWT ignored in

context of push for production● Geology assumed to be similar to nearby fields

but subtle differences meant greater compartmentalization

● Project leadership had little background in reservoir management; the reservoir management team had difficulty communicating the uncertainty and its possible impact

* discovery well first appraisal well

Example 2 –Seismic Silver Bullet

Example 2: Over-optimistic Profile

Example 2: Root Causes

● Pressures of Fast Track Development – Strategic● Competition to be first in the Area/Company● Underestimate of subsurface complexity –

seismic image seen as silver bullet cf. nearby fields in production

● Pace and inexperience of small subsurface team missed key indicators of complexity – structural & stratigraphic – impacts rate and profile

*

Acquiring Data - Characterising the Uncertainty – Managing RisksFocus: Select the Development – Life of Field Optimisation

Integration:

●Seismic●Wells●Analogs

●Stratigraphy●Sedimentolog

y●Fluids●Pressures

Discovery Post First Appraisal Pre Start Up

2 wells 5 wells 17 wells

Increasing well penetrations, seismic data coverage and quality

Increasing complexity

Example 3: Increasing Appraisal Complexity – impacts performance

Assumed no further compartmentalisation on production

Rates were signficantly lower per well – profile not delivered

Example 3: Root Causes

● Pressures of Fast Track Development – Strategic● Competition to be first in the Area/Company● Underestimate of subsurface complexity – great

appraisal not translated into rate post start up – sanctioned ie promised profile not delivered

Deepwater Subsurface Keys to Success

*

■Ruthlessly drive integrated solutions for continuous learning and improvement

■Continued static and dynamic data collection, integration and optimisation

■Subsea Reservoirs have reduced Recovery Factors vs dry trees

■Key focus areas:■Uncertainty and risk■Data ■Regional framework■Imaging■Integration

■Resource■Rate■Profile■Development scheme

Selection

Key Components:●Uncertainty & Risk Management Process●Integrated Subsurface Description●Depletion Plan●Proactively ensure Subsurface Knowledge Informs & Impacts Decisions

The Future: Keys to Success and Delivering our Promises – creating real value

● Clarity on Drivers & Priorities – business

(safety, costs, schedule, profile)● Integration● Learning and

Benchmarking● Value of Information● Risk and Uncertainty ● Technology● Organizational capability

Informed Decision MakingNatural PaceTransparencyNo Surprises

Wise InvestmentQuality thru Choice

Future Deepwater Vision● Enhanced Subsea Reliability - technology

● ‘Dry Tree’ Subsea Development - technology

● Low Cost, High Resolution well and reservoir surveillance

● Natural Pace is the norm – technology enabled

● No easy fix or silver bullet – integration, capability,

competency - behaviour

● An industry that delivers what it promises and promises

what it can deliver framed by a deeper understanding of

subsurface uncertainty and risks to delivery - leadership