Mauricio Medinaceli Monrroy
Private Consultant
Oil - Natural Gas - Energy

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Blog.065

Love for punches or the curious oil exploration projects

Imagine you decide to captive a person (as usual, I'll try to maintain neutral the gender aspect) knows as to be a very difficult one. Because you don't want to leave any detail to luck you decided to create a "plan" that, step by step, will help you to achieve the final task... that big kiss at the end of the night.

Step 1. You start asking the friends about the tastes, interests, desires, past loves, etc. of the person who owns your heart. This effort will help you to see if you can or cannot offer what the person likes. Naturally there are two possibilities here, are you compatible or not, if you're there's no problem because you can implement step 2; on the contrary, if you're not compatible and decide to continue you are a "risk-taker" but if you leave the plan you're more cautious.

Step 2. Now you reached step 2 you can spend a little more resources to achieve the final goal, you can for example frequent the same places and try to know the beloved person. As in step 1, there are two options, if after meeting the person didn't show any interest not to know you better or, conversely, both of you have a friendly conversation other. And so, dear reader, you can go through several steps to achieve that goal. Do you notice the pattern of behavior? As negative signals increase maybe you should not continue with this project, because it could happen that in the last stage, when you buy that expensive gift, the person will give you a resounding "no".

Perhaps at this point you wonder: Why I'm reading this curious and silly romantic comedy? What happen is that a very similar situation we can find in the oil sector. The so-called "exploratory step" is actually made up of many "small steps" or sub steps where going "forward" through them always involves a cost/benefit analysis. How? It's a small tree like this:

blog.16.04.01.01

At each stage there are chances of failure (sad face) and successful (happy face). For readers interested I mean FTG stages, seismic, 1, 2, 3... exploration wells, "appraisal DST", etc. For each company the exploration stage may vary depending on the type of risk the take, the sub steps they implement and another factors. However, here's something true, the more sub steps are carried out, the more the cost of exploration is, and it's not linear, since the final stages are always more expensive than initials. Thus, if even after many failures in previous sub steps you decide to move it means that, you're "passionate lover risk" or frankly you have plenty of money.

This brings us to what I think are the most important principles that exploration activities should meet:

  1. 1.Efficiency. Although this is a risky activity and everyone knows that, it 's necessary to perform a cost/benefit (with expected value or not) in each sub stage with negative evaluation. There's no doubt that a good (much less expensive) seismic work can force to abandon the exploration area.
  2. 2.Opportunity. Exploratory periods usually vary between 5 to 10 years; In this sense, if you want to supply the market in 2019 (for example) you should have begun exploratory work in 2010 (at least).
  3. 3.Best technology. You understand that exploration tasks require tailored technology in constant evolution. For this reason, many times these activities are performed by a specialized contractor. I ask you dear reader, when you need a computer network at the office or home Do you manufacture the network or contract a specialized company?
  4. 4.Socio-environmentally compliant. This means that exploration activities should minimize the associated environmental impact and avoid to generate conflicts with communities in the region.

It's not strange that the "quality" of an oil company is often evaluated during the exploratory period, where you can find "top class" companies and the other ones.

Well my dear friends, I was absent for several months from this forgotten blog but I promise to keep posting as usual in the future, I hope that the ideas expressed led you to some reflection. For my part, I know that after the storm comes the calm... whatever this is.

Mauricio Medinaceli Monrroy

La Paz, April 1st. 2016

 

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