This article is about first phase of ORP Opportunity realization process which is identify and assess.
First Phase Identify & Assess for Opportunity Realization Process
The primary deliverables from the ORP Identify and Assess Phase are
- an identified opportunity (Identify Sub Phase)
- Project Initiation Note
- Feasibility Study Report
- Opportunity Framing Report
Hydrocarbon opportunities may be generated from two sources:
- “reactive” opportunity sources (farm ins/outs, bidding rounds, external requests/offers for acquisition or divestment)
- “proactive” opportunity sources (scouting studies, contacts)
Opportunities generated within an OU will generally be managed and realized within the OU organization by the setting-up of an opportunity/project team. Opportunities identified outside an OU may, and probably will, require a new venture company to be established to develop and realize the opportunity. This section discusses both new venture generation and opportunities identified within an existing OU.
Venture Generation Process
The SIEP Venture Generation Process (VGP) is a generic process used by the EP Business Centre to produce new business opportunities. It is capable of adaptation for use within OUs. The VGP has four steps:
In the wider context of opportunity realization, the first three steps are part of ORP Phase 1, Identify and Assess, and are mapped below in relation to the Value Assurance Review (VAR) Process discussed in 2.5.3, Assuring the Value of the Opportunity.
VG-01 Generate Venture Concepts
Second-level strategies are developed and articulated and intelligence is gathered and disseminated. A Venture Identification Study team is formed to perform studies and generate ideas. A workshop is held to decide which ideas to pursue. Preliminary concept studies are performed to develop ideas further and to decide which ones to take forward for approval of further concept development. Before putting the idea forward Value Assurance Review No 1 (VAR 1) is undertaken i.e. the opportunity is at a stage when a Project Initiation Note has been prepared.
VG-02 Select Venture
The opportunity is put forward for corporate approval and, if approved, a multidiscipline team is established to pursue the further development of the best concepts to realize the opportunity.
VG-03 Develop Venture Business Plan
The opportunity is framed and the Feasibility Study report is prepared. (For new ventures the EP Business Centre develops a Business Plan at this stage that acts as the Feasibility Study report.) The Feasibility Study is subjected to VAR No 2 before submission for corporate approval. (Should the opportunity be approved for further development then this would take place in ORP Phase 2-Select.)
(The Venture Generation Process is completed by VG-04, Execute Venture, in which Venture control frameworks are established, the Business Plan is evolved and verified, a Venture set-up plan is generated, deals are negotiated and the set-up plan is implemented.)
Exploration Stage
Should exploration be needed in order to assess the opportunity then the steps shown in Figure 5.2.3 will be necessary.
Opportunity Framing
The opportunity must be framed in accordance with 2.2, Defining the Opportunity, and 2.3, Planning the Opportunity.
Surveys (A-10, A-11.01, 02)
Processing and interpretation of data from seismic and other surveys along with any other sources of geological data will allow mapping of the subsurface structures and preliminary estimation of a range of potential reserves.
Preliminary Prospect Evaluation (A-11.03, 04, 05)
One or more development schemes will require Level 0 order-of-magnitude cost estimates in order to calculate Expected Monetary Value (EMV) against the range of potential reserves. Factors such as area prospectively, Shell’s equity position and existing infrastructure will have to be taken into account in assessing the prospect’s attractiveness.
Exploration Drilling (A-09)
If the prospect appears attractive, an exploration well proposal is prepared, with sufficient technical and commercial background to allow comparison of the potential value with other opportunities in the OU’s portfolio. The following are also required prior to commencement of drilling:
•• prospect data package that specifies the technical requirement for the well
•• site survey
•• permits from the regulatory authorities
•• sourcing of a suitable rig and/or securing a slot on the drilling programme
•• for shared equity, a co-venturer’s cost sharing agreement may be needed
A logic diagram illustrating the activities leading up to a well spud is given in Figure 5.2.4.
Updated Prospect Evaluation (A-11.02, 03, 04, 05)
Drilling and testing of an exploration well provide input to development of a preliminary subsurface model, allowing a better estimate of recoverable reserves. This, in turn, supports an update of development facilities requirements and an associated cost and economic re-evaluation.
Strategic Assessment (A-16)
It is normally (but not necessarily only) in the Exploration Phase that a high level strategic assessment is made of the preferred commercial direction. A summary of this assessment and the required commercial agreements should be documented in a Commercial Strategy summary.
In support of the strategic assessment it is likely that preliminary contacts will be made with other involved operators (potential co-venturers and infrastructure owners) as well as the regulatory authority, to get an initial indication of their respective positions and potential issues.
The Development Strategy Note (A–11.06)
This note is a concise document outlining the prospect status and plans for its
development. It is the precursor to the Project Initiation Note (5.2.6) and acceptance by
management ensures an agreed direction for initial development. Typically, it will contain:
- key results of the exploration well evaluation
- a summary Business Plan, covering the business objectives and the means of achieving them. As a minimum, the following should be included:
- Commercial Strategy Summary (see above)
- gas sales issues, notably, compatibility with Shell and co-venturer marketing strategies
- the regulatory authority positions on key issues, including environmental aspects
- potential development options including indicative costs, timings and economics
- a SWOT analysis (strengths, weaknesses, opportunities, threats) covering technical and business aspects
- a summary prospect schedule, identifying key interfaces with other OU or third party objectives
- a Summary Prospect Maturation Plan (PMP), covering:
- any departures from the conventional opportunity planning cycle
- a strategy for handover to the opportunity team fot the next stage of development
- roles, responsibilities and resource requirements
- Initiation Stage objectives, (See 5.2.4), including subsurface risks and uncertainties to be addressed
- a strategy and program for appraisal drilling, if required
- an Initiation Stage program, including activities, timing, resource requirements and associated costs
Initiation Stage
The objective of this stage is to reduce the technical and commercial uncertainties sufficiently so as to establish whether further prospect development is justified. Appraisal drilling may be necessary to reduce the uncertainties. The stage deliverable is a Project Initiation Note and the stage is mapped in Figure 5.2.5 below.
Opportunity Framing
The opportunity should be reframed in accordance with 2.2, Defining the Opportunity, and 2.3, Planning the Opportunity.
Appraisal Drilling (A-09)
The main input to reservoir definition will be the results of appraisal wells drilled in accordance with the program devised following the discovery well. Each appraisal well requires prior activities similar to an exploration well (see 5.2.3 above).
In addition, a Value of Information justification is required as part of the well proposal. When co-venturers are involved and if a cost sharing agreement is not already in place, it is likely that a Joint Appraisal Agreement will need to be raised prior to appraisal drilling. This normally covers all work up to project approval (FID).
Appraisal drilling will normally continue until the expected value of information from a further well does not merit its cost and any associated delay to the development program.
Subsurface Studies (A-11.01, 02, 03)
The appraisal information will lead to enhancement of the existing reservoir model. This will support a major reduction in the uncertainty of recoverable volumes, together with a determination of fluid compositions, wellhead pressures and temperatures, required recovery mechanisms, likely reservoir drainage requirements and production profiles.
Wells and Facilities Studies (A-11.04)
The subsurface activities support initial studies of both development well and subsea/surface facilities requirements. In conjunction with the latter, a more thorough technical review is conducted of any infrastructure (OU or third party) that may have processing or transportation potential. This review also addresses the potential effects of other prospects in the area.
Business Aspects (A-11.06)
In parallel with the above technical work, the summary Business Plan developed in the exploration stage is updated and enhanced. In addition to the previous topics the Business Plan should now include:
- a Co-Venturer Interface Plan that addresses the nature of the relationships between Shell and any co-venturers and the way in which these will be managed in order to optimise the business objectives.
- a strategy for the management of interfaces with regulatory bodies.
During this stage, further discussions should take place with :
- co-venturers, to discuss possible development plans and to identify any major differences or issues
- owners of processing or transport infrastructure, to assess their interest and potential constraints
- the regulatory authority , to promote dialogue from an early stage on such issues as recoverable reserves, development options, HSE aspects, operatorship, equity and use of existing facilities.
Economic Screening (A-11.05)
The wells and facilities studies support the preparation of high level (+40%/-25%) development cost estimates. These, together with the indicative tariffs, operating costs, production profiles and oil/gas prices allow screening economics to be undertaken, normally across a range of reserve scenarios.
Project Initiation Note (A-11.06)
The activities described above allow an improved assessment of the technical, economic and commercial viability of the prospect. If the indications are positive, a Project Initiation Note (PIN) is written to gain management support for further development work. Before the PIN is presented to management, VAR No. 1 is carried out.
The PIN should be a concise document and, for a normal hydrocarbon opportunity, typically contains:
- key results from the appraisal programme with an overview of the updated surface interpretation
- an overview of the preliminary development drilling and subsea/surface facilities studies, including infrastructure and evacuation costs
- identification of anticipated HSE issues
- economic screening and timing of potential development options
- an updated Business Plan, as outlined above
- an updated SWOT analysis
- an updated summary prospect (project) schedule
- an updated Prospect Maturation Plan, including a handover plan to the development team
- objectives for the Feasibility Stage, highlighting key technical and business uncertainties to be addressed
- a programme for the Feasibility Stage, including activities, timing, resources and costs
Value Assurance Review (VAR) 1
VAR1 is held towards the end of this stage to evaluate the work done to date before a decision is taken on moving into the Feasibility Stage.