www.geohelp.ab.ca exploration strategies in the 21st century - the end of elephant hunting? dave...
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www.geohelp.ab.ca
Exploration Strategies in the 21st Century
- the end of elephant hunting?
Dave Russum, Geo-Help Inc
www.geohelp.ab.ca
www.geohelp.ab.ca
Exploration Planning• An Exploration Project should have five phases:
Project Pre-Planning
Project Initiation
On-going Project Assessment
Capital Expenditure
Project Post appraisal
• Successful Exploration requires both sound technical work and consideration of a variety of other factors
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Exploration Planning• Other considerations include:
Project Pre-Planning• Corporate expectations and strengths• Analysis of historic results • Assessment of potential• Strategies and Implications
Project Initiation• Avoiding re-inventing the wheel• Data gathering
On-going Project Assessment• Checkpoints to compare progress to expectations• Economic Evaluation and Risk Assessment• Risk mitigation
Capital ExpenditureProject Post appraisal
• Developing new ways to facilitate the process
This paper
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Alberta New Gas Wells + Daily Sales Gas (AEUB Data)
1110721
2327
4103
2782 2664
3318
4510
6009
7506
9165
0
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2000
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7000
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9000
10000
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
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# o
f G
as
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lls
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0.0
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ily
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ale
s G
as
Bc
f
Total New Gas Wells
Daily Bcf
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Alberta Exploratory Drilling (DOB Data)
0
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1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
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lls
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"Su
cce
ss"
Expl Wells Drilled
Expl Success rate
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Alberta Exploration Drilling and Success 2001 (DOB DATA)
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1 3 5 7 9 11 13
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tio
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ell
s
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"Su
ccess R
ate
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Exploration Wells
Success rate
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Alberta Exploration Drilling 2000 (CAPP Data)
Lahee Total Wells ProducersD&A or Susp
% "Success"
NFW 86 29 58 34%
NPW 1766 1002 764 57%
DPT 428 306 122 71%
OUT 1291 944 347 73%
TOTAL 3571 2281 1291 64%
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Exploration • Statistics can be misleading!
Not all Exploration is equal• Has never been a clear definition of
Exploration strategies• “Elephant hunting”, “wildcat drilling” tend to be
recognised terms• < 5% of all exploration drilling in Canada in
2000 was NFW• What do we call the rest of the activity?
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Elephant Hunting
Typical elephant hunt:• Is illegal• Is easy • Largest animals shot• Ivory plundered• Carcass left to rot• Young orphaned
A terrible analogy for Exploration in our Industry!
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Describing Exploration Strategies
• Proposing a new way to describe and classify exploration strategies that provides a clearer image of the expectations of a project or portfolio prior to drilling
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Describing Exploration Strategies
Needs: • Consistent - to describe and compare
Exploration activity• Simple - so that expectations amongst
Individuals, Teams and Companies are understood
• Universally applicable • Preserve confidentiality of detail
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New Description of Exploration Strategies
• Compare exploration strategies to different hunting techniques in Animal Kingdom (ie focus on hunter not the prey)
• Each strategy has a different risk and reward profile– Risk = Likelihood of an economically successful
result (Includes Technical Uncertainty)– Reward = Size of the prize
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Risk and Reward Profile
RISKHigh Medium Low
High
Medium
LowRE
WA
RD
Management, Investors
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Types of Hunting Strategies
– Tiger– Grizzly– Wolf– Hawk– Vulture
• Create an image of the basic characteristics of each strategy and how relate to our Industry. (Most Companies use more than one strategy)
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Tiger Strategy
• Hunts big game over large areas
• Generally alone, takes time, stalks prey, strikes aggressively
• Eats sporadically, gorges, leaves only scraps for competitors
• Failure may result in demise
True wildcats – Was a large company strategy in Alberta – who will fill the void?
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Risk and Reward Profile
RISKHigh Medium Low
High
Medium
LowRE
WA
RD TIGERTIGER
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Grizzly Strategy• Wide variety of eating
habits, from small berries to big game
• May forage with others • Eats whenever opportunity
arises • May hibernate for part of
year but must eat regularly to survive
Most senior companies in their core areas(Individuals can’t hunt for big game while foraging)
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Risk and Reward Profile
RISKHigh Medium Low
High
Medium
LowRE
WA
RD TIGERTIGER
GRIZZLY
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Wolf Strategy• Hunts in packs• Success more frequent
than hunting alone • Spoils have to be divided• A weak or dominant
member may cause problems for whole pack
• Difficult to introduce new members
Typical Joint Venture. Must improve success rate by synergy rather than just reduce financial exposure.
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Risk and Reward Profile
RISKHigh Medium Low
High
Medium
LowRE
WA
RD TIGERTIGER
BEAR,WOLFGRIZZLY, WOLF
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Hawk Strategy• Soars and glides
silently over large distance
• Always alert for signs of movement
• Strikes fast when spots an opportunity
• Survives well eating small prey
Excellent approach for smaller Companies - should focus on core areas over time (Grizzly strategy)
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Risk and Reward Profile
RISKHigh Medium Low
High
Medium
LowRE
WA
RD TIGERTIGER
BEAR,WOLFGRIZZLY, WOLF
HAWK
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Vulture Strategy• Uses keen eyesight to spot
opportunities left by others• Feeds entirely on carrion
and other scraps• May stay close to one
place • May not eat much at each
meal but feeds regularly.
Mature area strategy, growth limited unless combine with another strategy or acquisition
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Risk and Reward Profile
RISKHigh Medium Low
High
Medium
LowRE
WA
RD TIGERTIGER
BEAR,WOLFGRIZZLY, WOLF
HAWK VULTUREDINOSAUR
RARE(Eureka)
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Exploration Strategy
EXPLORATIONSTRATEGY
STAKEHOLDEREXPECTATIONS
MANPOWER
EXPERTISE
MONEY
TIMEFRAME
COMPETITIVEADVANTAGE
DATA RISKTOLERANCE
- No right Answer
©Geo-Help Inc. 2002
www.geohelp.ab.ca
Corporate Strategy• A Company may use different hunting
strategies for different areas, teams or individuals
• Easily communicated– Future plans assessed by strategy– Funds can be distributed by strategy – Results readily evaluated by strategy
• Apply between companies for competitive comparison, investment and acquisition
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Risk and Reward Profile(As basin matures # opportunities and players moves to bottom right)
RISKHigh Medium Low
High
Medium
LowRE
WA
RD TIGERTIGER
BEAR,WOLFGRIZZLY, WOLF
HAWK VULTUREDINOSAUR
RARE(Eureka)
OPPORTUNITIES
POPULATION©Geo-Help Inc. 2002
www.geohelp.ab.ca
Risk and Reward Profile(For a Company to grow by Exploration need to move towards top left)
RISKHigh Medium Low
High
Medium
LowRE
WA
RD TIGERTIGER
BEAR,WOLFGRIZZLY, WOLF
HAWK VULTUREDINOSAUR
RARE(Eureka)
TIME, $sEXPERTISE©Geo-Help Inc. 2002
www.geohelp.ab.ca
Brief Description of Exploration Projects
– Provides image of projects without disclosing corporate secrets. Can add detail as required.
Project 1 Project 2
Strategy Tiger Vulture
Cash $6.5MM $0.4MM
Timeframe 2 years 0.3 Years
# Wells 1 1
Expected Results
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Alberta Exploration Drilling and Success 2001 (DOB DATA)
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1 3 5 7 9 11 13
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"Su
ccess R
ate
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Exploration Wells
Success rate
VULTURE
HAWKWOLFGRIZZLY
TIGER X
Y
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Example - Spending by Exploration Strategy (Proposed or Actual)
0
10
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30
40
50
60
A B C D E F G H
Company
$s M
M
Vulture
Hawk
Wolf
Grizzly
Tiger
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The Test
• Can you place your current Exploration activity into these strategies?
• Would your Boss/Senior Management agree?
• Does the strategy align with the expectations of investment analysts and stakeholders?
• No? - Need to reassess Strategic Plan and Expectations?
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Additional Benefits
• In mature basins, strategy can accurately predict:– Manpower needs, expertise– Timeframe for results– Implications for balance sheet– Impact on reserves and production
• Risk mitigation can be applied early
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Exploration Planning• Other considerations include:
Project Pre-Planning• Corporate expectations and strengths• Analysis of Historic results • Assessment of potential• Strategies and Implications
Project Initiation• Avoiding re-inventing the wheel• Data gathering
On-going Project Assessment• Checkpoints to compare progress to expectations• Economic Evaluation and Risk Assessment• Risk mitigation
Capital ExpenditureProject Post appraisal
• Developing new ways to facilitate the process
www.geohelp.ab.ca
Conclusion• “Elephant hunting” is banned
• Describing exploration using analogy to the predators not the prey emphasizes the known (method) rather than the speculative (result) - helps clarify expectations for both the Industry professional and the layman
• Approach can be applied to Exploration and Research projects universally
• Feedback encouraged [email protected]
www.geohelp.ab.ca
Risk and Reward Profile
RISKHigh Medium Low
High
Medium
LowRE
WA
RD TIGERTIGER
BEAR,WOLFGRIZZLY, WOLF
HAWK VULTUREDINOSAUR
RARE(Eureka)
www.geohelp.ab.ca
Acknowledgements
• Cathy Gaviller at Calgary Zoo• My son who downloaded the pictures• Various individuals in the exploration and
investment community who have provided constructive input
• Your feedback is encouraged– [email protected]
• Thank you!