KNOWING FIELD SIZE DISTRIBUTIONS CRUCIAL IN ESTIMATING PROFITABILITY

Dan L. Wilson ARCO Oil & Gas Co. Houston Knowing the distributions of field sizes for play types is crucial to predict profitability of plays. An exploration program is commonly built by selecting prospects that meet an arbitrary reserve size criteria without understanding the field size distributions of the plays involved. This method often results in poor financial performance. Oil and gas field size distributions are best approximated by a log-normal distribution (Fig. 1).

April 15, 1991

6 min read

Dan L. Wilson
ARCO Oil & Gas Co.
Houston

Knowing the distributions of field sizes for play types is crucial to predict profitability of plays.

An exploration program is commonly built by selecting prospects that meet an arbitrary reserve size criteria without understanding the field size distributions of the plays involved.

This method often results in poor financial performance.

FIELD SIZE DISTRIBUTIONS

Oil and gas field size distributions are best approximated by a log-normal distribution (Fig. 1).

This figure represents the distribution of fields thought to be economic at the time the exploratory wells for each field were completed. Many of the fields are actually too small to be economic, but this wasn't known at the time the wells were completed.

The obvious and important point to note concerning the distribution is that there are many more small fields than there are large fields.

To predict the financial performance of a play over time one must know the distribution of field sizes for that play. Basinwide distributions of field sizes, although interesting, are of no use for economic purposes unless there is only one play type in the basin. For economic analyses, field size distributions must be play specific.

Constructing a field size distribution is difficult because there are no convenient data bases of information concerning field sizes for fields from a given formation. Additionally, most small fields have been truncated from data bases.

Often the distributions must be constructed based on one's knowledge of a region, available state and commercial data, and many assumptions concerning the sizes of smaller fields.

In many cases, field size distributions can be modeled for a select portion of a basin where the geology is thought to be most favorable.

In most cases field size data should be limited to a relatively recent period of time, perhaps the last 20 or 30 years.

Many large fields tend to be discovered very early in the history of a basin because they are fairly obvious. It may not be realistic to include these fields in the distribution.

Field size distributions should be constructed for oil and gas independently rather than on a barrel of oil equivalent basis because the exploratory economics are different for each commodity.

The average field size is what should be used in an economic analysis of a play type. The mean of the field size distribution is a reasonable estimate Of what companies may find over time. When a reasonable appearing distribution of fields cannot be constructed, an arithmetic mean of the field sizes should be used.

SIGNIFICANCE TO EXPLORATION

Understanding the significance of field size distributions for plays can be important in developing an exploration program.

The shape of the field size distribution shown in Fig. 1 is fairly representative of onshore plays in North America. On this graph the average field size is somewhere between 1 and 2 million bbl.

An operator exploring in this play would, over time, discover fields within this reservoir size distribution. Many would be smaller than average, and a few would be larger than average.

Economics will affect the distributions of field sizes for different plays. Plays that have very low exploration costs, such as the Denver basin, can have very small average field sizes and remain economic. Very expensive plays, such as the Gulf of Mexico, must have large average field sizes to be economic.

Many companies believe they can successfully target only the largest fields in a play. The typical field size distribution shows that the odds of discovering a large field are small. For this reason, targeting only the largest fields in a competitive basin may lead to poor economic performance.

For example, a company targeting prospects that average around 6 million bbl as shown in Fig. 1 would be anticipating a field size distribution that ignores small fields.

If the company were investing money in the play expecting 6 million bbl fields and finding 1-2 million bbl fields on average, then the play would probably be uneconomic for the company. The company would tend to buy too much land, shoot too much seismic, and spend too much money for drilling and testing.

Large fields can be exclusively targeted in mature basins only when there is no significant competition in a play, or when the average field size is large.

Competition causes companies to take greater risks in order to remain a player. This competition eventually drives both the reserve size and the success rate to, the economic limit of the low cost players and drives the high cost players out of the play.

In mature basins, large companies can target large fields successfully by removing their competition. This can be done by either purchasing large acreage positions or by developing and applying a significant technological advantage. It can also be done by reducing exploration,costs below the competition.

Unfortunately, most large land acquisitions are marginally economic at best, and significant technological advances are rare and hard to keep in house.

This suggests that a major company looking for large fields in the established plays in North America needs to be willing and financially capable of finding small fields. There are no plays consisting of only large fields.

SUCCESSFUL EXPLORATION

The successful exploration organizations in the future will be those that can design their exploration programs considering the average field sizes in North American basins.

To design an exploration program, companies should select plays with field size distributions that meet their needs. Smaller exploration organizations should determine whether their plays will be economic with established average field sizes.

Large companies can in addition focus on plays that are producing some large discoveries. Such plays exist in the Gulf Coast, Oklahoma, the Rocky Mountains, and the Alberta basin.

The major companies, however, will have to lower their exploration costs to remain competitive and drill enough wells to have significant exposure to large fields. In North America, the company that drills the most wells economically has the best chance of finding large fields.

SUMMARY

Understanding the field size distribution of a play can be useful in determining the economics of a play over time, and the potential for discovering large fields.

It may not be possible to design exploration programs in domestic basins that find only large fields.

Companies that target only large fields in mature basins without having strong technological advantages over their competition will eventually underperform their competition. The low cost explorer who can economically discover small fields will eventually discover large fields.