STATISTICAL, ECONOMIC ANALYSES GIVEN FOR SURFACE EXPLORATION PROJECTS

Brian F. Towler
University of Wyoming
Laramie, Wyo.

The desire of oil and gas explorationists is to find surface prospecting tools that will select the targets most favorable for exploration and remove the nonproductive areas.

It is also desirable if the surface measurements can indicate where seismic lines should be placed to be most effective. Geochemical oil exploration techniques have been investigated more widely in recent years to fulfill these aims. The hope is to find simple and cheap methods of indicating where oil and gas fields might lie.

When seismic exploration techniques were introduced in the oil industry they increased the knowledge of the subsurface structure and improved the chance of success so much that few new structures are drilled today without first collecting seismic data.

However seismic techniques can only indicate if a structure capable of holding oil and gas exists. Hence geochemical techniques, which directly indicate the presence of hydrocarbons in the structure, have great potential.

In the Geochemical Exploration Research Team (GERT) project conducted in the Permian basin in 1986-90, Calhoun 1 selected and compared 12 of the most promising techniques available. He compared them on 18 wells to be drilled irrespective of the results of the geochemical results and recommendations.

This project provided valuable data to allow statistical comparisons of the methods. In this article it is proposed to reexamine these data to provide some useful comparisons that shed light on which may be the most useful techniques.

GEOCHEMICAL METHODS

Geochemical methods of surface prospecting fall into several categories:

1. Trace analysis of hydrocarbons in soil

2. Trace analysis of metals in soil

3. Radiometric measurements

4. Measurement of variations in the earth's magnetic intensity

5. Satellite imagery analysis.

The methods compared in the GERT project were:

SOIL GAS ANALYSIS. In this technique trace amounts of methane, ethane, propane, and butane are measured in the soil and their presence can be an indicator of both oil and gas. In the GERT project the technique, which is fairly widely used in the industry did not have a good record of success. However this may have been due to the small size of the prospects being considered and the insufficient number of data points used.

FLUORESCENCE. Trace amounts of heavy ringed hydrocarbons such as naphthalene, phenanthrene, and anthracene are measured in the soil samples and their presence can be especially indicative of oil in the subsurface structure. The technique was relatively successful in GERT, and the results will be discussed later.

MICROMAGNETICS. Variations in the earth's magnetic field are acquired with a ground based cesium vapor instrument, and any departure from the regional gradient can be indicative of hydrocarbons. In the GERT project this technique was not highly successful.

RESIDUAL MICROMAGNETICS. This technique makes use of the micromagnetic data and attempts to screen out variations in the magnetic data that are due to known basement effects and emphasize the high frequency anomalies. In GERT this was one of the more successful methods.

GAS SENSING RADAR. This technique uses a specially modified propane sensing radar tool to detect the presence of hydrocarbon seepage in the soil. Its record in GERT was fairly poor.

SPECIAL MAGNETIC SUSCEPTIBILITY. Authigenic iron minerals are analyzed in the drill cuttings from the first 2,000 ft of the well, and their presence in sufficient quantities is indicative of hydrocarbons in undrilled formations. The technique was only tested in eight wells in GERT, and its record in those wells was marginal.

AUDIO MAGNETOTELLURICS. This technique measures variations in electrical impedance in the earth's crust with an electromagnetic remote sensing device. It has the ability to convert the response to audible sounds. It can distinguish formation tops as well as hydrocarbons in the formations. In GERT the audio magnetotellurics data were gathered with the Geoprobe tool, which has some proprietary features. It successfully predicted the formation tops accurately but was less successful in predicting hydrocarbons.

RADIUM SULPHATE. When radium sulphate is present in anomalous concentrations in the soil around the prospect it can be indicative of hydrocarbons. However, in the GERT project the method did poorly.

ELEMENTAL RATIOS. The analysis of the manganese to potassium ratio in the soil was used in GERT to indicate the presence of hydrocarbons and its success record was fairly good. Similar methods involve the strontium/calcium, iron/sulfur, and other elemental ratios.

RADIOMETRICS. Variations in natural gamma rays from the earth are used to predict the presence of hydrocarbons. It was not very successful in GERT.

WINDOWED RADIOMETRICS. In GERT one particular company, Energy Exploration, used a windowed radiometric technique that improved the success rate greatly. They used sodium iodine crystals to measure the gamma radiation in four energy ranges. Any anomalies are further investigated with a second unit housed in a separate vehicle. Their tools and analysis techniques are proprietary, but they had the highest success rate in the GERT project.

LANDSAT IMAGERY. In this technique the lineaments, tonal anomalies, and band 4 to band 5 ratio image, that emphasizes the iron content in the soils, are used from the satellite image of the earth. The combination of these indicates structures, faults, and hydrocarbons in the structures. In GERT the technique proved very successful. The band 4 to band 5 ratio image is not the only one used in exploration, and others should also be considered. 2

GERT PROJECT RESULTS

The GERT project was a tough test for any geochemical or remote sensing method because all the prospects were small in the one to two well range, although the Young discovery has been successfully offset three times since the GERT project ended.

Such small accumulations are not as likely to register a strong detectable signature on the surface. Hence, though some methods performed poorly it does not condemn the method for application elsewhere.

It is expected that in areas with larger targets all methods would have higher success rates. In specifying which methods are successful it is also necessary to define what is meant by a successful prediction.

If a well is marginal in that it produces oil and is completed for production but fails to recover its drilling and completion costs should it be classed as a success or failure? Indeed it can be classed as a technical success and an economic failure.

In the GERT project the marginal wells were counted as failures, but here we present two tables. The first counts marginal wells as failures, and the second counts them as successes.

One technique, the windowed radiometrics of Energy Exploration, actually predicted some wells correctly as marginals and hence will be counted as correct in its prediction for those wells on both tables. The results for the project given by Calhoun 1 have been corrected and updated in the current tables.

Table 1 gives the results for all wells and all techniques counting marginal wells as dry. Table 2 gives the results counting marginal wells as successful. Of the 18 wells three were economic producers, four were marginal, and 11 were dry.

In each table the overall prediction of outcome is shown and also at the bottom of the table the outcome of those wells predicted to be producers. This is an important statistic since only those wells predicted to be producers are normally drilled.

In Table 1 the overall success ratio of the drilled wells is 16.7%. Hence to be worthwhile a technique must be significantly better than this. However, this statistic can be misleading since if a technique predicted all 18 wells to be dry it would have a predictive success of 83.3% on Table I and 61.1% on Table 2.

Hence a more enlightening statistic may be the success rate on the wells predicted to be producers, which is shown in the bottom two lines of each table. As shown, the four best techniques were windowed radiometrics, Landsat imagery, magnesium/potassium (Mn/K) ratio, and fluorescence.

In Table 2 the overall success ratio was 38.9%, and the same four techniques were significantly better than this in both statistical measures shown, as was the residual micromagnetics.

Table 2 gives the true measure of the technical success rate of each method, and it should be noted that the successful methods had a similar success ratio for both the overall prediction and for the wells predicted to be producers.

The most successful method was the windowed radiometrics technique of Energy Exploration, which had an 83.3% success rate on three of the four measures listed in Tables 1 and 2. Of the four wells it predicted to be producers, two were economic, one was marginal, and one was dry. It also successfully predicted two other wells would be marginal.

SURFACE ECONOMICS

An important question that must be asked in regards to geochemistry is one of economics.

Even if these techniques do improve the success ratio are they economical to apply? How much do the methods cost, and how much is too much to pay before they become uneconomic?

On the average these methods cost $2,000-5,000/prospect depending on the prospect size and amount of data gathered.

Since Calhoun 1 recommended that three techniques should be employed simultaneously the average cost per prospect could be approximately $10,000.

If the technique or techniques were 100% reliable then it is quite clear that as long as they were cheaper than drilling then they would be worthwhile to apply. However, since it appears they only increase one's chances of success then the best method of analyzing their economic benefit is to use risk analysis.

If the overall risked net present value (NPV) of all the prospects using geochemistry is higher than without geochemistry then it becomes worthwhile. Thus it is fairly straightforward to derive the following criteria for using geochemistry:

[See Equation]

In the equation, N1 is the number of prospects available; N2 is the number of prospects with positive geochemical results; a is the expected success ratio without geochemistry; and b is the expected success ratio after using geochemistry.

Di is the dry hole cost on prospect i, Gi is the cost of geochemistry on prospect i, and Vi is the net present value of a discovery on prospect i.

ECONOMIC EXAMPLES

Use of equation 1 can be illustrated using some data from the GERT project.

Let N1 equal 18 and N2 equal four, i.e., after the application of our geochemical technique the number of prospects has been reduced to four from 18.

Let V for each prospect be $1.5 million, D is $200,000, and G is 510,000. The expected success ratio before geochemistry is a = 0.1667 and after geochemistry is b = 0.5 (using the windowed radiometric technique).

Equation 1 gives 4 x [0.5 x 1.5 x 10 6 -0.5 x 200,000] - 18 x 10,000 18 x [0. 1667 x 1.5 x 10 6 -0.8333 x 200,000] or 52.42 million $1.5 million. [See Equation]

The $2.42 million is the net present value of the project using geochemistry, and the right side is project NPV without it. Note that the use of geochemistry has left undrilled one of the three potential discoveries. However, because it has avoided 13 dry holes the overall value of the project has come out ahead.

Note also that if the expected success rates a and b are actually borne out in practice then the risk analysis calculations will give the actual value of the project.

In the above example with geochemistry, the geochemistry cost $180,000 and the two dry holes cost $400,000, but two discoveries worth $3 million were made to give an overall net gain of $2.42 million.

Without geochemistry, three discoveries were made with a total value of $4.5 million, but there were 15 dry holes that cost $3 million to drill, leaving a net of $1.5 million. The project is still worthwhile without geochemical techniques, but the overall economics have been improved by applying geochemistry.

A second example is given in which geochemistry may not be worthwhile because the loss of successful discoveries cannot be tolerated because they are so valuable. Let the success rates be as previously a = 0.1667, b = 0.5, N1 = 18, and N2 = 4, and G = 510,000. Let V = $100 million and D = $500,000.

Now the risk analysis NPV criteria in the equation give: $198.82 x 10 6 [10 to the 6th power] with geochemistry

Note this is a very economic project with or without geochemistry, and it still may be worthwhile to apply geochemistry so that the first two discoveries are made more quickly. But the risk analysis tells us that it is still necessary to drill the rest of the prospects to find the third discovery.

A third example is now shown that demonstrates that geochemistry may not be worthwhile if the increase in success rate is not sufficient to justify the overall cost of the methods. Let a = 0.1, b = 0.3, N1 = 30, and N2 = 10. Let V = $2 million and D = $200,000, and G $150,000.

The risk analysis criteria are not satisfied because $100,000 with geochemistry

Clearly if the geochemistry approaches the cost of a well its success rate must be high to be justified.

Rearranging equation 1 to give criteria for the justifiable cost of geochemistry shows that the total cost of the geochemistry should be:

[See Equation]

In the case where Di = Dj, Gi = Gi, and Vi = Vi, equation 2 can be simplified to:

G

[See Equation]

Using this equation the geochemistry would become justifiable in the third example if G

Despite the above two examples, which were designed to show situations when geochemistry is not cost effective, in the overwhelming majority of cases it is economically justified.

Since the methods are usually much cheaper than seismic or drilling but significantly increase the chances of success they justify themselves. The above economic analysis provides a firm theoretical basis for the economic conclusions.

REFERENCES

1. Calhoun, G.G., How 12 geochemical methods fared in GERT project in Permian Basin, OGJ, May 13, 1991, p. 62.

2. Abrams, M.J., Conel, J.E., and Lang, H.R., The joint NASA/Geosat test case project, final report, October 1984, AAPG Bookstore.

Copyright 1993 Oil & Gas Journal. All Rights Reserved.