E&P in Oil and Gas

The Typical E&P Oil and Gas Operation

In this lesson, we’ll discuss the some key characteristics of a typical E&P oil and gas operation.

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What is E&P in Oil and Gas?

Most oil and gas E&P organizations are divided into two high level structures:

Managing Core E&P Assets

One to manage core assets, which is usually a complex existing portfolio, with many mature prospects.

Execution usually involves hundreds or even thousands of existing wells and field locations.

The primary measures of this function are drilling and production efficiency

Managing Growth Assets

Another is to manage growth assets which can include unconventional and international (non-host country) prospects.

Here, execution is a handful of very expensive prospects.

The primary measures of this function is risk management, wildcat success and on time project delivery.

The Exploration Department

The E in E&P stands for exploration.

Finding and obtaining oil and gas reserves is the responsibility of the Exploration department.

Explorationists operate on both core and growth assets, and include activities such as:

Scouting for and evaluating mineral interest exploration opportunities.
Buying or leasing the relevant mineral interest and surface rights (a lease, concession, or license) used for exploration and production.
Performing geological and geophysical exploration (G&G) and prospect evaluation.
Maintaining an inventory of high-quality exploration drilling prospects.
Supervising the site selection and drilling of exploratory wells, often called ‘wildcats.’

E&P in Oil and Gas: Exploration Technical Disciplines

An Exploration Department is usually a globally centralized function which includes the following key technical disciplines and roles:

A Geophysicist uses surface methods to measure the physical properties of the subsurface in order to detect or infer the presence, position and concentration of hydrocarbons.

Typical studies include physical techniques (such as magnetic, 3D and 4D seismic) to measure the properties of subsurface rocks.

The key objective is to detect the measurable differences between those rocks that contain hydrocarbons and those that do not.

Geophysics is considered an indirect method for assessing the likelihood of hydrocarbon accumulations.

The only direct method is to drill a well.

The Exploration Geologist

An Exploration Geologist identifies exploration opportunities that will contribute to the long-term established reserves replenishment goals of the companies.

A primary role is to initiate the bid process to acquire new exploration licenses.

A Geologist applies scientific methods to assure that all geologic factors affecting the location, design, and construction of the exploratory well are recognized.

Typical studies include: geologic construction, geotechnical analysis, material properties, and seismic investigations and interpretations.

A Landman (in the US and Canada) is an individual who begins the process of establishing an E&P project. The typical activities include:

Determining ownership of mineral rights through researching public and private property records.
Reviewing the status of title associated with ownership of the mineral rights.
Negotiating for the acquisition (or divestiture) of mineral rights.
Negotiating the initial business agreement (called a lease) to develop the minerals.
Managing ongoing ownership rights and/or obligations.
Unitizing or pooling of the ownership interest in the hydrocarbons.

Decision Feedback and Improvement

The After Action Review (AAR) process is used by a number of progressive E&P operators to help improve exploration decisions, wildcat well and development success.

In an AAR, the entire well planning and execution team (geologists, geophysicists, drilling, production and reservoir engineers, etc.) meets in a series of facilitated sessions.

Here they review the well plan and results of the wildcat – whether negative or positive – to understand what happened and why, generate new ideas and improve future results.

The process is very structured but can be customized to fit the needs of the specific project.

For example, if all of the participants already have a complete understanding of what happened and why, the main focus of the AAR would be to document best practices and generate ideas for improvement.

Managing the Property Portfolio

The E&P business has traditionally been defined by differences in its various technical disciplines, basin geographies and prospect risk profiles.

Two key exploration activities are not usually mentioned in the same breath as drilling and production:

The first is the decision to negotiate and acquire assets versus finding oil and gas by drilling for it.
Another is when to divest assets to a company that values them more highly.

Acquisitions and divestments (A&D) are important in determining ultimate exploration success.

These two activities are core skills of most E&P operators.

These activities, while perhaps “softer” than seismic interpretation, drilling or production skills, are fundamental to adding value to a company’s portfolio.

They require careful and continuous evaluation of a company’s portfolio, its competition and/or potential buyers and sellers.

Uncertain times are often the best times to invest.

Low prices often give better valuations on those E&P companies with good assets and profitable operating results, making it easy for them to attract capital for acquisitions.