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The Role of 3D Seismic in a World Class Turnaround* by William K. Aylor, Jr., Amoco Amoco has achieved a major turnaround in exploration performance in the last four years. During this period, Amoco made major improvements in its success measures: production replacement improved from 60% in 1992 to 179% in 1996; cost of finding dropped from $8.00 in 1991 to under $1.00 in 1996; new resources found improved from 200 million BOE in 1991 to 1,000 million BOE in 1994 and 1996; and exploration drilled success rate jumped from 13% in 1991 to 44% in 1996. This turnaround can be attributed to three elements initiated by Amoco management in the early 1990's: Portfolio Risk Management, increased use of 3D Seismic with related technologies, and improved Acreage Management. These three elements have caused synergies among themselves, which have enhanced and multiplied the overall effect of the improvements. While each element was necessary, any one of these by itself was not sufficient to achieve success.

Portfolio Risk Management In 1991 a permanent prospect quality team (PQT) of geologists and geophysicists was created to review all exploration prospects worldwide and to establish the size and probability of success of each prospect. A major goal of this process is to reach consensus between the PQT and the prospect generation team regarding the size of the prospect and the probability of success of the prospect. In reviews lasting 4 to 8 hours per prospect, 13 risk components are analyzed including source rock & maturity, migration, seal, trap definition, reservoir presence, and porosity. The portfolio risk assessment process has been tied to the business unit's bonus system, and bonuses are awarded based on how well the business unit as a whole has predicted year-end resources found. These resource additions must be within 20% of what has been predicted or there is no pay out. The goal is to achieve better predictability of progress, to properly apply technical expertise and to keep teams focused on the company's bottom line. When the overall business unit's resource predictions are accurate, everyone is rewarded.

Another key element related to the Risk assessment process has been to focus the exploration effort only on a few targeted countries. High priority is placed on trends and plays that have well established hydrocarbon systems, attractive financial regimes, where Amoco has or can establish long term business partnerships, and where the intrinsic strengths of the company can be used to provide a proprietary advantage. This ongoing effort has reduced the number of countries where Amoco has undertaken exploration activities from 80 countries in 1991 to only 14 in 1997. The success rate of exploration wells during this period has gone from only 13% in 1991 to 44% in 1996.

3D seismic & related technologies The major impact of 3D seismic and related technologies is to reduce the number of dry holes and increase the overall number of productive wells drilled. Over the 1990-1996 time period, major improvements can be attributed to wells drilled where 3D seismic was available prior to spud versus where only 2D seismic was available:

Amoco Discovery in Trinidad

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Figure 1 - Amoco replaced 60% of the hydrocarbons it produced in 1992 and 179% in 1996.

Overall Success rate (1990-1996, 2D vs. 3D) 14% vs. 49% Gas well success rate (1990-1996, 2D vs. 3D) 24% vs. 50% Oil well success rate (1990-1996, 2D vs. 3D) 3% vs. 44% Wells covered by 3D (1991 vs. 1996) 1% vs. 65% Annual Drilled Success rate (1991 vs. 1996) 13% vs. 44%

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As the proportion of wells drilled with 3D seismic has increased, the overall number of successes has increased and the overall number of dry holes has decreased. Most of the successful wells have been drilled where 3D was available prior to drilling. This agrees well with previous studies (see Aylor, reference 1) which found that the average Amoco exploration 3D survey reliably condemns 1.4 of the average 3.4 previously defined prospects per survey, and discovers 2 new, previously unknown prospects per survey. Because these prospect additions translate into positive cash flows, it has been estimated that each month of delay in bringing a 3D survey to management for a decision costs the company about $1 million and the host government about $5 million. As the proportion of prospects guided by 3D has climbed, so too has the drilled success rate. According to scout benchmark data collected by an industry group, Amoco's drilled success rate of 44% in 1996 was in the upper quartile of the industry group, thus placing it in what we term as world class status. Note the industry average success rate is only about 18%. From these charts, it is evident that the use of 3D seismic has had a great impact on improved success rates. Like an MRI for a bone surgery team, 3D seismic provides a common physical model for all the members of the team to gain a common understanding of the problem, as well as potential solutions. This improves planning for development, facilities sizing, production and ultimately abandonment. In addition, other high-technology tools are enhanced. Multi-component seismic, amplitude versus offset, reservoir management, drilling and seal analysis are all improved by 3D seismic. New technology like Amoco's Coherence Cube also helps to improve the earth model revealed by 3D seismic. Acreage Management The third major contributor to Amoco's exploration success is our renewed emphasis on international acreage management. This initiative can be characterized in a number of ways, including our term, "Energy Solutions," and market building strategies. But, the primary components of the strategy have been to put the right kind of people on the ground in a targeted country, to clearly understand what our in-country customers want and need, and to provide what is needed. This has resulted in improved financial regimes, aggressive market building and successful new acreage capture. Since 1992 when International "Energy Solutions" was instituted, both our cost of finding and resources found have improved. In 1994 a significant proportion of the billion barrels found was because of exploration in areas newly opened by technical breakthroughs as in the deep water areas of the Gulf of Mexico or by winning concession rights in newly privatized areas as in South America. Seventy-five percent of the company's resource additions in 1996 resulted from market building in the early 1990's in Trinidad's eastern gas province and the Nile Delta of Egypt. These areas had not been attractive for exploration previously because of very poor financial returns on gas production or because of poor market conditions.

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Figure 2 - Exploration finding costs have dropped and resources found have increased during this period.

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Figure 3 - Prospects are ranked by size, factored by risk and net interest. Top prospects are drilled, and the BUs ability to accurately predict resources found is the basis for individuals year end bonuses.

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Consulting with long time, trusted partners such as Amoco, the Egyptian government had the foresight in the mid 1980's to establish for the first time a market price for gas, effectively making it a commodity available for both local sale and export. Amoco is working with the Egyptians to use gas wherever possible in Egypt, thereby freeing up crude for export. Uses for natural gas include power generation, natural gas for vehicles, etc. Amoco is also working to create export markets for Egypt gas in Turkey, Jordan, and other Eastern Mediterranean countries. The emergence of these new markets in Egypt and the region is enabling the company to aggressively and very successfully explore for gas in the Nile Delta, which had previously been unattractive for such work.

Likewise in Trinidad, working with government ministries, aggressive market building was undertaken to increase both local Trinidadian sales and export sales. The effect of this was to make previously uneconomic gas prone areas in Amoco held concessions financially attractive again. Primary market building activities were buying into and expanding methanol conversion facilities for domestic consumption, aggressive gasification for industrial usage and building LNG facilities in Trinidad for export sales. These aggressive commercial and market building activities were built on long established governmental relationships. They enabled Amoco to use its risk management and 3D seismic methods to successfully explore for and book 750 million of Amoco's one billion barrels in 1996 resource additions, with a 73% exploration drilling success rate in Egypt and Trinidad. To underscore the importance of market building it should be pointed out that discoveries in other countries in 1996 only achieved a 30% success rate, in spite of having half of those prospects covered by 3D seismic.

Synergy It should be noted that each of these components of exploration success tends to leverage the others, creating a sum that is greater than the parts. For example, as we've discussed earlier, we may work aggressively with host governments to create financial regimes and markets in areas that previously have yielded unattractive commodities such as gas. This then allows for the appropriate application of highly effective technologies such as 3D seismic, resulting in improved finding rates and improved financial return for both the company and the host foreign government.

Secondly, a country manager may be able to convince these customers that application of these technologies will lead to earlier and more successful new field discovery and development. Amoco has good working relationships with its partners and national oil company customers and technical skills using 3D seismic, coherency cube and 3D AVO. Used in an aggressive but high quality manner, these skills improve its chances for acreage capture.

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Figure 4 - 3D seismic has increased the number of producers while helping to reduce the overall number of wells drilled by reliably condemning poor prospects.

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Figure 5 - As the percentage of prospects covered has risen, so too has the drilled success rate.

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Finally, by employing early portfolio risk management, a country team may realize that a 3D survey, or other another highly effective technology, needs to be carried out. Provisions can then be put into contract work programs that will accommodate the timing and funding of this work. This will reduce the risk associated trap definition or reservoir presence. Acknowledgments The author would like to acknowledge the contributions to this paper of Rusty Hinote and Steve Decatur of Amoco's Worldwide Exploration Business Group (WEBG), as well as Elizabeth Maynard of Amoco Trinidad, for supplying both insights and data needed for this study. I would like to also recognize the contributions of t he WEBG Prospect Quality Team and the 3D Seismic Network of Excellence who have provided support, data and the critical thinking needed to make a coherent story from the noise. Finally, I would like to thank Amoco management for permission to publish this material. References 1. The Business Impact and Value of 3-D Seismic, by W. K. Aylor, Proceedings of the Offshore Technology Conference, 6-9 May, 1996, Volume 1, page 75, OTC 7960. 2. Post appraisal and archival: critical elements in successful exploration risk assessment, by Gary P. Citron, Peter D. Carragher, Glenn E. McMaster, J. M. Gardemal and Don Jacobsen, Amoco, Proceedings of the Landmark Worldwide Technology Workshop, Houston, Texas, Feb. 12-14, 1997 About the Author William (Bill) K. Aylor, Jr. received a BS degree in Physics from the University of Texas at El Paso in 1969. After a 4-year tour in the armed services, Texaco, Inc., Terra Resources, and Amoco Corporation employed him as a Geophysicist in Tulsa, Lubbock, Midland, Egypt and Houston. He was Amoco's Division Geophysicist for North Africa, Consulting Geophysicist for the Permian Basin Exploration Division, Geophysics General Manager for Amoco's Gulf of Suez Petroleum Company in Cairo, and Director of Amoco's Geophysical Systems Group in Houston. In his current position as Coordinator of Amoco's 3D Seismic Network of Excellence, Bill leads representatives of Amoco's Exploration and Production Business Units in discovering and sharing 3D Seismic best practices. He is a member of the SEG, SPE an d HGS, is active in his community, and his hobbies include golf, HD motorcycles, piano and walking. * Editor's note: This paper was presented at the SEG Convention in November 1997 and was published by Pennwell Publishing Co. in the March, 1998 issue of Offshore Magazine, with permission. Revised: 06/09/98 1:21:10 PM