More thoughts on the "Ten Habits"

Our popular April 2012 blog entry, "The Ten Habits of Highly Successful Oil Finders" has received some positive press lately.  As the basis of a talk, the habits were presented at the AAPG Playmaker Forum in Houston this past January, and were also covered in the Houston Chronicle. Now, we are honored to report that the habits, as conceived by Dan Tearpock and colleague Bob Shoup, are featured in the March 2013 edition of the AAPG Explorer.

In the article, SCA Founder and Chairman Emeritus Dan Tearpock delves further into the value and importance of what is also referred to as a "philosophical doctrine" guiding his and his company's professional activities.  We invite you to review some excerpts (please see the full article here):

"Developing a successful product, i.e. good prospect, is only part of the value of the 10 habits; they can be used in both directions. 

'If you drill a dry hole, the company asks what went wrong and they may hire an expert to come in and reverse engineer the prospect, tear it apart to find where the mistakes were to cause a dry hole,' Tearpock noted.'We call this step forensic geology. 

'They may find you didn’t use the 10 habits correctly, so you made a mistake in interpretation and drilled a dry hole. 

'That’s the marvelous aspect of this philosophical doctrine and the habits in it,” he said. “It can be used both ways. 

'What some people do is when they drill successful wells, they tear them apart and see what the team did to drill this successful well,” Tearpock said. 'They use the habits again to go in and see what they did and then find they pretty much followed a philosophy similar to these habits – and that’s why they had success.'

Tearpock is quick to note that this philosophical doctrine is not exclusive to SCA. 

'Some people have come up with these habits on their own,” he said, “and I don’t know how many.'

He also cites a real-world example from his own experience leading SCA:

"SCA sent out three teams for four months and evaluated a hundred proposed prospects, along with some of the dry holes from earlier. They determined what the explorationists were doing wrong. 

'For the most part they weren’t using the habits at all, except for the European division working the North Sea, which was running at an 85 percent success rate on exploration prospects,” Tearpock said. 

'This group had a 150-page manual that was literally like taking our 10 habits and expanding on them to a great degree. 

'We found that the VP of exploration and several other explorationists there had come from the company that originally conducted the study of why certain people and teams are more successful than others,' he said. 

'They brought that knowledge with them to their new company, put it into practice and showed the success it can provide' Tearpock noted."

We are pleased that the Ten Habits continue to inspire discussion. Are there examples you can share of when the application of the habits or philosophical doctrine has contributed to exploration success in your professional life? Or alternatively, when neglecting the habits has resulted in dry holes or less successful results?

Reducing Dry Holes

The following article is taken from SCA's 4th Quarter GeoLOGIC newsletter.  Click here for the full publication. 

Reducing Dry Holes
by Daniel J. Tearpock and Robert C. Shoup

Every year, our industry loses hundreds of millions of dollars on dry holes. Many of those dry holes are the result of interpretations and maps that are incorrect. As such, many of those dry holes could have been avoided by critically reviewing the final prospect maps and data used, using the “Quick Look Techniques” developed by Subsurface Consultants & Associates, LLC, before the wells were drilled.

One of the more common mistakes we see when reviewing maps is two or more faults connected incorrectly as one. When this is done, any traps associated with the fault pattern are incorrectly interpreted and mapped; dry holes or uneconomic wells waiting to happen. There are several Quick Look Techniques you can use to ensure that faults have been interpreted and mapped correctly. In this article, we will discuss one of the more powerful QLTs: implied fault strike.

Before discussing implied fault strike, we first need to review fault traces. 

Figure 1 (above) shows the fault surface map for Fault A. Note that the strike of Fault A is north to south with a slight westward curvature.

Figure 2 (above) shows a structure map of a producing reservoir. The map surface and the fault surface have been integrated so that the trace of Fault A on the final map has been positioned correctly and the width of the fault gap has been properly defined. Note that the orientation of the fault trace of Fault A is north to south with a slight eastward curvature. Since the fault trace on the completed map is the intersection of the fault surface with the horizon surface, the fault trace will not have the same orientation as the fault surface. With steeply dipping beds, the orientation of the fault trace can be almost ninety degrees to the strike of the fault surface.

Figure 3 shows a 3D perspective of the mapped horizon shown in Figure 2. If you examine the figure you will see for example, that the 8600’ contour for the upthrown (footwall) block of the horizon and the 8600’ contour of the downthrown (hanging wall) block of the horizon are connected by the 8600’ contour on the fault surface. This should occur for all contours mapped and if we connect all horizon contours of equal value, we should be able to generate what the fault surface looks like based on the interpretation (Figure 4, below).

You see, unfortunately today many interpreters do not interpret or map faults. This is a major flaw in their training or education. In most interpretation work, the major and potential trapping faults should be interpreted and mapped first before ever attempting to tackle the horizons. This is a fundamental principle of basic geoscience interpretation.

In the review of many prospects, the presenters will often not have a fault surface map to review or have not even interpreted the fault to such a degree that a map can be made. So they have not followed the fundamental principles of good geoscience interpretation. Therefore it is left up to the reviewer to retrogeoscience the completed map to see if the fault picture being presented is reasonable or even possible in our three dimensional world. And thus is the prospect geologically valid in three dimensional space.

Looking at Figure 5a, we see a structure map of a faulted horizon. 

Note that the fault trace exhibits a strong bend. Is the fault trace properly mapped, or have two faults been incorrectly mapped as one? Applying the concept of implied strike, we can see when contours of equal value are connected (red lines, Figure 5a). The implied strike of the fault surface is east-west. So what we have done is to generate an implied fault surface from the completed map. This is often very surprising to geoscientists that one’s work can be checked or verified in this way. So without seeing the supposed fault that was used for this map, we can generate an implied fault surface. In this case, when we overlay the fault surface map with the horizon map (Figure 5b, below) we can see that the fault trace on the map fits fairly well with the integration of the fault surface with the horizon surface and therefore we can conclude that the map is reasonable in three dimensional space.

This is a quick method to evaluate one aspect of an interpretation and map. If the fault interpretation is unreasonable or impossible based on this “Quick Look Technique”, then there is significant question as to the reliability of the interpreted structure map. Often there is limited time to review a prospect, or a developed field map for that matter. Therefore such “Quick Look Techniques” are very applicable in doing one’s forensic geoscience to evaluate the validity of interpretations and maps.

Now take a moment to look at Figure 6a. 

A well has been proposed to test the downthrown trap which is downdip of a producing field. The trapping fault has a pronounced bend. When major bends are seen on fault traces on structure maps a red flag should go up. The question that needs to be resolved is, ‘Has the interpreter implied that the fault surface is making this major bend, or is the fault trace making this bend due to the integration of the fault and the horizon?” There is a significant difference in which of these is correct.

So our question is, “Is the trapping fault properly mapped and it is the trace that is bending on this horizon or could two faults have been interpreted incorrectly to connect as one and then mapped as one fault due to the misinterpretation?” Let us apply the Implied Strike Technique to this fault. Looking at Figure 6b (below), the two red lines are the implied strike of the 14,900’ contour that intersects the fault footwall and hanging wall traces.

The sharp bend in the implied strike suggests that the trapping fault is interpreted incorrectly as the 14,900’ contours cross at the * location. Most likely the interpreter connected two faults incorrectly as one. This significantly increases the risk of this prospect. In fact there may not be a prospect here at all and instead it is a dry hole waiting to happen.

The application of the implied strike technique, along with other QLTs applied prior to drilling, may save your company millions of dollars of dry hole costs.

Article references:

Tearpock, D.J., Bischke, R.E., and Brewton, J.L., 1994, Quick Look Techniques for Prospect Evaluation, SOG Press La., 286 p.                

Tearpock, D.J., and Bischke, R.E., 2003, Applied Subsurface Geological Mapping With Structural Methods, 2nd Edition, Prentice-Hall, N.J., 822 p.

Course materials for “Applied Subsurface Geological Mapping”, instructor D.J. Tearpock, presenting organization Subsurface Consultants & Associates, LLC

Course materials for “QAQC Skills in Subsurface Mapping”, instructor D.J. Tearpock, presenting organization Subsurface Consultants & Associates, LLC

Exploring the Ten Habits - Habit Three: Managing Your Time

by Bob Shoup

In SCA’s ongoing blog series highlighting, "The Ten Habits of Highly Successful Oil Finders" we are now featuring Habit Three:

Successful oil finders plan their time and their work in order to ensure accurate interpretations and maps.

You may have heard the quote “Poor planning on your part does not constitute an emergency on my part.” Unfortunately, in our industry, poor planning does result in dry holes - lots of them! One of the surest ways a company can drill a string of dry holes is to enter a rig commitment before having a portfolio of prospects that have been accurately mapped and approved for drilling. While your manager may be responsible for poor planning, you are responsible for the accuracy and quality of your maps. Rushed interpretations almost always result in poorly mapped prospects. And poorly mapped prospects are poor prospects. Your ability to deliver high quality interpretations and maps will depend on your ability to plan and manage your time.

Generally speaking, projects have deadlines. So when you begin a project you must first decide what work is needed, and when that work is needed. To do that, you, or your manager, must first begin with the end in mind. What decision is needed and what are the costs of that decision? The decision to commit hundreds of millions of dollars to a development project requires a different level of understanding than does a decision to spend tens of millions of dollars to drill a well, or hundreds of thousands of dollars to buy seismic.

As an oil finder, your responsibility is to determine how much work is needed to ensure accurate interpretations and maps.  How many wells do you need to correlate? How much seismic do you need to interpret? How much reservoir engineering data do you need to integrate? How many maps do you need to make? How complicated is the geology of the area you are working in? Are there legacy interpretations you can build on?  

Once you have determined how much work is needed to make good quality interpretations you must then determine how much time is needed to make those interpretations. Each of us work at a different pace, so know your pace and set realistic time frames and goals. Once this is done, go back to management and see if the time frame you need fits with the time frame that matches the business needs.

If your business time frame doesn’t meet your workflow time frame, then the workflow must be adjusted. Here the “Law of Diminishing Returns” can serve as a guideline in adjusting the decision point and the workflow.  The Law of Diminishing returns states that the continued application of effort or skill toward a particular project or goal tends to decline in effectiveness after a certain level of result has been achieved. In other words, at a certain point, more effort does not yield proportionately better results.

In our industry an optimal decision is made when all of the available data has been integrated into a series of final maps that are the basis for reserve estimation. Decisions made after this point are usually decisions that managers are agonizing over, or are avoiding, and time spent after the optimal decision point is usually not justified (see chart below).

Click image to enlarge

So begin with the end in mind and tailor your activities to meet deadlines without compromising quality.  So, looking at the graphic again, work with your manager to determine what work is needed to reach a “good” decision point?  Or, alternatively what do you need to do to get past the point of making a bad decision.  

One thing that can improve your efficiency as well as the quality of your interpretations is training. SCA has an exciting training line-up featuring short courses tailored to the requirements of upstream professionals.  Review our training calendar and take the next step towards ensuring your oil finding career is a successful one for many years to come. 

SCA Announces Changes in Leadership

Subsurface Consultants & Associates, LLC, (SCA) announced changes in leadership earlier this week:

Daniel J. Tearpock
Chairman Emeritus

Effective September 1, 2012, Daniel J. Tearpock, Founder, Chairman, and CEO of Subsurface Consultants & Associates, LLC (SCA), assumes a new role as Chairman Emeritus.

Over the past two years, Mr. Tearpock has been working with the SCA management team to hand off operational responsibilities, paving the way for a seamless transition that will result in few outward changes from the perspective of SCA’s valued clients, consultants, training experts, and employees. Hal Miller, SCA’s Vice President of Operations since joining the company in 2004, will now serve as President.

Mr. Tearpock will continue to represent SCA in various official capacities, including participation in company and industry events, meetings with clients of the company, and providing expertise and guidance supporting the continued growth and enhancement of SCA’s services.

From founding the company in 1988, Mr. Tearpock has built a strong foundation of successful operations, a highly-regarded geoscience education and mentoring program, quality consulting services, and an experienced leadership team. The employees of SCA congratulate him and look forward to continuing to work with Mr. Tearpock in his new role.

See the full release on SCA's website here.

Exploring the Ten Habits - Habit Two: Knowing the Tectonic and Depositional Environment

by Bob Shoup

In SCA’s ongoing blog series highlighting, "The Ten Habits of Highly Successful Oil Finders" we are now featuring Habit Two:

Successful oil finders have a strong background in geology, and have a thorough knowledge of the tectonic and depositional environments for the area in which they are working.

Just as a strong foundation is essential to a good house, a strong background in geology is essential to being a successful oil finder. For most geoscientists, that foundation is set in school and augmented in the early stages of their career with corporate training. Unfortunately, for all too many in the industry, this is the extent of their geologic training.  

Just as a well built house requires periodic maintenance to stay structurally sound, a long-term successful career as an oil finder requires continuing education. Our industry is rapidly evolving, and it is essential to stay in the know on new trends and technology. After all, how much did the majority of us know about the potential for developing hydrocarbons from shale when first starting out? Additionally, continuing education is critical when moving from one geologic setting to another.

Take for example the case of an experienced geophysicist, who shall remain unnamed. He had almost 20 years experience exploring in and mapping growth fault-related plays and prospects in the Gulf of Mexico. He was known to be a successful oil finder. But then he was transferred to a position in the North American fold and thrust belt. His first assignment was to explore in a complex thrust belt known to have fault propagation folds as the main structural style. This geophysicist had little if any training in fold and thrust belts, but being known as an oil finder, he was expected to succeed in his new assignment. 

In this assignment, the geophysicist analyzed the geology not from a fold and thrust perspective, but from the extensional perspective he was familiar with. He mapped the key faults with listric geometry with hanging wall rollovers that have insufficient normal displacement from the structure (Figure 1A). The vertical separation is too small to make a rollover with that much structural relief.  In addition, the downthrown side is higher than the upthrown side.

Also note that the faults associated with this fold belt are fault propagation folds. Kinematically, they propagate upward from a decollement, causing the beds at the front of the fault tip to bend or kink forward. The fault has more of a planar shape ramping upwards, often from the flat of another major fault surface (Figure 1B).

Due to using an inappropriate structural model, the interpretation was incorrect and the prospective structures were in the wrong position: dry holes waiting to happen. His colleagues challenged the resulting interpretation and maps. An audit found over 100 mistakes and mis-ties.

These career-jeopardizing mistakes could have been avoided if the geophysicist had obtained additional training. Who should have been responsible: management or the geophysicist? One could argue that the company should have seen to it that their employees had the appropriate structural training for the area in which they were assigned. However, successful oil finders should take it upon themselves to ensure that they have the appropriate knowledge of the tectonic and depositional environments for the area in which they are working. This may require several additional training courses, as well as some applied mentoring before the geoscientist goes off on his or her own.

Are you seeking to learn more about specific geographic regions or deepwater reservoirs? Do you need to refine your knowledge of seismic sequence stratigraphy or structural styles? SCA has an exciting training line-up featuring short courses tailored to the requirements of upstream professionals.  Review our training calendar and take the next step towards ensuring your oil finding career is a successful one for many years to come.

The Ten Habits of Highly Successful Oil Finders

by Dan Tearpock and Bob Shoup

SCA's CEO Dan Tearpock is fond of saying that it is highly trained people, not workstations, who find oil and gas. But what specific knowledge and habits do those successful oil finders possess?  Bob Shoup, who recently joined SCA's Consulting Division, has put together a list of the Ten Habits of Highly Successful Oil Finders.  We'll be going into more in-depth discussions of the "Habits" over the next few months, but in the meantime, here is the full list to start your wheels turning. After you have a look, please return to the following questions:

If you had to choose one as being more important, which would it be and why?

Can you recall a real life situation where any of these habits informed a business-critical decision?

The Ten Habits of Highly Successful Oil Finders 

Successful Oil Finders: 

1. Ensure that their interpretations are geologically and geometrically valid in three dimensions. 

2. Have a strong background in geology, and a thorough knowledge of the tectonic setting and depositional environments for the area in which they are working. 

3. Plan their time and work in order to ensure accurate interpretations and maps. 

4. Use all of the data to ensure that they have a reasonable and accurate subsurface interpretation. 

5. Ensure that their seismic and well correlations are accurate and loop-tied. 

6. Know which methods, tools, and techniques are needed to define and understand the subsurface.

7. Map all relevant geological surfaces. 

8. Map multiple horizons to develop reasonably correct, three-dimensional interpretations.

9. Document their work. 

10. Seek out mentors and experienced individuals with knowledge and expertise; and serve as mentors to those seeking experience. 

Update 3/8/13 - for more thoughts on the Ten Habits, see our recent follow-up blog post. 

SCA Welcomes Bob Shoup

(From left to right) Dan Tearpock & Bob Shoup
in Thailand, 2009

Subsurface Consultants & Associates, LLC (SCA) welcomes Robert “Bob” Shoup to its consulting division, in addition to his existing role as a member of SCA's training faculty. Bob is a Board Certified Petroleum Geologist with over 30 years experience in basin analysis, regional studies, new play generation, prospect evaluation, field studies and development planning, drilling operations, and project management.

  
Bob and SCA’s CEO Dan Tearpock, longtime friends and colleagues, plan to leverage their combined expertise and Bob’s extensive network in Southeast Asia to grow SCA’s presence in that region.

Bob began his career at Shell Oil in 1980, followed by four years working for private oil companies before becoming an independent consultant in 2003; consulting in Thailand, Malaysia, Vietnam, and New Zealand. Bob is a proven oil finder with a 46% exploration success rate and over 100 MMBOE discovered resources.

Bob is a recognized expert in clastic depositional environments, rift basins, and syndepositional structural systems. He has served in leadership capacities and on numerous committees with the AAPG and is a past president of the Division of Professional Affairs, organizations from which he has also received multiple awards and professional distinctions. Not only does he excel in the oil and gas industry, he is also a recognized author: in 1994 Bob was a nominee for the Pulitzer Prize in drama for his play, Second Alarm.

In March, Bob presented SCA’s first ever “Applied Problems in Interpreting Clastic Depositional Systems” course to much success at SCA's Houston, TX training facility. The course is scheduled to be repeated in Perth, Australia this coming December 10-14, and is available to bring in-house on demand. Bob is also slated to teach upcoming sessions of one of SCA’s most popular courses: Applied Subsurface Geological Mapping. See SCA's 2012 Training Calendar for more details. 

Dan Tearpock honored with DPA Heritage Award

Daniel J. Tearpock, Chairman/CEO of Subsurface Consultants & Associates, LLC (SCA), was recently honored by the AAPG Division of Professional Affairs as the latest recipient of the Heritage Award.  The announcement was made at an awards luncheon on February 29, 2012 at Del Frisco’s Restaurant in Houston, Texas.  The DPA Heritage Award honors an individual in the oil and gas industry who is generally known for substantial industry contributions, including significant discoveries, business accomplishments, and/or work in academia and publishing. Award recipients are selected based on having built a reputation for success in the industry, and having taken a proactive role in passing on their knowledge and experiences to the next generation.

The Heritage Award was first given to Michael T. Halbouty (deceased) in 2004. Other past recipients include such industry luminaries as Robert D. Gunn (2005), William L. Fisher (2006), M. Ray Thomasson (2008), and John J. Amoruso (2009). This year’s award was based in large part on the achievements of the company founded by Mr. Tearpock in 1988, Subsurface Consultants & Associates, LLC (SCA). SCA’s record of industry success includes consulting assignments with over 350 companies across the world resulting in the discovery and/or development of over six billion barrels of oil equivalent. SCA has also trained tens of thousands of students in a wide variety of upstream course offerings. Further signaling his commitment to training and education, Mr. Tearpock’s numerous articles and published works, including Applied Subsurface Geological Mapping (1991), Applied Subsurface Geological Mapping with Structural Methods (2003), and Quick Look Techniques for Prospect Evaluation (1994), are widely-used and respected industry references.

From left to right: Daniel J. Tearpock and Marty Hewitt

Upon bestowing the 2012 Heritage Award, current DPA President Marty Hewitt remarked, “Your business not only with SCA, but your leadership with the DPA and AAPG has taken this award to a whole new level.”

Reflecting on this honor, Mr. Tearpock commented to the assembly, “One of my goals was to do something significant for the world.  At first I thought I could find that billion barrel field, or find some new energy technology to help people…It ended up being training and consulting.  We’re now at over 23,000 people that we’ve trained, and the people we’ve trained are all over the world finding oil and gas.  Our consulting company has helped people find and develop over 6 billion barrels of oil equivalent.  So in a roundabout way, I was able to accomplish what I set out to accomplish in life…I could not find a better group of friends and associates than I have found working in the oil and gas industry.”

More about Daniel J. Tearpock:

As a working geoscientist, Mr. Tearpock has generated numerous exploration and exploitation prospects, either as the sole generator or as part of an organized multidisciplinary team. Mr. Tearpock was a finalist in 1996 and 1998 for the Ernst & Young Entrepreneur of the Year program and in 1998 received the Distinguished Service Award from Bloomsburg University, Bloomsburg, PA. He holds a Bachelor’s degree in Geology from Bloomsburg University, 1970; and a Masters in Geology from Temple University, 1977. He is a (AAPG/DPA) Certified Petroleum Geologist No. 4114, State of Texas Licensed Geologist No. 2660 and (SIPES) Certified Earth Scientist No. 3015.

Mr. Tearpock is a member of numerous associations including the AAPG, SPE, SIPES, SEG, GSA, HGS, EAGE, NOGS, LGS, IPA, SEAPEX & PESGB. He is the past President of the AAPG’s Division of Professional Affairs (2011-2012). He is a founding member and current Chairman (2011-2012) of the intersociety “Joint Committee on Reserves Evaluator Training” (JCORET). The member societies represented on JCORET include the AAPG, SPE, SPEE, SEG and WPC.

About SCA

Subsurface Consultants & Associates, LLC (SCA) provides superior upstream consulting, direct hire recruitment, and geoscience and engineering training to stakeholders in the oil and gas industry.   Find out more at www.scacompanies.com

To view a video of the DPA Heritage award presentation, please visit SCA’s Upstream Petroleum YouTube Channel. 

It's People, Not Workstations

The following article by Daniel J. Tearpock was initially published in the GeoLOGIC, a quarterly publication of Subsurface Consultants and Associates, LLC.

We invite you to give it a read, and then return to these questions: What steps does your organization take to mitigate the risks of relying too heavily on workstation technology? How do you bring freshly graduated geoscientists and engineers up to speed on tried and true best practices?

“IT'S PEOPLE NOT WORKSTATIONS” 

It is a known fact that “People – Not Workstations” find oil and gas. However, there is no doubt that  today's workstations and computers are powerful tools for use in our quest for finding and developing oil and gas resources. Workstation technology allows: 

1. Effective integration and analysis of available data;
2. Fast application of alternate ideas;
3. Global or remote site integration;
4. Multidisciplinary integration.  

While acknowledging the benefits of workstation technology, do not overlook the danger of relying too heavily on these tools. In the hands of an interpreter inadequately trained in the fundamentals of geoscience and engineering, who is unfamiliar with the application of long-standing industry accepted practices, one can arrive at a wrong and very costly conclusion at the push of a button, resulting in another dry hole or even worse. 

Have we learned from the past? A successful oil and gas exploration and development program cannot exist in the long-term on luck and serendipity. There are many factors that underlie success. However, I don't think there would be too much disagreement that long-term success is the result of the application of sound geoscience principles by knowledgeable, well trained interpreters. Interpreters must have a sound background in structural geology, stratigraphy, sedimentology and other related disciplines for the tectonic setting being worked. After all, the interpreter must know when a computer-generated map makes geologic sense and when the result is garbage!!!

Oil & Gas Deals and the Risk/Reward Trade-Off

When evaluating an oil and gas opportunity, what key factors should be reviewed and understood prior to making the deal? Consider that a niche-oriented, smaller consulting company can provide a  thorough, specialized, and hands-on assessment that results in a better informed decision versus going through a large investment house.


The following is taken from the Q3 2011 issue of SCA's GeoLOGIC newsletter. For access to downloadable back issues of GeoLOGIC, click here. Subscribe to the Upstream Petroleum Blog to receive links to future editions and other unique industry news and perspectives.


Oil and Gas Opportunities (Deals)
by Jeff Lund and Daniel Tearpock

Oil and gas “opportunities" or "deals” are the heartbeat of the upstream industry. Almost every well that is drilled, almost every acreage block that is leased, almost every oil or gas field that produces, has or has had a history of ownership change and often phases of technology application. It's common to hear the terms “brown field” projects and “green field” projects referring to old projects being renovated or receiving a new round of activity (“brown”) and new or start up ( “green”) projects.

Deals involve individuals, small companies, huge companies, independent and so-called major companies, national companies, foreign governments, naive investors and thieves. They can range from exploratory prospects looking for undiscovered resources, development of discovered but incompletely exploited fields, application of new technologies (water flooding for example) to force out additional oil and simply reselling of producing properties as companies rebalance investment portfolios or have differing opinions of the future of commodity prices.

There are many opportunities that are done, not through large“brand name” investment houses, but through individuals and small consulting companies having sound personal contacts from decades of working in the industry. They can identify and evaluate some of the best opportunities. The key ingredients are: 1) personal contacts; 2) extensive industry experience; 3) the technical ability to separate the wheat from the chaff (to be able to define what is of good quality over what is of poor or lower quality) and 4) to find these opportunities often without the potential buyers having to go through competitive bidding processes.

Small entrepreneurial consulting companies often have the edge over the larger investment houses due to their ability to personally identify and evaluate opportunities including the financial, economic and perhaps the most important part of the equation, the technical merits of the opportunity (the geology, geophysics, petroleum engineering, and other technical areas behind the discounted cash flow numbers). Opportunities span a huge range of values. We at SCA have seen investments ranging from a few ten's of thousands to several billion dollars.

There is also a large range of risk and reward available in the oil and gas deal market place. The graph below shows a relationship of increasing risk of economic failure (such as drilling dry holes) to potential reward. The general rule is that increasing reward almost always involves being exposed to greater risk. The various types of oil and gas deals ranging from buying proven producing properties up to frontier or high risk exploration, systematically expose the investor to greater potential reward but also greater chance of failure. One issue on which many companies and individuals need advice is quantifying this trade off.

Sometimes an enthusiastic seller has become so excited about the deal he is proposing he forgets to explain the risk element to buyers. That's one good example where expert technical advice is critical. 

 *****

Interested in reading some examples of real-life prospect evaluations?  See SCA's collection of case studies.  In addition, if you're looking to develop your knowledge in this area, SCA offers training courses specific to economic evaluation of petroleum opportunities.  Click here to find out more. 

The Demise of the Age of Petroleum: Fact v. Fiction

The following is excerpted from SCA's quarterly newsletter, the GeoLOGIC. For access to the full publication, please click here.

We're interested in your comments. How do you see the petroleum industry evolving over the next 20 years? Is it realistic to think that existing alternatives can replace petroleum?

"The Age of Petroleum is Over!"
Dan J. Tearpock, Chairman/CEO of Subsurface Consultants & Associates, LLC

HEADLINE NEWS

"In the past 6 months over 25% of the giant oil fields that provide the world with significant volumes of crude oil and gas have begun to rapidly deplete. Oil futures have soared to over $250 dollars per barrel, around the world; the stock markets are crashing and life as we have known it is coming to an end.”

Wow, what a headline. But don't worry, YET! It is not real, but someday such a headline may be real and with it will come an end to life as we have known it on planet Earth for the past 100 years. Nearly every day we see various radical groups protesting and demanding an end to the use of petroleum or crude oil and a push to turn to green products like ethanol, made from corn, to replace petroleum.

Have you ever wondered just how much does the average person on the street understand about the story of petroleum and petroleum products and its importance to our daily lives? A survey quickly indicates that most people relate petroleum to a few important products, namely gasoline, diesel, jet fuel, engine oil, home heating oil and maybe a few other products. But in reality the population depends on petroleum for thousands of products that we use each and every day in our modern world.

Petroleum is feedstock for just about everything under the sun. Petroleum, also called crude oil, is refined into numerous chemical parts and separated into gasoline, lubricants, asphalt, yep –asphalt and into so many other products, it could take weeks to discuss them all.

One 42-gallon barrel of oil creates only 19.4 gallons of gasoline; 49% of the barrel of oil becomes gasoline. The remainder of the crude oil, slightly over half, is turned into over 6,000 different items. I'll bet your jaw just hit the floor – 6,000 different items!!!! Before you read this article any further, see if you can name 25 different petroleum based items that are in common use on a daily basis?

Once petroleum is produced from reservoirs several thousand feet below the earth's surface, at a cost of millions of dollars, it is refined into thousands of different products. I am confident that most of you never realized how much of your everyday life depends on that dirty, polluting product known as crude oil. Yes, most of us relate crude oil to the gasoline that we use to fuel our automobiles, but that is only part, a very small part of the petroleum story. Without crude oil our world, as we know it, simply would not exist.

One of the major products made from crude oil is “Plastic”. In fact, based on the amount of plastic we use, we could say that we live in the “Age of Plastic” as well as the “Age of Petroleum”. In 1951 Phillips Petroleum research chemicals radically changed the world by revolutionizing the world of plastics. Prior to their discovery, plastic was made in small quantities and came from gutta-percha, shellac and the horns of animals, yes, the horns of animals. Then came the first synthetic plastic made from the plant material cellulose. Plastic was considered cheap and was used to make a lot of toys, eyeglass frames, combs, buttons, dentures, etc.

With the discovery of polypropylene and polyethylene, the two plastics discovered by Phillips Petroleum, the world of plastic exploded. And the source of today's worldwide use of plastics is "Crude oil or petroleum”; you know that dirty, polluting hydrocarbon that some people want banned from use.

We could talk about a number of stories of the importance of crude oil in today's world, but for simplicity, let's just stick with one product– plastic. Imagine what our world would be like without the plastic we use each and every day. If we could go back 100 years we would immediately realize what that world would be like. There would be no cars, telephones, televisions, computers, airplanes and literally thousands of other items that we are accustomed to using every day would not exist.

What about the thousands of other products you and I depend on each day to live in this modern world? How would you go about your day without such items as cell phones, dresses, CD players,shampoo, tires, paint, sweaters, cortisones, antihistamines, food preservatives, dishwashers, vitamin capsules, electricians tape, epoxy glue, insect repellent and literally thousands of other products used every day?

Let us not forget about “Fashion and Beauty Products” that are made from guess what? Yep, crude oil. These products include clothing, nylon, polyester, socks, buttons, underwear, jeans, earrings, bracelets, necklaces, sunscreen, body lotion, shampoo, hair conditioner, face powder, lipstick, breath mints, eyeliner, hair gel, perfume, face powder, foundation and even tampons. Wow, what a list, and we have not even gotten warm. Remember, earlier in the article I mentioned that over 6,000 products use crude oil, in one way or another, in their production. See this link for additional listings.

Can you now imagine what our world would be like without petroleum? As the headline in the beginning of this article indicated, we will some day run out of significant volumes of petroleum. We need to be working furiously to identify replacement products. But until then, petroleum is here to stay. I guess that we will have a significant dependency on crude oil for at least the next 100 years. So for the young scientists around the world, there are endless opportunities to work on finding the replacements for the products we use today that are dependent upon crude oil.