8/9/2019 a Philosophy for Exploration

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  Philosophy for Exploration

HOWARD

C. PYL

1959 AIME

PRESI ENT

Factors

Influencing Exploration

Oil finding is not a precise science; therefore, it must

be guided along philosophic lines. Oil is where you find

it,

and

potential oil areas

can

be

c l a s s i f i e ~

as either fair

way or long-shot, with all shades of gradatIOn between the

two.

True

fairway areas, themselves, have many gradations

and classifications. In South Texas along the Frio-Vicks

burg trend, for example, oil is found from 4,000 to 6,000

ft in wells which cost a bare $50,000.

The

majority

of

land there is held in small tracts, and it is not uncommon

for a wildcat well to be drilled

on

a 320-acre lease.

The

ratio

of

discovery to dry hole is good, but it is exceedingly

difficult to find large oil accumulations. Nothing is more

discouraging

than

to have made a discovery or two and

then find

that

only 1 million bbl have been added to

reserves. Admittedly 1 million bbl

of

oil is a real asset,

but for the company

that

produces that amount in a week

or

a month it does not help much to maintain reserves.

The Miocene belt of Coastal Louisiana is another typical

fairway area. Ratios of discoveries to dry holes are favor

able there also, and leases on relatively large tracts of land

are sometimes available. Producing sands are sometimes

thick, and discovery often leads

to

developing important

large oil and gas reserves.

On

the other hand, most

of

the

area is inaccessible and the pay sands are deep. Wells

usually cost more

than

$250,000 to drill and, in some

areas, can consistently cost twice that much. Large re

serves

can

be discovered so that costs per barrel for find

ing oil are competitive. In such an area, the larger com

panies can hope

to

build reserves.

Other factors influence the choice

of

an area for explora

tion. Competition is always present, and the type of this

competition is an important consideration. Areas such as

South Texas are ideally suited for the small operator, to

whom drilling of a $50,000 well is a big event in the year.

The

small operator will find ready financial assistance

from the high tax rate boys , and he probably will spread

his risk by having only a piece of several wildcats. Some

thing about being in the 75 to 90

per

cent tax bracket

causes people to want

to

participate in any old p y-

particularly in the last quarter of the tax year. As a

r e ~ u t

of this urge and the willing cooperation

of

small wl1d-

Manuscript

received

in

Society

of Petroleum Engineers office Feb.

10. 1960.

MAY

1960

SPE 1462-G

MONT R Y

O L CO

LOS ANGELES CALIF.

catters, lease costs, royalty rates and brokers' overrides all

increase and

the sizes of lease blocks decrease. A pattern

becomes established for the area.

The small operator, even with his resources augmented

by tax money, has little influence in the blue-chip explora

tion of Coastal Louisiana. The terrain is much too difficult

to even contemplate, and the deep exploration wells are

far too costly. Also, there is the matter

of

lease rentals.

In South Texas, leases are acquired by paying a bonus

and are usually held with an annual rental of

1

an acre

per

year. Leases are, therefore, taken at any time without

any compulsion

to

drill. In Louisiana, the situation is

quite different. Annual lease rentals are usually 50 per

cent

of

lease bonuses, and there is every reason, therefore,

to quickly prove

or

disprove a lease.

Land

trades between

operators, or farm-outs as they are called, are much

more common under the pressure of high rentals.

Similar differences in fairway areas could be listed for

all such areas, and this,

of

course, should be done in

planning an exploration program. Fairway areas which

we know today for their good discovery record and impor

tant oil production were all long-shot areas to begin with.

In recent years, we have watched the Williston basin,

Offshore Louisiana and Four Corners discoveries and

developments establish new fairway areas.

The

discovery

of

oil in these new areas, where vast tracts

of

land were

once leased with a minimum

of

competition and at low

cost,

can

be very rewarding.

The

odds against discovery

are so great, however, that a company cannot predict

results and certainly cannot count on replenishing the

reserves which are being produced every day.

Foreign Exploration

Selection

of

areas for foreign exploration is accom

plished by a review

of

the same basic factors reviewed for

domestic exploration. To

these must be added political,

geographic, market and added-cost considerations. All

areas of foreign production probably were true long-shot

areas at one time.

In reviewing the progress

of

petroleum geology during

the last 50 years, it is interesting to see how simple some

of the knotty problems of long ago appear to us today.

Exploration-minded men first selected areas where great

oil seeps existed. To cite two examples, the oil Leeps

of

the

Middle East were written about in Biblical times, and the

asphalt deposits and oil seeps

of

Venezuela had been

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visited and described long before there

as

an oil industry.

One of the

major

uncertainties of a long-shot area

is

the

presence of a source of petroleum; there could be no

uncertainty about this where large seeps were found. Early

wildcat wells were drilled near the seeps and, more often

than not, found oil.

Today, we know

that

there are three requisites for an

oil-producing area.

The

first, and certainly the most impor

tant.

is

a source of oil.

The

second and third requisites are

reservoir rocks and structure. In fairway areas, the source

of

oil is established and reservoir rocks are known to

exist. Therefore. attention is directed almost exclusively

to structure.

I n selecting areas for foreign exploration , it is easy to

determine that one or two of the requisites are present-

but difficult to be sure of all three. Even if all three are

known

to

be present, there are political, marketing or

foreign exchange considerations to be weighed. Leases

may not be available or, if they are, lease terms may be

such that proper incentive is lacking. As a

matter

of fact.

these perplexing variables are not confined to foreign

operations. Californians can observe their offshore leasing

as a typical example of uncertainties caused by government

actions.

To

compound the problems, one could speculate

about

transplanting the California Coastal area and its

varying leasing rules to some foreign country where all

uncertainties are accentuated.

Effect

of Funds Available

The

selection of areas

for

exploration is influenced

greatly by

the

total funds which can be budgeted for

such work. Wells must be drilled to find oil, and such

drilling costs money. The industry measures its explora

tion activity by the

number

of dry holes drilled and by

the footage involved. This

method

of accounting must

perplex

many

who cannot imagine

why

failures are pub

licized so widely. The facts remain that oil cannot be found

unless it is drilled

for

and that a substantial percentage

of

all exploration wells will be dry holes.

I t

costs money

to drill

wells including

dry holes.

I t

would be folly to schedule a program in Coastal

Louisiana with only a quarter of a million dollars per year

to spend. On the other hand, many operators do quite

well with this amount in South Texas. Suppose that the

history of an area shows a discovery ratio of one-to-five

wells drilled and

that

every eighth discovery was over 10-

million bbl in size. With average success a 10-wildcat-per

year program should find at least a 10-million-bbl field

every

four

years while a one-well-per-year schedule

would find such a field every 40 years.

These simple statistics emphasize

that

there should be a

concentration of effort that it would be a mistake to

drill one well

per

year

in

each of five different areas. With

such a limited budget, it would be better to work in one

area to

the

exclusion

of

all others.

Where

funds available for exploration are sufficient,

there is an advantage

in

working in several separate fair

way areas.

The

exploration budget should be allocated

between the areas of interest and a central budget control

should be established. The need of a central budget control

is often questioned, but it is more than justified when one

contemplates that, without such control, wildcat wells of

less promise could be drilled in one area while more

promising prospects are being discarded in another. Certain

ground rules are also needed to assist and guide the explo

ration teams in the several areas. Important among such

rules would be 1) minimum-size reserves to be looked

lR

for, (2) maximum dollar cost of anyone prospect and

(3) the taking of leases to be held for years without testing

vs early testing of all leases.

A Balanced Exploration Program

To summarize the ideas expressed so far, a well bal

anced exploration program should include activity in

several fairway areas both foreign and domestic. The

actual number of areas

in

which to work should be re

lated to the exploration budget so that the level of effort

in each area will insure reasonably frequent discoveries

of

new fields. In addition, a modest percentage of the total

budget should be allocated to long-shot exploration again.

both foreign and

domestic in

non-fairway areas of large

potential production. One "'old guard" oil man commented

that big oil wells make big oil men. Making a fairway out

of a long-shot area makes a big company.

The Exploration Team

People, in terms

of

exploration teams, naturally are

involved in all oil-finding activities. Such teams do not

just happen. They have to be

put

together, kept together

and their work has to be effective. Such an exploration

team is composed of geologists, landmen and engineers

supported

by

geophysicists, paleontologists (possibly), at

torneys, accountants and operating personnel.

The geologists and landmen form the hard core

of

this

team, and successful exploration will largely depend upon

their work. Geologists should be furnished with

the

usual

tools of their trade and be given an opportunity to practice

geology. Many years ago when engineers first started

analyzing drilling operations, they rightly concluded

that

the

object of all that expensive equipment was to make

hole; therefore, they started counting

the

time a drill bit

was on bottom and turning to the right. Drilled footage

improved

in

direct proportion to bit time on bottom, and

all effort was directed toward keeping the bit down and

digging. Geologists probably will not like this analogy of

the drilling bit, but surely they welcome the opportunity

to do geology and to look

for

oil without interrupting

diversions.

In

short, they should be allowed to practice

their profession.

In addition to being provided with maps and logs and

a place to work, exploration men should be given the

satisfaction of some tangible results.

The

spirit and enthu

siasm of the best oil finder can be dampened beyond re

claim if the plays he works

up

and recommends are never

leased and drilled. Similarly, landmen need to take leases

and make deals; they never will be content merely to

record ownership changes

on

land plats. There is a mo

mentum in teamwork that, once underway, should not be

lightly interrupted. Productive, team oil-finding efforts

cannot be turned

on

and off like a faucet.

Although it

may

be

hard

to believe, a

company

is

blessed if it has two or three real oil finders. A company

fortunate enough to have such a man should take care to

keep him and should carefully avoid "spiking" his ability

by making him a manager. There are other ways of com

pensating a man for his work, while at the same time

giving him a sense of achievement and advancement. Also,

keep him from making deals he

is

a scientist and not a

landman.

Let

him practice his profession The growth of

a company through oil and gas discovery is difficult at

best and should not be handicapped by mis-use of oil

finding talent.

The

history of any successful exploration

company shows

that

its periods of growth were related

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to the unusual oil-finding abilities

of

only a few individuals

and. sometimes. of only a single man.

An

Army

Example

Not

long before the second World War, the Army

Medical

Corps

realized it had a problem with its officer

doctors. The talents of these doctors were being lost

through

the

demands of housekeeping.

The

senior officers

at a hospital could not practice medicine because of the

paper work ancl other duties assigned to rank. The

Army

solved this problem by forming the Medical Service Corps,

whose job it was to run the hospitals, thus permitting

the doctors to practice medicine. Having a captain in

charge of a hospital with colonels attached was strange

to

the

Army,

but

the

plan

worked.

What is wrong with the idea of a senior geologist's

doing geology while a man his

junior

manages all related

activity? There is nothing wrong with the idea, but it is

often difficult to put into effect. Top management should

assure that the progress and financial rewards of their

oil-finding geologists are unlimited and

that

our industry

should not measure the success of an individual by his

job title.

The activities of the so-called, independents , or small

operators, have had a real impact on the employment of

geologists,

landmen

and engineers. These independents

need technical assistance, and they secure this help by

employing experienced men from the larger oil companies.

Sometimes they only need part-time assistance, in which

case they help establish a

man in

business

for

himself,

guaranteeing

him

enough

work

to keep the wolf from

the

door . Overrides are freely given as incentives and

many

ex-company men have built large oil incomes in

this manner.

Company pay

rates have been materially

affected,

and

the

turnover

of exploration people has been

MAY

1960

an astonishing spectacle to the industry. This is a fact of

life and must be taken into account in planning explora

tion in any area.

The industry keeps track

of

exploration activity by thc

number

of

dry holes drilled. These are a part of finding

oil.

There

is no more deathly activity than that of second

guessing a geologist after a well has been abandoned as

a dry hole. There is an old story related to this Monday

morning quarterbacking . Once upon a time, there was a

mining engineer-geologist who spent his time looking at

prospects brought to his company's attention by old-time

prospectors. After about

1

years, he finally recommended

one and it was purchased. Subsequent development proved

the prospect worthless, whereupon the company fired him.

He went his way but was unable to adjust himself to

independent work so he returned to his former employer

with this suggestion: If you will please hire me back and

put me to work at myoid job. I'll promise to never again

recommend a prospect .

ummary

The success of an exploration program is largely

dependent upon the effectiveness

of

exploration teams.

Putting the teams together

is

not enough. They must work

with skill and with enthusiasm, and every facility must

be provided for the continued and uninterrupted search

for oil. Consider the vast resources of money, equipment

and manpower used during time of war just to keep a

few bombers dropping bombs and some foot soldiers

at

the front actually shooting in anger. Similarly, the money,

equipment and manpower of an exploration company

should all be directed toward keeping its exploration teams

effectively

at

work.

The

finding of oil can be much more

exhilarating than winning a battle.

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