EXPLORATION 3D seismic boosting wildcat success, reducing well count

Declining costs, increased exploration usage of 3D seismic in US
Gulf reducing dry hole risk

Marc A. Lawrence
Hugh T. Logue
Fairfield Industries

Don A. Grimm
Zilkha Energy

• The cyclical effect of advancesin seismic technology on exploration drilling success rates over decades is reflected in the number of discoveries.
• Offshore Texas and Louisiana fieldwells success rates remained high in the late 1980s even though the number of wells plunged. Were drillers drilling their best prospects or did the information available improve, or both? (Source - Offshore Oil Scouts Association)
• The US Gulf of Mexicodevelopment success rates began to climb suddenly in 1992, during a period when the number of development wells dropped steadily. (Source - Petroleum Information Corp.)
• Offshore Texas and Louisiana wildcatsuccess rates showed a similar rise in 1992, at the same time that wildcat drilling rates sustained a significant slowdown. (Source - Offshore Oil Scouts Association)

New discoveries and well success rates typically increase with the application of new exploration technology capable of revealing prospects previously overlooked. This effect is identified in the US Gulf of Mexico.

The latest increase in success rates is attributed to 3D seismic methods. Both field well and wildcat well success rates have improved since 1985, despite a large drop in the number of wells being drilled. The effect is more dramatic on wildcat wells with overall success rates being nearly double the long term cumulative rate since 1938.

A survey of operators reveals wildcat success rates based on 3D prospects approaches 50%, but the real statistical impact on success rates does not begin until 1993.

This use of 3D for wildcatting is attributed to the increased availability and lower costs of large volumes of non-exclusive 3D seismic data. Despite its early reputation as a tool exclusively for development, 3D seismic is having a decided impact on exploration.

Background

Oil exploration and production activity in recent years has been plagued by price instabilities, which have created considerable down side risk. Technology has long been important in the exploration and development of oil and gas resources, but when economical and political factors were good, technology was secondary.

Technology has come to the rescue in these recent times of economic uncertainty by improving well success rates, which directly equates to reduced risk.

With each successive implementation of new technology, the hypothetical effect is that the number of discoveries and the success rate of exploratory wildcat wells will rapidly rise followed by a trickle-down period of decreased discoveries until the next technological boost arrives.

During the rapid rise, or what is often referred to as the cherry picking phase, the best and largest prospects previously overlooked, and now revealed by the new technology, are quickly identified and drilled. This phase may only last seven to eight years; therefore companies wishing to exploit new technology must react quickly.

During the trickle-down phase, technology is more rigorously applied as the obvious "cherries" have already been drilled, and smaller, more subtle prospects are tested. Using data from offshore Texas and Louisiana, we can identify the impact of 3D seismic data on this phenomenon.

The recent application of 3D seismic technology has increased drilling efficiency, which is offsetting some risks. Fisher (1994) has illustrated an upward trend in efficiency in terms of yield per effort and as measured by the number of significant new field discoveries per 100 new field wildcats drilled.

Fisher attributes these increases in exploration efficiency to technological advances in basin analysis, particularly advances in 3D seismic acquisition, processing and interpretation. He forecasts that as 3D costs decrease and use becomes more widespread, exploration efficiency may increase by 50% or more over the long run.

Nehring (1989, 1991) also reported increases in U.S. exploration efficiencies and particularly identifies the improved success rates in the Gulf of Mexico, which has traditionally enjoyed the highest significant success rates of any heavily drilled U.S. province. As does Fisher, he relates this improvement to the intense application of geophysical technology.

Statistical data

It should be noted at this point that statistics to be presented are derived from two data sets reporting numbers of wells drilled and success rates. One data set is from statistics collected by the Offshore Oil Scouts Association (OOSA) and the other from Petroleum Information Corporation (PI).

Differences exist between the two data sets because of varying standards in defining field wells versus wildcats and defining successful wells. Different methods of collecting the statistical data as well as different reporting methods among oil companies certainly play a part in these disparities.

Additionally, PI's well data typically has a two-year lag before the statistics are complete; therefore, the data firm's 1993 and 1994 data are reported as incomplete. However, we are looking at relative changes and trends with respect to the influence of 3D seismic, and differences between data bases should not be critical.

The determination of success rates as applied to significant new field discoveries, as defined by the AAPG, is more rigorous and may have more long-term implications, but the recognition time lag of determining significant new fields does not produce statistics fast enough to identify concurrent effects of new technology. The AAPG defines a significant new field discovery as one with proved reserves of 1,000,000 BOE.

The speed of identifying success rates is important to operators who wish to recognize the relatively short cherry picking phase or to others who must evaluate whether or not it is too late to get on the band-wagon in a particular play.

Increasing success

When 3D became commercially viable in the 1980s, it was considered a tool for production and development, and the high costs of proprietary 3D necessitated its financial write-off against the development of a known discovery. Beginning in 1985, field well success rates began rising, and success rates ranged from about 65% in 1985 to 75% in 1994, based on OOSA data and from 69% to 76% on PI's data.

An overall trend of increasing success rates against decreasing numbers of wells drilled can be noted. It is interesting that on the OOSA data, despite increasing rates since 1985, the annual success rate did not actually rise above the cumulative success rate until 1991. The unanswered question is how much impact did 3D seismic have on this increase as compared to other factors?

The increase in wildcat success rates has been much more dramatic, rising from 19% in 1985 to over 40% in 1994, based on OOSA data, and from 9% to 19% in 1992 on PI's data. Both data sets show the same rate of change (210% increase) but, PI's data in 1993 and 1994 are incomplete due to their reporting process.

The number of wells and the success rate are in phase with each other except for a period from 1987 through 1992. Additionally, the annual success rates on the OOSA data are higher than the cumulative success rates.

The trend on the OOSA data is obvious with the upward success rate countering the declining number of wells. Trends on the PI data are not as obvious. The trend with new field wildcats (NFW) wells is somewhat similar, but when NFW wells and other exploration wells (OEX) are combined, the success rate trend is more flat. Again, PI's 1993 and 1994 data are incomplete. But how much impact has 3D seismic had on these wildcat success rate increases?

3D influence

Although it is widely believed that 3D seismic is the reason for these increases in wildcat success rates, is it possible to quantitatively isolate the effect of 3D from other potential factors?

The preponderance of evidence that 3D seismic is the dominant factor for rising success rates is primarily anecdotal, but as Nehring (1989) humorously notes: "The plural of anecdote is data."

Papers have been presented by companies such as Shell and Exxon showing the improvement in their drilling success rates by utilizing 3D seismic data. This paper marks an initial step to identify the impact of 3D on industry-wide wildcat success rates in the US Gulf of Mexico.

During a telephone survey conducted in early February 1995, 54 companies were contacted. These 54 companies are a subset of companies now currently actively exploring in the US Gulf of Mexico. The total number of active explorers is between 71 (the number of wildcat operators in 1994) and 83 (the number of bidders in the 1994 OCS Central Gulf of Mexico Lease Sale). All data remain anonymous as to which company provided information.

Twenty-three companies (representing 38%-32% of all companies exploring) responded with information. The responses revealed that 13 (57% of the respondents) do not currently use 3D seismic for exploration, and 10 (43% of the respondents) have used 3D seismic to drill wildcats.

Inferences could be made by applying the results of this sample to the total population of companies actively exploring, but greater cooperation and a larger statistical sample would be preferable to inferences made from this sample.

It is intuitive that 3D seismic applications have influenced the increased wildcat success rates since 1985, but judging from the survey results, the use of 3D for wildcatting prior to 1990 was sporadic, and according to our sample the statistical impact did not occur until 1993 even though wildcat success rates began rising earlier. This presents an enigma, which means that:

1. The survey data sample is not representative.

2. Other factors dominate the increase since 1985, and the real impact of 3D on wildcat success rates in the Gulf of Mexico has just begun.

We believe the influence of 3D seismic on wildcat success rates is just beginning and expected to grow stronger with the increased application of this technology. The rise of success rates from 1985 to 1992 may have had more to do with the withdrawal of the majors from the Gulf of Mexico and the poor economic climate forcing companies to only drill the very best prospects after a rigorous review process.

Exploration implications

3D seismic data proprietary to oil and gas companies is very expensive to acquire and process, and not cost justified for exploration in most cases. Seismic contractors began collecting large regional, densely sampled non-exclusive 3D surveys in the mid to late 1980s in the US Gulf of Mexico. Because of economy of scale the cost per block of data has dropped dramatically.

The rapid proliferation and increased availability of non-exclusive 3D surveys in the US Gulf is definitely bringing the economics in line with exploration budgets. It is evident that 3D seismic can lower risk for exploration by (1) increasing the chances of success, (2) potentially increasing reserves, and (3) increasing profitability by requiring fewer wells.

However, 57% of survey respondents still do not currently use 3D in their exploration efforts. Many companies still believe 3D is exclusively a development tool and used only after a discovery is made.

Others will use it only after securing leases, and some will only use 3D to screen or high grade prospects generated on 2D seismic and other subsurface data, but they are using it prior to drilling. A small, extremely active group of companies is using 3D seismic to generate prospects with success rates significantly higher than overall industry rates.

Their success rates are proprietary, however, these companies have realized that 3D is the key to their future. A very important point here that won't show up in drilling statistics, but has a strong financial bearing on any exploration company, is the impact of holes that were never drilled because 3D seismic evaluation killed the prospect. These dry holes were eliminated before they were drilled.

The goal is to reduce risk and drill fewer dry holes. 3D seismic, when properly applied, can certainly do that. Some examples where dry holes were drilled using 2D seismic, and subsequently re-examined with 3D data, reveals three basic cases:

1. The prospect should have never been drilled.
2. The prospect was missed and is still there.
3. The prospect looked good on 3D, too. Dry holes happen.

The first case occasionally happens, but the second case is far too frequent.

Conclusions

Drilling success rates in the Gulf of Mexico have been increasing since 1985 and are generally attributed to the increased usage of 3D seismic data. Wildcat success rates have experienced a dramatic increase compared to field wells during this period.

However, the effect of 3D seismic has only been statistically significant for the last two years. This information is important to companies still sitting on the fence over whether to enter plays in the US Gulf of Mexico or whether to use 3D for exploration.

Companies that say they cannot afford 3D seismic will simply not be competitive. It has been shown that the risk of drilling dry holes can be reduced with the use of 3D. 3D is in it's beginning stages for exploration use in the US Gulf of Mexico because of the recent availability of large volumes of non-exclusive 3D at lower costs.

As new non-exclusive data are made available, new prospects will be found. Companies desiring to take advantage of the cherry picking now beginning in the US Gulf must consider or reconsider the use of 3D in exploration programs.

Editor's Note:

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