1. Introduction to Onshore Exploration

2. Your Challenge Today You are an exploration team in charge of a new petroleum exploration area. Your task is to find and drill for new reserves and to maximize return on investment (ROI). You will need to work as a company as well as in partnership with others. You will show your new understanding of exploration and be rewarded through credibility Points.

3. Finances You will start with $50 millionYou can apply for more later. Creating ValueProfit is measured by the net value of the oil and gas fields discovered MINUS all costs involved. Winning team has highest ROIROI is calculated as Value created DIVIDED by Funds received.

4. Credibility Points You get CPs for doing wellduring the simulationCorrect answers and sensibledecisions are awarded with CPs CPs are a measure of ability and credibilityA team’s CPs are considered when bidding for blocks and applying for funds from the HQ

5. You will learn Where and how to find hydrocarbons. Various surveys during exploration. Licensing rounds. Farm-in and Partnerships. Drilling rigs and Sub-contractors. Environmental issues. Economically viable volumes. Reducing uncertainty. Team work and negotiation. Critical decision making, analytical skills. Multi-tasking.

6. Oil and Gas Industry Value Chain

7. Login www.oilsim.com

8. Main screen

9. Map Columns e.g C1, and C54 Rows e.g. R35 and R163 Block Blocks are divided into smaller cells e g. C57,R73

10. First challenge Challenge: Find three sedimentary basins in the area. Basins are sedimentary rocks in the deep subsurface where oil and gas has been generated. Procedure: Buy and study magnetic and gravimetric surveys; and to submit the coordinates, column and row number for each basin centre.

11. Gravimetric surveys Gravimetric surveys show the gravity in the sub-surface. Measured by airborne sensors. Sedimentary rocks have lower densities than the surrounding crystalline rocks. Low gravity means high probability of a basin below. Low gravity are basins. High gravity are crystalline rocks

12. Surveys in OilSim

13. Real gravimetric survey

14. Survey in Oilsim Gravimetric survey:South-east quadrant

15. Survey in OilSim All four quadrant surveys in map context.

16. Magnetic surveys Magnetic surveys show similar information as gravimetric surveys. The sedimentary rocks in the basins have a lower concentration of magnetic materials than the surrounding crystalline rocks. Sedimentary basins are the areas with the lowest magnetic field. Basins have low magnetic field Non-basins have high magnetic fields.

17. Real magnetic survey

18. Survey in OilSim Magnetic survey:North-west quadrant

19. Survey in OilSim All four quadrant surveys in map context.

20. Gravimetric survey analysis Locate edges of the continous basin structure (yellow area) Locate the diagonals and thus basin centre

21. Magnetic survey analysis Locate edges of the continous basin structure (purple area) Locate the diagonals and thus basin centre

22. Finding the Midpoint

23. Centre may not be the same Example: Top basin on both maps Calculate the midpoint between the gravimetric and magnetic centres found = C55 and R105 C50 R100 C60 R110

24. Enter decision

25. Centre Midpoint calculation 3 centres – one Centre midpoint for each basin Example: C55, R105 Solve before deadline. All submissions are evaluated after the deadline (and not before). You may get 0-100 CPs. All three centres must be located to get full credibility points.

26. Solve task 1

27. Task 1 solved All teams have submitted their answers. Basin centres are located. Message in Inbox. All teams have answers and CPs awarded.

28. Challenge 2 : license round Sedimentary basins may contain oil and gas. The government has decided to put the blocks around one of the basins on offer. Challenge: Identify the 3 most promising blocks and offer an amount for each of them.

29. Challenge 2 : license round Any restrictions involved? Yes, you need to watch for Environmentally Sensitive Areas. What are we looking for? Hydrocarbon Prospects. Where do we find prospects? In sedimentary basins How do I find them? Interpreting 2D seismic and Common Risk Segment maps.

30. Source and migration 2. MIGRATION ROCK where hydrocarbons are driven through 3. CAP ROCK Impermeable rock that stops migration of hydrocarbons 1. SOURCE ROCK where organic material is put under sufficient pressure 4. PROSPECT

32. Environmentally Sensitive Areas

33. Sensitive Rangelands Survey Red areas You will not be allowed to bid, drill or operate in any of the red areas. Green areas Blocks in area may be awarded.

34. Common Risk Segments Is there a sedimentary basin and a migration route into the prospects in the area? Is there porous reservoir rock in the area, so that the oil or gas can be stored? Is there a sealing rock in the area, so that the oil and gas can be trapped? If all are positive, then green If some negative, then orange If mostly negative, then red

35. Common Risk Segment CRS. Common Risk Segment surveys tell you about the probability of a structure in the block/cell containing oil or gas Surface Layer 3 Eocene 1500m below the surface Layer 2 Paleocene 2500m below the surface Layer 1 Cretaceous 3500m below the surface

36. 2D Seismic surveys Traps can be found with seismic surveys 2D seismic survey is a cross section of the geological layers along either a column or a row. 2D seismic surveys are used for locating prospects.

37. Real Seismic

38. Real Seismic

39. OilSim of 2DSeismic Unprocessed Processed Red is top of the sealing rock Green is top of the reservoir rock Interpreted

40. Anticlinal traps

41. Fault traps Leakage

42. Leakage? Leakage Sealant rock

44. Unprocessed or processed data

45. Interpreted or notOnly buy maximum of 1 block of data at a time to speed up processing

47. License Round in OilSim Minimum bid is $250K Maximum bid is $7.5M Enter numbers without commas (ex: 250000) You will bid for 3 licenses but each team will only be awarded one license Highest bid wins the license If two teams bid the same, the team with the most CP’s gets it Random license awarded if none of your bids are high enough Submit your bid before the deadline!

49. Three bids

50. Example-Block 1123 Bid 250000

51. Recap on Challenge 2 Study Sensitive Rangelands Survey to see which blocks to avoid Use Common Risk Segment surveys to see which blocks to examine closer (look for green) Buy and study many 2D surveys to identify which ones have the most potential traps, as well as the biggest traps.

52. Solve task 2

53. Task 2 solved Message sent to all teams with the results Credibility Points are given for prosperity of the blocks you bid for Every team has got one exploration license

54. Challenge 3 : Exploration Drilling Company management has reviewed the licence that you were awarded and the potential cost to drill a well. Although the possibility of finding oil is fair, the costs involved are large. They have asked you to spread the risk. Challenge: Farm-out a minimum of 20% on your license and farm-in as much as you can on other good licences.

55. Partnerships Spread the risk: e.g Investing in other blocks divides the risks amongst all partners, much more preferable than keeping 100% of one field and all the risk. Increase probability of profit: investment in only 1 field which could be a dry prospect is possible, whereas the likelihood of investing in 5 fields which are all dry is unlikely.

56. Challenge 3.1 Partnering Acquire 3D Seismic interpretations for the block you operate, and study the results from the licensing round-can send under “surveys” to possible partners Farm-out: Get others to invest 20% or more in your license Farm-in: Send offers to other teams to buy shares in their viable licences. Submit an offer for each viable licence, with amount offered and share wanted in whole %.

57. Real 3D Seismic Shows the subsurface structure in a cube.

58. 3D Seismicin OilSim Layer 3 Eocene Layer 2 Paleocene Layer 1 Cretaceous

59. Licences

61. Add a message to the seller

62. Press “Send offer”

64. Farm-in license OWNER decides whether to ACCEPT or REJECT the offer Partnerships established every time a license owner accepts an offer. Overview: On the main page, you can see all licenses. 1) licenses you operate, 2) licenses you have invested in, and other licenses.

65. Investing All your farm-in offers to other teams are shown under “Investing” on the right-hand side of the homepage . This is where a team offers investments to other teams for a % of their blocks

66. Partnerships Partners pay a proportional share of all future costs incurred by the partnership Partners receive a proportional share of the net proceedings from any oil or gas found on the license. The operator team makes all decisions regarding acquiring 3D seismics, drilling of wells and testing of wells. Information: partners in a block can access info about drilled wells and discovered oil and gas fields.

67. Ready to drill Click on drill

68. Choose rig Single Drill Rigs Double Drill Rigs Triple Drill Rigs

69. Choose Rig Max drilling depth is important Rig cost = drilling days * day rate

70. Rigs Few: limited number of rigs available. If you get one: start using it within 20 minutes. If you don’t: wait in a queue, if another team is using the rig. Price can change: rig day rates are dynamic.

71. Service providers 9 Star quality: Good- costs more Bad: - cheaper, but reliability is low 5 types of providers- Construction and Maintenance , Logistics, Well Services, Camp Services and Analysis

72. Penalties & Fines Certain problems can occur if Service Provider Selection is poor quality Other penalties can occur if you drill in areas indicated as problematic in the Environmental Impact Assessment As in real life, problems can occur randomly and these are also applied with fines levied accordingly. Oil spill control – 5% of overall drilling costs

73. Environmental Impact Assessment

74. Drill Position EIA: enviromental impact analysis shows where not to drill. Place your mouse where to drill

75. Drilling Position Layer 3 Eocene Layer 2 Paleocene Layer 1 Cretaceous

76. Drill Position Too deep for the chosen rig.

77. Estimated cost

78. Drilling Days

79. Drilling Result Proven volume (MBOE) counts Test may increase proven volume Remember to tick the boxes!

80. Testing Only if you discover a field – find Oil or Gas You decide whether you want more information about that field More information by doing a production test (and other tests) Tests costs. Tests take 10 days per field. Tests have the same day-rate as the drilling if you use the same providers.

81. Value and ROI Volume Range, e.g. 1-897 Proven Reserves e.g. 1

82. Calculation of Value The total proven oil and gas = 18MBOE Allowing for 25% recovery factor 0.8 Production profile factor and 10% discount factor per year

83. Behind the scene calculation 18MBOE x 25% recovery factor = 4.5MBOE Sales price without discount factor ->4.5MBOE x $50 = $225,000,000 Sales price allowing for production profile -> $225,000,000 x 0.8 (production factor) = $180,000,000 Reduced sales price with 10% discount factor per year = $ 67,397,022

84. Value Calculation 12% $39.9M ($6 of $50 = 12% tax) Expected costs if you developed thefield (CAPEX) andproducedthe oil (OPEX) If total expenses arehigher than the salesvalue, the licence value is zero

85. Appraisal From Probable volume to proven reserves

86. Narrowing ranges Aero drilling - Only proven MBOE counts Exploration well: 1 to 897 MBOE (after drilling) 11 to 566 MBOE (after testing) First appraisal well: 25 to 333 MBOE (after drilling) 34 to 310 MBOE (after testing) Second appraisal well: 65 to 250 MBOE (after drilling) 101 to 152 MBOE (after testing)

87. Increasing proven volumes Appraisal wells - proven reserves increase Range between proven and possible is decreased

88. Effect on calculation of licence 397 MBOE @ $50 including 25% recovery factor, 0.8 production factor, 10% discount factor) 12% $39.9M $6 of $50 = 12% tax) Expected costs if you developed thefield (CAPEX) andproducedthe oil (OPEX) Now total expenses are lower than the sales value and so we have a positive licence value

89. Challenge 3B Drilling

90. Continue... Narrow uncertainty: Drill appraisal wells to get proven volumes Drill into other prospects to find more proven volumes. Farm-in and -out: Get into other good blocks. Two additional licensing rounds: Repeat the processes. Money: Apply for more money, if you run out of cash.

91. Apply For More Funds Click on Apply for More Funds Tab. 1 CP for each $100,000 applied for. Answer the questions: All correct gives cash and you can keep CPs. One wrong gives cash and you keep ½ of your CPs. Two wrong gives ½ cash and you lose all CPs. All wrong, you get no cash and lose all CPs. <10 credibility points: Apply for cash and be fined $5million for each $20million requested.

93. Reserves

94. Production