How the Internet is influencing today's E&P business

Abstract

The Internet has been heralded for business success and conversely blamed for many high profile business failures in recent years. Portrayed as a panacea or evil, the reality inevitably lies somewhere in between. So, how can this technology tool be used to best advantage in the E&P industry? In E&P today much of a company's success lies in managing the oil and gas asset lifecycle. The framework in Figure 1 indicates how the oil-and-gas asset life cycle can be analyzed and the effect of the Internet on the cycle. Figure 1. Asset life cycle matrix. The axes of the life cycle matrix are two main metrics that E&P companies consider when managing their portfolios. These are risk (standard deviation of the net present value) and materiality, which refers to any metric (often financial) that a company considers key to its business success (e.g., return on capital employed, internal rate of return, net present value, cash flow from operations, free cash flow etc.). Opportunities are acquired through various means and fed (typically) into the explore/develop/produce quadrant and, depending on their evolution over time in terms of risk and materiality, they may stay in that quadrant, or move to others. Movement to other quadrants would indicate a change in strategic direction for the asset concerned: e.g., believing that an asset has new risks, either technical or financial, a company decides to farm out the asset. Ideally, a company would have unlimited access to capital, personnel, and knowledge (including all types of data). It would be able to develop all positive NPV projects and would sell or farm out any projects that did not satisfy its economic/strategic criteria. There would also be no projects in the “dead zone” where the risk and materiality are low, because it would have enough capital, personnel, and knowledge resources …