Strengthening Management Planning for Exploration and Production

Abstract

American Institute of Mining, Metallurgical, and Petroleum Engineers, Inc. This paper was prepared for the 43rd Annual Fall Meeting of the Society of Petroleum Engineers of AIME, to be held in Houston, Tex., Sept. 29-Oct. 2, 1968. Permission to copy is restricted to an abstract of not more than 300 words. Illustrations may not be copied. The abstract should contain conspicuous acknowledgment of where and by whom the paper is presented. Publication elsewhere after publication in the JOURNAL paper is presented. Publication elsewhere after publication in the JOURNAL OF PETROLEUM TECHNOLOGY or the SOCIETY OF PETROLEUM ENGINEERS JOURNAL is usually granted upon request to the Editor of the appropriate journal provided agreement to give proper credit is made. provided agreement to give proper credit is made. Discussion of this paper is invited. Three copies of any discussion should be sent to the Society of Petroleum Engineers office. Such discussion may be presented at the above meeting and, with the paper, may be considered for publication in one of the two SPE magazines. The purpose of this paper is to suggest that (1) many oil companies can substantially improve the results of their exploration and production activities through strengthened program planning, and (2) successful application of program planning approaches developed and proven in large-scale public enterprise can provide exploration and production managers an effective tool for planning these critical activities. Analysis of the exploration and production results achieved by major oil companies over the past 5-to-10 years presents an intriguing picture. A few companies have consistently turned in top performance records (eg., in terms of reserves added per well drilled). However, most companies have lagged well behind the industry leaders. Many factors affect performance. Company size, sound decisions in past years, and good fortune are all undeniably important. We believe, however, that effective planning of exploration and production programs can provide companies whose performance has programs can provide companies whose performance has been below par with a competitive edge that can lead to substantially increased reserves, production, and profits. profits. We believe that in recent years large-scale public enterprise has moved well ahead of most private industry in developing effective systems for planning its activities. A major advance has been the development (and evolution) of the planning-programming-budgeting system (PPBS) - first in the Department of Defense and subsequently in other government departments and agencies. PPBS is by no means the whole answer to management's planning needs. And its history is checkered, but the shortfalls have been much more in application than in concept. Our experience has shown the basic elements of PPBS can be successfully applied by exploration and production managers to develop and control more effective strategies and programs leading to substantially improved short-and longer term performance. A look at the exploration and production results achieved by major oil companies over recent years reveals an intriguing picture. A few companies have had consistently outstanding results while most have lagged far behind these industry leaders. Why does this performance gap in oil exploration and production performance gap in oil exploration and production exist? And what can a company with only an average record do to close that gap? In this paper I discuss one way in which an oil company can improve its results and strengthen its competitive position. Our experience shows that improving exploration and production planning by adopting approaches production planning by adopting approaches developed for large-scale public enterprise can help companies develop sounder strategies and programs designed to provide a competitive edge. This experience is largely based on our work in developing exploration planning processes. However, exploration and processes. However, exploration and production activities are obviously closely production activities are obviously closely intertwined. And while the specific requirements (e. g., the type of quantitative analysis techniques needed) for effectively planning production operations are different, we believe the production operations are different, we believe the basic approach can be similar to that shown to be effective for exploration. Before reviewing these approaches to strengthened management planning, let us take a closer look at the oil planning, let us take a closer look at the oil industry performance gap to see the opportunity that management of most companies has to improve operating results and build profits.