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8/9/2019 a Philosophy for Exploration
1/3
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
17
8/9/2019 a Philosophy for Exploration
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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
J
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8/9/2019 a Philosophy for Exploration
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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.
9