It would make an appropriate theme song
for the oil and gas industry. Just take an old tune popularized
by that enduring pop trio from the '60s, and add new lyrics:
Where have all the prospects gone?
Unfortunately, this is for real, and it's nothing
to sing about.
When commodity prices began their relatively recent
ascent, production became a major focus of the E&P companies
to lock in badly needed cash. Some impressive profits resulted,
and exploration budgets at last are being beefed up.
But today, these companies face a whole new dilemma:
So much money, so few drilling prospects.
"There's a tremendous prospect shortage in the industry,"
said Dan Smith, Houston independent-consultant, "and the exploration
ranks have dwindled to where we don't have the manpower to solve
"We're in a real oil and gas supply crisis," he added,
"and I think we're going to be forced into making it better. The
only way to solve it is to find more oil and gas."
Scott Laurent, owner of Laurent Oil & Gas, concurs
there's a lack of prospects but noted although people are selling
deals, there appear to be more lookers than buyers.
"People are willing to spend money on certain plays,"
he said, " but it's not universal."
Of course, the more exposure a prospect gets, the
more likely it is to attract a buyer.
Prospect expos, such as the upcoming AAPG
Property and Prospect Exposition (APPEX) in August, are custom-tailored
to meet this need. The Houston event is a cooperative effort between
AAPG, Society of Independent Professional Earth Scientists, and
Houston Geological Society.
APPEX steering committee member Smith said the timing
of AAPEX would allow it to supplement the North American Prospect
Expo (NAPE), an annual event held early in the year. He noted that
many companies operate on a calendar year and are looking to wrap
things up at the end of December.
To Be, Or Not to B2B
One obstacle to prospect generation for the smaller
independents is access to 3-D seismic data, which are still pricey
for the "mom 'n' pop" shop. Go into the larger companies, where
downsizing was rampant when prices last headed south, and the lack
of "human capital" available to generate prospects is a sizeable
problem, particularly where properties might produce less than 50
Bcf or so.
Considerable effort is being expended to help resolve
problems and streamline the oil and gas business via Internet technology.
Business-to-business (B2B) petroleum industry enterprises
host Web sites that provide an array of services over the Internet
-- including online marketplaces for evaluation of properties and
relevant data involved in the acquisition and divestiture process.
Online marketing recently took a major leap forward
when industry giant BP teamed with the established B2B entity, IndigoPool.com,
to implement a whole new concept for prospect generation -- one
that has the potential to beneficially impact essentially every
segment of the business.
VirtualProspect™ is the brainchild of BP, originating
in its Gulf of Mexico shelf business unit. Rather than marketing
a property for sale, the online tool markets the fact there is a
property available for interpretation.
"We started talking in 1999 that we wanted to accelerate
our prospect cycle time," said Steve Decatur, virtual prospect director
at BP. "We didn't have enough staff to work every block -- no one
does -- and with the great producing rates and steep declines on
the shelf, there's always pressure to replace reserves.
"And if we increase drilling and production, we defer
abandonment costs and also reduce our dollars per BOE of operating
costs, increasing the returns on our platforms."
Recognizing that many small- to mid-size E&P
companies might be willing to fund and work on smaller prospects
than the majors, BP decided to tap into this target group using
"We looked at who in the B2B arena was globally entrenched
that could get this out there and do data management and such, as
well as who would be prospecting, " Decatur said, "and where we
thought we would get the most hits without advertising."
Once they struck a strategic alliance with IndigoPool,
both parties hit the ground running.
"We did the pilot for BP in November," said Mike
Davidson, strategy and business development director at IndigoPool.com,
"and we were able to deliver the eyeballs immediately to look at
their VirtualProspect data.
"We didn't advertise, but put up limited information
about five selected properties on the Web site for three weeks,"
he continued. "BP got inquiries and offers to work the properties
from big and small companies -- including national oil companies
-- worldwide from every continent."
The pilot program moved along rapidly, with contracts
signed and relevant data given to the prospectors within a week
after the application deadline. Interpretations were completed and
reviewed by BP in April.
It's noteworthy that this is not a case of picking
over the carcass of drilled-up acreage but an opportunity to work
some really prime parcels that are core properties to BP. Two of
them currently produce a combined 400 MMcf/day.
Not Just for Big Companies
For those out there who may be Web-challenged, take
heart. If you can point and click with a mouse, you're in the game.
Here's the way it works: Viewers review the process
by logging-on to view such data as maps, production curves, seismic
data samples, structure maps, type logs, availability of maps, type
logs, availability of processing facilities and more.
Parties who decide they want to prospect submit applications
online regarding their interest, expertise, years in business, etc.
After screening the documents, BP selects a prospector to work each
property and then provides them with the requisite data that can
be loaded onto either a PC or a UNIX workstation.
In some instances, the data for the pilot included
newly reprocessed seismic data not yet interpreted by BP.
The five applicants selected for the pilot project
included a two-person shop made up of a geophysicist and an engineer
with geology training, as well as an international service company.
VirtualProspect accommodates an array of compensation
options, determined in part by polling a number of people. Prospectors
can select from three set options, each with a different level of
risk, or they can write in their own terms as a fourth option. All
four categories were awarded in the pilot program.
Any prospects generated that BP elects not to drill
can be brokered to other companies by the prospectors, who tack
their terms onto the farmout terms built into the initial documents.
Because drilling will occur on BP's property, the buyer must receive
"We already have a long list of companies who want
to review prospects," Decatur said, "as well as a list of names
who want to prospect."
If you missed out on the pilot program, not to worry:
Data loading for the next round, which includes 25-30 GOM shelf
properties, should be completed by the end of June. Other business
units are evaluating the concept, as well.
BP filed a patent application on the VirtualProspect
business model. It has since transferred the intellectual property
rights to VirtualProspect to IndigoPool, which will make the concept
available to the broad industry in June, according to Davidson.
He emphasized VirtualProspect is not just for the
big companies, but for any of those who recognize they might have
untapped opportunities in their portfolio and want to better explore
their acreage to add reserves without adding staff.
"We like the concept and think IndigoPool is onto
something," said Jeff Gartland, project manager at Oxy. "We think
this has a lot of value, and it will grow."
Seismic Owners: 'Crucial' Players
One of the players crucial to making the VirtualProspect
model work is the seismic data owner.
Prospecting with multi-client, or non-exclusive,
seismic data has become the norm, and seismic data licensing is
a sensitive industry issue. Great care must be taken to ensure the
data are used only by the appropriate parties.
Should one of the selected BP prospectors sell a
prospect to another company to drill on BP leaseholdings, that company
will be required to pay a license fee to the seismic data vendor
for the data used to develop the prospect before it can drill --
provided it doesn't already have a license.
WesternGeco, which has an established relationship
with IndigoPool, intends to facilitate growth of VirtualProspect
by providing controlled access to its inventory of worldwide multi-client
seismic data, according to multi-client NSA manager Martin Stupel.
"This is a win-win for the vendors in more than one
way," Decatur noted. "For example, if extra wells are drilled in
a field, it could generate reprocessing of data."
This is only part of the anticipated trickle-down
impact if the prospects are successfully brokered.
"There's the benefit to BP, who will participate
in the brokered deal, benefits to the buyer and to the prospector,"
said Craig Davis, president of INEXS, which took part in the pilot
and wound up with several prospects to broker.
A Virtual Success
An added bonus for prospectors is the opportunity
to build a network. For instance, there's the possibility of these
professionals being called on to work other projects, particularly
if there's a quick turnaround time required.
The concept allows companies to tap into the virtual
work force -- in fact, opening the door to the much-talked-about
virtual oil company. Consultants, so-called "retirees" with their
invaluable expertise and others can be utilized to fill the void
of professionals created by the dwindling supply of available new
recruits and past downsizing, allowing the industry to continue
to grow -- perhaps even more efficiently than ever before imagined.