Educators in Geoscience Series

Petroleum Economics: Now More than Ever - Interview with Larry Chorn

American Association of Petroleum Geologists (AAPG)

Petroleum Economics is one of the "must know" areas of the petroleum industry which can have a great impact on the professional success of geoscientists and engineers. Larry Chorn, Ph.D., a well-respected expert in petroleum economics talks to us today about his experience in the industry and how and why petroleum economics matters now more than ever.

What is your name and your relationship to the oil industry?

I am Larry Chorn. I earned a PhD in chemical engineering and, later, an MBA in finance and strategy. I have been in the industry for 38 years in a wide range of roles - from a pure reservoir engineering researcher, R&D planning manager, reserves and economic advisor, professor of petroleum engineering, Platts chief economist, strategic planning advisor and most recently a partner in Halliburton Global Consulting. You could say I have seen a wide swath of the upstream from technology to business.

How did you develop a passion for petroleum economics?

After ten years of pure technical contributions, I came to understand that economics were really the key to a company's success in the upstream. Technology and its application was important but cannot stand alone. Getting the economics of exploration and development correct is a critical element in the skills set. So I went back and earned an MBA to refine my understanding of the business side of the industry. It completely changed my career path, giving me the opportunity to apply both technical and business insights to improve companies' performance.

Why is petroleum economics one of the cornerstone knowledge areas for all geoscientists and engineers?

Our business is based on the clever application of business insight and technology to make a profit. If we don't make a profit, the company has no money to re-invest and discover more energy resources. Doing that in a cost effective manner provides low cost energy for people. People and nations thrive when we can give them low cost energy. That makes our efforts 'noble'.

What impact does today's uncertain environment make on petroleum economics?

Clearly it raises the bar for success. Uncertainty has always been an element of the upstream industry. There have been many ups and downs over the last 100+ years. We see that many companies have failed in the last two years. Not because they couldn't find oil and gas, but because they did so at elevated costs. The costs were too high even in a $100 /bbl world. Being able to understand uncertainty and manage it with proper application of economics, decision analysis and portfolio management is how companies survive in tough times. They that do not apply those skills, fail. As professionals in the industry we need to use our understanding and skills to minimize the volatility impact and lay the groundwork for the next up cycle.

How do new technologies and new techniques impact estimates of ROI and recoverable reserves?

I worked as part of a 12 person team in Mobil in the early 1990's dealing with reserve recognition, booking reserves, computing project economics and advising sr. management on which were the best projects to invest in. The technical tools have come very far since then. When I started in the industry there was about a 20 percent chance of commercial success for each wildcat exploration well. Better geoscience, improved reservoir simulations and engineering, the ability to increase the wellbore to reservoir contact with laterals and fracturing have combined to allow us to find and extract more hydrocarbon from a resource, much more than 20-30 years ago. As a consequence, returns on investment have improved for conventionals and are improving for unconventionals at a pretty remarkable pace. As industry professionals it is our task to integrate geoscience, drilling, engineering and financial tools into a seamless capability to continue to provide as inexpensive hydrocarbon supply as is possible AND to continue to seek improvement, every day.

Would you like to learn more? Take AAPG's Petroleum Economics from Larry Chorn which normally costs in the range of $950, but because of a special arrangement, AAPG is able to offer it for $350 on September 22 in Houston.

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