Situation Analysis:

An oil & gas company had effectively explored and developed a gas-rich offshore basin to supply large quantities of natural gas within the country where it operated. However, most of its large-scale resources were already under production, and demand was growing quickly. In the face of this increased demand and potential supply shortages, the company’s traditional approach of seeking out large prospects and converting them to high-production fields was no longer viable.

To meet future challenges, the company had to determine how to leverage its complex portfolio of medium-sized offshore assets. These ventures, however, posed a number of costly challenges. Several of the new discoveries were high in contaminants, and most of them required significant investment in order to build the processing, evacuation, and pipeline to safely and efficiently bring the gas to shore.

Discovery & Solutions:

Strategic Decision Group’s approach to maximizing this portfolio scenario was to convey the full scope of decisions that the company faced. First, the SDG team created a “decision hierarchy” to explicitly frame the strategic decisions that required immediate attention. This analysis centered on how to sequence and strategically execute future exploration projects, including the necessary development infrastructure.

With the analysis complete, SDG worked with the company’s Decision Board to devise four strategic alternatives for evaluation:

1. Status Quo: Focus exploration on the dwindling large-scale gas deposits in the region, which could act as hubs and anchors for future drilling developments;
2. Play It Safe: Bundle together smaller, lower-risk gas prospects and develop a separate infrastructure for each of these groups of assets;
3. Go Big: Explore bundles of prospects with the largest potential first and develop the necessary infrastructure for each of them; and
4. Go Big and Share Infrastructure: Explore bundles with the largest potential first, and then construct a shared pipeline infrastructure that could service all future drilling sites in the region.

To gauge the efficacy and associated risks of these four alternatives, our team performed several in-depth, probabilistic analyses and price scenarios for each option. Using this process, we concluded that the integrated approach of “bundling” the riskier, high-potential prospects with shared infrastructure would render the gas prospects more economical, and it would significantly increase the overall volume of gas produced.

Results & Impact:

The results from this clarified exploration and development approach were twofold. First, the company’s management gained clarity of action around the new, integrated approach for developing gas fields. This allowed the company to fine-tune the optimum sequence of prospects for exploration, while also providing a clear plan for how to link together successful discoveries and most efficiently bring the gas to shore. Also, for the first time, management had a consistent method for comparing alternative strategies and their risks, an efficient valuation process for its unexplored assets, and a vehicle for constructive dialogue between its various departments. Overall, the value added from the recommended project strategy proved to be significantly more that of the company’s original approach.