Perspectives

Most financial investors in oil and gas projects concentrate largely on reserve estimates. The science underpinning such data receives very little attention. Instead, financial analysts tend to rely on the qualifications and experience of investee company managers to deal with the scientific and technological issues. Even when some of those financial analysts or investors employ in-house geologists and engineers, the often passive contribution of such scientific advisers does not allow for a detailed understanding of the science behind the asset and recovery techniques for increased reservoir performance.

The notion that science and technology increases returns from petroleum projects is an old idea. Nowadays, though, the view is not always held in esteem by Fund managers; it is considered amateurish and wrong, or it is caricatured as academic and dismissed, or else the whole subject of trying to understand the scientific drivers that affect Fund returns is shelved as too difficult. Yet, as history has proven, science and technology has a crucial impact on the success of any given project; the open question is how big of an impact.

Our approach to the valuation of investment opportunities is based on the Petroleum Resource Management System (“PRMS”). PRMS is a fully integrated system that is focused primarily on estimated recoverable sales quantities. It is based on an explicit distinction between the chance or commerciality of the development project that has been or will be implemented to recover petroleum and the range of uncertainty in the petroleum quantities that are forecast to be produced and sold in the future from the development project.