Fund managers are regularly asked by investors to summarize their investment strategy in one sentence. For Augustus Energy Fund, here is such a sentence: “Making investments in petroleum projects using science and technology to generate superior long term returns.” 

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. As Ramon Y Cajal, the Spanish neuroscientist and Nobel laureate once wrote: "The cajoleries of vanity, the effusions of instinct, and the caresses of fortune pale before the supreme pleasure of experiencing how the wings of the spirit emerge and develop, and how when working harmoniously we overcome difficulty to dominate and subdue elusive nature." (Advice for a Young Investigator, MIT Press).

As oil prices stay low for longer and The New Oil Order takes shape, the time is ripe for a fresh look at the role of science in generating superior returns. Technical advances in well design and drilling now allow the drilling of horizontal wells several kilometres long, as well as extended multilateral wells, with new production-injection architecture. Such wells permit the development of the fields using less wellheads and hence more convenient surface infrastructures.

While drilling less but longer wells allows for a significant cost reduction, the technical risk involved in such operations is higher. These complex wells are more expensive than normal vertical wells and whenever there is a failure, the impact on the economics of the project is significant. Early water or gas breakthrough may cause the well to shut-in prematurely, with a significant decline in the total field production. Even more than in the past, it is therefore essential to carefully plan the development strategy of the reservoir, both in terms of the number and type of wells to drill and the recovery process. These choices, together with a correct prediction of the field performance, will impact heavily on the surface structure design and hence the economics of the project.

To stay within fixed economic bounds and minimise risk, oil companies make use of integrated reservoir studies. While such studies have always been performed, in the present climate they have to be more accurate and less expensive. The most critical factor is the knowledge of the parameters governing the dynamic behaviour of the field that include structural parameters, internal architecture, petrophysical properties, fluid contacts, and thermodynamical properties of fluids. Interpreting these data requires the integration of geology, geophysics, and reservoir engineering, as well as a high level of technical expertise in sequence stratigraphy, 3D seismic interpretation, petrophysics, geostatistics, and reservoir simulation. The importance of integration is related to the scarcity of the available data that must be supplemented through hypothesis, analogues and correlations, which in turn may have a significant impact on the field development planning, including economic modelling.

This very brief review of the significance of the integrated reservoir study in project economics, highlights the importance of the qualities of the Fund manager. The diversity of disciplines poses problems for Fund managers with no scientific background. It is not enough to put a geologist, a geophysicist, and a reservoir engineer in the same working room. While these conditions are favourable to the generation of team work and a synergy between the various specialists, they do not guarantee in themselves that the resulting study will be really integrated. The main problem is the choice of the methods and the difficulty of managing different tasks in parallel, through a continuous communication among team members.

That consideration dictates management of the Fund by a manager who must possess a range of expertise spanning all the disciplines, so that relevant advances can be synthesized. At least, he must understand the added value of different and alternative techniques that he does not necessarily know in detail. Of course, the Fund manager cannot be specialist in every branch, since the individual disciplines are becoming increasingly complex, so inevitably will require the guidance from many colleagues both from the science and economics backgrounds – but it is important that he belongs to one of the key disciplines.