Valuable Geology

Colossal business opportunities unveiled by the Valuable Geology’s solution of the key problem of present-day E&A risk management

With Valuable Geology products, you will be able to conduct a geological exploration without financial risks, win auctions for the most attractive subsoil blocks, and implement the most challenging and ambitious E&A and technological ideas without the threat of financial losses. The solution we have developed for handling the key problem of E&A risk management enables colossal business opportunities for companies, which seemed unbelievable until very recently:

Leadership and domination across all segments of the oil and gas industry

Leadership in terms of volumes and unit cost of commissioned reserves production

Leadership in terms of E&A scale and economic efficiency

Leadership in attractive project acquisition

Leadership in development of E&A competencies, knowledge and technologies, in the volume, quality and relevancy of available E&A data

Colossal E&A prospects inaccessible to other companies

Powerful management tool – the Risk-Free Value of an E&A Program

Powerful management tool – Focused RMSEE Delivery

Powerful management tool – Focused GSEE Delivery

Financially, practically risk-free status of the oil and gas field prospecting works – actual and verified opportunity to bring the planned E&A works financial failure probability down to zero for any computation demand encountered in real practice

E&A segment conversion from an financially highly risked and planned loss-making activity into the best investment option globally, which is capable of providing an investor with ultra-high reliability while securing extremely high profitability

Leadership and domination across all segments of the oil and gas industry

In the context of real, non-hypothetical E&A risk management, the company obtains the best possible opportunities for gaining leadership and domination across all segments of the oil and gas industry thanks to the following benefits enabled by real, non-hypothetical E&A risk management:

advantages over other companies (companies with hypothetical risk management) in terms of volumes and unit cost of commissioned reserves production;

possibilities of guaranteed delivery of the pre-set reserves increment rate, i.e. secure achievement of the pre-set production scope target.

Leadership in terms of volumes and unit cost of commissioned reserves production

In the context of real, non-hypothetical E&A risk management, the company obtains the best possible opportunities for gaining leadership in terms of increment volumes and unit cost of commissioned reserves production thanks to the following benefits enabled by real, non-hypothetical E&A risk management:

advantages in terms of E&A scope (the quantity of implemented projects) inaccessible to other companies, i.e. the possibility to enhance the E&A operations scale without the threat of financial losses, which is beyond the reach of other companies;

advantages inaccessible to other companies, which include acquisition of the most attractive projects, i.e. projects with the best production characteristics (depth, flow rates, etc.), with the largest reserves volumes, located in the most attractive and high-potential sites globally from the economic and geographical standpoint, etc.

Implementation of a larger quantity of the most attractive projects enables advantages in terms of both discovered reserves volumes and the quality of such – the larger amounts and better production and other economic characteristics of field reserves, and therefore, advantages related to lower production unit costs.

Leadership in terms of E&A scale and economic efficiency

In the context of real, non-hypothetical E&A risk management, the company obtains the best possible opportunities of gaining leadership in E&A scale and economic efficiency thanks to the following benefits enabled by real, non-hypothetical E&A risk management:

an opportunity to enhance the E&A scope without the threat of financial losses;

an opportunity to be guaranteed to convert the enhanced E&A scope into higher risk management efficiency, increasing risk-free profits of planned E&A and competitive power in terms of project acquisition, which are beyond the reach of other companies;

fundamentally greater resource base development prospects versus other companies – a fundamentally larger quantity of attractive projects, which is beyond the reach of other companies, thanks to the application of such revolutionary tools as the Risk-Free Value of an E&A Program, Focused RMSEE Delivery, Focused GSEE Delivery, etc.;

advantages in the development of E&A knowledge, competencies and technologies, in the scope and quality of available E&A data;

supreme advantages in terms of attractive project acquisition, which are inaccessible to other companies and enabled by such revolutionary tools as the Risk-Free Value of an E&A Program, Focused RMSEE Delivery, Focused GSEE Delivery, etc.;

advantages in raising E&A investments, which are beyond the reach of other companies, i.e. the financially, practically risk-free status of the oil and gas field prospecting works converts them from a planned loss-making and extremely highly risked type of activity into an extremely attractive investment option as reliable as US Treasury bonds but with its risk-free profitability amounting to tens and hundreds of percent, and the expected and actual profitability amounting to hundreds and thousands of percent while the complete return on investment and profit-making term is normally 1 – 3 years.

Leadership in attractive project acquisition

In the context of real, non-hypothetical E&A risk management, the company obtains the best possible opportunities for gaining leadership in attractive project acquisition thanks to:

competitive power in project acquisition beyond the reach of other companies, i.e. the ability to pay several times more for a particular project than other companies can afford, which is enabled by the Risk-Free Value of an E&A Program tool inaccessible to other companies;

a significant increase in the risk-free values of E&A Programs thanks to the use of the Focused RMSEE Delivery tool, which is inaccessible to other companies;

a multi-fold increase in the forecast economic efficiency of new play prospecting projects thanks to the application of the Focused GSEE Delivery tool inaccessible to other companies;

advantages in terms of project success probabilities, which result from advantages in development of E&A knowledge, competencies and technologies, and in the volume and quality of available E&A data, which are provided by the financial risk-free status of E&A operations.

Notes:

The Risk-Free Value of an E&A Program is the lowest practically possible NPV of an E&A Program – getting a still lower value is practically impossible (the probability of getting a still lower value is very small – equal to the pre-set level of significance).

RMSEE – the Risk Management Scale Economic Effect (RMSEE): the Risk-Free Value of an E&A Program is higher than the sum of Risk-Free Values of the corresponding constituent E&A Subprograms.

GSEE – the Geological System Economic Effect (GSEE) shall mean a change in the value of one subsoil feature of a petroleum-bearing system (play, PS, PR, PP) as a follow-up to a survey of another feature (element, subsystem).

Leadership in development of E&A competencies, knowledge and technologies, in the volume, quality and relevance of available E&A data

In the context of real, non-hypothetical E&A risk management, the company obtains the best possible opportunities of gaining leadership in development of E&A competencies, knowledge and technologies, as well as in the volume, quality and relevance of available E&A data, thanks to:

advantages versus other companies in terms of the conducted E&A operations scope, which are enabled by opportunities to enhance the E&A scope without the threat of financial losses and to be guaranteed to convert them into quick colossal risk-free expected and actual profits from the E&A operations, which is beyond the reach of other companies (companies applying hypothetical risk management practices);

fundamentally larger investments in the development of E&A competencies, knowledge and technologies as well as acquisition of E&A data thanks to the opportunity to promptly convert the obtained E&A advantages directly into quick colossal risk-free, expected and actual profits from E&A operations, which is beyond the reach of other companies;

an opportunity to assess the efficiency of applied methods and technologies, perform unbiased assessment of involved specialists’ and managers’ performance, promptly identify and eliminate failure causes on the basis of objective criteria, which is beyond the reach of companies applying hypothetical risk management practices;

an opportunity to implement the most ambitious and challenging E&A ideas, test and implement the most challenging and ambitious E&A practices, methods and technologies without the threat of financial losses.

Colossal E&A prospects inaccessible to other companies

Implementation of real E&A risk management practices immediately results in a significant expansion of the company resource base prospects – a huge quantity of projects seemingly unattractive to companies applying hypothetical risk management become attractive for implementation thanks to the use of robust revolutionary management tools, such as the Risk-Free Value of an E&A Program, Focused RMSEE Delivery, Focused GSEE Delivery:

The Focused RMSEE Delivery tool is capable of scaling down requirements to the forecasted profitability of projects by hundreds of percent;

The Focused GSEE Delivery tool is capable of increasing the forecasted profitability of new play prospecting projects by hundreds of percent;

The Risk-Free Value of an E&A Program tool makes it possible to implement extremely challenging and ambitious E&A projects without affecting the target profitability and failure probability significance level of the E&A Program.

Powerful management tool – the Risk-Free Value of an E&A Program

The Risk-Free Value of an E&A Program is a management tool provided by the ability to actually handle the E&A risk management task, regardless of the computation demand encountered in real practice, which is beyond the reach of companies using hypothetical E&A risk management practices.

The Risk-Free Value of an E&A Program is:

the E&A Program NPV which matches the pre-set level of significance and is received from the cumulative distribution function of the E&A Program NPV probabilities;

the lowest practically possible NPV of an E&A Program – getting a still lower value is practically impossible (the probability of getting a still lower value is very small – equal to the pre-set level of significance);

the amount of money which the company can spend on aggregate to acquire all the projects comprising the E&A Program to securely guarantee the target profitability and financial failure probability levels of the E&A Program.

In the context of competition with companies applying hypothetical E&A risk management practices, the Risk-Free Value of an E&A Program tool can provide companies using non-hypothetical, real E&A risk management methods with an opportunity to acquire any project the company is interested in. The total Risk-Free Value may be distributed among projects in any proportion, and it makes it possible to pay several times more for an attractive project than any company applying hypothetical E&A risk management practices because it determines an attractive acquisition price for each specific project.

Acquisition of best projects provides a company applying real E&A risk management practices with increasing advantages in terms of volumes and quality of discovered reserves versus companies using hypothetical E&A risk management.

Enhanced advantages in terms of the volumes and quality of discovered reserves provide companies using real E&A risk management with greater advantages in production economic efficiency.

Enhanced advantages in production economic efficiency provide companies using real E&A risk management with greater advantages in economic efficiency of other vertical integration segments.

Thus, the Risk-Free Value of an E&A Program tool inaccessible for companies using hypothetical E&A risk management practices constitutes a robust source of advantages in terms of performance of exploration, production and other vertical integration segments.

Powerful management tool – Focused RMSEE Delivery

Focused RMSEE Delivery (the Risk Management Scale Economic Effect) is a management tool that is provided by the ability to actually handle the E&A risk management task regardless of the computation demand encountered in real practice, which is beyond the reach of companies using hypothetical E&A risk management practices.

The RMSEE for real E&A Programs implies that the Risk-Free Value of the E&A Program is higher than the sum of Risk-Free Values of constituent E&A Subprograms.

In other words: provided observance of certain conditions, increase in the quantity of projects within a developed E&A Program (enhanced risk management scale) fundamentally mitigates requirements to the project economics required for achieving a financially, practically risk-free status of planned E&A operations.

Therefore, the Focused RMSEE Delivery tool:

fundamentally enhances the company’s competitive power in terms of project acquisition;

fundamentally expands the existing resource base development prospects – grants attractiveness to a large quantity of formerly unattractive projects;

ensures a financially, practically risk-free status of planned E&A in conditions where project economics do not envisage such a status with a smaller quantity of projects;

significantly enhances the risk-free profitability and risk-free values of E&A Programs, which means a material increase in respective investments attractiveness.

A significant RMSEE can be obtained without actually increasing the E&A scope, i.e. as a result of organizational steps – through risk management centralization and E&A planning horizon extension.

The Valuable Geology revolutionary software unveils practically unlimited opportunities for Focused RMSEE Delivery, makes it possible to accurately estimate economic and probabilistic characteristics of E&A Programs consisting of many tens and hundreds of projects, which, by a large margin, meets the potential practical needs of any companies.

Powerful management tool – Focused GSEE Delivery

Focused GSEE Delivery (delivery of the Geological System Economic Effect) is a tool that can be rolled out on a large scale thanks to the financially, practically risk-free status of E&A operations, which is beyond the reach of companies applying hypothetical E&A risk management practices.

A Positive GSEE (Geological System Economic Effect) means: increase in the value of a certain subsoil part of a petroleum-bearing system (play, PS, PR, PP) based on the results of exploration of another part (element or subsystem) of that system.

The Focused GSEE Delivery tool makes it possible to:

enhance the profitability of new play prospecting projects multi-fold;

significantly enhance the company’s competitive power in terms of acquisition of subsoil blocks for new play prospecting projects;

fundamentally expand the resource base development prospects for the company – fundamentally increase the quantity of new play prospecting projects which are attractive for the company;

significantly increase the Risk-Free Values of E&A Programs, i.e. materially enhance the company’s competitive power in terms of acquisition of all projects making part of E&A Programs;

significantly increase the risk-free profits of E&A Programs, i.e. materially enhance the attractiveness of investments in E&A operations;

provide the best possible opportunities for boosting the frequency and quantity of new play discoveries made by the company.

Focused GSEE Delivery makes it possible to gain advantages in the development of all vertical integration segments. Along with discovery of a new play, a large quantity of new projects with high E&A success probabilities and high reserves quality are supplied to the company’s operational envelope, which envisages exploration and economic advantages for the company, and the latter faces the best possible opportunities of addressing tasks related to available reserves volume increase and quality improvement. Implementation of such opportunities makes it possible to enjoy the advantages in the evolution of production and, respectively, development of the other vertical integration segments.

Focused GSEE Delivery is practically beyond the reach of companies with hypothetical risk management. The hypothetical nature of present-day E&A risk management inevitably results in the occurrence of an informal practice of high E&A risk avoidance, i.e. the desire of specialists and managers to avoid projects envisaging new plays prospecting, i.e. projects normally characterized by high E&A risks, as much as possible.

Financially, practically risk-free status of the oil and gas field prospecting works – actual and verified opportunity to bring the planned E&A financial failure probability down to zero for any computation demand encountered in practice

Financially, practically risk-free status of E&A works means an ability verified by actual quantified evidence to solve the risk management task validly and not hypothetically, i.e. bringing the E&A Program overall financial failure probability so close to zero that occurrence of such an event can be deemed to be practically impossible.

Financially, practically risk-free status of E&A works provides companies with colossal business opportunities, which are in principle beyond the reach of companies using hypothetical risk management:

a possibility to securely convert E&A scope expansion into increasing efficiency of risk management, enhanced competitive power in terms of project acquisition, quick colossal risk-free, expected and actual profits from E&A operations;

an opportunity to securely convert E&A scope expansion into a solution of reserves increment tasks (increment volumes, HC phase state) and reserves quality improvement tasks (tasks of reducing the production unit costs);

unprecedented competitive power in terms of attractive project acquisition, which is beyond the reach of companies using hypothetical risk management;

advantages in the development of exploration knowledge, competencies and technologies, as well as in the volume and quality of available exploration data;

an opportunity to promptly convert the acquired exploration advantages directly into quick colossal risk-free, expected and actual profits from E&A operations without a threat of incurring financial losses;

an opportunity to implement the most ambitious and challenging exploration ideas, test and implement the most challenging and ambitious exploration practices, methods and technologies without a threat of financial losses;

an opportunity to perform objective assessment of the efficiency of applied practices, methods and technologies, as well as managers’ and specialists’ performance, which is beyond the reach of companies applying hypothetical risk management;

an opportunity to promptly identify and eliminate failure causes on the basis of objective criteria, which is beyond the reach of companies applying hypothetical risk management;

advantages in raising E&A investments, which are beyond the reach of other companies, i.e. the financially, practically risk-free status of the E&A segment converts it from a planned loss-making and extremely highly risked type of activity into an extremely attractive investment option as reliable as US Treasury bonds but with its risk-free profitability amounting to tens and hundreds of percent, and the expected and actual profitability amounting to hundreds and thousands of percent while the complete return on investment and profit-making term is normally 1 – 3 years.

Valid and quantified reduction of the financial failure probability of planned E&A operations down to zero is ensured by present-day advanced computation capacities and revolutionary computation methods developed by Valuable Geology and implemented in the DSS “ABVG” software.

DSS “ABVG” makes it possible to actually handle the E&A risk management task – it elaborates E&A Programs for a company with a financial failure event being practically impossible.

Out of the variety of all E&A Programs which can be made on the basis of all oil and gas prospecting projects potentially available for the company, DSS “ABVG” identifies a subset of Risk-Free E&A Programs – E&A Programs with the overall financial failure probability below the established level of significance (adjustable, typically 5–1% or lower), i.e. so small that advent of the E&A Program failure event can be deemed to be practically impossible.

Based on the identified subset of Risk-Free E&A Programs, DSS “ABVG” allows the company to select a Risk-Free E&A Program which is optimal in terms of established business criteria.

The DSS “ABVG” software is capable of providing cumulative distribution functions of financial and physical metrics of planned E&A works at any stage of the respective E&A Program development.

Thus, DSS “ABVG”:

actually handles the E&A risk management task – it elaborates E&A Programs for a company with a financial failure event being practically impossible (the failure probability is below the pre-set level of significance);

optimizes the generated Risk-Free E&A Programs in line with an unlimited number of business criteria (E&A budget, expected reserves size and characteristics, expected profit, research and production capacity loading, etc.);

provides quantified evidence of addressing the risk management task, i.e. it determines the probability of getting any of the potential values of the E&A Program financial and non-financial performance indicators, determines the values of the E&A Programs’ financial and non-financial performance indicators that can be obtained with a pre-set probability level.

The DSS “ABVG” software makes it possible to effectively solve the E&A risk management task in any conditions encountered in actual practice – the computation capacity limit of DSS “ABVG” meets all potential demands in the computation scope encountered in actual practices of E&A planning.

Note. The actual practice of DSS “ABVG” application demonstrates that the pre-set significance level of 1% is optimal in current conditions and is normally easily achieved when elaborating E&A Programs for major and medium companies. Probabilities of a complete return on investments and profit receipt as part of E&A Programs in major and medium companies normally amount to 99.000% – 99.999% and above.

Winning over the hypothetical nature of E&A risk management constitutes a fundamental transformation in operational, financial, economic and investment opportunities of the E&A segment.

All present-day oil and gas companies use a conventional economic approach to E&A operations, which is characterized by two main statements:

The exploration work is not a stand-alone business but rather a planned loss-making and highly risked stage of a forecasted HC field full-scale prospecting and development project, which is viewed as unable to deliver profit.

Profit is only made at the production stage while exploration does not make profit but its objective is to supply new reserves for further development at the production stage.

As all present-day oil and gas companies use a conventional approach to exploration, positive financial E&A deliverables are not highlighted against the forecasted and actual financial performance of production projects across HC fields discovered at the E&A stage. It means that:

the forecasted and actual income from E&A operations is concealed deep within the financial performance of a production project;

proceeds from E&A operations (production income) are deferred for a very long term – from 5–7 years to several decades.

The hypothetical nature of present-day risk management, which forces companies to assess the financial E&A risks as risks of individual projects, creates an unreasonable impression of high and extremely high financial E&A risks. Thus, present-day probabilistic risk management and the conventional economic E&A approach currently applied by all oil and gas companies do not make it possible to objectively justify the advantages of exploration investments, both for external investors and internally in the company:

the scale of required E&A investments in each project is very large – tens, hundreds of millions, and sometimes, billions of USD;

the probability of complete loss of E&A investments in each project is very high – from 20% to 90%;

E&A proceeds in the case of a project exploration success event are not calculated;

potential proceeds (production proceeds) are deferred for a very long period of time – from 5–7 years to several decades.

The business approach views exploration as a standalone type of business, independent from the production segment, which is aimed at gaining proceeds from an increase in the subsoil blocks value as a result of conducted exploration. The business approach allows for easy estimation of E&A proceeds, and the timeframes of return on investment and profit-making become very short. Financial results of an E&A project are equal to the larger of the user value or exchange value of the discovered field, without E&A costs and subsoil block acquisition costs. Respectively, the financial results of an E&A Program amount to the sum total of financial results of the constituent projects. Note. The exchange value of a field shall mean the maximum value at which the discovered field can be sold. The user value of a field shall mean the maximum value at which we would buy such discovered field.

A combination of a business approach to exploration and real risk management practices, ensuring its confirmed financially, practically risk-free status, makes E&A works an investment option with extremely attractive properties:

colossal reliability, which is beyond the reach of the absolute majority of investment options (probability of complete return on investments is 0.99000–0.99999 and above);

colossal expected profitability beyond the reach of investment options that are comparable in terms of reliability (hundreds of percent);

colossal, risk-free profitability, beyond the reach of investment options comparable in terms of reliability (tens of percent). Note. The Practical Risk-Free Profit is the lowest practically possible value of profit-making – getting a still lower value is practically impossible (the probability of getting a still lower value is very small – equal to the pre-set level of significance);

short timeframes of complete return on investments and profit-making in full (1–3 years).

Given real, non-hypothetical risk management and a business approach to E&A delivery, the exploration segment becomes as equally reliable an investment as US Treasury bonds but with profitability amounting not to a number of percent but to hundreds and thousands of percent. The actual practice of the Valuable Geology revolutionary software use demonstrates that probabilities of a complete return on investments and profit receipt as part of E&A Programs in major and medium companies under current conditions may easily amount to 99.000% – 99.999% and above. Therefore, the probability of losses only amounts to 1.000% – 0.001% and below. Expected profits from E&A Programs amount to values from a few hundred to many hundred and even several thousand percent for a period of 1–3 years. P99 and P95 risk-free profits from E&A Programs amount to tens and even hundreds of percent.

Thus, the Valuable Geology revolutionary software tools make the exploration segment a more attractive business from the investment standpoint if compared to HC production – while characterized by a financially, practically risk-free status, it features a materially shorter return on investment timeframes and substantially greater profitability values than the production segment can afford. Therefore, new business models of a financially risk-free E&A company and financially risk-free E&A venture fund, which are focusing on making profit, not from HC production but from the discovery of new fields and sales of fields discovered as a result of exploration, are now characterized by great potential and colossal advantages.