Www.geohelp.ab.ca Exploration Strategies in the 21st Century - the end of elephant hunting? Dave Russum, Geo-Help Inc .

www.geohelp.ab.ca

Exploration Strategies in the 21st Century

- the end of elephant hunting?

Dave Russum, Geo-Help Inc

www.geohelp.ab.ca

www.geohelp.ab.ca

Exploration Planning• An Exploration Project should have five phases:

Project Pre-Planning

Project Initiation

On-going Project Assessment

Capital Expenditure

Project Post appraisal

• Successful Exploration requires both sound technical work and consideration of a variety of other factors

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Exploration Planning• Other considerations include:

Project Pre-Planning• Corporate expectations and strengths• Analysis of historic results • Assessment of potential• Strategies and Implications

Project Initiation• Avoiding re-inventing the wheel• Data gathering

On-going Project Assessment• Checkpoints to compare progress to expectations• Economic Evaluation and Risk Assessment• Risk mitigation

Capital ExpenditureProject Post appraisal

• Developing new ways to facilitate the process

This paper

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Alberta New Gas Wells + Daily Sales Gas (AEUB Data)

1110721

2327

4103

2782 2664

3318

4510

6009

7506

9165

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Alberta Exploratory Drilling (DOB Data)

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Alberta Exploration Drilling and Success 2001 (DOB DATA)

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Alberta Exploration Drilling 2000 (CAPP Data)

Lahee Total Wells ProducersD&A or Susp

% "Success"

NFW 86 29 58 34%

NPW 1766 1002 764 57%

DPT 428 306 122 71%

OUT 1291 944 347 73%

TOTAL 3571 2281 1291 64%

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Exploration • Statistics can be misleading!

Not all Exploration is equal• Has never been a clear definition of

Exploration strategies• “Elephant hunting”, “wildcat drilling” tend to be

recognised terms• < 5% of all exploration drilling in Canada in

2000 was NFW• What do we call the rest of the activity?

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Elephant Hunting

Typical elephant hunt:• Is illegal• Is easy • Largest animals shot• Ivory plundered• Carcass left to rot• Young orphaned

A terrible analogy for Exploration in our Industry!

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Describing Exploration Strategies

• Proposing a new way to describe and classify exploration strategies that provides a clearer image of the expectations of a project or portfolio prior to drilling

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Describing Exploration Strategies

Needs: • Consistent - to describe and compare

Exploration activity• Simple - so that expectations amongst

Individuals, Teams and Companies are understood

• Universally applicable • Preserve confidentiality of detail

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New Description of Exploration Strategies

• Compare exploration strategies to different hunting techniques in Animal Kingdom (ie focus on hunter not the prey)

• Each strategy has a different risk and reward profile– Risk = Likelihood of an economically successful

result (Includes Technical Uncertainty)– Reward = Size of the prize

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Risk and Reward Profile

RISKHigh Medium Low

High

Medium

LowRE

WA

RD

Management, Investors

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Types of Hunting Strategies

– Tiger– Grizzly– Wolf– Hawk– Vulture

• Create an image of the basic characteristics of each strategy and how relate to our Industry. (Most Companies use more than one strategy)

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Tiger Strategy

• Hunts big game over large areas

• Generally alone, takes time, stalks prey, strikes aggressively

• Eats sporadically, gorges, leaves only scraps for competitors

• Failure may result in demise

True wildcats – Was a large company strategy in Alberta – who will fill the void?

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Risk and Reward Profile

RISKHigh Medium Low

High

Medium

LowRE

WA

RD TIGERTIGER

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Grizzly Strategy• Wide variety of eating

habits, from small berries to big game

• May forage with others • Eats whenever opportunity

arises • May hibernate for part of

year but must eat regularly to survive

Most senior companies in their core areas(Individuals can’t hunt for big game while foraging)

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Risk and Reward Profile

RISKHigh Medium Low

High

Medium

LowRE

WA

RD TIGERTIGER

GRIZZLY

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Wolf Strategy• Hunts in packs• Success more frequent

than hunting alone • Spoils have to be divided• A weak or dominant

member may cause problems for whole pack

• Difficult to introduce new members

Typical Joint Venture. Must improve success rate by synergy rather than just reduce financial exposure.

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Risk and Reward Profile

RISKHigh Medium Low

High

Medium

LowRE

WA

RD TIGERTIGER

BEAR,WOLFGRIZZLY, WOLF

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Hawk Strategy• Soars and glides

silently over large distance

• Always alert for signs of movement

• Strikes fast when spots an opportunity

• Survives well eating small prey

Excellent approach for smaller Companies - should focus on core areas over time (Grizzly strategy)

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Risk and Reward Profile

RISKHigh Medium Low

High

Medium

LowRE

WA

RD TIGERTIGER

BEAR,WOLFGRIZZLY, WOLF

HAWK

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Vulture Strategy• Uses keen eyesight to spot

opportunities left by others• Feeds entirely on carrion

and other scraps• May stay close to one

place • May not eat much at each

meal but feeds regularly.

Mature area strategy, growth limited unless combine with another strategy or acquisition

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Risk and Reward Profile

RISKHigh Medium Low

High

Medium

LowRE

WA

RD TIGERTIGER

BEAR,WOLFGRIZZLY, WOLF

HAWK VULTUREDINOSAUR

RARE(Eureka)

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Exploration Strategy

EXPLORATIONSTRATEGY

STAKEHOLDEREXPECTATIONS

MANPOWER

EXPERTISE

MONEY

TIMEFRAME

COMPETITIVEADVANTAGE

DATA RISKTOLERANCE

- No right Answer

©Geo-Help Inc. 2002

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Corporate Strategy• A Company may use different hunting

strategies for different areas, teams or individuals

• Easily communicated– Future plans assessed by strategy– Funds can be distributed by strategy – Results readily evaluated by strategy

• Apply between companies for competitive comparison, investment and acquisition

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Risk and Reward Profile(As basin matures # opportunities and players moves to bottom right)

RISKHigh Medium Low

High

Medium

LowRE

WA

RD TIGERTIGER

BEAR,WOLFGRIZZLY, WOLF

HAWK VULTUREDINOSAUR

RARE(Eureka)

OPPORTUNITIES

POPULATION©Geo-Help Inc. 2002

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Risk and Reward Profile(For a Company to grow by Exploration need to move towards top left)

RISKHigh Medium Low

High

Medium

LowRE

WA

RD TIGERTIGER

BEAR,WOLFGRIZZLY, WOLF

HAWK VULTUREDINOSAUR

RARE(Eureka)

TIME, $sEXPERTISE©Geo-Help Inc. 2002

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Brief Description of Exploration Projects

– Provides image of projects without disclosing corporate secrets. Can add detail as required.

Project 1 Project 2

Strategy Tiger Vulture

Cash $6.5MM $0.4MM

Timeframe 2 years 0.3 Years

# Wells 1 1

Expected Results

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Alberta Exploration Drilling and Success 2001 (DOB DATA)

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Exploration Wells

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VULTURE

HAWKWOLFGRIZZLY

TIGER X

Y

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Example - Spending by Exploration Strategy (Proposed or Actual)

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A B C D E F G H

Company

$s M

M

Vulture

Hawk

Wolf

Grizzly

Tiger

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The Test

• Can you place your current Exploration activity into these strategies?

• Would your Boss/Senior Management agree?

• Does the strategy align with the expectations of investment analysts and stakeholders?

• No? - Need to reassess Strategic Plan and Expectations?

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Additional Benefits

• In mature basins, strategy can accurately predict:– Manpower needs, expertise– Timeframe for results– Implications for balance sheet– Impact on reserves and production

• Risk mitigation can be applied early

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Exploration Planning• Other considerations include:

Project Pre-Planning• Corporate expectations and strengths• Analysis of Historic results • Assessment of potential• Strategies and Implications

Project Initiation• Avoiding re-inventing the wheel• Data gathering

On-going Project Assessment• Checkpoints to compare progress to expectations• Economic Evaluation and Risk Assessment• Risk mitigation

Capital ExpenditureProject Post appraisal

• Developing new ways to facilitate the process

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Conclusion• “Elephant hunting” is banned

• Describing exploration using analogy to the predators not the prey emphasizes the known (method) rather than the speculative (result) - helps clarify expectations for both the Industry professional and the layman

• Approach can be applied to Exploration and Research projects universally

• Feedback encouraged [email protected]

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Risk and Reward Profile

RISKHigh Medium Low

High

Medium

LowRE

WA

RD TIGERTIGER

BEAR,WOLFGRIZZLY, WOLF

HAWK VULTUREDINOSAUR

RARE(Eureka)

www.geohelp.ab.ca

Acknowledgements

• Cathy Gaviller at Calgary Zoo• My son who downloaded the pictures• Various individuals in the exploration and

investment community who have provided constructive input

• Your feedback is encouraged– [email protected]

• Thank you!