INTERNATIONAL PETROLEUM INVESTMENT — WHY AUSTRALIA?

Abstract

This paper presents the methodology that Conoco, a major international energy company, uses to make exploration investment decisions. This methodology includes a detailed and well coordinated analysis of the technical merits, cost environment, political/economic environment, and contract terms for every area of interest.

Conoco continually monitors the activity in the more than 500 sedimentary basins around the world. A forecast of undiscovered reserves is made by country and basin. Obviously, all else being equal, it is better to search for oil in places considered to have the most oil left to be discovered. Gas prone areas tend to be of less interest.

Once an area is identified to be of interest, data are collected on specific identifiable prospects to begin an exhaustive analysis. Recoverable reserves are estimated and the exploration program required to evaluate the area is determined.

The development costs for the anticipated discovery are estimated along with production profiles. Sensitivity analyses are performed to view the effects of delays caused by factors beyond operator control.

The political/economic environment in which operations would function is evaluated. A company must be able to anticipate that a government with stability and integrity will reign throughout the life of a project.

Finally, the contract terms that govern the petroleum operations are analyzed. A complete discounted cash flow analysis is performed.

This paper considers how each of these elements in the analysis might be a plus or a minus with regard to directing exploration funds toward Australia and shows that Australia affords an ideal mix of technical/geological merit with a workable acquisition environment and attractive economic reward. Comparisons will be made with other areas around the world.