GEOL. CROAT. 49/2 247 ·249 ZAG REB 1996 

Professional paper 

Critical Geological Parameters in Feasibility Studies 
of Exploration Projects 

Slobodan KOLBAH 

Key words: Geological parameters, Hydrocarbon 
reservoir, Econom ics, Exploration. 

Abstract 
Qu.uuitalivc feas ibil ity analysis of exploration projec ts is the 

basis for r:'IIional exploration and it should be diligently undertaken. 
The feasibi l i ty stud y should take into accoun t the most cri tical 

geolog ical parameters which have an impact on the economics o f the 
ex ploration project. Each hydrocarbon accumulat ion has its specific 
characteristics which arc disclosed in var iOllS geologica l data gath. 
ered during explo rati on work. These data have [0 be in terpreted and 
sorted Olll in a way 10 reflect the most prominent reservo ir charactcr­
isti cs. Thc data rep resent the basis for the selection of the most appro­
pri;He deve lopmcnt and production technology . Sueh an in teg rat ed 
and multidisc ip linary approac h is essential for obtaining th e bes t 
ex ploration resu lt s al the lowcst poss ible cost. 

1. INTRODUCTION 

Feas ibili ty slttciies, with cri tica l regard [or geologi­
cal parameters, have been carried out in INA-Naftapl in 
ex ploration department for several decades . 

In the late 1960's work started on the sys tematic 
ga thering and interpretation of geological data and eco­
nomic indi cators. PLETIKAPlC (l984) made a sign ifi ­
can t con tribution with the introduc tion of economic 
analyscs as an important part of complcx ex plorat ion 
studi es . In the 1970's f-Tajnsek led some explora tio n 
projec ts as thc hcad o f a team of multidi sc iplinary 
expert s (HAJN SEK e t al. . 1978). The present auth or 
togcther with othcr colleagues, has tri ed to mantain the 
eOJ1linu ily of this work and to develop it further (KOL­
BA l-l & RUKi\ YINi\. 1985). 

Information technology has greatly aided the devel­
opment ancl advancement of preparation of the stud ies. 
Init ially, data processi ng was undertaken us ing Main­
fram e comput ers. Of course, technology has became 
more sophisticatcd and Naftaplin invested quite a lot in 
the procure ment of new cquipment and software and 
trai ning of" it s pe rsonnc l in order to be able to foll ow 
recen t trends in feas ibility studies. 

INA In dllstrija nafte d.d. Zagreb, NAFfAPLIN Sektor I. Slu zbn 
iSlraziv:lIlja, Subiccva 29, HR-l OOOO Zagreb, Croalia. 

PROCEEDINGS 

Kljucne rijeCi: geoloski pararn etri , lcziste ug ljikovo­
dika, ekonomika, ist.razivanje, 

Sazetak 
Kvanl ilalivna procje na opravdanosli iSlrazivackog projek la osno­

va je rac ionainog iSl raiivanja, al i i nju je S'lIn u nuzno obavljali na 
mcionalan llilCi n. 

Procjeml opravdanosli is traziv ackih projekata treba tl zeli 1I obzi r 
naj kriticllije geoloske parametre s najveCim uljecajem na ekono­
micnost projekta. Svako lezisle ugJji kovodika im" osobite znacaj ke 
vezane uz raztic ite geoloske paramet rc de finiranc tijekom is tra-Liva­
nja. Ove podatke treba int crp re tirati i rnzvrSlati na nac in koj i ce 
odrazavati najvaznije z nacajke ldista. Kri ticn i panulletr i ujedno 
prllzaju osnov ll za odabir odgovarajucc tehnolog ije razrade i 
pro izvodnje. Takav illtegrirani i multidi se iplinarni prislup bitan jc za 
postiz<lllje najboljih istra.zivaCki h rez u!t ala LI Z najni i.e moguce 
IroSkove. 

T he new organiza tio n of Na rt aplin 's Ex plora ti o n 
Department , mainl y based o n team wo rk, sh ould 
cnhance performance resu lts. Teams of ex perts incl ud­
ing geophysicis ts, geoche mists, geo logists and econo­
mists work directly on project tasks but indirectly they 
are also involved in making strategic decis ions. 

2. ECONOMIC ANALYSES 

Economic analyses of ex pl o ration projects arc 
extremely important. in the oil busincss which involvcs 
great ri sks (HAJNSEK et al.. 1978) but a lso g reat 
potential. It is important to identify and evaluate all the 
important fac tors which can have an impact on explo­
ration costs (KOLBAH & RUKA YlNA. 1985) but also 
the overall success of an oil project. This is one reason 
why oil indu stry experts have devi sed a co mpl ex 
methodology (SEGO et aI., 1987) for carry ing out slIch 
analys is. This meth odology (MILL ER, 1987) assumes 
some typical input data relating to the reservoir charac~ 
te ristics on one side and economi c parametcrs 0 11 the 
other, which are then modell ed and interpretcd. 

The re liability of the input ciata is ex trcmely impor­
tant, e .g. the water depth in off-shore drilling can have a 
large impact on the economi cs of ex plora tion and pro­
duction , or, changes in taxation policy related to oil pro­
duction can also have positive or negative cffccts on the 



24X 

financial results of a project. For this reason all the data 
have to be checked and updated. Economic appra isa l 
wil l a lso take into account concession term s, ri sk 
s preading , politi cal risks and poss ibl e technologica l 
improve ments. In thc dccision making process the man~ 

agclllcnt has 10 consider all of the above factors. Due to 
the high degree a/" uncertainty which is inevitably 
involved in the oil business, some sophisticated meth ~ 

ods havc becn promoted, like Monte Carlo simu lati ons 
and sens itivity ana lyses. 

An cxploration projec t usually starts with the acc u­
mulation or various reservoir data. Gelogical ~geophys i ­

ca l s urveys have to be carried oul. The data are 
proccssed and inte rp re ted. On the basi s or such data 
various information can be obtained, including the 
probability of source and migration , reservo ir rocks, 
trapping integrity, reservoir thickness, porosity and per~ 

Illcabi lity. 

3. IMPORTANCE OF CRITICAL GEOLOGICAL 
PARAMETERS 

Critical geological parameters are derived from th e 
above surveys. After prospect identification and de fini ­
tion, exploration drilling follows. Thi s is the costli est 
part or exploration. Here sav ings are a lready poss iblc if 
the c ritical geologica l parameters arc bctter defined. 

Arter exploration dril ling is completed, apprai sal of 
the prospec t will be eas ier as more data are collec ted 
about the reservoir and the fluid. Total reserves can be 
es timated togethe r wi th recovery potentials. These data 
a re inc luded in the mode l by wh ich we can dete rmine 
the 1110s t appropriate technological solutions for devel­
opment wells and fie ld faci lities. However, evcn at this 
ea rl y s tage by modell ing critical geological parameters 
and exploratory dri ll ing data we can pred ict the produc­
tion technology and related costs. 

There a re two differe nt approaches to obtain the 
required parameters: by gradually defining them Ihro~ 

ugh geo logical properties (from th e cnvironme ntal 
mode ls to the sand body porosity for exa mpl e), or 
deducing them in retrospect from the actual production 
cha rac te ri s tics. However, to some extent it is a lways 
ex trapolation of data. The best assumptions can be 
obtained by a combination of both methods. 

Suc h modelling will enable appra isa l ex pe rts to 
avoid poss ible mistakes and focus on the most c ritica l 
paramete rs. It will a lso provide information necessary 
for de finin g " plays", the broadest exp loration unit s 
wit hin an area. A play is primarily defined by rese r ~ 

voirs. In the Pannonian Basin, for example, bas ic plays 
are in the bascment and Pretertiary, o lder Te rtiary and 
Lowe r Pannonian , Upper Pannonian , Pontian and 
younger deposits. 

In the depressions, including Mura, Drava, Sava and 
S lavonija-S rijem , they are furthermorc distinguished in 

Gcologi<l CroatiC<I 49(2 

the semiregiona l rese rvoi rs w ith comlllon l ilhostrati~ 

graphi c c harac teristics. It is very impo rt a nt to keep 
these ident ifica tions in the data base for easier informa­
tion managemcnt as "Evide nce of reserves". The re arc 
o ther imponant da ta related to these reservoirs like 
strat igraphy, lithology, petrophysica l paramc ters and so 
on. 

Fluid characteristics can furth e r de fin e "plays" in 
more details. For example, in the Croati an part of the 
Pannonian Basin source rocks are dc tcrmincd in the 
Sarmatian and lower Pannonian beds. Depending 011 the 
local burial history and other lat c r proccsses we can 
inte rpret the appearance of oil and gas fields in one 
area, and gas and gas-condensate fi e ld s in the other. 
Reserves~ in-place depend on reservoirs ancl fluid char­
ac teri stics but , further, they are rela ted to tcc to nic and 
structural events and pressure/temperature conditions. 

Recovery c ffi ciency is in a g rea t part rela ted to the 
technical and technologica l approach in produc tion, but 
it al so de pends on the above mentioned e le mc nt s: 
petrophys ics of the reservoir , Iluid c ha rac te ri s tics and 
the resulting fluid regime of production. 

So, critical geological parameters have an impac t on 
overall upstream activities. Economi c analyses are con­
ccntrated on cash now a nd profit definition inc luding 
parameters such as payout period , rates or re turn and 
profitabi li ty index uncler certain di sco Llnt rates. Thcse 
forccasts are made on the basis of time/cash diagrams. 
The outputs of such ana lyses enable us to follow and 
compa rc the viability of the major costs re lated to a 
project including acqui si tion of land , ex ploration 
dr ill ing, produc tion s tage including orr~ shore or on~ 
shore production facilit ies and eq uipmcnt, (ran sporta~ 
tion sys tem and so on. 

However, cconomic ana lyses w ill a lso lake into 
consideration some eleme nts in the downst ream part of 
the o il bus iness such as marke tin g and di s tribution , 
rc fining , storage and distribution. or eoursc, at such an 
early stage of a project these are only hi gh level analy~ 
scs and forecasts. Yet, they are important bccause early 
information can help us to avoid ri sks and losses. 

For exa mple, in the case or a gas prospec t in the 
Kanay is concession in Egypt , a cha nge in the price of 
the product of I S/MCF res ulted in break ing through 
the economical threshold , to ge tting nearl y 15 $MM 
after tax cash flow discounted at a rat e o r 15%. 1n 
ano the r example in Libya, the economi cs of the reser~ 

voir c hanged dramat icall y depe ndi ng on the th ickness 
of the pay zonc. A change of several metres a ffectcclthe 
brcak-even threshold va lue by approximate ly 100 

$MM of after tax cash now d iscou nted at 15% ra te. 
In an off-shore project s imilar analys is showed that 

the critical parameter was well productivity. In calc ula­
tions taking into account bc fore tax valucs the threshold 
was at about 2 Mbbl/day. By increasing welJ ~productiv­

it y th e other va lu es werc al so inc reased. However, 



Kolbah: Crili!.:al Gcologic;l l Par.mlelers in f'easibility Studies of Exploration Projects 249 

when we took into account production sharing te rms, 5. REFE RENCES 
the economics of the project proved 10 be less att ractive 
even at high productivity values. HAJNSEK, B. , KOLB A F-I , S . & RUKAVI NA, B. 

4. CONCLUSION 

Thi s papcr was prepared for the first Int erna tional 
Symposium of Petroleum Geology - Economic Aspects 
o r Petro iclim Exploration - An Approach to Rat ional 
Exploration which was held in Zagreb in April 1996. It 
reveals part of the effo rts of IN A Naftaplin Exploration 
Department to promote econom ic analyscs in explo­
ration survcys . The Economic aspect of exploration 
work has not always been properly valued. The present 
aut hor has tried to emphasise the potentia ls of econom­
ic anal yses and how they can predic t the success of a 
pctroleum project and make it more rational. 

( 1978) : Probability of hydrocarbon di sco ve ry in 
some areas of the Adriati c.- XXV I Congress and 
Plenar Assembly I.C.S.E.M. , Proceedings, 135- 137, 
Antalya. 

KOLBAH, S. & RUKAVI NA , B. ( 1985): Analysis of 
drilling depths, time and costs in Pannonian Basin 
and Adria tic subsea area at thc bcgin nin g o r the 
e igh li es.- Fourth Adriati c Symposium or Oil Tech­
nology, Proceedings, 10, 5- 18, Cavtat. 

MILLER , N. (1987): Explorat ion cconornics.- Interna­
tional I-Iuman Resources Devclopmcnt Corporation, 
Boston, 82p. 

PLETIKAPle , Z. ( 1984): Modifica tion or the Newen­
dorp 's Monte Carlo simulation procedure of the ne t­
present values of petro leum and gas reservcs.- Na f"­
ta , 35/1 2, 617-627 , Zagreb. 

SEGO, B., KOLB AH, S. , R UKAVI NA, B. & SKELlN, 
K. ( 1987): Data base for the appraisal of hydrocar­
bo n rescrves. - 9th Intern ational Syrnpo~ium Com­
puters at University, Proceedings, 346-35 1, Cavtat. 



250 Geologia Croalic:l 49(2