During exploration and appraisal, oil and gas companies accept that there will be failures due to dry holes and non-commercial discoveries. For this reason, they plan to drill enough independent prospects to ensure that the value associated with the commercial discoveries exceeds the program cost (including dry holes). This outcome is referred to as the portfolio effect.
The figure below illustrates the portfolio effect. It shows that as the number of wells drilled increases, the chance of zero geological and zero commercial discoveries decreases. Conversely, the chance of achieving a Net Present Value (NPV) greater than zero increases but is not certain.
We contend that the portfolio effect will not be acceptable to companies, regulators, or the broader societal interests in SCS projects. Failure to inject the contracted CO2 volumes or contain CO2 in the target reservoir or storage zone could result in significant mitigation actions or even project shutdown. The potential cost related to being unable to inject the contracted amount of CO2 is illustrated by the Gorgon project, where the operator has had to acquire and surrender millions of dollars in carbon credits.
To mitigate against this, a complete assessment of subsurface uncertainties and risks combined with estimates of the chance of success and failure are needed. These are discussed in subsequent postings beginning with the definitions for these terms.
