Exploration Assurance From the Texaco Experience – Assurance Series #4

by Bruce Appelbaum (Mosaic Resources), Guest Contributor

My association with Texaco’s exploration program began in 1990 with the offshore Gulf of Mexico group in New Orleans. At the time, Texaco’s yearly exploration budget was a portion of the producing divisions’ stipend, with only informal communication among the exploration groups except at yearly budget meetings. Those meetings consisted of prospect presentations with little commonality and process largely independently determined by the division originating the prospects. The prospects were presented with the originator’s bias and inconsistent risking methodology. Gamesmanship was rampant as success was determined by the amount of budget committed from a pot controlled by the global exploration managers’ group. The process was akin to getting dinner at the boarding house table. Coal bed methane projects competed with rank offshore wildcats for limited capital. Given the bias and gamesmanship, global exploration success was predictably poor.

new orleans takes a new approach

In New Orleans, portfolio analysis was taken seriously, and risk analysis training was brought in as a standard tool in the planning process.  Pete Rose was invited in as the entire division was put through his flagship course on prospect evaluation. Concurrently, a process was emplaced which led to the formation of a small group of risk specialists that produced an independent view of prospect size and chance before the prospect was added to the portfolio. The group also reviewed and evaluated individual prospects being developed for OCS sales in the Gulf of Mexico. Metrics were developed to indicate what was needed to both replace our produced reserves and grow reserves at a significant rate. The increasing success of the division was noticed at our New York corporate HQ, and the credibility of the New Orleans offshore group grew in great measure.

One of the problems holding the offshore group back was a history of expensive dry holes in deeper Gulf waters and a fear at HQ of further deep-water drilling. This was during the period of initial success by Texaco’s major competitors. The company had to get in the deep-water game if it was to have a chance at elevating to top quartile performance among its peers. At the time, the perception was that HQ believed the division was throwing darts at a map of the Gulf to pick its drill sites!

To change this perception, we demonstrated our exploration process and risking technique to management in New York. A plot of our top six deep-water prospects was constructed. Given the individual risks of the prospects shown, we had a 60% probability of achieving at least one discovery with the portfolio presented. The group was duly impressed, we won the day, and the deep-water Gulf frontier was added to our purview. The revamped focus led to Petronius, Tahiti, Blind Faith and the Perdidio area discoveries, to name a few.

my challenge as head of global exploration

In 1996 a newly created global exploration job in Houston was assigned to me, with an ambition to elevate the company’s exploration success both domestically and internationally. As part of my preparation, I evaluated the more successful programs of our peers and interviewed several of our competitors. Amoco was an extremely successful exploration force at the time, with notable success in West Africa, the North Sea and other areas. I visited my Amoco counterpart David Work, and we chatted through Amoco’s process. It started with a global risk team that reviewed both pre-drill and post-drill the world-wide portfolio of projects.

I determined that a global exploration group separate from the producing divisions was necessary at Texaco. This would allow a focus to fund the most prospective projects within a single inventory of competitive, properly risked opportunities. Part of that effort was a fully dedicated Global Risk and Standards Team (GRST) charged with properly evaluating the risk attributes of all projects in the global exploration portfolio. Jim Mackay, Paul Haryott, Michael Joseph, Dave Taber and Jim Varnon were all part of iterations of the risk team. Ultimately, Paul led the team at Texaco and continued as the first manager of Chevron-Texaco’s assurance effort, called the Exploration Review Team. 

Concurrent with the new portfolio methodology, Texaco evolved a focused approach concentrated on several basins which played to our strengths, and abandoned those plays that sapped our financial and technical resources. We allocated about three quarters of our resources to the Gulf of Mexico, offshore West Africa, and offshore Brazil, which had just opened to international investment. The remaining quarter was targeted at the Australian Northwest Shelf, the North Sea, Trinidad, and several emerging high potential arenas. We retreated from efforts in Italy, Poland, Thailand, Viet Nam and several other venues which could not meet our metrics. Though highly prospective, we chose not to enter Venezuelan exploration because of the restrictive licensing terms.

The period from 1997 to the Chevron merger in 2001 bore out our reconstituted exploration efforts and Texaco indeed achieved top quartile exploration metrics. Texaco added approximately four billion BOE net through exploration in this period, including giant discoveries at Agbami in deep water Nigeria as well as Janz on the Australian Northwest Shelf. Janz is part of the Gorgon LNG project and remains the largest gas discovery ever made in Australia. Many of the discoveries were in initial phases of development when the merger talks with Chevron heated up. I believe these resources were a very large driver for the ultimate combination of Texaco with Chevron.

Post-merger, I understand that Texaco’s exploration process was largely adopted by the combined company. While the terminology may have been different, there is no question that the assurance process, driven by consistent, dispassionate risk assessment by a great crew of geoscientists and engineers was a key component of a great company’s last independent successes. All who worked at Texaco during this period can be justifiably proud of what their efforts produced and its foundation for Chevron-Texaco’s continued success.

about the author

Dr. Bruce Appelbaum has enjoyed a long and successful career in the oil and gas industry, culminating in his being named a Vice President and corporate officer of Texaco Inc. He has served on the Board of Directors of the CQS Rig Finance Fund and Input/Output. Additionally, he is a Distinguished Trustee of the American Geosciences Institute Foundation. He is a Member of the AAPG Corporation and an AAPG Foundation Trustee Associate. His advisory positions include the School of Geosciences at Texas A&M, the Dean’s Advisory Council at the State University of New York at Buffalo, and formerly, the School of Earth Sciences at Stanford University. He is currently a member of the Baker Institute Roundtable at Rice University.