Use of AS$ET and Economic Toolkit in ConocoPhillips

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Use of ASET and Economic Toolkit in
ConocoPhillips

• Vlad Morakhovsky
• Upstream Exploration and Business Development,
  Investment Appraisal

November 13, 2003
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Outline

• Why We Use ASSET and Economic Toolkit in
  Exploration Economics
• Evaluation Methodology
• Case 1 Discrete Probabilistic Tree Example
• Case 2 Customizing Analysis to ConocoPhillips
  needs with the Economics Toolkit Monte-Carlo
  Simulation with the In-House Technical Tool
• Conclusions

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Why We Use ASET and Economics Toolkit

• Applied in exploration economics
• Flexibility negotiation support, speed and
  modeling time, i.e. terms sensitivity runs
• Standardization modularity/codes in country
  files , i.e. standard depreciation modules
• Balance between flexibility and standardization

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Evaluation Methodology

• Probabilistic Analysis which takes into account
• Geological Risk
• Commercial Risk
• Key Uncertainties if the Prospect is a
  Commercial Discovery

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Evaluation Methodology Continued
Commerciality Criterion Usually Based on
Discovery Reserve Size
PD .60 ENPV (90MM)
ENPV 38MM
PS .40 ENPV 230MM
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Evaluation Methodology Continued

• Uncertainties in Cases Given Commercial Success
  Can Be Modeled Via
• Discrete Cases with Assigned Probabilities or
• Monte-Carlo Simulation

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Case 1 Discrete Probabilistic Tree

• Three Engineering Cases Corresponding to Low,
  Base and High Reserve Sizes are built
• Key Uncertainties, i.e. price and costs, are
  modeled through multiple nodes wizard

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Tree Example
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Tree Example
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Tree Example
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Tree Example
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Case 2 Monte-Carlo Simulation Approach

• In-house technical tool ProAct
• Use of Monte-Carlo simulation
• Choice of many technical experts
• Need to have the capability to run interactive
  economics for every iteration within the
  technical Monte-Carlo simulation

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Evaluation Methodology Monte-Carlo Simulation
PD .60 ENPV (90MM)
ENPV 38MM
PS .40 ENPV 230MM
Probability
NPV
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ProACT Architecture (One Iteration)
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Interaction Between Components
ProACT Values
Country file
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Minimum Economic Field Size Estimation
1000
800
600
400
NPV, MM
200
0
-200
-400
0
100
200
300
400
500
600
Reserves, MMbbl
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Interaction Between Components
ProACT Values
Country file
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Interaction Between Components
ProACT Values
Country file
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Evaluation Methodology Monte-Carlo Simulation
PD .60 ENPV (90MM)
ENPV 38MM
PS .40 ENPV 230MM
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Conclusions

• ASET was successfully applied in valuations of
  world-wide exploration opportunities
• Introduction of the Economics Toolkit allows
  interaction with in-house tools while taking
  advantage of the strengths of the fiscal engine

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Thanks

• Bruce Dingeman
• Mike Mitchell
• Cindy Loya