Situation Analysis

Technological advances have helped unconventional oil and gas operators maximize recovery even while relentlessly cutting costs. And yet, operational improvements alone will not be enough to keep companies thriving. For years, many unconventional operators invested all of their free cash flow, and some even took on debt, to finance the wells needed to offset the natural production decline and add a growth wedge on top. Now, shareholders demand that unconventional operators not only grow, but do so profitably while producing positive cash flow.

SDG worked with a midsize tight oil producer facing this challenge: Find a way to grow that can quickly sustain itself without significant capital requirements. Under new leadership, the organization was struggling to build on its single successful basin and broaden its position. For years, the company’s geoscientists had done exploration guided by the science. It was time to connect that passion to the bottom line. How would the organization choose the next location to efficiently build its portfolio of value for its investors?

Discovery and Solutions

Working with the company’s exploration team, SDG led a screening effort that quickly narrowed the list of attractive opportunities to two US tight oil plays. The team chose one as the most natural area to quickly leverage its expertise and knowledge. First, the explorationists dug deeply into data to understand the subsurface characteristics of the play. Then, SDG facilitated a broader discussion to identify above-ground decisions on infrastructure, markets, and partnerships. The result was a rich set of alternatives with varying degrees of attractiveness for various reasons. Using custom probabilistic models, SDG determined the value and risk for each alternative. In the end, two alternatives provided compelling strategies for entering the new basin, both with limited requirements for upfront dollars, and both using an approach that the company had not previously considered as viable or attractive.

Results and Impact

Through its work with SDG, this company shifted its conversations from “How much do we know about the rock?” to “How much do we know about doing business in this area?” In the end, the potential value was clear, and the risks were well understood. Using SDG’s results, executives avoided being lured into attractive looking but expensive deals that could have undermined the organization’s financial stability. Instead, the leadership began building the internal expertise to implement the strategy they had chosen, saving about a billion dollars of investment while preserving hundreds of millions of dollars of value.