Old rocks in new places

Tim Cejka, president of ExxonMobil Exploration Company, says access to newly opened U.S. exploration areas won't solve energy supply issues overnight - but it could be part of a larger solution.

Harnessing science and human brain power, ExxonMobil takes the search for new energy supplies to the farthest reaches of the globe. Exploration President Tim Cejka tells how it’s done.

How do you identify new exploration opportunities?
It starts with understanding the geology – the “rocks” that hold hydrocarbons. We’re continuously evaluating the geology of basins around the world to determine where the best areas are so we can be ready when host governments make them available for lease. We manage new opportunities with our prospect inventory. Imagine this as a funnel into which we pour all of our new ideas and concepts, perhaps hundreds in any given year. These are then sorted and prioritized, and we pursue and capture the best.

How do you prioritize those opportunities?
We ask ourselves three questions. First, is it a quality opportunity? Advanced technology and smart people help us determine whether an area or prospect has potential. Next, is it a good fit with our goals, resources and investment philosophy? And finally, is there a commercial deal to be struck? We don’t want to rule out a prospect too early by saying it has limited economic potential. We’d rather see if it passes the first two tests, and then look for a creative way to structure a commercial arrangement.

How does this process work when you don’t have much data?
If we don’t know much about a particular basin, we look at basins similar to it — analogues — in other parts of the world. These analogues help us determine whether the basin we’re interested in may have the potential for a robust hydrocarbon system. It’s a matter of understanding the risk and lowering the uncertainty by acquiring the best information and by conducting the most thorough analysis. It’s important to understand the difference between risk and uncertainty. With risk, you’ve identified a prospect and understand the potential variables well enough to make a business decision. With uncertainty, you just don’t have the information to determine whether it’s risky or not. Therefore, a phased approach to collecting key data is very important.

How successful has ExxonMobil been in making new exploration acquisitions? What’s been the trend?
At the time of the merger, Exxon and Mobil brought a large number of opportunities into our combined portfolio. We had to sort them out and do some prioritizing, and by being selective, we actually trimmed the list. As our global understanding grew, we started to ramp up acquisitions and the pursuit of new opportunities. We’re acquiring about 10 to 15 new assets a year, and we’ve increased our acreage holdings since 2005. The trend is rising, with 2008 anticipated to be another record year for captures (lease/resource acquisitions), and we expect a similar level in 2009.

What role does technology play in the exploration business?
It’s an essential tool for doing our job. But even with the very best technological tools, you still need brain power to create ideas. We hire the best people, and then we try to create an environment in which innovation and creativity abound.

Could you talk about the lead times involved from finding to producing a prospect?
We routinely deal with long lead times in this business, and Angola is a good example. We acquired the first license, Block 15, in 1994. We’d been doing regional geology studies for about two years prior to that. We had first production in 2003 with the Xikomba field. Since then, we’ve put additional fields into production. This was a good example of working in a new country, in deep water, and addressing a range of logistical, technological and financial challenges.

What challenges does Exploration face in high- and low-price environments?
The Exploration Company has two overarching objectives. One is to be safe, ethical and environmentally sensitive in everything we do. The second is to add resources to the corporation’s inventory that exceed production in any business environment. It’s all about constancy of purpose. As other companies trim back budgets and activities due to the economic crisis, we will execute our exploration program as planned to add new resources and actively pursue new opportunities. In fact, our plan and budget for the next few years is the most active since the merger, with a record number of operated wells targeting high potential opportunities in new areas around the world.

Does ExxonMobil pursue specific resource types?
We pursue most types of resources. We look for conventional oil and gas as well as remote gas that will have to be commercialized such as LNG [liquefied natural gas]. We’re active in heavy oil, tight gas, oil shale and shale gas. Our goal is to be the best in each resource type. This diversity increases the strength of our portfolio.

Where are the new opportunities for ExxonMobil?
We’ve been in the Arctic for some time, and some interesting new opportunities are starting to open up. The Canadian Beaufort Sea is a good example. When the government’s tender offer recently came up, we were ready to move because we had already decided we wanted to be in that area. As a result, we were able to get a very large, high-potential block in the Canadian Beaufort Sea. We’ve been in Greenland for more than 20 years. Recently, we looked at some regional studies we’d done. There was a potential oil seep onshore western Greenland, which suggested the presence of good source rock. We sampled the oil and decided the area had potential, and now we have two blocks in the western offshore. In Brazil, we’re drilling an exploration well into a very large structure. There have been some encouraging discoveries in the area, so we’re hopeful about the outcome. The situation in New Zealand is far more uncertain. A few noncommercial gas discoveries have been made in the Great South Basin, and the assumption had been that the basin was not prospective. We included that basin in a major regional study and discovered it had areas that might hold natural gas. We also saw information on a previous seismic survey that appeared to be a direct hydrocarbon indicator. Subsequently, we leased a very large block. In Indonesia, we took our onshore success at Cepu and asked ourselves whether that play could continue offshore. When we looked, we saw some very good indications of hydrocarbon-bearing formations. We went to tender and won several leases with plans to drill in early 2009.

What advantages does ExxonMobil have over our competitors in pursuing exploration opportunities?
First of all, our people — we have the best in the industry. The same is true of our technology and financial strength. In addition, our global computing systems and global reach have given us a significant advantage. They enable us to look at the characteristics of a successful field in one part of the world and to search for a field with the same characteristics in another region. I like to use the example of the “five whys.” When someone puts forward a proposal, the first question is “Why would you do that?” That’s usually pretty easy to answer. And then you ask a second, deeper “why,” and it’s a little harder to answer. You ask the third “why,” then the fourth and the fifth, and each question gets tougher. What you find is that ExxonMobil people have the courage and confidence to handle the fifth “why.”