In his classic Geology of Petroleum, A.I. Levorson defined a prospect as "a set of circumstances, both geologic and economic, that justify the drilling of a wildcat well." Clearly, with today's prices, those circumstances can occur more frequently than in years past. Yet, a popular refrain among E&P companies is that there aren't enough good prospects left to drill. The U.S. is indeed a mature petroleum country, and it is true that the supply of classic structural prospects at depths above 12,000 feet is limited. At the same time, companies are slowly beginning to shoulder more risk, technological advances are illuminating previously overlooked or unrecognized opportunities, and today's robust commodity prices are opening up new types of resource plays. An exploration revival Signs do point to a broad-based revival of exploration. A notable development is the blossoming of start-up companies funded with significant amounts of capital. "There are a number of new companies-some led by people who were formerly with large firms-that are emphasizing exploration," says Jeffrey Lund, Houston-based senior exploration advisor for international consulting firm Ammonite Resources. Adding to that is a brisk level of prospecting activity by small, entrepreneurial companies. Even one-man shops can now afford to buy sophisticated PC-based workstations, and great volumes of 3-D data are available at reasonable prices or through sweat-equity arrangements throughout broad swaths of the productive U.S. basins. The widespread adoption of these workstations by independents has marked a turning point in exploration. Certainly, the sizes of prospects generated by this data-mining, oftentimes the second or third go-through on a seismic volume, generally hold smaller potential. But, these can be attractive opportunities for modestly sized firms. Lund is chairman of the American Association of Petroleum Geologists' (AAPG) advisory committee for its Prospect & Property Expo. "At the 2004 APPEX Houston, there were a large number of excellent prospects shown by small entrepreneurial companies, but there was a pronounced tendency for the prospects to be lower-risk, lower-reward. "Many prospects were actually extensions of existing production or low-risk step-outs to established fields, rather than new-field wildcats." Not surprisingly, there were also a number of coalbed-methane and unconventional prospects at the show. APPEX London, in contrast, grew dramatically in 2004 and pulled in large- and multinational independents and major oil companies. "Onshore North America has many prospects, but they are not large, conventional prospects. For those, most companies look to the deepwater Gulf of Mexico or to international plays." While exploration activity appears to be accelerating, several factors are placing a drag on the industry's optimism. Foremost is a widespread concern about compliance with the Sarbanes-Oxley provisions, and about reserve issues. Clearly, there is also a deeply rooted conservatism rampant throughout the industry. Exploration has not risen in concert with higher commodity prices because companies just don't believe that higher prices are permanent. Too, analysts tend to reward predictability, which isn't a characteristic of a drilling program that includes wildcats. "When people begin to be comfortable that there is a floor to prices, say more than $30 per barrel of oil or $4 per thousand cubic feet of gas, there will be a more consistent exploration effort." Another issue that U.S. prospectors face is the amount of federal land that is off-limits. Many prospective areas in offshore and onshore the U.S. are not accessible to drilling and development. Finally, one of the most serious concerns is the aging of the exploration workforce. The mean age of AAPG members is now 49.5 years, says Lund, who is also AAPG's membership chairman. "There's a shortage of up-and-coming, prospect-generating talent." Consultants in their 60s and 70s are currently filling the gap, but this is only a short-term fix. "Many U.S. geologists are changing jobs in their late 50s, taking early retirement packages and then working as consultants or cycling into new jobs," he says. "There is a serious problem developing as we move into the next 10 to 15 years if more people don't come into the profession." Although the organization believes careers in geoscience offer people a bright future for many decades to come, AAPG is finding that the students it does recruit don't stay in the profession. "Petroleum geology is viewed as having a limited future, and that's a perception that we need to change. We lose a lot of members in their late 20s and early 30s as they move out of the oil and gas industry into other fields." At Colorado School of Mines, Tom Davis, professor of geophysics, sees more companies coming to the campus looking to hire graduating students. "At the same time, the companies are not seeking large numbers of people. They are seeking skilled, highly qualified people in certain areas. Students are being hired into processing, interpretation and integrated teams." A few years ago, major oil companies had goals of recruiting less than a dozen geophysicists apiece; today, the majors would like to hire 30 to 35 graduates each, says Davis. "What is significant is that we don't have enough people to man the number of jobs that are out there. We've all seen this coming." Taking the long view W.A. "Tex" Moncrief Jr. has been in the oil business since 1943, when he joined his family's firm, Moncrief Oil Co., after World War II. From its first major find in the 1930s in the giant East Texas Field, the Fort Worth-based independent has been involved in discoveries including Jay Field in Florida, Madden Field in Wyoming, and in the deep Tuscaloosa trend in Louisiana. During Moncrief's lengthy and eventful career as a wildcatter, he has found oil and gas throughout the U.S. "The industry is booming, but I don't know how many prospects are being generated today," he says. "The quality of prospects has declined, because most of the oil and gas has already been found." In Moncrief's view, deep prospects-those between 17,000 and 25,000 feet-are in short supply. "We like good, solid, deep-gas plays, but we haven't seen many come to the front recently." Although large prospects are hard to find, every once in a while Moncrief does see one that it likes, and it is willing to spend some money to validate a concept. Certainly, the company wants all the seismic it can get, and oftentimes 17,000-foot-plus deals might not have 3-D seismic. "We might see a few lines of lesser quality shooting, but if we like an idea we'll do our own seismic to see if it pans out." Moncrief's attention has been caught lately by unconventional prospects, such as the Barnett Shale in North Texas. "These plays can cover hundreds of thousands of acres, and can definitely make people money. There's quite a few unconventional prospects sticking their heads up now in various places." The unconventional plays are tougher to deal with than traditional prospects, because they are risky and require large acreage positions and sometimes several wells before they are fully evaluated, he says. "The price of gas is what makes the Barnett Shale play good. If gas was back at $2.50 to $3 per thousand, it wouldn't be near the deal that it is at $5 or $6." Moncrief's outlook for the industry is positive. He expects oil to remain above the high $30-per-barrel range, and gas to stay near $6 per thousand. "We'll be looking all the time at prospects. We've been wildcatters since 1918, and we're the same today. If we find a good wildcat prospect we like, with good geology and seismic, we'll take a crack at it." Another firm that has been in the business of finding oil and gas for many decades is Denver-based St. Mary Land & Exploration Co. Its experience has been that exploration opportunities continually expand, thanks to the evolution of technology. "We try to grow organically with about 60% to 65% of our budget, with acquisitions representing the remainder," says Mark Hellerstein, chairman, president and chief executive officer. The company's goal is to replace more than 200% of its production each year, with between 100% and 135% of that coming from drilling. St. Mary generates its own deals, participates in activity proposed on its acreage-holdings by other operators, and buys deals on the street. Most of the latter have been Gulf Coast prospects purchased through its Houston office. Hellerstein notes that the nation's oil and gas production has been dropping at the same time rig counts and reserve-replacement numbers have been rising. "This indicates to me that the opportunities to generate larger-potential ideas have been diminishing, and that the industry is focusing on unconventional prospects, which offer lower initial production rates but large reserve bases and long lives." The company is a big believer in the power of new technology. A strong growth area for it has been the red-hot horizontal Bakken play in the Williston Basin. Here, advances in drilling and completion techniques have been keys to economic success, and have indeed made a play possible that wouldn't have been commercial a decade ago. Today, a horizontal Bakken well that costs $2.6 million can recover 350,000 to 400,000 barrels of oil equivalent. St. Mary has employed a wide range of new technologies and techniques in the Bakken play, from drilling dual-lateral horizontal legs that drain 640 acres per well, to using PDC bits that reduce tripping time, to openhole laterals that expose more of the pay zones. The company selects the most promising areas to drill with 3-D seismic, then uses special core analyses to orient its wellbores to intersect more fractures. "We have also had success with completion tools that separate the two laterals and allow us to fracture the zones separately on the same day and flow back the laterals simultaneously." Completion results have improved also, thanks to frac diversion technologies and high-strength proppants. To date, the company has completed 11 wells in the Bakken play, has seven additional wells in progress and at least 40 undrilled locations remaining. The most compelling reason to explore is its power to create value. A savvy company can leverage exploration success into plays that deliver substantial value. As a case in point, St. Mary's Bakken opportunities grew out of its Red River program in the Williston. Since 1991, the company has posted a 90% success rate in Red River drilling, an astonishing contrast to the industry average of around 15%. "We have a proprietary edge-we use special data-acquisition techniques and high-frequency 3-D seismic. This has resulted in our ability to map porosity, whereas others have not been able to do that," says Hellerstein. The exploration success allowed St. Mary to become a consolidator in the Williston Basin. "It allowed us to grow through acquisition as well as the drillbit, and also to establish a very large acreage position that led us into the Bakken play." Additionally, St. Mary is active in unconventional plays, including coalbed methane. Its Hanging Woman project has more than 3,000 potential locations in the Hanging Woman Basin, a sub-basin in the northern part of Wyoming's Powder River Basin. Here, the company continues to apply the latest technologies. "We've been developing multi-seam completions, and we are going to 160-acre spacing versus the historical 80-acre spacing." During 2004, St. Mary completed 77 wells on the project; first production is slated for early this year. The generators' perspective Bill Armstrong, president of Denver-based Armstrong Oil & Gas Inc., has been wildcatting since 1984. "People are fond of saying there are not enough prospects, and that's because there are not enough prospectors anymore." Wildcatting has taken a body blow for several reasons, he contends. During the past 20 years, many prospectors were regulated to the sidelines or pushed out of the industry altogether. Their talents are difficult to replace. "If finding oil and gas was easy and just something you trained for, we'd all be good at it. But it's part education, part on-the-job training, and part instinct." And, people with prospecting ability have to be supported by creative, aggressive, deal-making landmen, also a scarce group of professionals. Another drag on wildcatting has been a false perception that total success can be achieved through technology. In the Gulf of Mexico, the rise of bright-spot seismic techniques created an illusion that seismic could eliminate drilling risk. Wall Street collaborated in this vision, rewarding public companies that avoided risk. "Companies have been bent on figuring out ways to be the lowest-cost operator, to coax the most natural gas and oil out of coalbed-methane and shale plays, and to never drill a dry hole." Furthermore, for more than a century, the industry has been scouring the world for anticlines. "Everyone has been chasing four-way closures, and there's a limited population of productive anticlines," says Armstrong. "The ones that are left are small or very remote. We have to look for other things: capillary pressure traps, strat traps, hydrodynamic traps, et cetera. Today's plays are more amorphous than those in the past." Now, for the first time in many years, the market for wildcat prospects is improving. "There's more money today and fewer opportunities, and people are actually looking to buy a deal. For most of my career, just getting in the front door was an achievement." Marc Helsinger, exploration manager for Houston-based Hamman Oil & Refining, agrees. "Over the last several months, there has been an upturn in interest in prospects. But the trades have been staying pretty much the same and there's not a huge scurry to snap up deals," he says. "Shale gas, chalk plays and tight gas are all low-risk plays that are sought after." The exceptions are deals that don't cost a lot of money and don't carry much risk. "Of course these are also lower-potential. You can sell deals like that all day long. But once deals get more expensive and have more risk, companies get concerned. There is no question that, excluding the major oil companies, the industry is risk-adverse." Hamman Oil & Refining has been in business for more than 75 years; the private firm is a prospect-generation shop focused on Texas. Hamman sells several prospects a year to industry partners, takes deals from industry and drills prospects for its own account. Prospects are not harder to come up with now than they were in years past, Helsinger maintains. The companies or individuals who say there are not any good prospects left are unwilling to take the risks associated with higher potential, although those risks can be lowered by using multiple seismic attributes. "What they are really saying is that there aren't enough good prospects at shallow depths. If you are looking for exploration opportunities, you have to drill deeper." Like Armstrong, Helsinger also takes issue with the over-reliance on seismic attributes. "People want something to hang their hat on that is very simple, and when you show them something, it has to be a near-perfect match. Large-potential prospects are unique, however, and don't offer perfect analogies." Additionally, there are knowledge gaps about some classic prospecting techniques. Helsinger uses seismic stratigraphy as a prospecting tool. "This is an interpretive technique that significantly lowers sand risk. It's been around for 25 years, but you don't find many companies, outside of the majors, that take advantage of this technique today." Companies reviewing deals in which seismic stratigraphy plays an integral role just don't have a comfort level with the technique. There are numerous high-potential prospects left in Texas, he contends. "You can find big-potential prospects-50- to 100-billion cubic feet (Bcf) or greater-all along the Gulf Coast." Helsinger is currently marketing a 150- to 250-Bcf prospect onshore Texas. The offshore shelf also still holds high promise: Helsinger recently put together a 125-Bcf prospect in that region. Although business is better, caution still prevails throughout the industry. "Companies are still not willing to take on much risk. They are very reluctant to commit to a deep prospect that could be a dry hole." Interpretation tools Many firms prefer to generate their own prospects. For most, that means a heavy reliance on 3-D seismic data. Today's explorers enjoy access to a range of geophysical tools that allow completely new levels of prospecting effort. A major development in prospect generation has been the ability to perform volume interpretations of seismic data, says Jonathan Lewis, vice president of innovation and marketing for Landmark. "We've been able to dramatically reduce cycle time associated with acquiring, loading and interpreting very large quantities of seismic data." Today's software tools help companies handle the vast amounts of seismic data that, in the past, were simply overwhelming to interpreters. The methods of probing seismic data are also improving constantly, and attribute analysis is a hot area. "We can dig into different subsets of the seismic volume, look at different attributes and different portions of the volume very quickly, and in a very intuitive way." Additionally, companies can now knit various generations of seismic into a coherent volume. In such areas as the central and northern North Sea, megasurveys that cover extremely large areas can be interpreted on regional scales. Another key development in the prospect-generation toolbox is well-seismic fusion technology. In a collaborative effort with Statoil and ConocoPhillips, Landmark is honing improved methods of integrating well and pre-stack seismic data. "This integration has traditionally been a specialist process, and we want to make it available to the mass market and part of industry-standard work flows." Data management and delivery have also undergone striking changes in recent years. "We now deliver ready-to-interpret projects to our clients over the wire, and this enables companies to focus on the interpretation process, as opposed to spending time on preparing the basic interpretation dataset." In an emerging trend, a number of companies are outsourcing their information systems that support exploration activities. Landmark provides application hosting, so explorationists can work from any location, and companies can offer highly flexible arrangements to remote employees. "Over the next three to five years, we are going to see growing adoption of technologies that allow people remote access to data-interpretation systems," he says. Lewis is seeing an upturn in demand for prospect generation and associated support. "Some of the major oil companies are announcing very substantial increases in capital budgets and are turning back to drilling." Currently, Landmark is actively generating prospects for clients in a number of geographies around the world. Hand-in-hand with a renewed interest in wildcatting, Landmark is seeing hints that many of its customers are looking at investments in the next generation of technologies. Again, the rosy outlook is tempered by caution: "At the same time, companies are still very conservative in their price assumptions. That means that the role of technology will be as important as ever." Nuts and bolts of prospecting Companies that are interested in generating their own high-quality prospects face several stiff challenges, says Bill Matthews, an industry consultant with an extensive background in exploration. Most recently, as director of prospect generation for a major service company, Matthews supervised a staff of up to 18 geoscientists that interpreted 50,000 square kilometers of 3-D seismic and 15,000 kilometers of 2-D seismic since 2002. The first issues that confront companies employing large amounts of 3-D seismic are problems with the initial acquisition of the data and delays in processing that data. "In my experience, one in four projects is put behind schedule by issues with acquisition or processing. A key challenge is reducing the time these steps require." Next, interpreters must be flexible enough to shift their thinking from two dimensions to three dimensions. In plays that are complexly three-dimensional, such as turbidites, channels and reefs, interpreters need to abandon the traditional line-by-line approach and shift to volume-based tools. "Volume-based tools can cut interpretation time for these problem areas on a 3-D dataset in half." Some resist this shift because earlier versions of the volume-based tools didn't keep pace with their pattern-recognition abilities. Today's tools are far superior, and unleash much more of the interpreter's ability to see and solve problems. "At the end of the day, the best oil finders are the people who are really good at pattern recognition." Effective prospect generation also requires the luxuries of time and experience, says Matthews. The pressure to deliver drillable anomalies can be intense, but prospect generators need to consider the regional picture. Often, interpreters are not given sufficient time to incorporate the broad geologic setting into the seismic volume they are working. The haste can make interpreters penny-wise and pound-foolish. "People can jump on a workstation, and just because they are good with the technology, they can start mapping. But they may spend half a day trying to fine-tune an area with a fault in it, and it has nothing to do with the critical closure of the prospect. There is a difference between people who pick and people who find oil and gas." Finally, even if a generation team has delivered sound, thoroughly thought out, seismically defined prospects, companies still must find buyers and/or managements willing to shoulder some risk. "In almost every log library in the U.S., someone will post a notice that they are looking for prospects. But the prospects have to be shallow, low-risk, with acreage and 3-D surveys already in hand. And, they have to have huge potential. "Mother Nature just doesn't give up great prospects that willingly." The upshot? There are still plenty of wildcats to be drilled in the U.S., but the plays are deep, unconventional, or appear different from the familiar four-way closures. Prospectors are generating ideas all the time, but buyers have to embrace more risk to earn the rewards inherent in exploration. And, companies must develop and retain exploration talent to ensure that the prospect pipeline doesn't dry up in the future. NEW TOOL, NEW COMPANY In oil and gas, as well as in many other industries, firms are founded on the premise that they will gain a competitive advantage through the application of a novel technology. One such company engaged in prospect generation is Houston-based Chroma Energy. The start-up has built a pattern-recognition technology that can be applied to 3-D seismic volumes. "We have completely propriety software that was developed in the field of genetics," says Steven Mikel, chief executive officer. "The technology is based on recognizing discrete patterns out of huge masses of data." With its software, Chroma can look at four separate seismic attributes at the same time, from the same or different data volumes. Chroma calibrates templates containing the desired attributes, and its tools rapidly scan the data searching for identical anomalies, says Steve Murray, senior vice president. "Our technology evaluates seismic patterns; it's not an interpretation tool. It's an interactive and iterative process that applies an expert's opinions to the dataset." The selected anomalies are then high-graded for their fits with the local geological conditions. Chroma's PC-based tools can be applied on both regional and prospect-level scales, and the templates can be altered to various levels of precision. "For very close-in work, you might want the pattern match to be exact. You can widen the windows to search out similar situations for more regional work, if you thought, for instance, a sand was becoming more shaley or the net-to-gross ratio was changing," says Murray. Started as a high-end geological and geophysical consulting firm, Chroma has migrated into taking equity positions in drilling prospects. Since 2000, it has worked on more than 60 projects in eight countries. Of 20 initial exploratory wells drilled on those projects, 13 were commercial discoveries. Chroma also reviewed 11 prospects that it recommended not be drilled. Additionally, it has been an equity participant in four Texas Gulf Coast wells, of which two were successful. "The results are not yet statistically significant, but they are pointing in the right direction," says Mikel. ELECTROMAGNETICS A technology that is rapidly gaining the notice of prospectors is electromagnetics. Like most "breakthroughs," it's not a new concept. For decades, EM has been a staple borehole application, and has been used in mining applications at very shallow depths. Magnetotellurics, a passive EM technique that looks at basement structures over broad areas, is a sister technology that has been available for a number of years. Today's excitement is being generated by active-source EM, a technology that has added a whole dimension of applications and is rapidly becoming a must-have tool for deepwater prospecting. "The technology has the potential of distinguishing between oil, water and gas, when used appropriately in coordination with seismic data," says Lionel Fray, president and chief executive officer of AOA Geomarine Operations, a San Diego-based company recently acquired by Schlumberger. EM technology detects differences in the resistivity of subsurface formations, and hydrocarbons have the fortunate characteristic of, in many cases, exhibiting high differences in resistivity relative to surrounding media. "Seismic is primarily able to delineate structure. The application of EM can add indications of the presence or absence of hydrocarbons to that picture." The most effective surveys combine both MT and active-source EM. "The two techniques tell us somewhat different things, and to get a fuller picture we use both," says Fray. Essentially, MT surveys are sensitive to conductors, and are useful in identifying the basement, while EM surveys are sensitive to resistors. MT surveys are not limited in depth, as they rely on natural signals that go through the earth. At the same time, their resolution is low. Currently, EM surveys can be used for both reservoir-level and regional scopes. Because of the physics of the way the technology works, it is most efficient in relatively deeper water. AGO was formed in June 2002 with the aim to make a significant movement in the direction of commercializing active-source EM technology, which up until that time was in an experimental mode. In July 2003, the company chartered a ship that commenced continuous operations. "At this point, most clients are requesting surveys over drillable prospects," says Fray. Obviously, some applications work better than others: a gaseous deposit shows less of a resistivity differential than an oil deposit, so an EM survey is more likely to recognize a high-oil-content reservoir. EM surveys are now being acquired in the hot offshore areas of world, including the Gulf of Mexico, offshore West Africa and Brazil, the North Sea, and parts of the Pacific. The technique works particularly well offshore Brazil and West Africa, thanks to the degree of differentiation between the target and the surrounding media and the complexity of the geology. "EM is rapidly becoming a tool that people want to use before making a significant exploration decision," says Fray. "Practically all of the companies involved in significant offshore exploration are interested in EM." FULL-WAVE IMAGING There's no argument about the crucial role that technology plays for prospectors. Some developments are afoot that are opening up supplemental information about the subsurface, and explorers are eager to see the advantages these may bring. "The next turn of the crank in geophysics is going to come from full-wave imaging," says Chris Friedemann, vice president of commercial development for Input/Output. Full-wave imaging provides a clearer view of the subsurface by adding shear-wave data to the compressional-wave data that the industry has traditionally acquired. These shear-wave measurements can be converted waves from a compressional source, or direct measurements from an active shear-wave source. Various processing techniques have been developed that can draw this information out of the acquired data, delivering very accurate images of the subsurface. Some methods use the shear-wave information to simply enhance the compressional-wave signal, while others process both the compressional- and shear-wave data concurrently. The technology is opening up layers of information that will help prospectors, says Tom Davis, professor, department of geophysics, Colorado School of Mines. Most of the applications of shear-wave technology revolve around superior imaging of stratigraphic problems. Sometimes gas saturations can lower velocity to the point that certain reservoirs are transparent to compressional waves, but can still be imaged by shear waves. Carbonate reservoirs are also illuminated nicely by shear-wave data. "Sometimes zones of diagenesis and mineralization can show up more evidently on shear-wave data," he says. Vertical fractures and faults can be seen quite easily with shear waves as well, resulting in improved structural imaging. Worldwide, there is a high interest in imaging fractured reservoirs, both conventional and unconventional. Full-wave imaging works especially well in fractured reservoirs because of anisotropy. Fractures cause the velocity of seismic waves to change slightly as a function of azimuth, or compass direction. Full-wave data provide additional information about these anisotropic effects, allowing better mapping of fracture patterns and resolution of subtle structural and stratigraphic features. "Full-wave imaging works very well in existing fields, where there is a lot of operational activity and ambient noise on the surface," says Friedemann. "Full-wave imaging can help eliminate specific sources of ambient noise from the seismic signal, giving the technology great application when targeting shallower or deeper prospects or acquiring time-lapse seismic in existing fields. " The full-wave approach also works well in areas with sudden, near-surface velocity changes, such as regions of permafrost or desert sand. Areas of tough topography are also amenable to the technology, which uses single-point digital receivers rather than the cumbersome analog arrays of geophones that have been standard in the industry. "New imaging technology enables us to see things we can't normally see in the subsurface," says Davis. "It's like putting on a different set of glasses and seeing things more clearly. That often triggers new ideas and new concepts, and that fuels prospect generation."