Basin kracqing: continuous opportunity ranking in a fluid opportunity landscape
Exploration for new ventures in the oil & gas sector should be a balance between proactive pragmatism and reactive opportunism. Most upstream companies look for value-adding growth by reacting to unexpected farm-in invitations or by seeking out stressed assets with complimentary portfolios. The same companies seldom have the resources to launch pre-emptive bids by maintaining legacy perspectives on, for instance, prospective basins. It is much more common for oil & gas companies to re-invent so-called company-shaping moves almost on an annual basis and to create new opportunity sets with the same relentless frequency and fragility, fueled in part by the rapid turnover of staff and knowledge. Loss of continuity alone erodes value by breaking the accrual of knowledge from something as simple as learning from mistakes. So how can you robustly rank opportunities with the flexibility to respond instantly to changing circumstances but with the rigour and credibility that comes with decades of accumulated knowledge? and do all of that sustainably in just a few weeks?
Converting knowledge to value (K2V)
The preceding six K2V articles published on LinkedIn were written to set the scene for basin kracqing: if you have followed the articles up to this point, you now have the facility to retrieve and to connect all knowledge within your organisation with your data. The last remaining step is to convert that knowledge in to value (K2V) by making decisions that have the best chance to succeed. Basin kracqing* brings all of this together by delivering Knowledge Ranking Assessments through Calibrated Quantitative Screening, using the KRACQS™ metadatabase. Exploration for petroleum resources is an evidence-based science that may take weeks, months or years of work to forge a robust play-based evaluation. Kracqing a review segment takes minutes to complete because it converts the hard-earned accumulated knowledge of individuals to value with no extra work. It is important to pause here and acknowledge that the metadatabase is populated by knowledge, which is perceptual, not by data, which are factual. It is in effect, a collection of opinions; opinions that change with changing circumstances.
How to kracq a basin within your organisation
Knowledge holders are invited to kracq a basin (or a review segment) by filling in a questionnaire, which contains a series of drop-down options, generally scored on a scale of 1-5. The questionnaire contains around 12-14 geo-technical metrics and a similar number of geo-commercial metrics (depending on the enterprise value drivers), which takes someone intimate with that basin 10-20 minutes to represent their opinion. The rolled up weighted score of each kracqed basin lies along a continuum of relative value, which is grouped in to 6 classes and presented in map form (see header image). Comparison between basins can be screened for relative value by cross-plotting geo-commercial with geo-technical metrics and comparing the class limits against a global calibration (Right bottom left).
The key to successful kracqing is achieving the correct granularity of metrics to characterise the business premise on which we seek expert opinion; a science in itself. As geoscientists, we know that every basin is unique and we tend to wrap that knowledge around us like a comfort blanket. But if you want to use analogues to help match comparable basins, then uniqueness is the enemy of predictability. K2V resolved the paradox by identifying which qualities all basins have in common that make petroleum systems work (geo-technical) and by underpinning those with a business narrative, which allows your organisation to make money from any particular petroleum system (geo-commercial). The combined narratives are expressed as two converging sequences of metrics, one geo-technical the other geo-commercial. If the granularity of metrics is too coarse, then every basin ends up looking about the same so that you can no longer discriminate between opportunities. If the granularity is too detailed, you end up articulating uniqueness, which leads to the same problem. The former degrades analogue credibilty, the latter degrades analogue matching; both prevent you from being able to polarise value. The appropriate balance has been finely tuned over decades of experience but the weighting is enterprise based, tailored to your organisation’s business strategy.
Kracqing one person’s opinion of a basin is effectively a representation of that person’s dogma. We need to be able to collapse their cognitive bias by broadening the college of opinion around each basin. There are three ways in which this can be achieved:
- Define a single basin with an appointed owner who harvests collaborative knowledge within your organisation by having conversations with multiple knowledge holders either individually (with agreed outcomes) or in a workshop environment. Knowledge sharing in this way is the only kracqing method used to date and it works, but it is prone to GroupThink (dominated by the loudest voice in the room OR the perceived desired outcome).
- Some companies are organisationally structured to prevent knowledge from being shared across what may be legally ring-fenced subsidiary entities and in the extreme case, can only be shared at the board level. The extreme solution is to kracq multiple entries for segments and then mathematically collapse all the views by “stacking”. Stacking knowledge is experimental (click HERE for more information).
- The third method is to combine 2 & 1 – begin by capturing the diversity of opinion by stacking knowlwedge and using the stacked distribution as the basis for having conversations to agree on the classification within your organisation (workshop recommended).
How would this actually work in practice?
Few organisations have the time or capacity to retro-fit historic basins where they have content knowledge. A working model would probably start with the business in hand by kracqing those evaluations to prevent future knowledge leakage. However, in parallel, any new review segment should be preceded by harvesting knowledge in your organisation to establish who is able to contribute their knowledge most efficiently to the new project before anything is committed to it. Knowledge should be harvested (click HERE for details) before converting that knowledge to value segment by segment. Following a standard NBD maturation format for exploration (click HERE to read more), a workflow could look like:
Most of the above steps are standard business maturation process stages but those in green are facilitated by K2V tools or workflows. These tools are designed to support decision makers in selecting opportunities before an investment decision and before partnerships are established to share the risk. If the standard process is followed as normal without the interventions in green, there will always be a lingering question if all data and knowledge have been used properly as input into those investment decisions or that errors in thinking previously made are not being repeated.
The key to successful kracqing is twofold:
- Achieving the correct balance of granularity in the metrics (acknowledging that all basins are unique but uniqueness is the enemy of predictability)
- Maximising the contributions of all knowledge holders (one person's view is dogma - two peoples' views are already a conversation). The choice of sharing or stacking is determined by the lateral permeability of your organisational structure.
Once you have kracqed all the basins (or review segments) needed to advance your business, the final step is to maintain the metadatabase. An evergreen metadatabase provides the foundation for ranking, matching and polarising value to your business. Evergreening also provides the basis for effective competitive intelligence, look-back analyses (by context) and a powerful knowledge-based feedback loop for enhancing business decisions by employing all the knowledge holders available to you. But there is a price: even though the knowledge is free (it already exists within your organisation), it takes discipline and the courage to change the culture of your organisation, and to sustainably kracq your business. In an industry with rapidly decreasing experience levels, knowledge, and the tools to extract value from knowledge, might be worth investing in.
* reference is made colloquially to “basin kracqing” but in reality, the scale of review segment is determined by the business focus. The metadatase applies equally to kracqing petroleum systems, play, venture, opportunity or study segments (not common risk segments) but it is recommended to roll these up to a basin level for global calibration.