Critical Drivers in Optimizing Unconventional Portfolios Through Rigorous Rig Year Concept
Authors: Capps Caitlan , Gbosi Bari 
Published: October 2017

Unconventional plays have become increasingly more impactful to a company portfolio. This creates a demand for a better approach to rank and optimize a company portfolio considering situations like harsh price environments and competing capital allocation.

Asset planners and corporate planning are the two critical teams in providing the best views for the decision makers to evaluate and allocate capital. Does this forecast best represent my asset? This question is the root of the constant communication struggle between asset level planning and corporate planning. Until asset planners can have more input into the determination of their performance targets, the proverbial black box of corporate planning is perpetuated.

To remedy this, corporate planning groups have recently begun submitting unconventional forecasts for portfolio level analysis in the form of "rig years": a year-long forecast segment which is intended to represent the maximum incremental potential of undeveloped wells in an asset given a single dedicated resource. An optimal portfolio can then be generated in which the ideal combination and number of rig years exist and in which order they occur are determined in relation to other assets within the portfolio.

For asset level planners whose goal it is to meet or exceed performance targets, achievable targets with constrained capital and resources is half the battle. For corporate planners performing portfolio analysis, the difficulty lies in appropriately setting targets and realistically distributing of capital and resources to each asset. Doing this successfully implies a portfolio analysis which contains true representations of each asset. For most companies, asset level planners would argue that this is where corporate planning breaks.

The purpose of this paper is to explore the concept of a rig year, understand why rig years for unconventional plays are viable in a portfolio level analysis, and to explore the benefits and risks of two approaches to defining rig years, Type Curve and Ranking. Further, this paper investigates the impact of two different Ranking styles on the outcome of an optimized portfolio. By analyzing portfolio optimization results using either no rig years or a variation of a rig year, corporate planners can better communicate with asset planners the information required for portfolio analysis as well as determine which approach produces outcomes that best represents an unconventional onshore asset.

Depending on how a rig year is generated, there are sweeping implications on a portfolio’s optimization and the feasibility of performance targets that honor the operational limitations for an asset. Contingent upon the characteristics of an asset itself, a homogenized Type Curve rig year, a single type curve forecast with no other variation, can well represent the asset. For a more complex or mature asset, the Type Curve approach is not sufficient and a Ranking approach should be taken. It is also imperative to take into account pad modeling and the ability to operationally execute a discrete rig year.