Rocksource, a Norway-based oil exploration and production company, has developed analytical tools for analyses of electromagnetic (EM) data that have been proved to triple or even quadruple the likelihood of identifying hydrocarbon deposits.
The EM technology can dramatically reduce the cost of exploration by revealing the presence of oil-bearing structures in even deep and difficult waters where exploration companies are increasingly forced to search for the next high-producing well.
“Rocksource’s tools can increase the chance of success in establishing oil-bearing from 20 percent to 60 percent or more,” explains chief executive Trygve Pedersen. “Hydrocarbons are becoming harder to find and the costs are rising significantly. Our technology means you can improve exploration results and, over time, the efficiency of capital. Basically, it means you can drill wells in a smarter way.”
When correctly interpreted, the firm’s EM technology dramatically reduces the number of dry wells, as a result optimising rig capacity and slashing finding cost per barrel.
“It’s knowledge that oil companies can use,” adds Pedersen, a veteran of the industry who worked for Statoil, BP and Petoro before joining Rocksource. In just four years since the company was established, it has achieved impressive performance on the basis of its technology based approach.
It has formed equity partnerships – ‘farm-ins’ – with much bigger exploration companies that wish to apply Rocksource’s tools to their much larger portfolios.
And another tool, a system for managing reservoirs to maximum potential, has proved important in the Texas field which Rocksource has used to provide cashflow for further developments as well as to test its on-shore tools
Comparative advantage
Analysts give Rocksource the thumbs-up for its performance so far as well as for its potential. “The EM technology is proven with fast-growing acceptance as a new important exploration tool,” noted DnBNOR markets last year, rating the company as a buy. “The EM competence provides Rocksource with a comparative advantage.”
Glitnir also rates the company as a buy. “Current valuation does not incorporate the potentially huge upside potential in the company’s technology and future exploration success,” it pointed out late last year.
Glitnir also singled out Rocksource for adding “green” value to pre-existing EM technologies. “The company differentiates itself from other E&P players by utilising its own EM interpretation technology to decrease geological risk,” it noted.
Based in Bergen with offices in Oslo, Stavanger and Houston, Rocksource’s management is composed of veterans of the exploration industry. As well as Pedersen, it includes Jonny Hesthammer, vice president technology and professor of seismic interpretation, who has a PhD in structural geology and 11 years experience from Statoil. Similarly, John Howell, vice president of production and a professor in analogue reservoir modelling, has collaborated with most of the major oil companies. Gregor Maxwell, vice president exploration, holds a PhD in reservoir geology and worked for nine years with Texaco and Chevron.
“We have been able to attract the best people in the industry,” says Mr. Pedersen. Of the 40-plus employees drawn from all over the world, no less than 26 are geologists and geophysicists.
Rocksource’s technology has already attracted some blue-chip shareholders in the form of Morgan Stanley (7.75 percent), DNO Invest AS (9.09 percent), Dexia Banque Internationale (5.28 percent) and JP Morgan Chase (1.82 percent). The University of Bergen, where the EM technology originated, holds a 2.5 percent interest.
CSEM a valuable extra tool
The company was established in 2004 to develop the raw, analytical technology it acquired from the university to a point where it has become a tool on which major commercial decisions can be based. According to sources, Rocksource’s advantage is not in gathering EM data, which is now widely used in the exploration industry and is assembled under contract by a number of outside parties such as emgs, Ohm and AGO.
Instead the company’s rapid growth is based on its ability to provide much more precise analysis of EM-gathered data than was possible before, thus potentially saving considerable amounts of drilling capital, and improving success rates.
The company’s core technology is related to controlled source electromagnetic sounding (CSEM), a highly specific methodology that makes possible the identification of resistivity contrasts –crucial in hunting for hydrocarbons – in the subsurface. In simple terms hydrocarbons are resistive, meaning they will bounce back electromagnetic energy to EM sensors placed on the seabed. But if the subsurface rocks are filled only with water, the energy will pass straight through.
Rocksource’s proprietary technology also addresses a problem that has long dogged the exploration industry – the frequency of misleading conclusions from apparently correct interpretations of the raw data. For instance, “false-positive” findings result from data that identifies resistivity as indicating the presence of hydrocarbons when it is something else. And “false-negative” findings may indicate the absence of hydrocarbons in a reservoir where they are in fact present.
Used properly, CSEM data is complementary to seismic data. It integrates it and other information into the entire analytical process. For example, under normal conditions seismic energy, which reacts to variations in rock density and velocity, may suggest the presence of hydrocarbons. But the evidence is not sufficiently concrete to justify expensive decisions. In contrast EM energy provides data that points much more firmly to hydrocarbon content.
Rocksource’s proprietary technology has proved especially valuable in complex, noise-filled settings that require advanced interpretive skills. This has been particularly apparent where other resistive bodies occur near the hydrocarbon reservoir, playing havoc standard interpretative techniques.
“This is why CSEM is another very useful tool in the tool box”, explains Pedersen.
Technology proves its effectiveness
The breakthrough for Rocksource’s tool came in its analysis of the legendary Luva gas discovery on Norway’s continental shelf where BP drilled a well in 1997. Existing EM technology was unable to confirm the presence of gas, although it was known to be there. That led to a collapse in credibility for the electromagnetic detection techniques available at the time. However Rocksource was able to identify the reserves by applying its proprietary analytical tools. “The Luva case was very significant for us,” says Pedersen.
Last year, the first when it explored on its own account, Rocksource tested 39 prospects on the Norwegian continental shelf. It now believes it has identified several prospects that contain promising levels of hydrocarbons. “We know which prospects are highly likely to contain hydrocarbons and which are not,” says Pedersen.
On the basis of its analysis, Rocksource has nominated blocks for the 20th round. The company is further expecting to put down its first EM-based well next year.
The firm’s confidence in its geotechnical skills has been encouraged by the performance of its on-shore fields in Texas — Drews Landing Field and New Ace Field. It drilled seven wells in 2007 on the basis of its proprietary reservoir management technology. All were put into production and are producing well ahead of target. An eighth well was drilled in December and should enter production in January.
“We turned an unprofitable business into a highly profitable one,” says Mr. Pedersen. “It comes down to the ability to use the right tools at the right time.”
Conservative financing
Although Rocksource continues to invest heavily in exploration and development, analysts give it good marks for a healthy financial position. In the final quarter of 2007, for example, revenues increased to 15.4m Norwegian krone [US$2.9m], nearly five times up on the comparable period in 2006. The company retains working capital of around 228m krone [chk], of which 148m krone is in cash. It also has access to extensive credit lines.
Looking ahead, the management team is excited by the farm-ins – the parlaying of its CSEM toolkit into a strategic move into partnerships with bigger operators. “We plan to use our technical edge to develop relations with large companies with much more extensive portfolios,” explains Mr. Pedersen. “Over 2007 we analysed the most suitable areas around the world for our technology and talked with the significant players operating there. So far we have had considerable success in negotiations. For us, this is a very exciting part of the Rocksource story.”
