This trend is characterized by high quality reservoirs and fluid properties, resulting in high production
well rates.
Inboard Lower Tertiary.
The Lower Tertiary horizon is an older formation than the Miocene, and,
as such, is generally deeper, with greater geologic complexity. The industry has been successful in terms
of locating and drilling large hydrocarbon-bearing structures in this interval. The reservoir quality of the
Lower Tertiary has proven to be highly variable. Some regions, including those areas in which many of
the historical Lower Tertiary discoveries have been made, exhibit lower permeability and generally
lower natural gas content compared to the Miocene horizon.
However, a sub-region in the Lower Tertiary that has exhibited reservoir characteristics more
similar to that of existing Miocene discoveries is the Inboard Lower Tertiary trend, which includes our
oil discoveries at North Platte, Shenandoah and Anchor. The Inboard Lower Tertiary is a trend located
to the north of existing Outboard Lower Tertiary fields such as St. Malo, Jack and Cascade, which are
all on production from the Lower Tertiary. We were an early mover in the Inboard Lower Tertiary
trend, targeting specific lease blocks as early as 2006. We believe our Inboard Lower Tertiary prospects
are characterized by large, well-defined structures of a similar size to historic Outboard Lower Tertiary
discoveries, but are differentiated by what we believe to be better reservoir quality and energy based
upon data from wells drilled at our North Platte, Shenandoah and Anchor discoveries. We believe we
hold a significant leasehold position in the Inboard Lower Tertiary and, to date, have had an
exploration success rate of 60% in the Inboard Lower Tertiary.
Plans for Appraisal and Development
In general, the life-cycle of our major project developments begins with a thorough evaluation and
analysis of well logs (including offset analog wells), reservoir core samples, fluid samples and, in some
cases, the results of production tests from the initial exploration well that encountered what we believe
may be commercial hydrocarbons. This information, along with relevant seismic data, is used to
generate locations and plans for appraisal and development wells. Depending upon the project, we may
choose to drill one or more appraisal wells prior to project sanction and development, each of which
will undergo thorough analysis and evaluation. The information we obtain from exploration and
appraisal wells is then used to create a development plan, which will include economic assumptions on
the costs of drilling and completing development wells, the front-end engineering and design of
offshore production and processing facilities, including subsea, umbilical, riser and flowline systems and
other related transportation infrastructure. The project will become formally sanctioned when the
relevant working interest partners have approved the development plan. Typically, following formal
project sanction, we will commence the construction of offshore production facilities, and proceed with
development drilling and the installation of subsea architecture in order to advance the project towards
initial production.
A discovery made by the initial exploration well on a prospect does not ensure that we will
ultimately develop or produce hydrocarbons from such prospect or that a project development will be
economically viable or successful. Following a discovery by an initial exploration well, substantial
additional evaluation and analysis, such as the steps described above, will need to be performed prior
to official project sanction and development. In addition, substantial amounts of capital are required to
progress a project through the project development life-cycle. At any time during the project
development life-cycle, we may determine that the project would be uneconomic and abandon the
project, despite the fact that the initial exploration well, or subsequent appraisal wells, discovered
hydrocarbons. See ‘‘Risk Factors—Risks Relating to Our Business—Our discoveries and appraisal and
development projects remain subject to varying degrees of additional evaluation, analysis and partner
and regulatory approvals prior to official project sanction and production.’’
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