Slide 1

• This unit is on the Focus of Industry
• How many – by show of hands - have had some interaction with an oil company – internship, research funded by, etc.
• Industry's scope runs from finding oil and gas reservoirs to getting refined products to our customers

Slide 2

• Let me define what a fully-integrated company is
• It is one that does everything - from finding oil & gas reserves to sales to customers
• There are many companies that only cover certain components e.g., WalMarts sells, but does not explore or refine
• Examples of a fully-integrated companies are: ExxonMobil, Shell, and BP
• We break up the entire process into two main stages:
  • Upstream covers everything to getting raw material to a refinery
  • Downstream is everything from refining to sales
• Easy question: Where (which stage) do we employ geoscientists? Obviously in the Upstream

Slide 3

• The UPSTREAM can be further subdivided into 3 main parts
• One part is focused on finding oil & gas 'pools' – EXPLORATION
• The second part is focused on how to get oil & gas out of what has been discovered – DEVELOPMENT
• The mission of the third part is to get the most out of the ground and to the refinery - PRODUCTION

Slide 4

• Oil companies, and each of their departments, establish certain targets
• For example, these might be some targets within an exploration group/company,
  • To replace production with new reserves on a yearly basis – like a bank account where to be financially healthy you want deposits > withdrawals
  • To keep the finding costs below a target, such as $1/barrel – sum of all exploration costs divided by total number of discovered barrels on a yearly basis
• Development and Production departments would have similar targets

Slide 5

• We always need to drill wisely
• Wells can be very expensive - some exceeding $200 million. That is a lot of money, even for ExxonMobil or Shell
• We want to place each well in the best possible location - we can't afford to trust in 'dumb luck'
• Many times the oil & gas occur at several depth levels. We are not limited to drilling straight holes
• So we also need to carefully design the well path so that we can tap into several 'pools' in the best possible locations
• Much of the technical work done in the upstream is directed towards determining where to drill and predicting what we will find BEFORE we start drilling
• This leads to the need for all types of scientists and engineers working in the Upstream
• Their goal is to image and interpret the subsurface so we can maximize oil & gas production while minimizing costs

Slide 6

• In exploration, geoscientists are needed to answer questions such as:
  • Which basins …………
  • Which blocks ……….
  • Where on ………………
  • What should ………….

What is a condensate? Temperatures & pressures in subsurface reservoirs are much higher than at the surface

We can have a hydrocarbon that is in a gaseous phase in the reservoir, but as it is brought to the surface, the temperature & pressure drops and the gas CONDENSES into a liquid.

In terms of value, oil is supreme, condensate is second, and gas is third, but gas is still a viable target in many parts of the world

Slide 7

• This is a simple flow chart of the work done in exploration
• We will talk about much of this in subsequent units
• Briefly:
  • First we have to identify opportunities – areas with high potential that we can get rights to – like in a lease sale
  • We have to capture those opportunities – win bids on blocks we want to explore
  • Once we have a block, we may want to acquire better seismic data
  • Those data have to be processed and then interpreted
  • As we interpret the subsurface, we will see 'features of interest' – places where HCs may be reservoired
  • More detailed work on some of these features may give us a prospect – a target we want to drill
  • We have to assess each prospect – predict what we will find – e.g., at 10,234 ft we expect a 200 ft thick channel complex holding 10 million barrels of oil
  • We convince management to drill a wildcat – the first well in the area to test our predictions
  • If we find HCs, we may need to drill one or more confirmation wells – to verify there is enough HC for it to be an economic success
  • If we have enough HC, we call it a field and pass it to the Development or Production department
  • It goes to Development if a lot of money is required to build facilities, e.g. a huge offshore platform and a long pipeline
  • If the new field is in an area with a lot of facilities already, it would go to the Production department – e.g., a new field in South Texas that only needs a ¼ mile extension to an existing pipeline

Slide 8

• We will consider a hypothetical example – The Bonanza Basin
• We have done regional analyses which indicates that this basin has high potential for HCs
• 8 blocks are being offered in a lease sale

Slide 9

• Our company won the bidding on two of the blocks that we wanted – block 7 and block 8

Slide 10

• We acquired good quality seismic data, had it processed and interpreted
• The interpreter(s) saw 8 features of interest – what we call leads
• All 8 leads were worked in more detail and an estimate of the volume of oil and gas potentially in each was made
• Out of the 8, only 3 were predicted to have enough HC that they could be economical – value of HC > total cost
• We have 'matured' 3 leads into PROSPECTS
• The best is the Alpha Prospect, predicted to have a gas cap (red) and an oil leg (green)
• A major fault cuts the NE portion of the prospect

Slide 11

• Our company drills a wildcat on Alpha – and we find oil down to 4500 m
• Why did we NOT drill on the crest of the structure?
• Expect gas and perhaps gas is not what we would produce from this region
• May need to have oil at least this far down from the crest to be economically viable
• May want to be sure to hit the oil/water contact so we know how much oil is present
• There is at least 1 main source of uncertainty about how much oil we have in Alpha
• How much oil is on the NE side of the fault?
• There could be NO oil if the fault seals and the oil came in from the W, SW or S
• There could be oil down to 4500 m – as in the well – HC ‘in communication’ across the fault on a geologic time scale
• There could be oil below 4500 m
• To answer this, the exploration department may have to drill a confirmation well

Slide 12

• A confirmation well was drilled in the NE portion of the prospect
• Oil was found down to 4500 m – there is pressure communication across the fault zone (on a geologic time scale)
• We were able to get an EUR of 200 million barrels of oil and 0.95 trillion cubic feet of gas
• This is BIG enough to pass the Alpha FIELD to the development department

Slide 13

• The EUR for Alpha is twice the economic threshold – the minimum needed to cover costs
• Therefore the field is turned over to the development department
• In development, geoscientists are needed to answer questions such as:
• Can we...
• Is the reservoir...
• How many...
• What sort...
• How can we...
• What uncertainty remains

Slide 14

• To answer development questions, we need more detail on the reservoir, its properties, and the distribution of oil & gas
• We want to understand where to place wells to get the most for the least cost
• For exploration, we can live we a ‘broad brush’ picture of the reservoir
• For development, we need considerably more detail
• As shown on the right, we may drill some more wells during development – before placing a production platform
• Why might they have drilled the western development well?
• Confirm the oil-water contact
• See if reservoir quality changed (better or worse) at the western edge of the field
• Why might they have drilled the eastern development well?
• The oil is isolated from the rest – probably have to develop as a separate compartment
• Is there enough oil to merit producing it – or is it cost-prohibitive
• See if reservoir quality changed (better or worse) at the eastern edge of the field

Slide 15

• Data quality that was adequate for exploration may not be adequate for development issues
• The seismic data may need to be reprocessed – using more sophisticated, expensive, time-consuming methods
• We may have to reshoot a new survey to get acceptable data quality
• Data on the right is ‘sharper’ and has better verticl resolution (red & black bands are thinner -> more stratigraphic detail)

Slide 16

• The development department has a platform built, installed, and start to produce oil at Alpha
• The initial production rates (barrels/day) are about what they predicted
• Now the field is turned over to the production department
• In production, geoscientists are needed to answer questions such as:
• How should we...
• Can we...
• What about...
• Is there...
• Can we build...

Slide 17

• A very useful tool for production people is a reservoir simulation
• A detailed geologic model of the reservoir is built – rock type/lithology, porosity, permeability, etc.
• Then fluids are placed within each cell of the geologic model along with fluid properties
• The reservoir simulator models how the fluids move through time
• Until recently, the first simulation would be run after about 5 years of production time
• The simulation would be calibrated by doing a history match - comparing the simulated production (red curve) with the actual production data (blue boxes)
• If a reasonably good history match is obtained, the model is taken to be fairly accurate
• Then we can simulate future production – 10, 20, 30 years into the future
• We can do some ‘what if’ scenarios – e.g., if we placed 3 additional producers at these locations and 5 injectors at these locations, how much additional oil would we produce?
• If the cost of these 8 wells is less than the value of the additional oil, we might do it
• Obviously if the cost of the 8 additional wells would not be recovered, we would not do it – look for other ‘profitable’ scenarios
• We can also look for portions of the reservoir that are not swept of oil (in the simulations) and target these locations with additional wells – if profitable

Slide 18

• So geoscientists can have great value to an energy company
• They can:
• Do work that leads to added HC reserves – making new discoveries, getting more from producing zones, or finding additional zones to produce
• They can get more reserves at lower costs
• Investing in...
• Drilling in...
• Correctly assessing...
• Avoiding...
• For example, say that:
• I am on a team of 4 working production at the Alpha field
• The initial plan was to drill 10 wells
• Average cost for a well is $75 million
• Through our team effort, we determine that we can get the same amount of oil with only 8 wells drilled in optimum locations
• The team of 4 saved the company $150 million (cost of 2 wells)
• That would be enough to pay each person for 50+ years – they have certainly earned their keep!