What's new in exploration

	Vol. 229 No. 7
ARTHUR BERMAN, CONTRIBUTING EDITOR, bermanae@gmail.com

Re-examining peak oil: An interview with Nansen G. Saleri

Nansen Saleri recently published an opinion piece in the Wall Street Journal called “The World Has Plenty of Oil” in which he disputed Matt Simmons and the “neo-peak-oil club’s” assertion that the world is running out of oil. Saleri believes that the peak oil argument is based on the outdated assumption that oil recovery will not exceed more than 30-35% as a global average. Horizontal drilling and modern extraction techniques are, according to Saleri, producing a sea change in recovery growth that may extend the onset of peak oil production until the middle of this century or longer.

Saudi Aramco has shown that recoveries of 60-70% are entirely possible through Maximum Reservoir Contact (MRC) drilling in several of its fields, including Haradh, Shaybah and Abqaiq. MRC wells use horizontal, multi-lateral completions to maximize reservoir connectivity and drainage with as much as 7.5 mi of reservoir contact in each well. In most of the world, says Saleri, vertical drilling is the norm, and horizontal drilling is limited to poor-quality reservoirs.

Berman: Some people in our industry do not think of Saudi Aramco as a technology leader. Peak oil proponents, in particular, are highly critical of the company for not fully disclosing its production and field decline data.

Saleri: I don’t think there is much debate on the reservoir engineering side of the industry. By all industry metrics, Saudi Aramco distinguishes itself with respect to technical leadership, publications and sharing of information. This is not an issue within SPE. As far as sharing information is concerned, it has to be balanced. You want to share information but, at the same time, you don’t want to give away those secrets that are important to your business objectives. I think Aramco has opened up a lot. At public forums they have shown data about Aramco’s fields, including Ghawar, Abqaiq, Shaybah and all their other major assets.

Berman: You have a different view about peak oil from Matt Simmons that centers on oil recovery, and how long existing reserves will last. Please explain.

Saleri: I see huge inefficiencies in the oil industry. A lot of the practices that are in place right now are the product of the late 1980s, when the industry went through a serious compression and focused on minimizing costs. The concept of value was lost in the ’80s. The driving forces became minimization of capital, minimization of operating costs and maximizing short-term profitability. By any measure, the industry today is hugely profitable. So we cannot be overly critical of this success. The industry must become more focused on sustainability and reliability of supplies and reserves.

The industry is recovering only one out of three barrels. In a $100/bbl environment, eventually something like 50-55% is achievable. I have advocated two peak-oil scenarios that assume global recovery of 45%, on average. It’s only a 10% increase so, to me, it’s very doable.

I consider 70% recovery a bold but achievable target for Saudi Aramco, and that’s the aggregate. It’s not the maximum. This has been documented and presented in global forums. In some fields, I’m sure they will recover 80%.

Berman: What about peak oil proponents who claim that big Saudi fields like Ghawar are in serious decline?

Saleri: I don’t know where they’re getting their data because, if there’s one thing you cannot cheat, it’s the number of tankers that come and load oil at Ras Tanura in Saudi Arabia. Nobody is debating that Saudi Arabia is producing around 9 million bopd. Since 2003, Matt Simmons has been saying that Saudi Arabia has been in a catastrophic decline. Now, let’s define catastrophic decline. Is it 10%, 20%, 30% per year? What is it? Pick a number but it has to be at least 10% by anybody’s standard. If it’s 10%, and it’s been going on now for the last five years, Saudi Arabia’s production should have declined to 5 or 6 million bopd.

Yet, informed analysts place their production at around 9 million bopd with a steady stream of capacity additions coming on such as Khurais (1.2 million bopd) and Manifa (900,000 bopd). The Ghawar complex is performing extremely well. The field has been on production since the 1950s and is steady at roughly 5 million bopd.

Berman: I imagine people are surprised when you say that Saudi Aramco will achieve twice as much recovery as most of the world is now doing.

Saleri: To give you an analogy, do you think that the procedures used at the Houston Medical Center today are the same as they were in the 1980s?

Berman: I hope not.

Saleri: They are not because there is a new generation of medications, diagnostic capabilities, medical practices and surgical techniques. Now let me put the question to you about the petroleum industry: To what degree is the industry using the capabilities of 2008 in technologies and reservoir management? It is to a very limited degree. Aramco is in the forefront because 90% of the wells they drill are horizontal or multilateral wells. In many basins of the world, the industry is still drilling 100% vertical wells.

In most cases, the petroleum industry is not questioning the processes and practices that they use. They are continually recycling some very old and very bad ideas. The industry is stuck. Many companies are doing what they were doing 15 or 20 years ago.

Berman: Are you saying that the petroleum industry accepts a very low standard?

Saleri: The industry is content because it is currently profitable. How can you argue with that?

When you project forward a few decades, however, it might be different. There are clear challenges from a host of alternative energy solutions, and the growing public perception that the oil era is in its sunset phase. To remain relevant, the oil industry must redefine itself in every aspect-higher standards of technical performance along with higher standards of civic and environmental self-governance. This is the brave new world of oil. 

Some data was provided by IHS. Its ongoing support is greatly appreciated.

Nansen Saleri was manager of Saudi Aramco’s subsurface assets for 10 of the 15 years that he worked there. Previously, he spent 18 years with Chevron, where he became head of reservoir engineering. In 2006, he received the John Franklin Carll Award for distinguished service to petroleum engineering, one of the highest honors given by SPE. He is currently president and CEO of Quantum Reservoir Impact, LLC.