WHAT'S AHEAD IN 2001

Current prices make technology implementation a reality

D. Nathan Meehan, Vice President, Engineering, Occidental Oil & Gas Corp., Houston

One of the topics that we, the advisors, cover in our annual "look ahead" articles is a review of what sort of year we had behind us. I can say that, after nearly 24 years at my former employer, we had our "last" year behind us.

For several years, I have talked about the need to consolidate the "mega- independents." These companies produce so much petroleum, that they need to make massive reserve additions to continue to grow. They will need to combine financial and technical strengths to compete globally with the new breed of "super-majors." The merger of Anadarko Petroleum and Union Pacific Resources served both companies’ shareholders well and should result in a stronger firm than either of the components. I wish them well.

"Really understanding your reservoir can pay dividends in unexpected ways."    – Nathan Meehan

On the day after the merger was completed, I joined Oxy and am excited about my first few months here. This is a company with a clear mission in the U.S. and internationally. In 1997, we had E&P activities in 24 countries, only half of which had production. Today, we are active in 10 countries, with production in eight of them.

More significantly, we have added major U.S. core assets in California and West Texas. Oxy is the largest oil producer in Texas following the acquisition of Altura Energy and its long-life reserves and enhanced recovery opportunities. This acquisition was part of a strategy to focus on large assets, where economies-of-scale exist along with potential to be a consolidator, as well as an area’s operational and technical leader.

The reservoir characterization and miscible gas displacement expertise we gained in the Altura acquisition shows promise for improving profitability and recoveries in other Oxy properties around the world. Integrated reservoir management is not cheap, but everyone can recognize the need for this effort in EOR projects. Really understanding your reservoir can also pay dividends in unexpected ways.

For example, Oxy operates many, large, mature oil fields in the U.S., Latin America and the Middle East – thus, we produce a lot of water. We find ourselves optimizing artificial lift (especially ESPs), chemical treatments, separation and water disposal in a wide variety of applications. Some of the most prospective technologies for us include improving our water handling and – perhaps more importantly – decreasing the total amount of water we bring to the surface.

To date, downhole separation and disposal technologies struggle to become routine applications. Hosts of chemicals designed to shut off water production tend to work nearly as well shutting off oil production. This problem is not unique to Oxy. Worldwide water production is estimated to be three times the volume of oil produced, and it is increasing every year. Even Middle Eastern fields that once shut in any well that began to cut water are now facing this problem.

Horizontal wells that succeeded in substantially delaying water coning and increasing reservoir sweep efficiency are revealing long-anticipated problems. Production logs are more complex to deploy and interpret in horizontal and multi-lateral wells. As water production increases, profile control opportunities in these wells are expensive and have had relatively high failure rates.

One promising area that takes advantage of improved reservoir descriptions and advances in both geometric and geologic steering is placement of additional horizontal laterals at the very crest of oil reservoirs and in all remaining unswept areas. Such wells produce less crude and are placed to recover the last remaining oil. Closely integrated geologic descriptions and reservoir models are required to identify these opportunities, and well paths are targeted to within 0.5 m (1.64 ft) of the top of the reservoir. I have suggested that we really only want the bottom half of the wellbore in the reservoir for this application. EOR optimization in mature fields uses the same integrated effort, with higher stakes associated with more-costly operations.

Optimizing mature fields involves a lot more than handling high water cuts. Today’s reservoir management teams integrate geophysics, petrophysics, geology and all aspects of petroleum engineering to generate additional profits and hydrocarbon recoveries. The current price environment enables us to devote the technical effort required to describe, explain and optimize our fields. Software and hardware tools have improved radically – our ability to use them well progresses more gradually.

Yesterday’s "advanced technology" is increasingly a part of today’s toolkits. Reservoir simulation efforts are used by entire teams for placing wells, supporting cost reductions and melding the reservoir characterization into useable forecasts. Field automation data are not just for increasing the number of wells that each pumper can visit – we are on the verge of really being able to improve the quality of field data and how they are used. Hydraulic fracture modeling and imaging is a routine tool.

Most of these improvements would have remained fantasies at $10 oil and $1.50 gas. Forward-thinking operators are using the current prosperity to invest in their key assets, viz. their fields and their people. This effort will pay dividends over the coming years, regardless of future oil prices.

D. Nathan Meehan joined Occidental Oil & Gas in Houston this year as vice president, engineering, following 24 years with Union Pacific Resources. Mr. Meehan holds a PhD in petroleum engineering from Stanford University where he also taught as an adjunct professor. He is an at-large director of SPE, chairman of the board of the CMG Reservoir Simulation Foundation and a director of the Computer Modeling Group, Ltd. Mr. Meehan is a Distinguished Member of SPE, a past SPE Distinguished Lecturer and the 1999 recipient of the Lester C. Uren Award for Distinguished Achievement in Petroleum Engineering Technology. He is a member of the Interstate Oil & Gas Compact Commission and the Society of Petroleum Evaluation Engineers, and is a registered Professional Engineer in Texas, Louisiana and Oklahoma.