WHAT THE INDUSTRY EXPECTS IN 2008

Enhancing global recovery requires more than technology

Dr. D. Nathan Meehan, President, CMG Petroleum Consulting Ltd., Houston

Charles Darwin said “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.” While there is a lot of oil left in reservoirs, demand remains high and it doesn’t take much imagination to see oil-producing and service companies that are less responsive to change than others. High product prices cushion the impact of poor decisions; time and a demanding financial environment will eventually identify the dinosaurs and eliminate not just the weakest, but the least flexible.

As I write this note, the operator of one of the most significant discoveries of the last few decades continues to negotiate with the host government regarding the continued right to serve as operator in the field. There is little doubt that the host government will require the technological, personnel and capital strengths of a consortium of international oil companies. But this would not be the first instance of National Oil Companies (NOCs) flexing their muscles and putting an operator’s status at risk. This is most common in larger projects, but may well spread to ever smaller projects. NOCs range in their technical capabilities from those with very little to NOCs with capabilities equal to the best international oil companies. Technical and economic forces will drive NOCs to attract more talent and capabilities whether from service companies, consultants or smaller independents.

NOC priorities. Priorities of host governments may be considerably different from those of IOCs. Maximizing net present value, production growth and near-term cash flow may well be less important than optimizing total recovery, developing internal industries and providing long-term energy supplies. With product prices at current levels, many producing NOCs will not have to rely on IOCs to provide the needed capital. While some NOCs (i.e., Saudi Aramco and Petrobras) have internal technical capabilities that compare favorably with the best IOCs, most require access to significant external technical capabilities. Service companies and consulting groups can fill part of this gap without having to participate in the profits and reserves of the developing oil and gas fields at the same level required by NOCs. Ultimately the personnel required to carry out major projects, and decision making capacity, which includes skills at prioritizing risky investments, will need to be developed for NOCs as well.

Host governments often prefer to rely on IOCs for the riskiest and costliest investments. Exploration potential is now greatest where exploration costs and risks are very high-primarily the deepwater offshore and, secondarily, in arctic, mountainous and other environmentally- and access-challenged locations. While there certainly remains an abundance of oil to be discovered, most of the accessible oil lies in already-discovered fields. Oil recovery factors vary greatly, from less than 15% to more than 60%. Most oil fields that do not benefit from very strong water drives will ultimately require some form of fluid injection to assist in recovery. Key drivers controlling the level of recovery include the volumetric and microscopic displacement efficiency of the fluid injection process. Volumetric sweep efficiency (area-wise and vertically) may be inadequate due to reservoir heterogeneities and mobility issues, and can be improved many ways. The level of heterogeneities is rarely well-known early in field life, making it difficult to optimize the number of wells and their locations. As production continues and fields mature, additional rounds of development and redevelopment drilling, along with continued evaluation measurements, tests and integrated field studies, generally lead to ever-increasing recoveries.

Complex fields. High-cost assets like deepwater fields have largely not yet benefited from this evolution. Well drilling, completion and workover costs along with operating expenses and facilities costs are so high that much of the life of field planning is done during the evaluation and appraisal stage. In many cases, these fields are complexly faulted turbidites that would be very difficult to characterize from a few wells and even the best 3D seismic. Such fields located in West Texas might have ten times as many wells ultimately drilled, along with many more pore volumes of fluid injection, and will be produced to a much lower economic limit. To a lesser degree, this example is analogous to other fields in high-operating-cost environments. High product prices, improved relative costs (as a fraction of the value created) for drilling, completion, evaluation and related services will all push recoveries up even in difficult fields.

One example serves to illustrate how these improved recoveries are happening. Operators have been drilling complex horizontal and multi-lateral fields for many years. Most early wells that began to produce unwanted fluids were difficult and costly to re-enter, and to detect where the wanted and unwanted fluids were entering. Even when we could identify the offending interval (or lateral), it was difficult to effect selective stimulation or shutoff. Now, the initial completion can incorporate inflow control devices that equalize influx. Intelligent well completions allow the operator easily to selectively shut off a given lateral at a very low cost. In more advanced completions, downhole flow measurements can be acted on with various solutions to improve the flux distribution of fluids into selected portions of a multiple-lateral well.

Recovery in marginal fields. Advanced well completions, EOR methods and other technologies may allow the best-quality fields around the world to reach the sort of technical limits barely imagined when I was a student. But technology and costs are not responsible for the different level of development in many US onshore fields and similar fields around the world. The history of many US fields has a long tradition of mature fields being sold to smaller operators whose focus on efficiencies and optimization often lead to additional rounds of development drilling and other operations to lower costs and improve recoveries. It is not unusual for this to happen in a given field several times over its life. The ready access to financial resources and an environment that encourages entrepreneurial behavior and rewards risks have built levels of independent operators that largely do not exist elsewhere. NOCs may ultimately find that they will need to encourage local independents in order to recover remaining oil in their second-tier and marginal fields. The international oil companies, including smaller independents, are not ignoring these trends and are addressing these changes in different ways.

It’s a busy time for all of us. In many ways, when we are most busy, we may miss the opportunities to respond to changes. 

THE AUTHOR
	Dr. D. Nathan Meehan is President of CMG Petroleum Consulting, Ltd., a Houston-based petroleum engineering consulting firm. He holds a PhD in petroleum engineering from Stanford University, and is a licensed PE in Texas, Louisiana and Oklahoma. A past SPE Distinguished Lecturer, Dr. Meehan is the recipient of numerous awards, including the Lester C. Uren Award for Outstanding Contributions to Petroleum Engineering Technology and the Degolyer Distinguished Service Medal. He has authored scores of articles and a book, and has served as director for service companies, oil companies and SPE. Dr. Meehan worked 24 years at Union Pacific Resources, and was VP, Engineering, at Occidental Petroleum. While best-known for his work in horizontal wells and hydraulic fracturing, his consulting has primarily focused on field re-development and optimization.