This is no time to go wobbly

The title of this article comes from Margaret Thatcher’s 1990 remark to then-President George H. W. Bush, who was somewhat apprehensive about a plan to deploy troops to the Middle East to drive Iraqi forces out of Kuwait. I had not heard the phrase “to go wobbly” before then, but it made immediate sense. It may be a stretch to compare Saddam Hussein’s invasion of Kuwait to the current credit crisis and the precipitous drop in oil prices. Nonetheless, I can hear the Baroness telling us that now is not the time to go wobbly in response to our industry’s challenges.

Since I started working in the petroleum industry in 1975, crude oil prices have risen and fallen many times. Almost all senior managers working today have some experience dealing with product price crises through spending cuts and hiring freezes. I believe that, instead of making blanket cutbacks, it is time to leverage the best technology and brainpower to optimize recovery from existing assets and to discover new development opportunities. Let’s consider a few examples:

As drilling rig prices increased over the last decade, operators came to realize that it is not just the high-profile wells that warrant a best effort technologically. That said, activity levels have often dictated less-than-optimal design and analysis, even when the technology to achieve better results is available. For example, over the last few years I have seen the impressive cost savings, improved well placement and increased production that can be obtained by integrating geomechanical models into well design. Lower product prices shouldn’t make us want to do less geomechanical work, but more.

High rig rates may have made it easy to justify using the best bits and drilling fluids to achieve the longest and fastest runs possible. High product prices bulletproofed our economic results, and activity levels led to suboptimal drilling performance in some of our wells. Lower oil and gas prices mean that we have to be more efficient and eliminate the suboptimal drilling performance curves. Deciding to save nickels on drilling optimization could hurt the economics of today’s wells far more than when we had triple-digit crude oil prices.

I anticipate that the number of horizontal and complex multilateral wells will continued to rise. In the early days of horizontal wells, it was not always possible to selectively evaluate, stimulate or shut off portions of a given lateral. We now have the routine capacity for multiple reliable junctions in multilateral wells and varying levels of “intelligence.” Inflow control devices with varying capabilities, downhole pressure and temperature sensors, and the ability to selectively shut off or choke back a lateral can be considered “off the shelf” technology.

When oil was near its peak, such expenditures were simpler to justify for high-profile wells, but even then we didn’t always select and use technology properly. What should dictate well design, downhole measurements and well access requirements is the reservoir itself. During my consulting days, I was assisting a Latin American operator with the decision to use horizontal or multilateral wells to develop a certain portion of a fairly deep field where surface locations were becoming scarce. The horizontal approach was a no-brainer, since rapid coning happened routinely for vertical wells; the operator was evaluating multilateral wells but had difficulties in shutting off water production from some horizontal wells.

Early water entry in one lateral of a multilateral could easily kill a very expensive well that would have to be re-drilled at great expense. We conducted a series of reservoir simulations using experimental design approaches to quantify the incremental oil recovery, delay in water production and economic value of intelligent wells using the appropriate junction.

This approach isn’t easy. It is manpower intensive and requires an integrated, reservoir-focused team to work with drillers and service providers unaccustomed to implementing reservoir-based designs. Now that oil and gas prices have dropped, optimizing recovery and minimizing total expenses are more important than ever. Now isn’t the time to go wobbly on technology.

Do we need less information about the reservoir because prices are tight? Just asking the question exposes it as ridiculous. Obviously our logging, coring and testing designs will warrant more careful analysis than in $140/bbl days.

I remember a client with a mega-independent that had grown rapidly via acquisition. He complained that while he had committed to optimizing production and recovery from the acquired wells, the engineers who could accomplish those goals were focused on stimulating newly drilled wells and other capital-intensive plans. Production from the mature portions of the field was declining faster than he had anticipated. I suspect that this was not an isolated case. Production optimization - whether from artificial lift, permanent monitoring or chemical treatment - may have only received lip service in some of our fields. At current oil prices, we will have to optimize production using every available tool.

Finally, I am concerned about EOR projects generally. Back in the $140/bbl days, we were willing to pursue EOR projects even for some questionable fields. Now that oil prices have fallen by more than 50%, one operator tells me that even though his company hadn’t been rigorous in its analysis, it concluded that a proposed EOR project needed $60-$70 oil to be economic, so the project was postponed. Is this the right approach?

Now is the time to really do the reservoir engineering and plan each project to take the excess costs out of implementation, improve designs to increase sweep efficiency, and find a way to make the most money today. After all, now is no time to go wobbly.  

THE AUTHOR
	Dr. D. Nathan Meehan is Vice President of Reservoir Technology and Consulting for Baker Hughes Inc. He has more than 30 years’ experience in reservoir engineering, reserve estimation, hydraulic fracturing and horizontal well production. Previously he served as president of independent consultancy CMG Petroleum Consulting. He also was Vice President of Engineering for Occidental Oil & Gas and General Manager of Exploration & Production Services for Union Pacific Resources. Dr. Meehan earned his BSc degree in physics from Georgia Institute of Technology, his MSc degree in petroleum engineering from the University of Oklahoma, and his PhD degree in petroleum engineering from Stanford University. He has served as a Director of the Society of Petroleum Engineers. He is the recipient of the Lester C. Uren Award for Distinguished Achievement in Petroleum Engineering and of SPE’s Degolyer Distinguished Service Medal.