Oil! A Primer on Petroleum Exploration & Production

[ewhanley]

I have been following Jayman's interesting and detailed description of the workings of a refinery in Pickup Trucks and Oil Refinery Discussion - A Jay and Jimmie Production. This topic has generated much interest, and I thought that a similar thread about the upstream side of the petroleum industry is in order. As such, I will begin posting installments discussing petroleum exploration and production (E&P). I will focus primarily on land-based oilfields but could certainly address any questions regarding gas fields or offshore E&P, though they are all similar in principle.

A little background on myself:
I have a BS in Geological Engineering from Montana Tech. My primary focus was reservoir characterization and simulation. I have a fairly wide breadth of experience in the industry. I have worked for one of the large service companies in the deepwater Gulf of Mexico building, testing, deploying, and operating sand and gravel frac/pack and tubing conveyed perforating systems (more detail on these topics to come). I have also worked for a large independent as a reservoir engineer in one of the nation's biggest gas fields. I am currently a reservoir engineer for a major (integrated multinational oil co.) in Alaska, where I perform a variety of engineering tasks for fields on the North Slope.

I envision this primer as roughly following the following outline:
-Prospecting (subset of exploration)
-----Basic Petroleum Geology
-Exploration
-----Seismic
-----Drilling
-----Appraisal
-Field Design
-----Characterization & Simulation
-----Subsurface and Infrastructure
-Execution
-----Phased Development
-----Drilling
-----Completions
-Field Life
-----Maintenance
-----Expansion
-Decommissioning
-----Blowdown
-----Plug and Abandon

These topics can be as basic or detailed as the audience demands, and I will try to answer all questions that are posed. A good resource for oilfield terminology can be found at Schlumberger Oilfield Glossary Search Results

[MarinJohn]

Personally, I'll bet I find your thread interesting just as I find Jay's thread informative. I really enjoy reading about topics written by knowledgeable people on topics I know little about. Go on...

[jayman]

Originally Posted by ewhanley

I have a BS in Geological Engineering from Montana Tech.

Something tells me that we would work well together, especially after a few beers. Looking forward to your discussion

[ewhanley]

Okay, sorry it has taken me so long to get rolling on this, but here goes...

Chapter 1 - Petroleum Geology and Prospecting
Since I intend to focus more on the engineering aspects of the industry, I will spare you all the gory details about the deposition and burial of organisms which ultimately leads to the generation of hydrocarbons and focus more on what constitutes a petroleum reservoir. From a geological standpoint all* of the following seven conditions must be in place to constitute a reservoir:
1. Source** - aforementioned burial of organic rich sediments
2. Reservoir - a porous and permeable*** layer of rock (e.g. sandstone)
3. Seal - a relatively impermeable layer of rock overlaying the reservoir (e.g. shale)
4. Trap - a physical barrier either stratigraphic (seal rock) or structural (faulting and folding), though the trap is usually a combination of the two
5. Timing - if the oil is generated in the source rock and migrates into the reservoir rock prior to a seal being deposited or a trap forming, it will not accumulate
6. Maturation - exposure of organic rich sediments to temperature and pressure for a significant duration to generate hydrocarbons
7. Migration - movement of oil from source rock to reservoir rock

From an engineering/economic standpoint one more very important condition must be met:
8. Oil must be technically and economically recoverable

Now, assuming we have met all the conditions necessary for a petroleum reservoir, we must go about finding it. In the early days of petroleum exploration, most oil deposits were discovered by obvious oil seeps on the surface or by telltale surface expressions of a subsurface structure that is indicative of an oil trap (e.g. anticlines surface/subsurface cross-section). The rest were found by dumb luck. Fast forward to today, and all the "easy" fields have been found. Most exploration prospects today are identified by their proximity to and similar structure to existing fields (e.g. ANWR/Prudhoe). Alternatively, some governments will hire geophysical firms to shoot seismic surveys in potential oil producing areas. If the results are promising, they could potentially persuade an oil company to seek exploration rights. After an area has been identified as a reasonable candidate for exploration, the way forward depends largely on uncertainty and risk tolerance. We will work under the assumption that the field we wish to explore is quite large, and, as such, is likely only to be developed by a large, multinational oil company. Companies of the scale of ExxonMobil or Shell have the assets to be rather risk tolerant; indeed, a robust exploration program is an absolute requirement. If new resources are not booked to replace those that are produced and sold, the company's potential to generate revenue literally shrinks.

So, at this point, we have identified a prospect for exploration, but we are not ready to drill yet. First, we must at the least perform a 2D seismic survey****. This will give us two cross-sections (note fault and folding of strata) of the subsurface structure, but certainly not enough to piece together a comprehensive picture of it, let alone any indication of the presence of hydrocarbons. If a compelling case for drilling can be made with the 2D seismic survey, the decision to go ahead with the drilling can be made. If the survey is inconclusive but indicates potential, a 3D seismic survey can be requested. A 3D seismic survey is a tremendously expensive and time consuming process. Even after the physical work required to conduct the survey, be it with thump-trucks or explosive charges, the data recovered must be filtered, processed, and interpreted (a process called inversion). Depending on the amount of processing desired, the inversion can take a few to several months to complete. Much information can be gleaned from the data depending on how much you want to spend, though there is a possibility that the data is garbage, and all the money spent on the survey was a waste. Assuming the data is not corrupt, it can provide a detailed picture of the subsurface structure and faulting and, sometimes, indications of porosity, mineralogy, and other attributes. Although, a great deal of uncertainty can be eliminated with a 3D seismic survey, ultimately, it still cannot answer the most important question: Are hydrocarbons present? The only way we can answer that question is to drill an exploration well, which, assuming our information gathered thus far indicates potential, is our next step in the exploration process and the focus of my next installment.

Notes:
*It is extremely rare that all of these conditions are met - on the order of 2-3% of potential reservoirs ever come to be.
**The organic rich components in the sediment comprising source rocks are initially transformed into a collection of organic compounds referred to as kerogen. If kerogen is heated to the right temperature, it is converted into crude oil and/or natural gas. Many potential source rocks are never buried deeply enough and, thus, not heated enough to be converted into crude oil. A great example of this is the Green River formation in Wyoming, which is one of the "oil shales" (bit of a misnomer: actually an organic rich marl - geology is 90% semantics) that have recently gained fame as our saving grace from the "energy crisis." The only way to extract oil from these formations is to heat it to convert the kerogen to oil and retort it from the rock, thereby essentially "speeding up" geologic time. So, the vast "oil shales" in the US are incorrectly referred to as reserves, when in fact they could likely not even be booked as resources.
***Assuming we are discussing a conventional reservoir. An unconventional reservoir such as the Bakken Formation in the ND is very much lacking permeability, though it is most certainly a legitimate reservoir.
****The cost and level of complexity of seismic surveys vary widely depending on where they are performed. Land based surveys in areas with established roads, such as fields in WY, can be performed relatively easily with vibroseis trucks. Land based surveys in areas like the North Slope of AK are quite labor intensive and expensive, as the energy source for the survey is typically in the form of explosive charges and all equipment must be deployed in sensitive areas with special equipment. Offshore surveys are the relatively easy, quick, and inexpensive to complete, as all the equipment is towed behind a boat with a self contained energy source.

Lastly, you may have noticed the conspicuous lack of mentioning the permitting that must be completed before commencement of each part of the process. Permitting is an extremely important aspect of the business, but it is well beyond the scope of this discussion. A veritable army of people dedicate their entire careers to the task of permitting.

Well, hopefully I haven't scared everyone off with all this rambling. If you have any questions, feel free to ask, and I will answer them to the best of my ability.

[patsparks]

I think it is amazing the mix of knowledge and skills that exist on this forum, being a poor public servant I'm lapping this up.

[efusco]

ewhanley,
I look forward to reading the entirety of this primer...I wonder, though, if you should post it as a wiki so it can be further fine tuned and made available to a broader audience.

[jayman]

Originally Posted by ewhanley

Well, hopefully I haven't scared everyone off with all this rambling. If you have any questions, feel free to ask, and I will answer them to the best of my ability.

Nope, good job. My involvement was more in engineering support/data mining. A lot of folks are shocked to discover that even after all the expensive 3D data collection, most of the data is properly classified as Garbage

[FL_Prius_Driver]

Help me out on what organizations do what? Who decides to survey? Who pays for the survey? When and where do the big oil companies get involved? How many different organizations are involved? Who selects what company does what? (Bids, politics, prearranged agreements)

For example, if the ANWR were to be drilled, who and how would they get that job? (Note-I do not want it to be drilled, just using it as an example).

[ewhanley]

Originally Posted by FL_Prius_Driver

Help me out on what organizations do what? Who decides to survey? Who pays for the survey? When and where do the big oil companies get involved? How many different organizations are involved? Who selects what company does what? (Bids, politics, prearranged agreements)

For example, if the ANWR were to be drilled, who and how would they get that job? (Note-I do not want it to be drilled, just using it as an example).

With regards to the seismic work, I should have made that more clear. The oil company conducting the exploration will decide if they want to conduct a seismic survey and will likewise pay for it. Permitting requirements can vary greatly depending on where the prospect is located. For the sake of this discussion, let's assume that the acreage is located on either state or federal land. Prior to the exploration work that I described, the acreage in question must be leased. If the acreage is federal land, the mineral rights can be leased from either the BLM (onshore) or the MMS (offshore) by any company wishing to conduct petroleum exploration. Acreage with suspected or demonstrated potential are typically auctioned, and the rights go to the highest bidder. A parallel process is conducted by equivalent state land management agencies in the case of state lands. The leasing process for public lands is fairly straight forward. The permitting required for actually drilling on said land is a lengthy, complicated, and expensive process. A few of the organizations/agencies involved in the permitting process are the EPA, DEQ, their state equivalents, various NGO's, and private interests. The issuance of the necessary permits takes on the order of years, and, especially in sensitive areas, can be tied up in the court system for quite a long time. Another interesting note about the lease agreement is that it typically has stipulations. These stipulations can vary depending on who the land was leased from, but in general the lease holder is required to drill x number of wells within the next x number of years or they forfeit the lease. This prevents companies from buying and shelving a lot of acreage that would otherwise generate federal and/or state revenue were it developed.

The area of ANWR which is under the most consideration for petroleum exploration is the 1002 Area. This is the location of the only well ever drilled in ANWR, the KIC#1 well. This well was a joint venture by Chevron and BP in 1980, and all information pertaining to this well remains a closely guarded secret. The KIC#1 well was located on native lands, which further complicates matters from a permitting standpoint, but I am not going to go into detail about this. ANWR contains acreage that is federal, state, and native held. For the sake of simplifying the discussion, I will address the process as though it were a federally conducted lease. So, if ANWR were opened up tomorrow, the BLM would auction the mineral rights to the highest bidder. Any company that wanted to conduct exploration would bid on acreage, and try to position themselves in the best parts of the acreage based on current knowledge. After the lease transaction is completed and stipulations put in place, the lease holder is then able to apply for permits to begin exploration work. My discussion of prospecting and exploration worked under the assumption that the leasing process was complete and all permits were in place. Typically, no one company attains the rights to an entire area, but rather the large oil companies usually work as partners from exploration and throughout the life of the field. This is a means of spreading the extreme risk associated with petroleum exploration.

[FL_Prius_Driver]

Excellent post!