Learning Objectives

Overarching learning objective: The user will gain a high-level view of the technical steps involved in the exploration and production of oil and gas, and an understanding of the economic, business and environmental risks and opportunities. The module will provide users with an understanding of the following: The geology of oil and gas reservoirs and how they are formed. The technical steps involved in oil and gas exploration. The technical steps involved in the evaluation of oil and gas reservoirs. The business risks of the exploration and production process. How oil and gas reserves are calculated and why they are important. Techniques for the production of oil and gas and how reservoirs are managed. Recovery factors and techniques and technologies for improving recovery. The distinction between conventional and unconventional hydrocarbons and the differing production methods for these categories. Methods for producing oil and gas in offshore environments. The decommissioning process. The potential for depleted oil and gas fields or other suitable geological structures to mitigate climate change through carbon capture and storage technology.

Introduction
Imagine planning the evacuation of a city on a moonless night, from a helicopter. You have a basic idea of the road layout, an understanding of how towns are generally planned and the odd scrap of local information. But just a few lampposts are switched on and you are working in darkness.

Producing oil or gas from a reservoir is similar. A well is like a lamppost illuminating its immediate surroundings, but nothing more. Seismic information provides a sketchy street plan and maybe some snapshot indications of how conditions are changing with time. Knowledge of geology and science give enough rules of thumb to make reasonable assumptions about what might be down there. But because they cannot directly examine the geology of the subsurface, reservoir engineers are basically working in the dark.

Sedimentary basins
Fossil fuels were formed over hundreds of millions of years by the compression of organic matter mainly marine plankton buried deep beneath the surface in sedimentary basins1.

Animal or plant remains are mostly recycled by other living creatures or oxidised at the surface. But a small amount is buried under the sea; and preserved. Over geological time, new layers of sediment, mud and other debris are piled on top, causing the sedimentary basin to subside. The source rock2 is exposed to gradually increasing pressures and temperatures. This breaks down the carbon bonds in the organic matter kerogen3 generating hydrocarbons.

Refer to the Appendix for the underlined text.

2 3

What is a reservoir?
Which of the following is more like a reservoir?

Underground lake

Drenched sponge

A reservoir is more like a sponge. Oil and gas accumulate in the pores and spaces within a rock. The effect resembles the way a sponge holds water.

A reservoir is a rock with: Porosity enough empty space within the rock to hold fluids Permeability enabling oil and gas to move rapidly through the rock when they are being extracted Hydrocarbon accumulations Sandstones or carbonates are generally good reservoirs, but clays are virtually impermeable.

The oil and gas windows

Oil forms within a certain temperature and pressure range about 60-120C. The oil window typically occurs at depths of between about 2 and 4 kilometres, although oil formed at one depth can later migrate into shallower rocks or move closer to the surface because of erosion above it. Oil fields contain some associated gas as well. Natural gas forms at higher temperates typically 100-200C. As a result, it tends to be predominant at greater depths, often in the 3-6 kilometre range. Pure natural gas plays referred to as non associated gas fields invariably contain a fraction of light liquids called condensates. Beyond about 10 kilometres, high temperatures destroy the hydrocarbons.

Petroleum traps

Oil and gas migrate towards the surface until they reach an impermeable layer that traps them underground. The resulting accumulation is the start of a reservoir.

In order for oil and gas to accumulate in substantial quantities, an impermeable barrier is needed to stop this migration. Cap or seal rocks, often clays or salt layers, form a trap for the hydrocarbons the beginning of a reservoir. Gas accumulates at the top of the trap, because it is lighter than oil. Reservoirs also contain large volumes of water, which accumulates below the oil.

The financial stakes

Oil and gas exploration always involves risk. The financial stakes in exploration are high. An offshore wildcat well where the well planners have little knowledge of the subsurface geology can easily cost $100 million. In 2007, Petrobras, drilled one off the Brazilian coast that cost $240 million.

Oil companies and banks would not risk that amount of capital without evidence that oil or gas might be in the ground. So how do you swing the odds of finding oil in your favour and go from surveying dunes in a desert or waves on the ocean to being prepared to spend $240 million finding out what lies beneath it?

Identifying oil and gas fields

Oil and gas exploration starts with three questions: 1. Is there oil and gas under the ground? 2. How much? 3. Is it economically producible?

Geophysicists start to identify suitable rocks by measuring their gravitational and magnetic properties. There are several indicators of the possible presence of hydrocarbons. These include: Low-density rock Soft, sedimentary rocks, such as limestone, which are capable of holding hydrocarbons, are less dense than heavy, igneous rocks. Non-magnetic rock Aeroplanes measure the earths gravitational pull; small differences caused by variations in the density of the underlying rocks provide vital clues about the geology. Variations in the Earths magnetic field can provide useful data too; the less magnetic the better sedimentary rocks are virtually non-magnetic. Positive results from nearby drilling operations The results of nearby drilling operations can give important clues too because the geology is likely to be similar. Surface shows of hydrocarbons Surface shows of hydrocarbons are another good indicator. But this sort of evidence isnt sufficient to justify a $100 million gamble. The next step is seismic, where exploration starts to get really serious.

Seismic acquisition
Seismic imaging has done for oil what medical imaging has done for the health industry. Hospital scans have made risky exploratory surgery less common as a diagnostic tool.

Similarly, seismic has reduced the need for dry or non-optimal wells by enabling geophysicists to form a detailed picture of the subterranean rock layers without drilling. Seismic provides detailed information about the subsurface and improves the chances of drilling success.

But how does it work?

Seismic works by causing explosions or mechanical vibrations on the Earths surface usually generated by a vibrating pad under a truck, on land, or by specially equipped boats. Sound waves go into the ground and are reflected off layer after layer of subterranean rock. Microphones on the surface measure the rebounding signals, the first coming from waves reflected by the surface, the second from the first geographical layer and so on. Its like bouncing a ball: the quality of the surface dictates the quality of the bounce.

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Seismic interpretation

A seismic picture is of interfaces between two layers of rock, or the seabed and the water. Differences in the interfaces cause reflections, just as light reflects off a surface. Seismic therefore provides information about the difference between rock layers layers, but no information about the rocks between. Geophysicists must use this incomplete information to assemble a picture of the likely physical characteristics of the rocks and fluids that could have produced the seismic record they are analysing. 2-D seismic surveys The simplest type of seismic survey is known as a two-dimensional (2-D) survey. A 2-D survey consists of a group of seismic lines acquired individually; typically there are significant gaps between adjacent lines often 1 kilometre or more. A 2-D survey is less data-intensive than a 3-D or 4-D survey, and produces a less detailed impression of the subsurface. But 2-D surveys are cheaper and more widely used.

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3-D seismic surveys 3-D surveys consist of numerous closely-spaced seismic lines. They produce a more detailed picture of the subsurface, but are more costly than 2-D. In addition, analyzing 3-D data sets requires a significant step-up in computing power. A data-intensive 3-D seismic survey might need computing capacity of 200 teraflops plus 2,000 terabytes of data storage. The resulting 3-D image can be projected in three dimensions in special visualisation rooms, allowing geoscientists, wearing 3-D goggles, to walk through and interact with the formation.

4-D seismic surveys Time-lapse 3-D seismic (or 4-D seismic) surveys monitor the production and depletion of an oil field over time. They involve running more than one 3-D survey on the same spot, but with an interval of a year or more. Data comparisons made by subtracting one data set from the other can show areas of the field that have been depleted and highlight areas where infill drilling would be useful to tap pockets of bypassed oil. As a result, they can improve recovery rates.

However, for all its sophistication, seismic imaging produces a seismic imaging produces an imperfect picture4 of the subsurface. It helps identify the best point at which to drill, but drilling is the only way of proving the existence of oil and gas.
Refer to the Appendix for the underlined text.

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Exploration drilling
Exploration drilling is necessary to confirm the existence of oil or gas in the source rock.

Tipped with steel teeth that pulverise the rock, a drillbit grinds its way into the ground and through various rock formations until it perforates the target layer. Lengths of drillpipe are lowered into the hole from a derrick5, drilling down into the reservoir. New sections of drillpipe are added as the hole becomes deeper. Each section is screwed to the previous section, telescoping down in ever decreasing sizes, sometimes over distances of several kilometres. The casing is perforated at the right depths to enable oil and gas to flow into the drilled shaft or the wellbore and up to the surface. Oil and gas then flow into the wellbore and up to the surface. The well is then prepared for production in a process known as completion. Hollow steel tubes are cemented into the hole to stop it from collapsing and to isolate it from the surrounding rock formations.

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Special fluid, known as drilling mud, circulates continuously around the drilling tool, keeping it cool and flushing out pieces of crushed rock that can be examined by geochemists for traces of oil. In a producing well, the mechanical interface to the casing a system of valves that controls pressure is known as the wellhead6. A series of safety valves, pressure gauges and other measuring devices called a Christmas tree is attached to a producing wellhead. A blow-out preventer7 or BOP at the base of the derrick or on the seabed prevents uncontrolled and potentially dangerous flows of hydrocarbons to the surface. Before drilling, the operator must undertake an environmental impact study. Sometimes, the developer must build infrastructure, such as roads, to bring in equipment and supplies. The operator must also ensure the drilling operations do not damage the local environment, cleaning up any pollution and replanting vegetation as necessary.

Refer to the Appendix for the underlined text.

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Appraisal drilling
After an exploration well discovers oil or gas, the exploration team must determine whether the fields recoverable resources are large enough to justify the investment. Appraisal wells are drilled to prove up the size and composition of the reservoir. This determines the economic viability of the project and provides the information the operator needs to devise a development plan.

There are numerous reasons why a discovery might not be economic even if oil and gas are present. The field might consist of multiple reservoirs and faults, which is technically more difficult and expensive to produce. If its offshore, it may not be practical to drill the necessary number of wells from one platform. Perhaps the oil is too thick and viscous to pump to the surface without costly special equipment. And perhaps the oil price isnt high enough. Low oil prices can and sometimes do result in upstream projects being delayed or cancelled.

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Reserves
After an exploration well discovers oil or gas, the exploration team must determine whether the fields recoverable resources are large enough to justify the investment. There are degrees of certainty relating to the commercial feasibility of producing reserves: P1 (Proved reserves) more than 90% probability of entering production P2 (Probable reserves) more than 50% probability of entering production P3 (Possible reserves) between 10-50% probability of entering production Maximum reserves = P1 + P2 + P3

Reserves are an important measure not only in projecting flows of oil and gas to world markets, but also in placing a long-term value on an oil company or in dictating whether a field contains enough recoverable oil to be commercially developed. The US Securities and Exchange Commissions reserves-accounting standard is the most commonly used. All oil companies with a New York Stock Exchange listing must adhere to it.

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Proving up reserves
Estimates must be substantiated with detailed evidence, using various measurements, such as: Well-logging Core sampling Well-logging Core sample

A detailed log of the geological formations penetrated by the hole drilled.

A cylindrical sample of rock retrieved from the subsurface for analysis.

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Well-logging

As wells are drilled deeper, a more detailed picture is built up of the stratigraphic sequence outlined by seismic, through a process called well logging. Tools are lowered down the well on an electrical wire to measure the properties of the rock around the borehole. The most important measurement in determining the nature of the rock and whether it could, theoretically, hold oil is electrical resistance. Acoustic, radioactive and nuclear magnetic resonance instruments also yield data on the thickness and depth of reservoirs and their probable content.

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Well logging and other such measurements and tests provide further information about the reservoir, which geoscientists use to generate a more detailed profile of the subsurface. Electrical Acoustic Radioactive Nuclear magnetic resonance Chemical composition of the oil Depth of the deposit Intensity of oil flows Comparisons with nearby reservoirs Comparisons with reservoirs elsewhere in the world with similar characteristics With the help of this information and computer modelling, geoscientists can identify the best sites for drilling and forecast the reservoirs likely production profile.

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Offshore E&P platforms

In offshore operations, oil is pumped to a platform through pipes called risers, before being offloaded onto a tanker. Offshore platforms vary in size and design, depending on the fields characteristics

Drilling barge

Jack-up rig

Semi-submersible platform

Fixed platform

Compliant towers

Drilling barge In very shallow, calm waters close to shore, operators sometimes install drilling equipment on a flat-bottom barge that is towed from site to site by tugboats.

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Jack-up rig A jack-up rig is similar to a drilling barge, but has three or more large legs. After the rig is towed to the site with its legs up, the legs are lowered to the seafloor and then the barge is jacked up so that it rests above the water. When drilling is completed, the legs are raised and the platform is towed to the next site. Jack-up rigs operate in shallow water, typically at depths of up to about 120 metres.

Semi-submersible platform The lower hull of this platform has ballast tanks that are filled with water until it is partly submerged with the topsides above the water. Then the platform is anchored to the seafloor. To move the rig, the ballast tanks are filled with air, making it buoyant. Semi-submersibles are typically used for fields in waters at least 60-90 metres deep.

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Fixed platforms The rigid legs of these permanent production facilities sit directly on the ocean floor. Fixed platforms are used in water depths of up to 520 metres.

Compliant towers These drilling and production platforms are connected to the seafloor by narrow, vertical towers that are flexible enough to absorb the impact of wind, waves and currents. The structures are generally used in water depths ranging from 450 to 900 metres.

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Floating production system

Sea star platform

Tension-leg platform (TLPs)

Subsea production unit

Spar platform

Sea Star platform Smaller versions of TLPs, Sea Star platforms can operate in up to 1,000 metres of water and are typically used to develop smaller deep-water reservoirs that would be uneconomic to exploit with a larger platform.

Refer to the Appendix for the underlined text.

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Tension-leg platform (TLPs) Long, hollow steel legs extend from these floating production structures to the seafloor and are anchored to piles driven into the seabed. The legs prevent vertical movement of the platform, but allow enough horizontal motion to minimise stress from wind and waves. TLPs are typically used in waters 450 to 2,150 metres deep.

Floating production system These platforms, typically submersibles or drillships, are positioned over production equipment mounted directly on the seafloor. The hydrocarbons are pumped to the facilities on the platform through flexible pipes called risers. They are capable of storing large volumes of hydrocarbons.

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Spar platform The deck of this buoy-like platform, which is designed for deep-water and ultra-deep-water applications, sits atop a giant, hollow cylindrical hull that is tethered to the ocean floor with taut cables and lines. They are suitable for water depths of up to around 3,000 metres.

Subsea production unit In some circumstances, locating the production control equipment on the seabed is advantageous. Subsea production systems reduce costs because several wells on the seabed can be connected tied back to a single production platform. Putting all that kit under the water also removes weight from the vessel and frees up valuable deck space.

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After hydrocarbons leave the wellhead, they are conveyed to the surface through risers, steel tubes that are strong enough to withstand water pressure but flexible enough to tolerate stresses caused by the movement of the platform and ocean currents. Subsea production systems, which can also be used with a fixed platform, are also ideal for tapping small pools of oil and gas in mature areas, because they enable new wells of marginal economic value to be tied back to an existing production point or pipeline. This means a new production platform isnt needed for each well. Subsea technology is a multi-billion dollar industry at the edge of technological possibility, covering a wide range of technologies, from wellheads to remotely operated vehicles all of which must be durable enough to work properly under the weight of up to 3,000 metres of water, withstand strong tides, waves, and currents. And it needs to meet increasingly tough environmental and safety requirements, and run for years with minimal maintenance. The subsea industry has suffered a setback because of the 2010 Gulf of Mexico oil spill, in which a blow-out preventer, the large stack of valves on top of the subsea well designed to control the flow of oil from the reservoir, is suspected to have failed.

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Reservoir management
Managing a reservoir is an empirical process. Once a well is drilled, reservoir engineers monitor the fields response and adapt their development plan accordingly. However, while our ability to visualise the reservoir has limitations, technology has significantly improved the efficiency of this process. In the past, drilling continued until a problem occurred. At this point, the driller would have to stop work, retrieve equipment from the hole, and identify and rectify the problem before starting again. It was like waiting to have a heart attack before going to the doctor. Now, computerized down-hole sensors enable continuous management of the reservoir a process sometimes called real-time reservoir management or oil-field digitization. This has significantly improved the efficiency of reservoir management. Akin to a regular health check-up, this results in less downtime and higher productivity, which is important when day rates for rig hire can be hundreds of thousands of dollars. Less downtime Higher productivity

Real-time reservoir management Digitised equipment on the drill-bit designed to withstand the extreme shocks, pressures and temperatures that characterise down-hole conditions streams data back to a support centre, for analysis by super-computer. Geophysicists, engineers and other experts can then decide what to do
Refer to the Appendix for the underlined text.

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next change the direction of the drill-bit or adjust the flow-rate, for instance and send instructions back down the hole to intelligent equipment that controls the drill-bit. This means that the drill-bit is much less likely to stray out of the oil-producing formation into non-productive rocks or formations that could collapse the well.

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Recovery factors
Oil-in-place is the total estimated amount of oil in a reservoir, but this will never be fully recovered. Eventually, it becomes too expensive to produce and, at that point, its time to abandon the project. The ratio of producible oil reserves to oil-in-place for a given field is often referred to as the recovery factor, expressed as a percentage. A fields recovery factor8 is the percentage of the oil or gas that can be economically retrieved. Occasionally, as much as 70% of the oil can be pumped out. But in most cases its much lower perhaps just 5%. A field with 30 million barrels of reserves and 100 million barrels of oil in place would have an estimated recovery factor of 30%. Worldwide, the average is about 35%. Improving or enhancing recovery is one of the primary objectives of oil companies and services firms. One percentage point of additional recovery in all the fields of the world would represent 2.5 to 3 years of annual worldwide consumption. Enhanced oil recovery (EOR) is also attractive because it generates substantial financial rewards with minimal exploration risk. It can improve a countrys energy security, as optimising domestic production reduces imports. With the chances of finding very large deposits of hydrocarbons receding all the time, it is an important component of the worlds future energy supply.

Refer to the Appendix for the underlined text.

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Horizontal drilling
If a vertical drill perforates an oil section or pay zone just 10 metres thick, it would produce a limited volume of oil. Once it had drained the oil in its immediate vicinity, oil from elsewhere would migrate towards the well but far too slowly to be of practical use. In some reservoirs, it is practical and economic to recover oil and gas with in-fill drilling, in which clusters of vertical wells are drilled into the same area. However, sometimes in deep waters, for example, when well costs are high it is uneconomic to drill more than a few wells. In this situation, directional and horizontal drilling can be economically attractive. A well is drilled downwards and, when it reaches the target formation, the drillbit is steered sideways.

Horizontal wells cut through a greater length of the reservoir and can link up isolated sections. Well for well, horizontal drilling9 is more expensive than vertical drilling. However, productivity gains10 make the extra investment worth it. Two or three horizontal wells might be able to do the job of, say, 20 vertical wells.

Refer to the Appendix for the underlined text.

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Primary recovery
In many cases, no intervention beyond drilling a well is initially required to produce oil and gas to the surface. Hydrocarbons reservoirs are naturally under pressure; when theyre perforated, their contents spurt to the surface like a bottle of carbonated drink that has been shaken up and opened.

This phase of production is called primary recovery and might push out 10-15% of the oil in place.

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Secondary recovery
Once that natural fizz has dissipated, the oil needs help to reach the surface.

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EOR Tertiary recovery

Oil recovery can be enhanced further by using chemicals, microbes or nano-particles.

Chemicals Chemicals can be used to squeeze out even more oil perhaps another 20%. Chemical EOR might involve mixing surface-acting agent a surfactant with the water being used in the flood. Surfactants act as a detergent, reducing friction between water and oil, so the oil droplets flow more efficiently through the rock. Water can also be stiffened up with polymers, making it less mobile so that oil moves more easily in front of it, like a giant squeegee forcing oil towards the production wells.

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If the oil being produced is acidic, a cheap alkali such as sodium carbonate can be added to the surfactant/polymer mix. The alkali reacts with acid in the oil, naturally creating extra surfactants, and more cheaply than in a factory.

Microbes The metabolic activity of microbes can be manipulated to give rise to byproducts such as polymers, surfactants and gas. In turn, these can help trapped oil to move more freely. Micro-organisms can also degrade the oil itself, reducing its viscosity so it can flow more freely.

Nano-particles Nanotechnology may also one day revolutionise hydrocarbons exploration and production. Nano-bots injected into the reservoir would be able to sense things chemical or physical reservoir properties, for example and communicate that information to the surface or change the properties of the hydrocarbons to assist production.

Thermal recovery can also be used to enhance oil recovery, with steam injected into the reservoir to lower the viscosity of the oil so that it can flow more freely to the surface. CO211 can also be injected to boost recovery.

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Conventional and unconventional hydrocarbons

So far, we have studied methods of production from formations in which the reservoir and fluid characteristics permit the oil and natural gas to flow readily to the well bore. Hydrocarbons produced in this manner are known as conventional oil and gas. When special technology is required to produce them to the surface, they are referred to as unconventional.

Conventional oil and gas Crude oil and natural gas are produced by drilling a well into a geological formation The reservoir pressure and fluid char acteristics permit the oil and natural gas to flow readily to the well bore Conventional and unconventional hydrocarbons Hydrocarbons produced using special technology

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Unconventional oil
Canada and Venezuela hold large deposits of unconventional oil in the form of bitumen.

Please refer to the appendix to learn more about the recovery methods for Canadas oil sands12 and Venezuelan heavy oil13.

In total, unconventional oil resources might boost world reserves by 1 trillion barrels a similar amount to the oil that has been consumed since the start of the modern oil industry.

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Unconventional oil production has become environmentally controversial because it is energy, carbon and water intensive. Oil-sands mining is also fraught with ecological challenges, one of the most serious being the toxic waste left by separation process, which is stored in vast tailings ponds. However, the oil-sands industry says technology is reducing the environmental impact of its operations.

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Unconventional gas
Unconventional gas occurs in several types of rock formation. One of the most highly developed segments of the business is gas trapped in coal seams. But the most promising developments at present are of gas trapped in North American shales, fine-grained rocks whose low permeability impedes the flow of gas.

Permeable rock

Coal seams

Shale rock

Some shales have one millionth the permeability of other rocks. But exploration companies have honed special production technologies to improve the wells contact with the reservoir and get the gas moving. Horizontal drilling and hydraulic fracturing14 have opened up large new
Refer to the Appendix for the underlined text.

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reserves of unconventional gas in North America, transforming the continents gassupply prospects. The Potential Gas Committee of the Colorado School of Mines, an authority on US gas reserves, estimates that unconventional reserves now offer the US 100 years of natural gas supply. Some estimates are higher. Cambridge Energy Research Associates, a consultancy, says unconventional gas could triple the gas that is available to the world. Gas companies are hoping exploration successes in the US and Canada can be replicated around the world, which would have significant consequences for world energy supply.

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Field life
When the cost of producing oil or gas starts exceeds its market value, the field ceases to be economic.

Field life is affected by: A drop in production due to pressure reduction in the reservoir An increase in the water cut the proportion of water extracted Fluctuations of oil and gas prices in the market

Sometimes, field life can be prolonged by a change of ownership. A field may no longer meet the minimum profitability requirements of a large company, but smaller companies with lower overheads or less demanding targets for return on investment may be interested in taking it over. There are no standard definitions of deep water or ultra-deep water; definitions vary, depending on the company or the regulatory body. Historically, deep water has been taken to be the depth at which a fixed platform becomes impractical for reasons of weight and size anything much more than 300 metres.

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Over time, the cut-off point between shallow water and deep water has risen as technology has improved. A reasonable industry benchmark for deep water has become 500 metres, because the technology needed beyond that depth is different to the technology needed to exploit field in shallower waters. Ultra-deep water, meanwhile, is generally understood to start at 1,500 metres.

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Decommissioning

Once the fields recoverable reserves are exhausted, infrastructure must be decommissioned. After years of intense exploration, a wave of decommissioning is occurring in mature provinces such as the US and the UK North Sea.

Decommissioning must be handled with the utmost sensitivity to the local environment. Yet, once E&P teams are long gone, oil fields have another use; they can serve as storehouses for the carbon that is produced by fossil-fuel processes and removed through the evolving technology of carbon capture and storage. So they can be part of the future as well as part of the past. Speaking of the future, how much oil and gas are left?

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Special report: Peak oil Oil and gas are finite resources. This geological fact has resulted in an endless stream of claims that the world has reached peak oil the point at which the maximum rate of global petroleum extraction is attained and terminal decline begins. The alarming subtext is that because the world is so reliant on oil, the peak will bring economic depression, wars and famine. Oil executives have tended to dismiss peak-oil theorists as Malthusian scaremongers. The oil industrys history is littered with warnings about the imminent exhaustion of oil reserves; in 1885, for example, an executive at John D Rockefellers Standard Oil company sold shares at a discount after deciding there was not much chance of replacing declining oil fields in Pennsylvania. So should todays peak-oil claims be considered any more valid than unfounded claims made in the past? Geologically, the world is a long way from the end of oil. Including unconventional oil, such as the reserves in Canadas oil sands, there are 3.7 trillion barrels left, according to Cambridge Energy Research Associates, a consultancy known for its optimistic reserves assessments. That compares with about 1 trillion barrels produced since the second half of the 19th century. In addition, the 3.7 trillion figure is likely to rise as recovery techniques improve. At present, only about 35% of the oil in an oil field is recoverable; lifting the ratio to 50% would add 1.2 trillion barrels to reserves.

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Optimists say rising oil prices caused in part by the perception that oil supplies may be dwindling will stimulate exploration activity, resulting in new discoveries, enhanced recovery of existing resources and investment in expensive, unconventional sources such as heavy oil and shale gas. But there is growing concern that sooner rather than later oil supply will struggle to keep up with demand. For one thing, the existence of oil in the ground does not easily translate into petroleum products above it. It takes years to discover and develop oil fields; the economic conditions must be right and the companies undertaking the exploration and development work must be technically competent. The most capable operators tend to be private-sector firms, but they have limited access to the worlds biggest oil reserves, which are controlled by national oil companies. Their record of bringing on stream large oil and gas resources is generally less impressive (although not always: Saudi Aramco and Petrobras, Petrobras are examples of NOCs with reputations for technical excellence). For another thing, there are around 70,000 producing fields, but a quarter of total world production comes from just 25 of them. Production problems at any of these giant fields can affect the world total. In addition, the general rate of output decline is estimated to be at least 6.5%, so 3 million barrels a day of new capacity needs to be added each year just to maintain production the equivalent of a new Saudi Arabia, which accounts for 10-15% of total world production, coming on stream every three years. But world oil demand wont stay level; even more oil will be needed as demand in emerging markets grows. Some executives think demand might increase by something like 25% over the next 20 years.

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Even if finding all this extra oil were geologically feasible, which it probably is, and even though the oil industry has an excellent record of maintaining steady flows of oil to world markets, making the necessary investments to find and bring to market such large volumes as many areas around the world enter maturity will put great strain on the oil-supply system. The problem is actually less one of geology than of politics, economics and commerce. However, it is also possible that, in the coming years, a bigger question for oil producers may prove to be peak demand, rather than peak supply. There are compelling reasons for consumer countries to reduce oil consumption. Environmental if the oil is replaced with a cleaner-burning alternative, it will lead to a reduction in CO2 pollution. Strategic lowering oil consumption can mean reducing dependency on oil imports and better energy security. Economic oil prices, despite weakening after the recession, remain at historically high levels. This is making energy efficiency and conservation more worthwhile. Some organisations including the IEA think that for these reasons the OECD will never consume as much oil or products as it did in 2007, the last time demand was high. Some of the slack will be taken up by emerging economies particularly China. But perhaps not enough to offset an eventual decline in consumption.

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Appendix
Sedimentary basin
A depression in the Earths crust, formed by plate tectonic activity, in which sediments accumulate. Sedimentary basins of the world

Source rock
Rock, such as shale or limestone, which is rich in organic matter and capable of generating hydrocarbons.

Kerogen
Naturally occurring, solid and insoluble organic matter in source rocks that can yield oil upon heating.

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Imperfect picture
Seismic surveys generate an imperfect picture of the subsurface. As explained in the main slide, seismic provides information about the difference between rock layers, but no information about the rocks in between, so geophysicists aided by powerful computers, and drawing on information from analogous projects must interpret these incomplete data to build a reservoir model. In addition, the seismic signal is degraded by background noise and weakens with depth, so may constitute as little as 10% of the energy picked up by the sensors. Sound travels well through water, improving the results of offshore seismic. But the sands of the Middle East, for example, deaden the signal before it has gone very far under the ground. And the undulation of a desert dune means microphones laid out on the surface to capture the rebounding signal wont all be at the same height a snag when millisecond timing is involved. Focusing seismic images presents further difficulties. Whereas a modern camera on auto-focus mode fixes on a single point in the distance, geophysicists must analyse an image with infinite depth of focus everything from drilling risks on the seabed to the deep structure beneath the reservoir. That task can be made even more onerous when, for example, there is a large salt layer below the seabed, refracting the signal like light through a prism.

Other imaging techniques

Seismic can be complemented by other imaging techniques. In electromagnetic surveys, for example, electrical currents identify rocks and fluids by measuring their resistivity characteristics. Alternatively, geophysicists can take advantage of the steady stream of electromagnetic radiation from the sun that propagates into the earth. Explorers are also starting to make use of natural seismic noise from inside the earth to see the distribution of oil and gas and how they move. And reservoir

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engineers monitor the pressures of oil and gas and water, which regularly change minutely with the rise and fall of the tide and onshore with the rise and fall of the moon another source of guidance for the future.

Derrick
A metal drilling tower, typically about 30 metres high.

Wellhead
The surface termination of a wellbore.

Blow-outs
High-pressure down-hole can cause oil and gas to spurt out of a well, often with dangerous results. These incidents are called blow-outs. The failure of the blow-out preventer of a well on the floor of the Gulf of Mexico in April 2010 led to the Gulf of Mexico oil spill.

Subsea completions
In water depths much above 500 metres, it becomes impractical to use a fixed platform. The structure would be too expensive to build and too big to install, a floating-production system is used. In these circumstances, the production-control equipment is often located on the seabed. This is known as a wet completion (although dry completions, above the water, are occasionally used). Subsea production systems reduce costs because several wells on the seabed can be connected tied back to a single production platform. Putting all that kit under the water also removes weight from the vessel and frees up valuable deck space. Controlling the flow of oil and gas on the seabed normally means any leak can be

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curtailed before it exits the ground (although this did no t occur in the case of the Deepwater Horizon oil spill earlier in 2010, because the equipment designed to shut off an uncontrolled flow of hydrocarbons failed.) The movement of the vessel inevitable with a floating unit is partially disconnected from the subsea equipment. After hydrocarbons leave the wellhead, they are conveyed to the surface through risers, steel tubes that are strong enough to withstand water pressure but flexible enough to tolerate stresses caused by the movement of the platform and ocean currents. In this situation, a rigid pipe would break. Subsea production systems, which can also be used with a fixed platform, are also ideal for tapping small pools of oil and gas in mature areas, because it enables new wells of marginal economic value to be tied back to an existing production point or pipeline. It means a new production platform isnt needed for each well. The combination of floating production vessels and subsea wellheads is often an economically attractive one because the wells are pre-drilled and ready when the production platform is floated in, allowing the field to reach its plateau production level quickly. Platform wells are drilled from the platform; although this is cheaper than pre-drilling, production builds up slowly, as each well is added. Floating units can easily be removed from a field too and reused somewhere else. Subsea technology is a multi-billion dollar industry at the edge of technological possibility, covering a wide range of technologies, from wellheads to remotely operated vehicles all of which must be durable enough to work properly under the weight of up to 3,000 metres of water, withstand strong tides, waves, and currents. And it needs to meet increasingly tough environmental and safety requirements, and run for years with minimal maintenance.

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Downhole sensors
Digitised equipment on the drill-bit designed to withstand the extreme shocks, pressures and temperatures that characterize down-hole conditions streams data back to a support centre, for analysis by super-computer. Geophysicists, engineers and other experts can then decide what to do next change the direction of the drill-bit or adjust the flow-rate, for instance and send instructions back down the hole to intelligent equipment that controls the drill-bit. This means that the drill-bit is much less likely to stray out of the oil-producing vformation into non-productive rocks or formations that could collapse the well.

Recovery factor
Recovery factors tend to improve over time, as new technologies are introduced. For example, when Alaskas Prudhoe Bay field entered production in 1977, its developers expected to recover 10 billion barrels of oil. Present expectations are for ultimate recovery of 15 billion barrels.

Horizontal drilling
Directional drilling involves deviating a wellbore along a planned path to a target at location at a given lateral distance and direction from the vertical. Horizontal drilling, a subset of directional drilling, involves a lateral departure from the wellbore exceeding about 80 degrees.

Productivity gains
BP discovered the UKs Clair field, in Atlantic waters, in 1977. Although it was estimated to contain 5 billion barrels of oil putting it on a par with the prolific Forties field BP had to wait 27 years to start developing it.

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The problem? Clairs oil is contained in a fractured reservoir and in the 1970s there was no way of producing commercially from any section of the field. Indeed, many experts predicted at the time that it would never be exploited. Improvements in seismic mapping and the arrival of horizontal drilling changed that, enabling the operator to link up isolated sections of the reservoir using fewer wells.

Recovery methods for Venezuelan heavy oil

Cold production techniques Mining is not applicable in Venezuelas Orinoco Belt, where cold non-thermal production processes are generally used to produce heavy oil. Techniques include installing downhole pumping systems and injecting diluents, such as light crude or distillate, into the wells to make the oil less viscous. Thermal production technologies are also being introduced to maintain production and increase recovery factors.

Recovery methods for Canadas oil sands

Open-pit mining In Canada oil close to the surface can be mined. Mining accounts for 55% of Canadas oil-sands production, but just 20% of reserves. In situ drilling Oil deeper underground, which accounts for 80% of Canadas bitumen, is recovered using in situ drilling. The most common method, steam-assisted gravity drainage (SAGD, said sagdee), involves pumping steam under ground through a horizontal well to liquefy the bitumen and pumping it to the surface through a second well. Another method, cyclic-steam stimulation (CSS), lets steam sit in the reservoir for weeks before the pressure helps force the bitumen up to the surface through the same wells used to inject the water.

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Resources produced using in situ techniques will become the dominant part of Canadian production over the next few years.

Hydraulic fracturing
Hydraulic fracturing involves the injection into the reservoir of a fluid that blasts open the rocks around the well, forcing open passageways in the formation through which hydrocarbons can freely flow.

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