The World of Energy

Chapter 3 Petroleum Engineering Primer

3.1. The Oil Business

Ch. 3 - 1
"The Kingdom of Heaven runs on
righteousness, but the Kingdom
of Earth runs on OIL!"

Quote by Ernest Bevin at the British Parliament during a heated discussion

concerning the Middle East

Ch. 3 - 2
The Oil Business

Exploration
Upstream
Production
Refining
Downstream Transportation
Marketing

Ch. 3 - 3
Major Segments of Oil & Gas Industry

Upstream Activities
Exploration and production of oil and natural gas

Midstream Activities
Transportation, storage and trading of crude oil, refined
products and natural gas

Downstream Activities
Refining and marketing of crude oil
Local distribution companies

Participants
Majors integrated oil and gas companies, which are
involved in every aspect of the business integrated
Pure-play companies in various areas.

Ch. 3 - 4
Upstream Operations: Oil & Gas E & P Process

Exploration
Search for oil and natural gas by geologists and geophysicists
Once such areas are found, subsurface conditions are investigated
using seismological or other techniques

Drilling & Logging

To drill only way to know about the presence of resources
Move to next stage, if commercial amounts are encountered

Continue if the well contains commercial quantities

Completion
One or more flow paths must be constructed for the hydrocarbons
to travel between the reservoir and Earths surface

Lifting
Bringing energy resources to Earths surface

Ch. 3 - 5
Midstream Operations: Transportation and Storage

Once Extracted, crude oil&gas must be moved from the

wellhead to the refinery or distributors.
Transportation Methods (means):
Internationally:
Oil: Crude Tankers or barges. Global tanker fleet 2750
tankers with total capacity of 287,400 dead weight
tones (As of October 2002 )
Gas: Occasionally natural gas is liquefied and transported
internationally in LNG tankers.
On Land
Oil: Delivered to refineries with pipeline, truck or rail
Gas: Delivered to LDCs (Local Distribution Companies) with
trunk pipelines, or CNG
Storages
Essential function of an efficient and reliable pipeline network,
managing fluctuation in supply and demand

Ch. 3 - 6
Downstream Operations:
Refining and Marketing of Oil Products

Crude Oil - Complex Mixture Of Hydrocarbons

Refining creating a variety of final products

Refining Steps: Hydro treating, Cracking, Reforming,
Alkylation

Gasoline Marketing
Direct marketing by integrated oil companies at a retail
station bearing the companys name and emblem
Selling gasoline through independent marketers
Self-Serve business
24-hour point-of-sale terminals, Self service gas station

Ch. 3 - 7
Key Petroleum Industry Ratios

Prices of Oil, Gas and Refined Products

Most closely watched factors in the energy
business
Highly important information for net exporters

GDP Growth
Energy products play a central role in
economic activity, providing energy for
industry, commerce and transportation
On the other hand, economic growth has an
impact on demand for oil, gas and refined
products

Ch. 3 - 8
Key Petroleum Industry Ratios (Contd)

Oil & Gas supply and demand

Critical factor in assessing the oil&gas industrys outlook
US Demand on Oil
Year 2002 76.75 mln b/d,
Expected levels: in 2003 77.59 mln b/d,
Forecast for 2004 1.9% growth
US Demand on Natural Gas
Year 2002 21.71Tcf, 1.4% decline
Expected levels: in 2003 2.3% increase,
Forecast for 2004 3.8% growth
Oil & Gas inventory
Oil versus gas breakdown: companys relative sensitivity to
oil&gas prices
Refinery Capacity Utilization
Important measure of the health of refining sector
In general, high utilization rates are indicative of strong
demand
Heating and Cooling Degree Days
Natural gas is consumed in proportion to extremes in
temperature

Ch. 3 - 9
How To Analyze Oil & Gas Company

The fortune of oil & gas industry companies are tied to

overall supply/demand issues and price level;
Company Specific Factors
Oil versus gas
oil versus gas breakdown of company activity helps to understand
companys relative sensitivity to oil&gas prices.
Production volumes
Production volumes tend to fluctuate from year to year,
depending on prices and economic developments
Multinational oil&gas companies tend to work for long term plans
Reserve quality
Quality is determined by such factors as:
Geographic location of reserves relative to its potential markets,
Political and financial risk associated with exploiting them
Reserve Replacement
Measures the extent to which a company replenishes its reserve base
as it is depleted by production
Reserve Life
Measures how long a companys reserves are expected to last based
on current production levels.

Ch. 3 - 10
How To Analyze Oil & Gas Company (Contd)

Upstream performance ratio

Managing the costs of finding, developing and producing
reserves is of the utmost importance to oil companies;
Finding costs expenses of searching for new oil&gas
reserves
Development cost expenses in preparing reserves for
production by obtaining access to reserves and
building facilities needed
Lifting costs - efficiency of the companys oil&gas
production, the extent to which the
company controls its operating costs

Costs (expressed per barrel or per-Mcf terms) are usually

analyzed for 3-5 years to reflect long-term cycles
Accounting methods used to estimating costs:
Successful-efforts method
Full-cost method

Ch. 3 - 11
Upstream Competition Creates Super Majors

(MMBOED) 5

4 Exxon Mobil
BP
RD Shell
3 ChevronTexaco

TotalFinaElf
2
Production

Chevron
Texaco ENI
1 Phillips
Oxy Conoco
Marathon
Hess Repsol
0
0 5 10 15 20 25
Reserves (BBOE)
1999 data with pro forma adjustments for significant 2000 acquisitions and divestitures

Ch. 3 - 12
The World of Energy
Chapter 3 Petroleum Engineering Primer

3.2. The Brief History of Petroleum Industry

Ch. 3 - 13
Ancient, and Less Ancient, Times
The Egyptians
Coated mummies and sealed their mighty Pyramids with petroleum pitch

The Babylonians, Assyrians, and Persians

Used it to pave their streets and hold their walls and buildings together
Boats along the Euphrates were constructed with woven reeds and sealed with pitch

The Chinese
Came across it while digging holes for brine (salt water) and used the petroleum for heating

The Bible even claims that Noah used it to make his Ark seaworthy.

American Indians
Used petroleum for paint, fuel, and medicine

Desert Nomads used it to treat camels for mange

The Holy Roman Emperor, Charles V, used petroleum it to treat his gout

Ancient Persians and Sumatrans

Believed petroleum had medicinal value

Up through the 19th Century jars of petroleum were sold as miracle tonic able to
cure whatever ailed you.

Ch. 3 - 14
 Ancient Chinese Drilling Technology
This deep well
drilling was the
precursor to the
modern gas well.
The main focus of
the painting is the
derrick and the
windless the
circular apparatus
(rotated by oxen)
which turns the
winches on the
derrick. The well is
about 100 ft.
deep. The people
in the upper part
of the painting are
shown carrying the
bittern drawn
from the well.
Circa 1041 A.D. 1368 A.D.: This painting illustrates deep
well drilling from the years 1041 to 1368 A.D.

Ch. 3 - 15
Deep Drilling: From Salt to Petroleum
More than 2,000 years ago
The Chinese used a chisel-like bit
on a rope to bore 400-foot-deep
holes for salt brine

Drilling was not reported in Europe

until the Middle Ages
Using the primitive springpole
method, brine seekers did nearly
all well drilling in America until the
middle of the 19th century

In the early 1800s

Eastern saltworks operators
developed basic machinery and
techniques of modern cable-tool
drilling.
Stationary steam engines, used to
pump salt water in 1829, later
powered drilling equipment.
By 1850, the cable-tool drilling rig
was a reality.

After Drakes first successful oil well in 1859, oil operators adopted
cable-tool equipment. Drilling techniques rapidly improved in the oil
boom that followed.

Ch. 3 - 16
The Early Search for Oil
For thousands of years petroleum was very scarce

People collected it when it bubbled to the surface or seeped into wells

For those digging wells to get drinking water the petroleum was seen as a
nuisance. However, some thought the oil might have large scale economic
value

George Bissell
A lawyer, thought that petroleum might be converted into kerosene for
use in lamps.
An analysis by Benjamin Silliman, Jr., a Yale chemistry and geology
professor, confirmed his hunch

In 1854 Bissell and a friend formed the unsuccessful Pennsylvania

Rock Oil Company

Not one to be easily dismayed, in 1858 Bissell and a group of

business men formed the Seneca Oil Company
They hired an ex-railroad conductor named Edwin Drake to drill for oil
along a secluded creek in Titusville Pennsylvania.
They soon dubbed him "Colonel" Drake to impress the locals.
But the "Colonel" needed help so he hired Uncle Billy Smith and his two
sons who had experience with drilling salt wells.

In 1859 this motley crew found oil at a depth of 69 feet.

Ch. 3 - 17
Early Methods of Transporting Petroleum

During the early days of oil, operators

had to store large quantities of oil and
transport it to the refinery

From wooden tanks nearby, oil was

put in wooden barrels and hauled by
horses over almost nonexistent roads
or moved by barges to the refinery.
Huge quantities of oil were lost by
spillage and fires

By 1865, railroads were hauling oil in

barrels and open vats of flatcars; steel
tank cars were not developed until
1868.

A long-distance pipeline was built in

1865, but this method of
transportation was slow to be
accepted

In Indiana, railroads and trucks haul

petroleum, but many companies
operate pipelines distributing
petroleum and its products

Ch. 3 - 18
Early Crude Oil Refining
By 1860, 15 refineries in operation.
Known as "tea kettle" stills, consisted of a large iron drum and a long tube as a condenser.
Capacity of these stills ranged from 1 to 100 barrels a day.
A coal fire heated the drum, and three fractions were obtained during the distillation process.
The first component to boil off was the highly volatile naphtha. Next came the kerosene, or "lamp oil",
and lastly came the heavy oils and tar which were simply left in the bottom of the drum.
These early refineries produced about 75% kerosene, which could be sold for high profits

Kerosene was so valuable

Because of a whale shortage that had began in 1845 due to heavy hunting
Sperm oil had been the main product of the whaling industry and was used in lamps.
Candles were made with another whale product called "spermaceti".
This shortage of natural sources meant that kerosene was in great demand
Almost all the families across the country started using kerosene to light their homes.
However, the naphtha and tar fractions were seen as valueless and were simply dumped into Oil
Creek. (I would like to point out that these first refineries were not operated by chemical engineers! )

In 1869 Robert Chesebrough discovered how to make petroleum jelly and called his new product
Vaseline.
The heavy components began being used as lubricants, or as waxes in candles and chewing gum.
Tar was used as a roofing material.
But the more volatile components were still without much value.
Limited success came in using gasoline as a local anesthetic and liquid petroleum gas (LPG) in a
compression cycle to make ice

The success in refined petroleum products greatly spread the technique. By 1865 there were 194
refineries in operation.

Ch. 3 - 19
John D. Rockefeller
In 1862 John D. Rockefeller
Financed his first refinery as a side investment
He soon discovered that he liked the petroleum industry, and devoted himself to it full time
As a young bookkeeper Rockefeller had come to love the order of a well organized
ledger.
He was appalled by the disorder and instability of the oil industry. Anyone could drill a
well, and overproduction plagued the early industry.
At times overproduction meant that the crude oil was cheaper than water
Rockefeller saw early on, that refining and transportation, as opposed to production,
were the keys to taking control of the industry.

And control the industry he did!

In 1870 he established Standard Oil

Which then controlled 10% of the refining capacity in the country.
Transportation often encompassed 20% of the total production cost and Rockefeller made
under-the-table deals with railroads to give him secret shipping rebates.
This cheap transportation allowed Standard to undercut its competitors and Rockefeller
expanded aggressively, buying out competitors left and right

Soon Standard Oil built a network of "iron arteries"

Which delivered oil across the Eastern U.S.
This pipeline system relieved Standard's dependence upon the railroads and reduced its
transportation costs even more

By 1880
Standard controlled 90% of the country's refining capacity.
Because of its massive size, it brought security and stability to the oil business,
guaranteeing continuous profits.
With Standard Oil, John D. Rockefeller became the richest person in the World.

Ch. 3 - 20
 Indiana's First Oil Refinery
Natural gas and oil discoveries in Ohio
in 1884-85 and in Indiana in 1886 and
1889 began the development and
exploitation of the great Trenton Gas
and Oil Field of northwestern Ohio and
east-central Indiana.

Standard Oil Co., already a power in

the industry, organized the Buckeye
Pipeline Co. of Ohio in 1886

Buckeye built gathering lines and tank

farms for storing most of the areas
crude oil.

In 1886-87 it built the first midwestern

refinery at Lima and an 8-inch pipeline
to ship fuel oil to Chicago

In 1889-90, Standard built a refinery at

Whiting, Indiana. This area later
became a major refining center in the
United States

Ch. 3 - 21
The World of Energy
Chapter 3 Petroleum Engineering Primer

3.3. The Origin of Fossil Energy

Ch. 3 - 22
Petroleum Origin & Formation

Originated from microscopic marine organisms that

lived in great numbers in shallow coastal waters
Died remains collected in bottom sediments
Buried under anaerobic conditions high
temperature and pressure liquid hydrocarbons
(crude oil) and gaseous hydrocarbons (gas)
Crude oil and gas are normally found together in
porous permeable rock called reservoir rock
Mixture of organic compounds hydrocarbons plus
small amounts of sulfur, nitrogen and oxygen
Need refining by distillation
Fractional distillation is a process that separates the
hydrocarbons according to their boiling points
Products low in sulfur
Used in internal combustion engines

Ch. 3 - 23
How Oil & Gas Are Created

Includes Undiscovered Reserved

Ch. 3 - 24
Cross Section Of A Petroleum System

Geographic Extent of Petroleum System

Extent of Play
Extent of Prospect/Field
O Stratigraphic O O
Extent of

Sedimentary
Petroleum
System Essential Overburden Rock
Elements Seal Rock
of Reservoir Rock
Petroleum
Pod of Active System Source Rock
Source Rock
Underburden Rock
Petroleum Reservoir (O)
Basement Rock
Fold-and-Thrust Belt Top Oil Window
(arrows indicate relative fault motion) Top Gas Window
(modified from Magoon and Dow, 1994)

(Foreland Basin Example)

Ch. 3 - 25
Petroleum Formation, Burial & Recovery

Ch. 3 - 26
Where have crude oil and natural gas come from?

When you burn oil or gas, they

heat the surroundings. Energy is
transferred from the chemicals to
the surroundings.
The original source of this energy
is the Sun. Plants use the Sun's
energy to produce sugars and
oxygen from carbon dioxide and
water, during photosynthesis. This
energy is stored in the chemicals
the plant produces. Animals eat
the plants and so the energy is
transferred to their bodies.
In the conditions on Earth
millions of years ago, plants and
animals decayed, and the organic
chemicals their bodies were made
of became the source of fossil
fuels we now use.

Ch. 3 - 27
Source of Crude Oil and Natural Gas

Ch. 3 - 28
Death Organism of The Ancient Sea

Scientists believe that when all these

animals and plants died and sank to the
bottom of the ancient seas and lagoons,
they were covered by layers of sediment
This process happened before they had
time to decay in the air. Anaerobic
bacteria are thought to have acted on
them to start the process of changing the
into crude oil or gas.
Perhaps there were some chemical
reactions between the decaying organisms
and the salts in the mud and water
surrounding them.
We know that there is a difference in the
chemicals in oil from different parts of
the world.
There seems to have been a difference in
the way that oil was formed or in the
plants and animals from which it was
formed.

Ch. 3 - 29
Million Years of Sedimentation

As the remains of these living things

decayed, they were covered by more and
more sediment as seas advanced and
retreated and rivers washed mud and
sand into the sea.
All this happened as a very slow process
taking millions of years.
Eventually, the rotting material began to
change into the hydrocarbons which
make up oil and gas, mixed with the
grains of sand and silt.
As the layers on top of the organic
chemicals increased, so did the pressure
and temperature which helped to speed
up the process.

Ch. 3 - 30
The Formation of Oil Trap

Ch. 3 - 31
Hydrocarbon Trap
Seal or trap
Gas cap

Oil column

Water column or aquifer

OOIP (Original Oil In Place) = Volume x Concentration

Ch. 3 - 32
The Petroleum Window

Ch. 3 - 33
The Required 3 Elements of Petroleum Reserve Leads

Several geologic elements are necessary for oil

and gas to accumulate in sufficient quantities to
create a pool large enough to be worth producing
an organic-rich source rock to generate the oil or
gas
a porous reservoir rock to store the petroleum in
some sort of trap to prevent the oil and gas from
leaking away
the tops of anticlines
next to faults
in the updip pinchouts of sandstone beds
beneath unconformities

Ch. 3 - 34
Type of Petroleum Traps

Ch. 3 - 35
Oil/Gas Formation
Oil vs. Coal
Land Plants vs. Marine Animals (kerogen)

Oil vs. Gas

High hydrogen index (H/C) and low oxygen index (O/C)
increases oil yield
High oxygen index and low hydrogen index increases
gas yield
Indexes are a function of type of organic matter and
water conditions (oxygen rich water)
Thus Humic (land plant) organic matter (high O/C) aids
in coal seam methane formation

Source Rocks
Shale (mud, clay)

Ch. 3 - 36
One More

Thus, Gas present with coal and oil formation:

Depends on oxygen index, thermal maturation,
pressure, and vitrinite reflectance (in source rock
situations)
With oil, the lightest hydrocarbons (gas) will
separate out to create the gas cap.
Or, in very oxygen rich environments, petroleum
seams can be entirely gas.

Ch. 3 - 37
The World of Energy
Chapter 3 Petroleum Engineering Primer

3.4. Exploring for Oil

Ch. 3 - 38
Finding Oil

Ch. 3 - 39
Once the Exploration Site is Selected

Getting the land ready Making way for the rig

The area is surveyed to Several holes are dug to
determine its boundaries. make way for the rig and
Environmental studies are main hole
said to be done. A rectangular pit (cellar) is
The land is cleared and dug around the location of
then access roads are the drilling hole. (This
built. provides a workspace)
Water is drilled if there are The crew drills a main hole
no natural sources Additional holes are dug to
available. the side to store equipment
A reserve pit is dug to
dispose of rock cuttings
and mud. It is lined with
plastic to protect the
environment only if the
area is considered to be
ecologically sensitive.

Ch. 3 - 40
 Seismic: Searching for Geological Traps

Any Traps! May be oil, or

water or empty traps
The Government and Oil
companies usually assign finding
oil to contracted geologists
Oil geologists examine surface
features, surface rock, reservoir
rock, entrapment, satellite
images, sensitive gravity meters
and magnometers. They can also
detect the smell of hydrocarbons
using electronic noses called
sniffers.
The most common technique for
finding reserves is seismology
which uses shock waves that
interpret waves reflected back to
the surface.
Despite all the technologies,
modern oil exploration methods
are only 10 percent successful.

Ch. 3 - 41
Oil Exploration - Seismic

Vibrator Truck
(Energy Source)
Recording Truck Geophone
(Receivers)

Returning
Sound Waves

American Petroleum Institute, 1986

Ch. 3 - 42
Setting Up the Rig

Once the land is ready,

several holes are dug to
make way for the rig
and main hole.
A rectangular pit called
a cellar is dug around
the location of the
actual drilling hole.
The cellar provides a
workspace around the
hole. The crew then
drills a main hole.
The following is how a
rig is set up.

Ch. 3 - 43
Drilling
Directions on drilling
Place the drill bit, collar and drill
pipe in the hole.

Attach the Kelly and turntable and

begin drilling.

As drilling progresses, circulate mud

through the pipe and out of the bit
to float the rock cutting out of the
hole.

Add new sections (joints) of drill

pipes ad the hole gets deeper.

Remove (trip out) the drill pipe,

collar and bit when the pre-set Photo courtesy Institute of Petroleum
depth (anywhere from a few http://science.howstuffworks.com/oil-drilling1.htm
hundred to a couple thousand feet)
is reached.

Ch. 3 - 44
Horizontal Well

Ch. 3 - 45
Horizontal Drilling Avoids Surface Hazards

Gas

Water Oil

American Petroleum Institute, 1986

Ch. 3 - 46
Confirming the Presence of Oil
After the pre-wet depth is reached,
the workers run and cement the
casing pipe sections into the hole to
prevent it from collapsing.

Drilling continues in stages. When the

rock cuttings from the mud reveal the
oil sand from the reservoir rock, they
may have reached the final depth.

At this point, they remove the drilling

apparatus from the hole and perform
several tests to confirm the presence
of oil.

These tests are Well logging, Drill-

stem testing, and Core samples.

Photo courtesy Phillips Petroleum Co.

Rotary workers trip drill pipe
http://science.howstuffworks.com/oil-
drilling4.htm

Ch. 3 - 47
 Extracting the Oil
Once the well is completed, the operators
must start the flow of oil into the well.

For limestone reservoir rock, acid is

pumped down the well and out the
perforations.

For sandstone reservoir rock, a special

blended fuel containing proppants is
pumped down the well and out the
perforations.

The pressure from this fluid makes small

fractures in the sandstone that allow oil to
flow into the well, while the proppants hold
these fractures open.

Once the oil is flowing, the oilrig is removed

from the site and production equipment is
set up to extract the oil from the well.

Ch. 3 - 48
What Are the Four Life Stages of a Reservoir?

Stage 1
Exploration

Ch. 3 - 49
What Are the Four Life Stages of a Reservoir?

Stage 2
Delineation

Ch. 3 - 50
What Are the Four Life Stages of a Reservoir?

Stage 3
Development

Ch. 3 - 51
What Are the Four Life Stages of a Reservoir?

Stage 4
Late Life

Ch. 3 - 52
The Geography of Oil Field Size

Ch. 3 - 53
Cost of Drilling Oil/Gas Well

Ch. 3 - 54
The World of Energy
Chapter 3 Petroleum Engineering Primer

3.4. Understanding Hydrocarbon Reserve &

Resources

Ch. 3 - 55
Reserves What are they?

Fuel

Losses Gas

Market Gas Liquids

Plant Oil

Reserves

The volume of petroleum

expected to be sold from
assets in which the entity
Reservoir
has an entitlement

Ch. 3 - 56
Key Tests for Reserves

Are the hydrocarbons discovered?

What entitlement do you have to hydrocarbons?

Is the project commercial?

What is the market for the hydrocarbons,

especially for gas?

What commitment is there to develop infrastructure?

NONE of these tests (directly) mention volume!!!!

Tests are more about Project Maturity

Ch. 3 - 57
Reserves are Functions of Technology

The Story of Kern River Oil Reserve

Discovered in 1899.

After 43 years of operation,

it had reserves of 54 million barrels.

In next 43 years,
it produced, not 54 but 730 million barrels.

At the end of that time, in 1986, it had remaining reserves of

about 900 million barrels.

At end 2000 the field had produced 1,760 million barrels

Adelman, 1987
Ch. 3 - 58
History of Reserves Definitions

Year Organisation Comments

Oil reserves definitions - first use of term
1936 American Petroleum Institute (API)
"proved reserves

1946 American Gas Association (AGA) Gas reserve definitions

Published annual 1P U.S. reports of oil,

19461979 API & AGA
gas and NGL's

Society of Petroleum Engineers Adopted proved reserves definitions

1964
(SPE) similar to API

U.S. Securities & Exchange Issued definitions for proved reserves

1978
Commission (SEC)

1981 SPE Issued revised definitions for proved reserves

Ch. 3 - 59
History of reserves definitions

Year Organisation Comments

Comments
World Petroleum Congresses Issued expanded definitions for reserves
1983 (WPC)* and resources

Published independent definitions for 1P, 2P

1987 SPE + WPC
& 3P reserves

1997 SPE/WPC Jointly adopt 1P, 2P & 3P reserve definitions

deterministic & probabilistic
Issue full petroleum resource
2000 SPE/WPC/AAPG framework definitions
Issue evaluation guidelines for reserves
2001 SPE/WPC/AAPG & resources

2007 SPE/WPC/AAPG/SPEE Combined & updated definitions & guideline

for reserve & resources - PRMS

*World Petroleum Congresses has subsequently been renamed "World Petroleum Council"

Ch. 3 - 60
Reserve & Resources Definition

TOTAL PETROLEUM INITIALLY IN PLACE Production

COMMERCIAL
DISCOVERED INITIALLY
3P
2P PROVED
1P
1P PROVED + Reserves
PROVED + PROBABLE
IN-PLACE
PROVED +
PROBABLE
POSSIBLE BOOKING

LOW BEST HIGH

COMMERCIAL

ESTIMATE ESTIMATE ESTIMATE Contingent

Resources
SUB-

(P90) (P50) (P10)

Unrecoverable
UNDISCOVERED

LOW BEST HIGH Prospective

INITIALLY
IN-PLACE

ESTIMATE ESTIMATE ESTIMATE

Resources
(P90) (P50) (P10)

Unrecoverable
Range of Uncertainty
T HARRISON - Santos Ltd SPE DISTINGUISHED LECTURER SERIES

Ch. 3 - 61
Resources and Reserves

Ch. 3 - 62
Reserves A Sub-set of Resources

Prospective Resources Exploration Potential

Exploration Discovery

Contingent Resources Sub-Commerical

Commercialised

Reserves Commercial
Developed

Production Sales

Ch. 3 - 63
 Tracking Reserves & Resources Uncertainty

Exploration Appraisal Development/Production

Contingent Reserves
Estimated Ultimate Recovery (UR)

P10 Resources
High
3P
Estimate

Field
Range Abandonment
Best 2P
P50 of
Estimate
Uncertainty

Low
1P
Estimate
P90

Time (years) (Arps, 1956)

NB: Reserves = Ultimate Recovery - Production

Ch. 3 - 64
Reserves & Resources Corporate Governance
Complete Petroleum resource system from Undiscovered to Production
Incorporates series of gates or decision points

1. Undiscovered Discovered Hydrocarbon

(Prospective Resource) (Contingent Resource)

2. Discovered Discovered
(Contingent Resource) Commercial
(Reserves)

3. Unproved Reserves Proved Reserves

(Probable & Possible) (Proved)

First two transition points relate to Project Maturity both technical and commercial
Third transition point relates to Project Uncertainty mainly technical

Ch. 3 - 65
Attributes of Proved Reserves
Reasonable Certainty
High degree of confidence
If Probabilistic methods used 90% chance reserves will exceed estimate
Fluid contacts or LKH or as indicated by definitive geo/eng or
performance data
Undeveloped within defined area reasonable certainty formation is
laterally continuous & contains commercially recoverable hydrocarbons

Commercially Recoverable
Commitment to go ahead with project
Evidence of commercial productivity
Legal entitlement

Current Economic Conditions

Price & cost forecasts based on historical data
Economic Limit
Appropriate contract obligations & Government regulations
PSC Complexities

Ch. 3 - 66
Attributes of Proved + Probable Reserves

More likely than not to be recoverable

Middle ground best estimate
If Probabilistic methods used 50% chance reserves will equal
or exceed estimate
Fluid contacts or as indicated by geo/eng or performance data
if no indicative data half way between LKH & LCC often used

Commercially recoverable
Commitment to go ahead with project
Less stringent evidence of commercial productivity
Legal entitlement

Reasonably improved economic, technical & operating methods

Reasonably improved Price & cost forecasts
If fault separated from proved area included if faulted area higher than proved area
Appropriate contract obligations & Government regulations
PSC Complexities
PSC Complexities

Ch. 3 - 67
Attributes of Proved + Probable + Possible Reserves

Less likely to be recoverable than 2P reserves

High Side Estimate Upside potential
If Probabilistic methods used 10% chance reserves will equal
or exceed estimate
Fluid contacts or as indicated by geo/eng or performance data
if no indicative data LCC often used

Commercially recoverable
Commitment to go ahead with project
May not currently be shown to be commercially producible
Legal entitlement

Reasonably improved economic, technical & operating methods

Reasonably improved Price & cost forecasts
If fault separated from proved area included if faulted area lower than
proved area
Appropriate contract obligations & Government regulations
PSC Complexities

Ch. 3 - 68
Developed & Undeveloped Reserves

Developed
Production from Existing Completions
Behind pipe if only minor expenditure
Compression restaging

Undeveloped
New wells/deepening existing wells
Connections & recompilations
Additional compression

Ch. 3 - 69
 Reserve & Resources Definitions

Reserves
hydrocarbon quantities proven in fields which can be
produced economically with current technologies
Resources
Geologically identified hydrocarbons which cant be
economically produced under present conditions
Unidentified but expected hydrocarbons due to geological
reasons in equivalent regions (yet to find)

Hereby we consider for reserves as well as for resources the

recoverable amount

2nd ASPO workshop, Paris, May 26/27

Ch. 3 - 70
The World of Energy
Chapter 3 Petroleum Engineering Primer

3.6. Oil Drilling Equipments

Ch. 3 - 71
 A Drilling Rig !
Here are a few different types of drilling rigs available:
Jackup Rig
Land Rig For drilling in water
depths from 15 ft
to +/- 350 ft.

For drilling on land.

Inland Barge
Drill Ship

Semi-Submersible Rig
For drilling in water depths Drill ships and semi-submersible rigs are for drilling in
from 8 to 30 ft. water depths from 100 to 5000+ ft.

Ch. 3 - 72
 Drilling Rig & Oil Well Components

Christmas
Crown Block Tree Pipeline to
Flow Process
and Storage

Surface
Casing
Cement

Traveling Block Intermediate

Mud Hose Casing
Kelly Hook
Cement
Rotary Table
Productio
Mud Pump Swivel n Casing

Tubing
Draw Works Completion
Fluid
Casing

Drill Pipe Packer Cement

Bit Oil or Gas Zone

Well
Fluids Perforations

Drilling Rig
Completed Well
Ch. 3 - 73
Oil Drilling Equipment

Power System
Mechanical
System
Casing
Rotating
Equipment
Circulating
System

Ch. 3 - 74
 Circulating System
Pump
Pipes and Hoses
Mud-Return Line
Shale Shaker
Shale Slide
Reserve Pit
Mud Pits
Mud-Mixing Hopper

Ch. 3 - 75
An Oil Drilling Bit

Ch. 3 - 76
Drill Bits Type
Drag Bits
Sand
Clay
Rock Bits (Roller Cone Bits)
Soft Formation Bits
Lime Stone
Shale
Medium Formation Bits
Calcites
Dolomites
Hard Formation Bits
Mudstone
Cherty Lime Stones

Ch. 3 - 77
Drill Bits Material
Steel
Tungsten-Carbide
Polycrystalline Diamond Compact (PDC)

Ch. 3 - 78
Cutaway of Drill Bit

Ch. 3 - 79
Soft Rock Bits

Ch. 3 - 80
Pipe Grappler

Ch. 3 - 81
Drilling Floor

Ch. 3 - 82
Christmas Tree

Ch. 3 - 83
Offshore Drilling & Platform System

Ch. 3 - 84
Offshore Deepwater Drilling Rig Technology

1990 1995 2000 2005

Ch. 3 - 85
Offshore Oil Rig is HUGE

Deep-Water Oil Rig Size

in comparison with

City of Houston for scale

Ch. 3 - 86
Anchor Link for Deep Water Rig BIG

Ch. 3 - 87
Type of Offshore Drilling Rigs

Ch. 3 - 88
Offshore Drilling Platform
Semi Submersible

Ch. 3 - 89
Offshore Drilling Rig - TLP
Tension Leg Platform

Ch. 3 - 90
Offshore Drilling Platform - Spar

Ch. 3 - 91
Jackups Drlling Rig

Deep Driller 1 Wilpower GSF Constellation

(Jack down (Wet Tow)
(Jack up
position) position)

Wilpower
(Launching)

Nengue Sika
(Dry Tow)

Ch. 3 - 92
 What is a Jack-Up Rig ?
Mobile Offshore Self-elevating drilling unit

06 Cantilever
The platform carrying the drill
01 Derrick floor and derrick. Skids in and
Load-bearing towerlike framework out of rig
over an oil/gas well which holds the
hoisting and lowering equipment
07 Legs
02 Drawworks The 3 legs of a jack-up rig
are lattice structures made
Hoisting mechanism on a drilling rig
which spools off or takes in the 07 from vertical, horizontal and
diagonal tubes. They can
drilling line and thus raises or lowers
move up and down using
the drill string and bit.
jacking motors/gears

03 Drill Floor 08 Living Quarters

Foundation on which the derrick and 01 Where the crew lives. Up to
engines sit. Contains space for 120 men onboard
storage and well control equipment.
09 09 Helipad
04 Drillpipe For reception of helicopters
Steel pipe, in approximately 30-foot delivering supplies and
(9-meter) lengths, screwed together change of crew
to form a continuous pipe extending 08
10 Hull
from the drilling rig to the drilling bit
at the bottom of the hole. Rotation of
02 03 06
Main structure of the rig.
the drill pipe and bit causes the bit Triangular rigid and water-
to bore through the rock
04 10
tight

05 Drill String 05 11 11 Spud Can

String of individual joints of pipe that Circular shoes of the legs.
extends from the bit to the kelly and Designed to penetrate deep
carries the mud down to, and into the seabed for good
rotates, the bit. foothold

Ch. 3 - 93
Semi-submersible Rigs

Cajun Express
Cajun Express Cajun Express (on tow)
(Drilling Mode)
(Drilling Mode)

Development Driller I
Sedco 600 and 601
Twin Sedco 600

Ch. 3 - 94
Drillships and Swamp Barge

Drillship

Drillship

Swamp Barge
Swamp Barge

Ch. 3 - 95