Sunday, September 27, 2015

A Resource Revolution

The petroleum industry is experiencing yet another resource revolution, and the lower-price environment is spurring it on
By Peter McKenzie-Brown

Take the case of hydraulic fracturing. It’s been around for nearly 70 years, and began transforming oil and gas production again in the 1980s, when horizontal drilling and new downhole fracture technologies began to develop. This radically changed petroleum operations. It increased bitumen production, of course, but it also enabled the industry to produce hydrocarbons from shale and tight sands. This turned the natural gas business upside down: surpluses developed and prices cratered – from about US$17 per thousand cubic feet in 2005 to $2.73 at this writing.

Companies got bigger through mergers and acquisitions, and the resulting economies of scale helped them deal better with lower prices. They could better finance the multi-million dollar wells and production systems, with their rapid payouts, that came to dominate much of the new world of petroleum production. Indeed, gas production became a sideshow as companies drilled and fracked for higher-priced gas liquids, selling the associated natural gas for whatever they could get. Fracking made old fields productive, uneconomic ones profitable.

Of course, in this industry things constantly change. Changes in global supply have put the boots to oil prices, as Saudi Arabia ramped up output to crush shale oil frackers, whose success had taken American oil output to a 25-year high. The result? Prices are half the level of two years ago.

Waterfloods and gasfloods: Reservoir flooding has also been around for a long time. In different ways, they increase recovery degree by increasing reservoir pressure, but also by making the oil more mobile. “They work best when you have uniform porosity and good porosity,” Allan said, but “Mother Nature, dictates [porosity and permeability], and Mother Nature is never kind enough to us that she makes all of those reservoir characteristics perfect.” Older reservoirs still have a lot of oil in place “and right now, with these new waterfloods, we are getting recovery in the range of 18-30%.”

In response, fracking has taken another turn. “Re-fracking” is the latest innovation in the shale oil revolution, with operators redoing wells drilled only three years ago. Doing so can turn production rates around. It can also limit steep drops in production from fractured wells in tight deposits, but it needs a lot of thought. Only 15-20% of re-fractured wells produce additional yield. When it does work, however, it improves production rates and ultimate recovery and provides an economical alternative to infill drilling.

In re-fracking, the propping agents go to the cracks with the least amount of pressure. By bypassing higher-pressure cracks they boost pressure throughout the well. The outcome? Output climbs. The main challenge presented with re-fracturing shale formations is the sheer number of wells that can exist in a given field. Selecting the well that will yield the most gas is not an easy task.

But that’s just the beginning. According to Dan Allan, executive VP of the Canadian Society of Unconventional Resources (CSUR), today’s resource revolution is a function of sophisticated technologies hurried along by the lower prices of oil and gas.

Sproule engineer Richard Brekke is a big fan of rejigging waterflood and gasflood in this environment. At a recent CSUR workshop, he summed up the situation well.

To decide whether to pursue a project in this environment, he said, the project operator needs to be sure the project is technically reasonable; to conduct suitable feasibility studies; to be sure the proposed process has been successful in the past analogous rock and fluid properties; to be reasonably sure the project will go ahead. Also, of course, the proponent should not expect any regulatory impediments. Those are the cautions.

According to CSUR’s Allan, Brekke’s presentation convincingly illustrates the importance of these developments. “What’s new is that we’re fast-tracking our use of secondary and tertiary recovery schemes,” he said. Developing unconventional resources through horizontal drilling, fracking, waterflood and so on aims at “lower-quality resources – resources with low permeability and porosity.”

“When you have price pressure, the focus of an exploration and production company is to get as much out of an existing field as possible, rather than try to find new stuff,” Allan says; “new oil is higher cost. So they retrench back and try to optimize the stuff they already have. They look at ways to increase existing production from reservoirs where they already have production.”

As the potential of the new underground technologies became clearer, most companies wanted a piece of the action. They acquired lands to establish positions in these resources, and used new technologies to develop them. With oil prices now well below levels at the beginning of last year, producers have begun to apply new strategies. “They are redeveloping reserves they already own and already have on production,” said Allan. “But more importantly, because of price pressures they are developing them at the lowest possible cost.”

Because of the nature of oil’s flow characteristics – how it adheres to rock, its surface tension – in short, its miscibility – most of the industry can only recover a small percentage of the oil in place in unconventional reservoirs. Unlike gas, where recovery efficiencies are in the order of 60 to 80%, oil recovery is in the 8% to 15% range; “we leave a lot of oil behind.”

For that reason, “the cheapest barrel of oil that you can bring on production is the one you already own. You can take an existing pool and increase its recovery efficiency by re-fracking,” which increases the sweep from an oil pool, he said. It lets “you extract the highest value from an asset you already own at the lowest possible cost,” which is what the current resource revolution is all about.

To do this, some operators have taken a new angle. One twist is to convert horizontal wells once used for oil production into water injection wells, and then develop other parts of the pool for waterflooding. Using horizontal production wells is especially more productive if the earlier injection wells were vertical.

Another company is doing the same thing with gas injection, Allan says. “They’re using horizontal wells – previously used for oil production – for gas injection.” This stimulates the well but, he says, in this case it is not a totally unconventional well since the reservoirs porosity and permeability are still “pretty good.” As it has done since the middle of the last century, gas injection repressurizes the reservoir. “One of the main reasons why recovery efficiencies are dropping so fast is that the reservoir is losing pressure, he says. “If you can add pressure back [through gas injection,] you enhance production.”

Allan is now on his game. “By injecting gas you create a flood front in the reservoir,” he says. “Oil globules are in the rock, and natural gas helps coax them out. It directs the oil away from your injection well toward a producing well, sweeping the oil. That’s done just with the nature of fluid you are injecting, whether it’s water or gas.

Another enhanced recovery process, tertiary recovery, involves the use of steam, fire, chemicals, miscible gases, bacteria and other techniques to provide a better sweep mechanism. Although it’s less common, Allan says, some operators are adapting tertiary strategies in the lower-price environment.

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