*Reservoir LIFE Extension Program - part 6Measures of Success

Measures of Success


• Stabilization of the rate of oil and gas well abandonments per year, respectively.
  
• Matching or exceeding the all-time historical record of the rate of enhanced oil recovery by the year 2005 (from the record 761,000 barrels per day in 1992).
  
• Arrest of overall decline in oil production by the year 2005.
  
• Production of new gas resources and additional gas from mature reserves.
  
• Increased use of program products by industry, particularly by independent oil and gas producers.
  
• Increased participation of
  oil and gas producers in technology transfer seminars and topical workshops.
  
• Establishment of a well-functioning regional network of PTTC resource centers will full support, and eventually, full funding by industry.

Technology transfer includes: technical assistance to solve a specific problem; training in advanced equipment, techniques, and processes; use of costly or unique facilities; access to patents and software; exchange of personnel; and cooperative research. Regardless of its form, technology transfer is the guiding strategy for the Reservoir Life Extension Program.

The ongoing Reservoir Class Program originally consisted of 32 projects in 14states. Of these 32 projects, nine have been completed, three were stopped before completion, and 20 are ongoing. A new solicitation for the Reservoir Class Revisit is expected to fund 10 to 20 new projects that are smaller, have shorter periods of performance (3 to 5 years), and have higher industry cost-share percentages (up to 90 percent).

*Office of Natural Gas and Petroleum Technology (4.1 - 4.20)

*Reservoir LIFE Extension Program - part 5Drivers, Goals, and Strategies

Drivers


• The Nations energy security is at risk, with steadily increasing demand for transportation fuels and steadily declining domestic oil production.
  
• Rates of abandonment of oil and gas wells and offshore platforms are unacceptably high.
  
• Independent oil and gas producers (over 7,000 companies) conduct an increasing share of U.S. production activities. They have limited capital to conduct R&D and do not have the means to assume the perceived risk to try advanced technologies used by major companies.
  
• Recovery of additional large volumes of oil and gas requires improved extraction processes, sophisticated extraction numerical models, and improved reservoir management approaches.
  

Goals


• Make available to industry, by 2010, improved and new technologies helping to stabilize domestic oil recovery at current rates. Improved and new technologies will help to locate and produce gas from new resources and to recover additional gas from poorly drained and untapped reservoir compartments.
  
• Stabilize the abandonment rates of marginal oil and gas wells at current rates.
  
• Maximize oil and gas extraction through focused research and filed testing of reservoir life extension technologies and technology transfer.
  
• Complete Reservoir Class Revisit Program, analyze results, and transfer lessons learned to industry.
  

Strategies


• Conduct research to develop and demonstrate the tools and methodologies of known reservoir life extension processes.
  
• Focus projects on mature oil and gas fields in danger of premature abandonment, and focus on opportunities to increase the recovery of oil and gas from Federal lands.
  
• Revisit the Reservoir Class program to capitalize on the achievements of the successful Class I, II, and III demonstrations.
  
• Develop and demonstrate advanced production technologies to accelerate production from large U.S. gas resources.
  
• Expedite technology transfer to industry by: conducting pilot and field-scale demonstrations of proven laboratory technologies; and by working with industry associations, such as the PTTC, to provide focused technology workshops, information resource centers, and computer based information.
  
• Support ongoing university and partnership research in critical Reservoir Life Extension areas (e.g., extraction technologies and recovery process modeling).
  
• Develop the scientific basis for major technology breakthroughs that are applicable to oil and gas, as well as to other related industries.

*Office of Natural Gas and Petroleum Technology (4.1 - 4.20)

*Reservoir LIFE Extension Program - part 4Potential Benefits

The $115 million reservoir class program enabled 29 projects that are expected to result in 500 million barrels of oil by 2002. The current market value of that oil is $6 billion (at $12/barrel). The 6 Tcf per year of additional gas recovery that is projected with advancements in technologies is worth $9 billion annually (at $1.50 per Mcf).

Individual projects within the Reservoir Life Extension Program are selected for their potential application throughout the domestic oil and gas industry. Research dollars are focused on those oil and reservoirs that have vast resource estimates, or are threatened by premature abandonment. Geologic class was chosen as the mechanism for clustering the oil and gas reservoirs immediately available for technology application. This assumes that reservoirs in the same geologic classes will experience similar technical barriers, and as a result, technology that has been successfully field tested for one reservoir in a geologic class should be suitable for another reservoir in a field of the same geologic class. Industry cost-sharing is almost 60 percent for reservoir class field demonstration and secondary gas recovery projects, which are conducted at actual producing sites.

*Office of Natural Gas and Petroleum Technology (4.1 - 4.20)

*Reservoir LIFE Extension Program - part 3Relation to Other DOE Programs

Today, there is an increasing need to transfer improved recovery technologies more effectively to domestic producers to slow the rate of premature oil and gas well abandonment, extend the life of mature reservoirs, and avoid the permanent loss of significant oil and gas reserves.

A recent study by the National Research Council, Maintaining Oil Production from Marginal Fields: A Review of the Department of Energy’s Reservoir Class Program (1996), found that, by the end of 2004, nearly 175,000 marginal wells and their associated production could be lost through premature abandonment.

Industry Issues


• Research and policies to limit the decline of domestic oil production and to increase gas production
  
• Extending the life of oil and gas reservoirs with discovered, but unrecovered, reserves
  
• Reduced abandonment of oil and gas stripper wells
  
• Cost-effective secondary and tertiary oil and gas recovery technologies
  
• PC-compatible reservoir simulation software access through the Internet
  
• Access to technology and information about reservoir life extension through participation in topical seminars and workshops

In 1997 alone, industry reported that more than 15,000 oil wells and 5,000 gas wells were abandoned. In addition, 100 to 150 offshore platforms are removed each year from the Outer Continental Shelf, and over 25 percent of the remaining platforms are more than 25 years old. A follow-up study by the Interstate Oil and Gas Compact Commission (IOGCC), entitled Produce or Plug: The Dilemma over the Nation’s Idle Oil and Gas Wells, states that idle and orphan wells are of national concern and that efforts must be made to conserve the Nation’s resources, enhance revenues, limit liability, and protect the environment.

Many of these wells, oil and gas fields, and offshore platforms could yield additional oil and gas fields, and offshore platforms could yield additional oil and gas with current recovery technologies if technology transfer were more efficient. Because it is not economically feasible to renew production at an abandoned well, the loss of oil and gas resources due to abandonment is permanent.

ONGPT’s Reservoir Life Extension Program, conducted in partnership with industry, supports research, development, and selective demonstrations of promising technologies. It also encourages their transfer to U.S. producers, who now account for about 40 percent of the oil and 66 percent of the gas production in the United States.

*Office of Natural Gas and Petroleum Technology (4.1 - 4.20)

*Reservoir LIFE Extension Program - part 2Government Role

The problem of continuously declining oil production in the United States (since 1970) is well documented. Ann associated national problem is that of steadily increasing abandonments of oil and gas wells, caused by their insufficient productivity. Not only can abandoned wells create environmentally-sensitive disposal problems (in itself a Federal and a State role), but the abandoned wells preclude reservoir access even if the economics and technology improve sufficiently to warrant their reopening. Proper abandonment requires plugging wells with cement such that they can never be redrilled economically. This, on average, leaves approximately one-half of the residual oil and about one-third of natural gas unrecoverable – a major waste of national assets. This problem requires urgent national attention.

Advanced technologies can extend the life of maturing oil and gas reservoirs and yield significant additional volumes of oil and gas. DOE’s Reservoir Life Extension Program, conducted in partnership with industry, supports research, development, and demonstration of promising technologies, and encourages their transfer to U.S. producers. The independent producers do not conduct their own research, yet they produce about 40 percent of oil and 66 percent of natural gas in the United States. In this case, a little help goes a long way.

Two such programs have been very successful: the Reservoir Class Program and the Secondary Gas Recovery Program. Both are highly cost-shared with industry, and both address the application of advanced technology, advanced reservoir management, and recovery of the discovered but unrecovered oil and gas reserves. This is being accomplished in partnership with the private sector, universities, and the National Laboratories. Direct participation of the industry assures rapid and effective technology transfer through the Natural Gas and Oil Technology Partnership and the Petroleum Technology Transfer Council. In the process, the imminent abandonments of many oil and gas wells are postponed, and valuable resources are recovered.

Problems associated with more efficient or complete gas recovery are somewhat different. In low permeability formations, natural fractures create channels for gas to flow through the rock formation to production wells. However, they often cause gas to drain in irregular, elongated patterns, reducing the overall amount of gas that can be produced. In addition, natural fractures are not often intersected by vertical production wells. Current laws regarding the spacing of production wells often limit the recovery of gas. In Colorado, research by DOE, industry, and others has helped to change the well spacing to increase the amount of gas that can be recovered. Research conducted by the Texas Bureau of Economic Geology, on behalf of DOE and the Gas Research Institute, has also demonstrated that current production practices fail to recover a large portion of the gas-in-place. Even after 50 years of commercial production, substantial infield reserve growth exists in bypassed, incompletely drained, and untapped reservoir compartments, not to mention deeper pool potential in many fields. The DOE natural gas recovery program focuses on a more complete characterization of complex heterogeneous reservoirs to afford a more precise placement of new wells and recompletions in existing wells.

The Reservoir Life Extension Program supports RD&D of promising technologies in areas identified as priorities by the oil and gas industry. Some of this research taps the unique strengths of the National Laboratories. The National Laboratories are able to focus on high-risk technology developments, where long-term payoffs deter private companies from adequately investing on their own.

The National Petroleum Council, in its 1995 report, Research, Development and Demonstration Needs of the Oil and Gas Industry, identified reservoir life extension among its highest priority areas. The report listed well productivity, stimulation techniques, recompletion techniques, and reservoir management as key technology needs.

The 1995 report of the Secretary of Energy Advisory Board, Task Force on Strategic Energy Research and Development, recommended reservoir life extension technologies in secondary and tertiary oil recovery. These technologies included polymer-augmented waterfloods and polymer-gel profile modification; continuous steam injection and in-situ combustion techniques; continuous gas injection, cyclic and water-alternating-gas injection; and micellar surfactant and alkaline surfactant polymer flooding.

*Office of Natural Gas and Petroleum Technology (4.1 - 4.20)

*Reservoir LIFE Extension Program - part 1Oil and Gas RD&D Programs

One hundred forty years after the discovery of Oil and the birth of the U.S. oil and gas industry, petroleum resources remaining in the ground are still double the amount producers have extracted. Recovering these remaining oil and gas resources poses formidable technical and financial challenges.

Many oil fields are in danger of being abandoned, even though they retain one-half to two-thirds of their original oil. The high capital cost of drilling wells and the difficulty of restoring production leases makes it unlikely that abandoned fields will ever be reopened, even if future oil prices increase significantly. Premature abandonment of wells, in effect, permanently cuts off access to valuable oil assets.

By the year 2015, an estimated one-half of the gas produced in the U.S. is projected to come from low permeability and other unconventional reservoirs. In many reservoirs producing natural gas, previously unrecognized gas-producing zones can be brought into production, thereby extending the life of these gas reservoirs.

DOE, in partnership with the U.S. oil and gas industry, supports the development of innovative and cost-effective technologies that can recover oil and gas from hard to produce resources and extend the productive life of domestic reservoirs. By encouraging advances in oil and gas recovery technologies and facilitating their transfer to producers, DOE can help increase production from U.S. oil and gas resources, help to slow the rate of premature abandonment, and reduce our reliance on energy imports.

Current U.S. oil production is 6.3 million barrels of oil per day. Of this, 37 percent is produced by primary recovery. In mature oil fields, the contribution of primary recovery declines each year, while the contribution of secondary and tertiary recovery increases over time.

Lower-cost, advanced technologies and efficient development strategies, if widely applied by the Nation’s oil and gas producers, are estimated to be capable of increasing the yield of tertiary oil recovery by up to one million barrels of oil per day, and the annual yield of natural gas by up to 6 Tcf per year by the year 2015.

Typically, only about one-third of the oil discovered can be produced economically. Production at most petroleum reservoirs includes three distinct elements: primary, secondary, and tertiary recovery. Tertiary oil recovery is also known as improved oil recovery (IOR), or enhanced oil recovery (EOR).

Primary recovery refers to oil production when energy stored in the reservoir is sufficient to drive the oil through reservoir rock into a wellbore. As reservoir pressure declines with oil production rates, additional oil can be recovered using secondary recovery techniques. One such technology, waterflooding, displaces the oil and drives it to the wellbores of the producing wells.

Oil displacement in the reservoir is incomplete, however, even with secondary recovery processes. Tertiary oil recovery technologies – such as thermal, gas-miscible, chemical, or microbial methods – can provide additional production. Such technologies potentially could lead to substantially higher average recovery efficiency, approaching 50 percent of the “original-oil-in-place” in reservoirs that have “discovered but unrecovered” oil.

Although improved oil recovery technologies have significant potential to extend reservoir life, and have been successfully demonstrated in the laboratory and in the field since the early 1960s, their historically high cost has limited their widespread application. In the last decade, however, dramatic improvements in analytical and assessment tools have led to a greater understanding of reservoir geology and the physical and chemical processes governing multi-phase flow in porous media. This understanding has led to the development of new technologies for reservoir life extension.

*Office of Natural Gas and Petroleum Technology (4.1 - 4.20)

Oil Drilling - Pricing Strategies - part 6 Imported Refiner Acquisition Cost

The Imported Refiner Acquisition Cost (IRAC) is a volume-weighted average price of all crude Oils imported into the United States over a specified period. Because the United States imports more types of crude oil than any other country, it may represent the truest “world oil price” among all published crude oil prices. The IRAC is also usually similar to the OPEC Basket price, so it too is typically about $2 per barrel less than the WTI spot price and about $1 per barrel less than the Brent price. However, because the IRAC is not reported by EIA until nearly 2 months after the end of the month in question, i.e., the August IRAC average price would be reported sometime in late October, the IRAC is not a particularly timely measure of a “world oil price”. Although EIA is generally the only organization that uses the IRAC, it is used by EIA as the “world oil price” in all of its forecast publications, including the Short-Term Energy Outlook, released monthly, as well as the Annual Energy Outlook and International Energy Outlook, both of which are released annually and provide an annual forecast looking out approximately 20 years in the future.

1Energy Intelligence Group, The International Crude Oil Market Handbook, 2001-2002 (October 2001), pp. E1, E289 and E315.

Oil Drilling - Pricing Strategies - part 5 OPEC Basket Price

For a discussion of crude Oil pricing in general, and of the OPEC Basket price in particular, see EIA's OPEC Fact Sheet. OPEC collects pricing data on a "basket" of seven crude oils, including: Algeria's Saharan Blend, Indonesia's Minas, Nigeria's Bonny Light, Saudi Arabia's Arab Light, Dubai's Fateh, Venezuela's Tia Juana Light, and Mexico's Isthmus (a non-OPEC crude oil). OPEC uses the price of this basket to monitor world oil market conditions. As mentioned above, because WTI crude oil is a very light, sweet (low sulfur content) crude, it is generally more expensive than the OPEC basket, which is an average of light sweet crude oils such as Algeria's Saharan Blend and heavier sour crude oils (with high sulfur content) such as Dubai's Fateh. Brent is also lighter, sweeter, and more expensive than the OPEC basket, although less so than WTI. Since OPEC has (at least informally) tied its production management activity to the goal of maintaining the OPEC Basket price between $22 and $28 per barrel, market watchers now pay close attention to this oil price indicator.

1Energy Intelligence Group, The International Crude Oil Market Handbook, 2001-2002 (October 2001), pp. E1, E289 and E315.

Oil Drilling - Pricing Strategies - part 4 NYMEX Futures

The NYMEX futures price for crude Oil, which is reported in almost every major newspaper in the United States, represents (on a per-barrel basis) the market-determined value of a futures contract to either buy or sell 1,000 barrels of WTI or some other light, sweet crude oil at a specified time. Relatively few NYMEX crude oil contracts are actually executed for physical delivery. The NYMEX market, however, provides important price information to buyers and sellers of crude oil in the United States (and around the world), making WTI the benchmark for many different crude oils, especially in the Americas. Typically, the NYMEX futures prices tracks within pennies of the WTI spot price described above, although since the NYMEX futures contract for a given month expires 3 days before WTI spot trading for the same month ceases, there may be a few days in which the difference between the NYMEX futures price and the WTI spot price widens noticeably.

1Energy Intelligence Group, The International Crude Oil Market Handbook, 2001-2002 (October 2001), pp. E1, E289 and E315.

Oil Drilling - Pricing Strategies - part 3 Brent Blend

Brent Blend is actually a combination of crude Oil from 15 different oil fields in the Brent and Ninian systems located in the North Sea. Its API gravity is 38.3 degrees (making it a “light” crude oil, but not quite as “light” as WTI), while it contains about 0.37 percent of sulfur (making it a “sweet” crude oil, but again slightly less “sweet” than WTI). Brent blend is ideal for making gasoline and middle distillates, both of which are consumed in large quantities in Northwest Europe, where Brent blend crude oil is typically refined. However, if the arbitrage between Brent and other crude oils, including WTI, is favorable for export, Brent has been known to be refined in the United States (typically the East Coast or the Gulf Coast) or the Mediterranean region. Brent blend, like WTI, production is also on the decline, but it remains the major benchmark for other crude oils in Europe or Africa. For example, prices for other crude oils in these two continents are often priced as a differential to Brent, i.e., Brent minus $0.50. Brent blend is generally priced at about a $1-per-barrel premium to the OPEC Basket price or about a $1-per-barrel discount to WTI, although on a daily basis the pricing relationships can vary greatly.

1Energy Intelligence Group, The International Crude Oil Market Handbook, 2001-2002 (October 2001), pp. E1, E289 and E315.

Oil Drilling - Pricing Strategies - part 2 West Texas Intermediate

West Texas Intermediate (WTI) crude Oil is of very high quality and is excellent for refining a larger portion of gasoline. Its API gravity is 39.6 degrees (making it a “light” crude oil), and it contains only about 0.24 percent of sulfur (making a “sweet” crude oil). This combination of characteristics, combined with its location, makes it an ideal crude oil to be refined in the United States, the largest Gasoline consuming country in the world. Most WTI crude oil gets refined in the Midwest region of the country, with some more refined within the Gulf Coast region. Although the production of WTI crude oil is on the decline, it still is the major benchmark of crude oil in the Americas. WTI is generally priced at about a $2-per-barrel premium to the OPEC Basket price and about $1-per-barrel premium to Brent, although on a daily basis the pricing relationships between these can vary greatly.

1Energy Intelligence Group, The International Crude Oil Market Handbook, 2001-2002 (October 2001), pp. E1, E289 and E315.

Oil Drilling - Pricing Strategies - part 1 Pricing Differences Among Various Types of Crude Oil

According to The International Crude Oil Market Handbook, 2001-2002,1 published by the Energy Intelligence Group, there are about 161 different internationally traded crude oils. They vary in terms of characteristics, quality, and market penetration. Two crude oils which are either traded themselves or whose prices are reflected in other types of crude oil include West Texas Intermediate and Brent. Comparing these two crude oils with EIA's Imported Refiner Acquisition Cost (IRAC), the OPEC Basket, and NYMEX futures is important to understand the differences among the various types of crude oil that are often referred to in the press and by analysts. Generally, differences in the prices of these various crude oils are related to quality differences, but other factors can also influence the price relationships between each other.

1Energy Intelligence Group, The International Crude Oil Market Handbook, 2001-2002 (October 2001), pp. E1, E289 and E315.