Module Objective:

The objective of this module is to examine the geological conditions that make for a
good petroleum prospect, and explain why oil and gas are found in some places and
not others. You will learn the step-by-step process that exploration teams follow to
identify projects, from the initial surface reconnaissance to the drilling of
exploratory wells.

Overview
Oil is found in the minds of men Anonymous
We may define petroleum exploration in several ways:

It is the process of exploring for oil and gas resources in the earths
sedimentary basins. The process relies on the methodical application of
technology by creative geoscientists that leads to viable prospects to
drill and the actual drilling of these prospects with exploratory and appraisal
wells.
It is the commitment of large amounts of risk capital to explore prospects
that have an uncertain outcome.

It is the primary way in which producing companiesreplace their

reserves and grow, and the way in which small companies, through a major
discovery, may become giants overnight.

Most of all, it is a necessary core competency for an upstream oil and gas
company. If you have the right exploration strategy, capable geoscientists,
access to exploration acreage, deep pockets of risk capital and a little luck,
you will be successful. If not, you will have modest resultsor you may even
"bite the dust."

The petroleum exploration process, like the process of buying common stock,
involves a series of decisions made under uncertaintywe do not know
whether oil or gas is present until after an exploratory well has been drilled. To
manage this uncertainty, companies often spread their risk capital over a portfolio
of prospects rather than putting all of their investment into one prospect (putting
all their eggs in one basket). This gives rise to companies sharing prospects among
each other through multiple joint ventures. Sometimes one company is
responsible for generating a prospect but, as the capital costs of drilling and field
commitment loom, it sells partial ownership of the prospect to other companies
who farm in to the joint venture in return for a drilling commitment. In this way a
company may participate in multiple prospects in a given year by holding less than
100% stake in each.
Finally, a petroleum exploration companys strategy reflects not only its vision but
also available capital resources. Exploration success is a classic good news-bad
news situation, as in:

The good news is that we spent $1 million on the exploration well and found a
large
amount of oil; the bad news is that we now need $600 million to develop the field.
A small US or Canadian company will likely explore close in to existing production,
where exploration risk is low and the infrastructure costs of getting production to
market are modest. The majors (the worlds largest up- and downstream oil and
gas companies), on the other hand, with access to large amounts of capital and a
need to discover large reserves, will explore in remote regions worldwide. This will
include, for example, the deepwater blocks offshore Angola, where an exploration
well may cost $25-60 million and the field development might cost $3 billion or
more, balanced against an oil production rate of 200,000 barrels per day for 5-10
years before declining. Thus, a companys risk-reward profile is tempered by
its capital resources. As the company achieves success and increases its cash
flow, it can expand its exploration vision and drill more substantial prospects in a
variety of international sedimentary basins.
In this module, we will first learn about the presence of oil and gas in sedimentary
basins by providing an overview of Petroleum Geology, and then proceed to the
Exploration Process. We will then apply what we have learned to the Pam Basin
Prospect and undertake the first year of exploration with the objective of
generating good oil and gas prospects.

Fundamentals of Petroleum Geology

Petroleum Geology is the area of geology that focuses on the formation,

migration and trapping of oil and gas within the Earths sedimentary basins. We will
begin by discussing how sedimentary basins are created within the earths crust
and then move on to discover how oil and gas forms, migrates and ultimately
accumulates in petroleum reservoirs.

Building of Sedimentary Basins

When the Earth cooled more than 4.6 billion years ago, magma solidified into what
we refer to as igneous rocks, typified by the hard granites that outcrop today
along the rocky coast of New England. Over geologic time the Earths stresses
caused these igneous rocks to slowly form mountain chains and accompanying
depressions and the seas quickly filled these depressions. Over long periods the
mountains grew higher and, because of weathering caused by wind, water and
freezing/thawing cycles, they were eroded into particles of many different sizes,
which in turn were carried downward by water and wind, where they eventually
settled in and filled the depressions. In time the mountains grew higher and the
depressions formed into larger and deeper "basins." The sediments that filled the
basins became compacted by subsequent layers of particles, and cemented into
new forms of rock called sedimentary rocks. This process, which can take millions
of years to complete, is known as diagenesis. These sedimentary rocks are the
source of all oil and gas reservoirs. Metamorphic rocks, such as schist and mica,
are formed from igneous and sedimentary rocks through the forces of heat and
pressure (Figure 1).

Figure 1: Shows the three forms of rock (igneous, sedimentary and metamorphic)
and how they are transformed from one to the other. Igneous rocks were formed
when the earths magma cooled. The others were formed later by forces of heat
and pressure.
Although the earths crust formed billions of years ago, most sedimentary rocks
were formed only in the past 575 million years. Geologists have grouped these 575
million years into Periods and Series, as shown in the left and center columns of the
Geologic Time Scale (Figure 2). Thus, for example, the sedimentary rocks formed
between 465-415 million years ago are of Silurian age, while those between 210215 millions years old are Triassic. (Note: we use radioactive dating methods such
as Carbon dating to estimate the age of a rock sample).

Figure 2: The Geological Time Scale shows the Periods and Series of the earths
geologic history and the major physical changes and the living things that evolved
on its surface during those periods in North America. Notice that the Atlantic Ocean
began to form during the Triassic Period.
The types and locations of newly formed sedimentary rocks are determined by the
major events that occurred on the Earths surface during a given geologic period.
Thus, it is the physical history of the Earths surface that is of interest to
petroleum geologists. They must also study the presence of living things during
these same periods because organic matter was mixed and deposited with
sediments and, as we shall see later, was transformed over time into petroleum. In
the Geological Time Scale for North America, therefore (Figure 2), we consider
Outstanding Events both in the context of Physical History and the Evolution of
Living Things.
As one example of the meaning of this Time Scale, the earths forces caused the
Appalachian Mountains, which exist today as modest mountains along the US East
Coast, from Maine to Georgia (see Figure 3), to begin to grow 510 million years ago

during the Ordovician age and reached a climax 325 million years later during the
Permian age, when they were as high as the modern Alps.

Figure 3: The Appalachian Mountains are located along the east coast of North
America. This mountain chain extends 1500 miles, beginning in Newfoundland,
Canada, and ending close to the border between Alabama and Georgia in the
southern United States. The Appalachian Mountains are divided into a series of
individual mountain ranges. Mount Washington (left) in the White Mountains of New
Hampshire marks the highest point in the northeastern United States, standing at
6,288 ft (1,917 m). The highest point of the Appalachian Mountains is Clingmans
Dome in Tennessee (right), standing at 6,643 feet (2,025 m) above sea level.
As the mountains grew, depressions formed to the west, initially filling with nearby
seas. The depressions grew deeper and became filled with both sediments, created
by mountain erosion, and organic matter that was carried downstream in rivers to
the seas. Over geologic time the extensive Appalachian Basin, shown in Figure
4, was formed and today the basin, in some places, is over 20,000 feet deep. It was
in this basin, near Oil City, Pennsylvania, that Col. Drake, drilling for oil, made the
first oil discovery in 1859, a feat that changed the world. Major reserves of oil, gas
and coal have subsequently been discovered in this basin.

Figure 4: A physiographic outline of the Appalachian Basin, which extends from

New Hampshire in the north to Alabama and Georgia in the southern United States.
Outline was added to a geologic map of the United States. Courtesy US Geological
Survey.
In the late Triassic Period a second major physical event began to take place on the
earths crust that created many new basins for the accumulation of sediments. Prior
to the Triassic Period, the continents were all held together in a single land mass
called Pangea, but during that period (between 210 and 250 million years ago) it
began to separate, forming many new oceans, including the Atlantic (see Figure 2).
The separated continents and the tectonic plates that control their movement are
shown in Figure 5.

Figure 5: The continents, once joined together in a single landmass, began

separating during the Triassic Period, forming new oceans at their boundaries. The
plates and their respective surface landmasses are shown here.
As the continents began to separate and form new oceans, the continental margins
provided new basins for the deposition of sediments and the formation of organicrich sedimentary rocks. And so, in addition to basins in the interior of continents,
such as the Permian Basin in West Texas (Figure 6), we also have the basins
formed along the continental margins, such as the basins under the North Sea, a
part of the Atlantic Ocean (Figure 7).

Figure 6: Cross-section of the Midland Basin in West Texas, which has been a
prolific petroleum-producing region. Note the Pre-Cambrian igneous rocks in the
basement and the sedimentary rocks of the Cambrian through Triassic ages that
filled the basin. The highest mountain peak on the surface is more than 5000 ft
above sea level.

Figure 7: This figure is a geologic cross-section of the North Sea basin between the
UK and Norway. This basin has also been a prolific producer of both oil and gas.
Note that the basin is about 8 km deep and contains sediments from Triassic to
Tertiary in age.
Geologists have identified more than 700 sedimentary basins in the world, as
shown in Figure 8. Many of them have been explored, especially those that can be
accessed on land, but those in the deepwater or harsh offshore environs in
countries like Angola, Brazil, Newfoundland, New Zealand and the Arctic regions
have not been heavily explored, if at all. The deep offshore basins east of New
Zealand and east of Newfoundland have only recently been explored. At a given
time during its formation, each basin contains a number of different environments
where sediments may be deposited. So we now turn our attention to depositional
environments.

Figure 8: This figure shows the major sedimentary basins of the world. Many of
these 700 basins that are easy to access have been explored, but those in more
harsh environments are relatively unexplored.

Sedimentary Environments
As basins were being formed, sedimentary particles were carried down along
streams and rivers, or transported by winds. Initially, as narrow streams flowed
down steep slopes, these particles moved at high velocities. Gradually, as the
streams became wider and the land leveled out, they began to slow down and
ultimately came to rest. The winds, as well, tended to slow down in certain places,
which became zones of sediment accumulation. These different geological
environments as shown in Figure 9.

Figure 9: Major geological environments in which sediments may be deposited

and, by implication, where oil and gas may later accumulate.
Some of these sediments, as shown in Figure 9, are deposited onshore and are
called Continental deposits. Others are formed along the Shoreline and even
others are formed in the deeper Marine environment along the shelf, slope and
deep offshore. The various depositional environments are summarized in Figure 10
below.

Figure 10: summarizes the three geographical settings in which sedimentary rocks
are formed and the classification of their depositional environments.
The location at which clastic sediments drop out of the flow stream, in each
depositional environment mentioned above, depends on gravity forces. As a stream
widens or reaches a larger body of water and slows down, the largest, heaviest
particles fall to the bottom of the flow stream and are deposited first. Smaller,
lighter particles are carried further downstream. Thus, there is a separation and
layering of grain sizes within clastic sedimentary rocks, which gives us a convenient
way of naming them (Figure 11). A rock composed of the largest-size grains is
called a conglomerate; one of medium-grain sizes is a sandstone; one with
smaller grain sizes is a siltstone; and one made up of very fine particles is called a
shale. Fluids can flow easily through conglomerates and sandstones because the
openings between their grains are comparatively large. However, fluids flow more
slowly through siltstones and not at all through shales; because they are made of
tightly packed, very fine particles that are impermeable to fluid flow.
Along with the clastic rock types described above, there are two other main types of
sedimentary
rocks:
Evaporites and biochemical rocks. Evaporites are formed in quiet lagoons in dry
environments, through chemical precipitation. Examples of evaporites are the halite
(a source of commercial salt) and gypsum. Biochemical rocks are formed by the
activity of microorganisms like those present on coral reefs. A typical example of
biochemical rock is limestone. When formed, limestones are non-porous (solid),
and so are unable to contain fluids. Pore spaces can develop over time, however, as
the presence of water acts to partially dissolve the rock. Thanks to this process of
dissolution, these pore spaces can provide excellent potential reservoirs for oil and
gas.

Clastic sedimentary rocks are classified by particle size:

Rock Name
Average Particle Size (mm)
Conglomerate
Greater than 2 mm
Sandstone
1/16 to 2 mm
Siltstone
1/256 to 1/16 mm
Shale
Less than 1/256 mm
Carbonate rocks are classified according to their
chemical composition:
Rock Name
Mineral Present
Limestone
Calcite, CaCO
Dolomite
Dolomite, Ca Mg (CO)
Table 1: The clastic sedimentary rocks, formed by the deposition of rock
particles, are classified according to their average particle size, as shown here.
These rocks may be found in layers within a depositional environment, or there may
be subtle gradation in particle size from perhaps sandstone to shale, within a given
environment. Carbonate rocks, the second type of sedimentary rock, is formed by
chemical precipitation.
Because of the natural layering of clastic rocks by average grain size, especially in
the near and deep offshore environments, many basins may contain layers of
different types of sedimentary rocks as shown in Figure 11. This type of layering
may take place in continental deposits, along the shoreline, in the ocean shelves
and the deep offshore.

Figure 11: The cross-section of the Uinta Basin in Utah shows the sequence in
which the various sedimentary rocks were deposited.

Figure 12: Shows photographs of four different sedimentary rocks: shale, reef,
limestone and sandstone that were drilled sequentially in one well in the
Appalachian Basin in Upstate New York at a depth of about 4200 ft. Note the dark
organic nature of the shale and the unusual shell-like fragments in the reef.
After sedimentary rocks are formed in basins, regional stresses may cause the rock
layers to fold into anticlines and synclines (Figure 13). Some of the largest oil fields
of the world are in the form of elongated anticlines. The largest of them all, Ghawar
field in Saudi Arabia, is contained within a structure that is 174 miles long and 31
miles wide. Within the structure there are six different producing areas. The largest
oil field in the world, Ghawar began producing in 1951 and was still reported to be
producing five million barrels per day in 2007. Figure 14(a) is a map of the field
and Figure 14(b) is a cross-section of the basin.

Figure 13: Shows the three types of structures that may be formed from the postdepositional folding caused by the earths stresses.

Figure 14(a): is a map of the super-giant Ghawar Field in Saudi Arabia (Courtesy of
Saudi Aramco).

Figure 14(b): is an east-west cross-section through the basin. The producing oil
reservoir at Ghawar, shown in the center of the basin, is the late Jurassic Arab-D
limestone (in light blue), which is about 280 feet thick and occurs 6,000-7,000 feet
beneath the surface. (Courtesy of Saudi Aramco).
If the stresses within a basin are very high, they may create faults as shown in
Figure 15. Notice in Figure 16 how both folding and faulting occurred in the
overthrust basin of Colorado from the Late Paleozoic period to the present day. This
basin has been an active gas-producing region.

Figure 15: depicts the various types of faults that may occur within the earths
crust. The San Andreas Fault in California is a strike-slip fault that builds up stresses
and then moves to relieve these stresses, causing significant economic damage.
Note the displacement of rock layers across the normal and reverse faults.

Figure 16: This cross-section shows the transformation over geological time, from
Late Paleozoic to the present day, of the faulted and folded overthrust basin of
Colorado, in the United States.

Sedimentary Rock Properties: Porosity and Permeability

Because sedimentary rocks are formed by the compaction of particles in the
presence of water, the rock volume contains pore space around the grains that
can be filled with fluids, initially water but later, perhaps oil or gas. The percent of
the gross rock volume that is fluid-saturated, referred to as Porosity, is typically in
the range of 5-25 percent as shown in Figure 17.

Figure 17: shows how the values of porosity differ for a container filled with (a)
orderly marbles, (b) compacted marbles and (c) a mixture of sand grains. When the
sand grains become cemented to form a sedimentary rock, the porosity is reduced
further. If fluid saturates one-fifth of the volume of a sedimentary rock, we say that
its porosity is 20%.
Permeability is a second important characteristic of a sedimentary rock it is a
measure of the ability of a fluid to flow through the rock under a pressure gradient
(Figure 18). The higher the permeability, the greater the fluid flow capacity of the
rock will be.

Figure 18: shows how the permeability of a sample of sedimentary rock is

measured in the laboratory. The sample is placed in a special sleeve and air is then
forced through the rock. The flow rate for a given pressure drop is measured and
the permeability of the rock calculated. The unit of permeability is the Darcy,
named after French civil engineer Henry Darcy, who made the first permeability test
in 1861, when he was designing sand-filled conduits to deliver water to the
fountains of Dijon. Because the Darcy unit is very large, we normally use the
millidarcy, mD for cemented sedimentary rocks.
You can appreciate that for a hydrocarbon-saturated reservoir rock, we would like to
have a high porosity, which means a greater volume of oil or gas per unit volume,
and a high permeability, which means that the rate of production will be high. Every
sedimentary rock has different values for these two important properties. In Table 2
we show the values of these two important rock properties for several of the
important hydrocarbon reservoirs of the world.
Reservoir Rock Properties of Some Oil and Gas Fields
Field Name

Country

Type

Average
Porosity
(%)

Average
Permeabilit
y
(mD)

Bradford
(PA)

USA

Oil

15

50

Piper

UK

Oil

25

1500

Meren

Nigeria

Oil

30

1500

Ghawar

Saudi Arabia

Oil

19

639

Table 2: This table shows how porosity and permeability differs for four different oil reservoirs.
High values for each of these two major rock properties are the most desirable.

Formation of Crude Oil and Natural Gas

It is now generally agreed that oil and gas come from the decomposed remains of
ancient plants and animals (the Organic Theory). Through a sequence of geologic
events that occurred over millions of years, organic material was deposited in
basins, generally in the quiet waters where the smallest particles, that later
became shales, were also deposited. Together they were gradually buried to
greater depths under layers of sediments and became what geologists refer to as
source rocks (see the black shale in Figure 12). As they subsided deeper and
deeper in the basin, both the temperature and pressure increased and, over
time and through a series of intermediate chemical reactions, some of the organic
material eventually transformed into petroleum.
This transformation is illustrated in Figure 19. As the organic-rich source rock is
buried deeper into a basin (see depth in center of figure in km), the temperature
increases, at a greater rate in some basins than others, and the transformation of
the organic matter to petroleum takes place.

In relatively shallow source rocks, where temperatures range from about 60

to 80C [140 176F], the organic matter is converted into heavy oil;
At deeper depths and higher temperatures, from about 80C to 175C [176F
to 347F], the heavier, long-chain organic molecules begin to break up into
shorter molecules and form medium and light oil; and
Where temperatures exceed 175C [347F], the molecules become even
shorter and lighter, with more and more matter transformed to rich gas
until, by the time the temperature reaches 600F [315C], all of it has been
transformed to dry gas (methane).

Figure 19: Shows how organic matter in source rocks is transformed into
petroleum at deeper depths of burial as the temperature increases. The petroleum
is transformed from heavy oil to dry gas if the temperature increases to as high as
600oF (315C). The maximum temperature that the source rock reaches
determines the state of the transformed petroleum.
This process is unique for each source rock and therefore the composition of
petroleum found in one reservoir will be different, in some way, from those found in
all other reservoirs. Samples of naturally occurring petroleum fluids are shown in
Figure 20.

Figure 20: Shows the wide diversity that exists among petroleum fluids discovered
worldwide. It is a selection of petroleum samples ranging from heavy, black oil on
the right, to a light condensate on the left. If natural gas were shown here it would
be a clear gas located to the left of the light condensate. (Source: Photo taken by
author at the Phillips Museum in Bartlesville, OK)

Petroleum Migration and Accumulation

The source rocks in which petroleum formed millions of years ago are not the same
rocks in which it is found today. Rather, oil and gas, being lighter than the water
normally contained in rock formations, moved slowly upward by gravitational forces
(like warm air rising above a radiator) from the source beds along migration
paths, through typically more permeable sedimentary rocks like sandstones.
Eventually, it either rose to the surface or accumulated in reservoirs contained
within geologic traps, surrounded by impermeable cap rocks or seals that have kept
it from traveling any farther (Figure 21).
On the bottom left of Figure 21 we note the temperature profile of the basin and
remember that oil is formed from 60-175C and so the source beds within this depth
range are within the oil window and, below this, from 175-315C, we have the gas
window where oil is transformed into gas. Oil is formed, then, in the upper source
rocks and gas is formed in the lower source rocks. They then move upward within
their respective migration paths, permeable sandstones, and become trapped at
the crest of a structural anticline reservoir where they are prevented from moving
further by impermeable cap rocks, often referred to as seals. The seal for the oil
reservoir is a shale and for the gas reservoir, a limestone. The oil and gas
reservoirs are now waiting for someone to discover them!

Figure 21: Cross section showing oil and gas windows, source rocks, migration
paths, reservoirs and seals in a sedimentary basin similar to the North Sea basin.
After oil and gas form in the source rocks, gravity causes them to migrate upward
until they are trapped in a reservoir waiting for discovery.
The task of an exploration team when proposing a petroleum prospect is to explain
how the petroleum was formed in the identified source rock, how it migrated along
the migration path to a porous and permeable reservoir rock and where it has
been contained in an identified trap by an impermeable seal. These geological
features are shown in Figure 21.

Petroleum Reservoirs and Reservoir Traps

The term "reservoir" brings to mind the image of a large pond or lake, so it is
natural to hear the term petroleum reservoir and picture a huge underground
"pool" of oil. In reality, a petroleum reservoir is a porous, permeable rock formation,
in which oil and gas are contained in the empty spaces between the rock grains.
These pore spaces are interconnected, thereby forming channels or conduits
through which fluids can flow to a well, and up the wellbore to the surface.
A reservoir rock must exhibit favorable porosity and permeability. Porosity
reflects the quantity of hydrocarbons contained in a given volume of rock.
Permeability reflects how quickly the hydrocarbon can flow through the rock.
The reservoir must be configured to trap the migrating petroleum in essence it
must be a permeable rock formation, surrounded and confined by impermeable
formations or other barriers. Most traps fall into one of three categories: structural
traps, which are typically caused by folding, faulting, salt intrusions or other postdepositional activity; stratigraphic traps, which form by subtle changes in rock
type; or combination traps, which contain both structural and stratigraphic
features. These two major types of traps are shown in Figures 22(a) and 22(b).
About 80% of petroleum has been discovered in structural traps because they are
easier to find (Figure 23).

Figure 22 (a) and (b): The two major forms of reservoir traps are structural and stratigraphic.
Structural traps are formed by folding or faulting, while stratigraphic traps are formed by subtle
changes in rock type.

Figure 23: Petroleum is trapped in many different environments but approximately

80% has been found in structural traps.

Reservoir Seals
A seal is an impermeable rock unit that overlies a trap and prevents the
hydrocarbons from further upward migration. As shown in Figure 24, shales,
because they were formed from the cementation of fine, compacted particles that
are essentially impermeable comprise about 65% of reservoir seals. The other
impermeable class of seals is evaporites (e.g. salt layers), which comprise about
33% and carbonates (limestone; dolomite), which comprise about 2%.

Figure 24: As we see here shales are the dominant form of reservoir seal.

Summary
We can summarize this section on petroleum geology as follows:

Tectonic or structural movements caused deformations of the Earth's crust:

uplifting to form mountains, and associated subsidence to form basins or
depressions;
The natural erosion of the mountains caused rock particles to form
sediments;

These sediments were transported to and deposited in many different

environments within the basins, where they formed sedimentary rocks,
which are named according to average particle size as conglomerates,
sandstones, siltstones and shales.

Another form of sedimentary rock is formed by the biochemical action of

microorganism in warm waters, to form limestone and dolomites, known as
biochemical rocks. These rocks are initially non-porous, but water dissolution
can make them an excellent oil & gas reservoir.

Under the right subsurface environmental conditions (mainly temperature),

organic matter, which was deposited mainly with the fine-particle shales, was
transformed into oil or gas, which then migrated to reservoirs where the
hydrocarbons were confined in structural or stratigraphic traps by seals and cap
rocks awaiting petroleum exploration
With this background in petroleum geology you are now ready to continue to
petroleum exploration where you will learn the processes that geoscientists
follow in their search for new oil and gas reserves.

Petroleum Geology & The Exploration Process - Section 1

Note: You have 3 attempts.
assessment.
1 A strike-slip fault is characterized by movement of the fault blocks in a _____________
plane.
(a) Horizontal/Lateral
(b) Vertical
(c) Combination of horizontal and vertical
2 Which of these statements is FALSE?
(a) A rock formation in which oil and gas are found today is usually the same
formation in which it was formed millions of years ago.
(b) The temperature of rocks that lie within the gas window is higher than that of
rocks that lie within the oil window.
(c) Structural traps are typically caused by folding, faulting, salt intrusions or other
post-depositional activity
(d) Most petroleum is discovered in structural traps.
3 What type of rock was the first to form on the surface of the Earth?
(a) Sedimentary
(b) Metamorphic
(c) Igneous

(d) Clastic
4 Which of these rock properties is a measure of the ability of a fluid to flow through the
rock under pressure?
(a) Porosity
(b) Permeability
(c) Fluid saturation
5 What type of petroleum is most likely to form in shallow source rocks?
(a) Dry gas
(b) Wet gas
(c) Light oil
(d) Heavy oil
6 What type of sedimentary rock is formed by chemical precipitation?
(a) Sandstone
(b) Shale
(c) Limestone
(d) All of the above
(e) Sandstone and shale only
7 Geologists have identified more than 700 sedimentary basins in the world.
Approximately what fraction of these have been explored?:
(a) Only a few have been explored.
(b) One-third have been explored.
(c) Half of them have been explored.
(d) More than two-thirds have been explored.

1 A strike-slip fault is characterized by movement of the fault blocks in a _____________ plane.

(a) Horizontal/Lateral
2 Which of these statements is FALSE?
(a) A rock formation in which oil and gas are found today is usually the same formation in
which it was formed millions of years ago.

3 What type of rock was the first to form on the surface of the Earth?
(c) Igneous
4 Which of these rock properties is a measure of the ability of a fluid to flow through the rock
under pressure?
(b) Permeability
5 What type of petroleum is most likely to form in shallow source rocks?
(d) Heavy oil
6 What type of sedimentary rock is formed by chemical precipitation?
(b) Shale
7 Geologists have identified more than 700 sedimentary basins in the world. Approximately what
fraction of these have been explored?:
(d) More than two-thirds have been explored.

1 Which one of these sedimentary rock types is characterized by having the SMALLEST
grain sizes?
(a) Conglomerate
(b) Sandstone
(c) Siltstone
(d) Shale
2 Which of these rock properties is a measure of the ability of a fluid to flow through the
rock under pressure?
(a) Porosity
(b) Permeability
(c) Fluid saturation
3 Geologists have identified more than 700 sedimentary basins in the world.
Approximately what fraction of these have been explored?:
(a) Only a few have been explored.
(b) One-third have been explored.
(c) Half of them have been explored.

(d) More than two-thirds have been explored.

4 What type of rock formation presents the MOST favorable conditions for a petroleum
reservoir?
(a) Low porosity, low permeability
(b) Low porosity, high permeability
(c) High porosity, low permeability
(d) High porosity, high permeability
5 What type of petroleum is most likely to form in shallow source rocks?
(a) Dry gas
(b) Wet gas
(c) Light oil
(d) Heavy oil
6 Which of these statements is FALSE?
(a) A rock formation in which oil and gas are found today is usually the same
formation in which it was formed millions of years ago.
(b) The temperature of rocks that lie within the gas window is higher than that of rocks
that lie within the oil window.
(c) Structural traps are typically caused by folding, faulting, salt intrusions or other
post-depositional activity
(d) Most petroleum is discovered in structural traps.
7 Reservoir rocks are located _________ their source rocks.
(a) above
(b) below
(c) at the same level as

1 Which one of these sedimentary rock types is characterized by having the SMALLEST
grain sizes?
(d) Shale
2 Which of these rock properties is a measure of the ability of a fluid to flow through the

rock under pressure?

(b) Permeability
3 Geologists have identified more than 700 sedimentary basins in the world.
Approximately what fraction of these have been explored?:
(d) More than two-thirds have been explored.
4 What type of rock formation presents the MOST favorable conditions for a petroleum
reservoir?
(d) High porosity, high permeability
5 What type of petroleum is most likely to form in shallow source rocks?
(d) Heavy oil
6 Which of these statements is FALSE?
(a) A rock formation in which oil and gas are found today is usually the same
formation in which it was formed millions of years ago.
7 Reservoir rocks are located _________ their source rocks.
(a) above

The Exploration Process

Now that we understand the basics of petroleum geology let us turn to the
processes that exploration teams follow to develop viable prospects ones that
can be recommended for the drilling of exploration wells.
The Exploration Team
Petroleum Geologist: a specialist in the application of geology to the search for oil
and gas in sedimentary basins. A petroleum geologist may be a specialist in a given
type of play (e.g. deltas, reefs) and focus on exploration or the development of
reservoirs after discovery.
Exploration Geophysicist: a specialist who applies the laws of physics to the
search for oil and gas in sedimentary basins. Their most significant processes
include the measurement of the earths gravity and magnetic forces and the

interpretation of reflection of acoustic sources (seismic) transmitted into the

sedimentary basin.
Geochemist: a specialist who applies the laws of chemistry to the study of oil and
gas in sedimentary basins, especially with respect to the formation and migration of
petroleum.
Drilling Engineer: an engineer who can plan and oversee the drilling of
exploration and appraisal wells.
Reservoir Engineer: a specialist in the technology and use of reservoir simulation
models to estimate resources and reserves and to plan the optimal subsurface
development plan for a reservoir, including well locations and production profiles.
Financial Specialist: an individual who gathers data and uses financial models to
prepare financial projections for petroleum prospects, including the petroleum
industrys standard project financial indices.
We know that oil and gas prospects are found in sedimentary basins and so we will
demonstrate the process within a basin that has not been extensively explored a
frontier basin. We shall call it the Pam Basin. It is a hypothetical offshore rift
basin, formed by crustal separation, located in Northwest Europe. The basin is
represented in both plan view (from above) and in cross-sections (vertical eastwest and north-south slices through the basin) in Figure 25. We see that very little
is known about the internal anatomy of the basin.

Figure 25: This graphic shows the hypothetical Pam Basin, located offshore northwest Europe. It shows
the basin in Plan View (looking down) and then two cross-sectional slices: one going E-W (i.e. A - A)

and the other N-S (i.e. B B). Note that very little is currently known about the basin, except the location
of the sea floor, as we begin our search.

Petroleum exploration is essentially a search process that can be represented by a

funnel (Figure 26). It starts with broad surveying techniques designed to gather
information, at low cost, over the full extent of an entire basin. This may generate
some leads and then, as the exploration team gathers and analyzes more
information at progressively greater cost, the search area narrows to one or more
prospects where the interpretation of subsurface data convinces them that an
exploration well is economically compelling should be drilled.
Public domain information, at little or no cost, is often very useful in the search
process. Most government agencies have collected seismic, drilling, logging and
production records from operators and make it available in their archives or through
third parties.

Figure 26: The funnel process conceptually illustrates the petroleum exploration search approach. As
you move down the funnel you spend more money as you generate more data for analysis, and narrow the

search area to one or more prospects that require exploration wells to demonstrate the presence of
hydrocarbons. In the process, as you gain more certainty, you move from what geoscientists call a play to
a lead to a prospect. Of course, you may stop the search process at any point along the funnel if viable
prospects are not identified.

Broad Surveying Techniques

In many cases we begin our search by looking for data that has already been
collected and published. Failing that, we turn to basin-wide search techniques,
which include the application of surface mapping and remote sensing techniques.

Surface mapping involves sampling and mapping of surface outcrops that the
geologists use to infer the location and structure of the formations below the
surface. Also, in keeping with the earliest methods for finding petroleum, they
attempt to find direct presence of hydrocarbons, such as surface seeps of oil
or asphalt, or the presence of gas in water wells. Geochemical studies of
organic matter in surface samples can also be used to link its presence to
potential source rocks and migration paths.
Remote sensing involves the acquisition, processing and interpretation of
images from aircraft and satellites. Aerial photography has played major roles
in the discovery of oil and mineral deposits around the world, and is still the
most widely used remote sensing method. This method is relatively cheap in
comparison with seismic and allows access to inaccessible areas. The
ongoing development and deployment of satellites has expanded areas of
application for remote sensing and provided an orbital vantage point for
acquiring Earth images (Figure 27). Neither of these techniques can be
applied to the Pam Basin because it is offshore and the surface is covered by
water!

Figure 27: Remote sensing via satellite of rocks outcropping in Saudi Arabia suggests that a structural
trap has been uplifted and eroded at the surface. The exploration team can use these types of images to
project the rock layers into the subsurface to obtain a better understanding of the basin geology.

Gravity and Magnetic Techniques: The exploration team might also undertake a
broad survey of the basin by pulling instruments behind an airplane, in an orderly
grid pattern, to measure variations in the Earths gravitational or magnetic fields in
the area of interest. Such variations or anomalies allow us to identify the subsurface
profile of the igneous basement rock upon which the sedimentary formations
have been deposited. This, in turn, provides some indication of potential structures
within the basin. We have performed just such a survey for the Pam Basin and it
gave us the basement profiles in the N-S and E-W cross-sections shown in Figure
28. You can see how it gives us some indication of the structural profile of the
sedimentary rocks above the basement.

Figure 28: We see here the N-S and E-W cross-sections of the Pam Basin showing the character of the
igneous basement rocks within the basement area that we obtained from gravity and magnetic surveys.
We still do not know the geology of the sedimentary rocks above the basement.

Existing Well Data

Another source of valuable and, perhaps, inexpensive subsurface data within the
basin is available from wells that have been drilled in the area. Well data, when
available, can provide a wealth of local information on formation rock and fluid
properties that are very detailed compared with more broad-based survey methods.
Well logs are one of the most valuable sources of subsurface data, and are
available from virtually every well that has been drilled. Well logging devices are
lowered into the borehole once a well is drilled (Figure 29) and then, as the tool is
withdrawn from the hole, the formation and fluid properties are continuously
recorded as the tool progresses up the hole. The information is recorded in the
service companys truck at the surface and often uploaded and transmitted
immediately to some distant office for evaluation.

Figure 29: Well logs are obtained by passing a special tool up the open-hole section of a recently drilled
wellbore so as to measure rock and fluid properties in the immediate vicinity of the wellbore.
In the well log of Figure 29, we see that the depth from datum (usually feet or
meters below sea level) is noted in the middle of the strip. On the left is the
recording of the natural Gamma radiation (GR) of the rocks. Shales have a
naturally high value and sandstones do not. So this recording allows us to identify
the depth and type of rocks we have drilled. Here we see that impermeable shale
zones are located above and below the hydrocarbon-saturated sandstone reservoir.
On the immediate right of the depth-recording strip are the Density and Neutron
measurements. These two logs give us an indirect measurement of the porosity of
the formation the percentage of the rock volume that contains fluids. The greater
the density of a rock, the lower its porosity will be.
Further to the right are the Resistivity logs. These logs measure the electrical
resistivity of the fluids that saturate the pore volume of the rock. Salt water
conducts electricity very easily while oil and gas do not. So this log allows us to
differentiate oil, gas and water within the pores of the formations being
measured.
In some cases contractors will run a special tool, called a Sidewall Formation
Tester, into the open hole, stop it next to the formation sections of interest and
collect fluid samples that can be brought back to the surface for analysis in the
laboratory.
Well logs, then, are valuable because they allow us to identify the type of
formations penetrated in a wellbore, obtain an estimate of their rock and
saturating fluids and then collect a fluid sample.

We are fortunate that two wells were drilled at an earlier time in the Pam Basin
and we have been able to obtain well logs for each of them at a modest cost! The
first well, Well 1, was drilled on the western side of the basin along the A A crosssection, as shown in Figure 30. Using information from that log we are now able to
draw in the different formations in the vicinity of the wellbore, as shown in Figure
30. We can now identify two major shales that could make ideal source rocks;
the upper one that is in contact with a sandstone that could be an ideal
migration path for hydrocarbons generated in the shale and a lower shale that is
overlain by a limestone that may be impermeable and, thus, not provide a
migration path. In addition, we have access to a temperature log for the well, which
allows us to identify the depth of the oil and gas windows (i.e. from 85-315C) as
shown in Figure 30. Although the well was a dry hole and did not indicate
hydrocarbon shows, the logs allow us to begin building a picture of the rocks that
exist in this area of the basin.

Figure 30: Here in the A A cross-section we are able to use the information from the well log, run in
Well 1, to show the location and type of sedimentary rocks in this section of the basin. Because a
temperature survey was also run in the well we are also able to show the location of both the oil and gas
windows. Note that there are source rocks (shales) in both the oil and gas window and a sandstone above
the middle shale would make an ideal migration path. The limestone above the lower shale is very likely
impermeable and so is not likely to be a good migration path.
The second well, Well 2, was drilled, logged and cored on the eastern side of the
basin (see Figure 31). With this valuable data we are able to identify the various
sedimentary rock layers that it penetrated and the source rocks and migration
paths. Because a core was taken we now have direct measurements of the
porosity and permeability of each rock type and their acoustic properties, which
will be extremely valuable to us when interpreting seismic surveys and fluid

saturation profiles. Unfortunately the well was dry and so the fluids were mainly
water.

Figure 31: The well log for Well 2 allows us to expand our interpretation of the basin on the eastern side.
The core taken from the well provides us with valuable direct information of rock types to correlate with
log and acoustic measurements. This should be especially helpful in the interpretation of seismic surveys.
Preliminary mapping suggests that oil might accumulate in the structurally high point of the sandstone
that also serves as the migration path.
We are now able to correlate and connect the subsurface rock layers between wells
and make the preliminary interpretation shown in Figure 31. However, because our
data is sparse we do not have a lot of confidence in the outcome; thus we show the
connection in dashed lines with a question mark. Note that this gives us only one
possible structure in which hydrocarbons may accumulate which we refer to as a
lead we will need more definitive information to give us more confidence that
we have a prospect. We will call this an Oil Lead because that is the
hydrocarbon that we expect to migrate and become trapped. We are energized to
continue our search!

Geophysical Surveying and the Seismic Reflection Method

Because the two well logs provide us with a lead to a potential exploration
opportunity we need to take the next step in the exploration search process: a
seismic reflection survey. If seismic data were available in our area of interest
from prior surveys, we would very likely purchase it. In this case, however, it is not
available so the exploration team must commission its own seismic survey.

The basic principle of the seismic reflection process is a simple one: we make a
bang and listen to the echoes! It is analogous to shouting across a canyon,
measuring the time it takes for the echo to come back, and then determining the
distance to the far wall based on the speed of sound in air (i.e. distance = velocity x
time). In petroleum exploration, however, we generate an acoustic signal at the
surface and record how long it takes to be reflected back from a subsurface horizon.
The time for the acoustic wave to travel to the far wall of the Grand Canyon and
back is the two way travel time so we must use the time measurement to
calculate the distance to the far wall. In the subsurface the acoustic wave travels in
different rocks, each of which has a different acoustic velocity.

Figure 32: The reflection seismic process takes place on land and at sea. In both cases the acoustic
signal travels downward, partially reflecting energy at each rock interface, and the reflected signal
travels back to the surface where it is recorded by the geophones, on land, and hydrophones, at sea .
Figure 32 depicts both land-based and offshore seismic surveys, in which an
acoustic source is activated at a shot point. On land this source may be an
explosive charge placed into a shallow shot hole, or it may be a truck-mounted,
mechanical vibrating plate or weight-drop device. The seismic source generates
sonic vibrations, which travel downward and spread out in all directions. Whenever
the vibrations encounter a subsurface interfacefor example, a change material
from one formation to anotherpart of the acoustic energy is reflected back and the
balance continues to travel downward to deeper formations.
The acoustic source in a marine survey consists of air guns located just below the
waters surface, while the receivers or hydrophones are contained in streamers
behind the vessel. The air guns emit a vibration, while the hydrophones pick up the
reflected acoustic signal. These signals are then captured in computers on the
seismic vessel and converted to seismic traces.
For a land-based survey, a receiver, or geophone (Figure 33), records the
vibrations transmitted back from the subsurface. When the reflection arrives at the
geophone, the earth vibrates a magnet and the time of arrival is recorded in the
truck or boat.

Figure 33: The geophone picks up the vibration of the reflected signal within the magnet and coil and
conveys it to the recording instruments.
As the acoustic wave encounters each formation, or interface, it sees the
difference in hardness of the two rocks and reflects a vibration signal to the
recorder whose character depends on the that difference in hardness. This is shown
for a set of geophones in Figure 34. The rest of the energy continues traveling
downward. As it reaches a second, deeper formation, it returns another vibration,
characterized by the difference in hardness of that interface, and so forth.

Figure 34: The nature of the seismic reflection depends on the difference in hardness (acoustic
impedance) of the two rocks across an interface.

Conducting a 2D Seismic Survey

In order to conduct a seismic survey the geophysicist will provide the survey
specifications to the seismic contractor. For a 2D survey this will include the number
and location of the seismic lines to shoot across the survey area (i.e. how many
slices of the earth are needed to obtain a good picture of the subsurface), the
frequency and location of introducing an acoustic signal along the line (i.e. the
location of the shot-points and the spacing of the geophone array or the
spread and the acoustic energy needed to reach the depth to the potential
targets). See Figures 32 and 35.

Figure 35: The seismic line spacing and the shot points are shown here for a 2D seismic survey.
A typical practice in a new exploration area is initially to shoot a reconnaissance
grid (with lines 5, 10 or even 50 km apart) to delineate the subsurface. If there is
an indication of a geologic structure, the reconnaissance grid may be followed by a
semi-detail grid (with lines 1 or 2 km apart) over the areas of specific interest. If
the decision is then made to drill a well, a detail grid with lines a few hundred
meters apart may be shot prior to drilling.
The seismic survey is conducted along each line on land or at sea (an offshore 2D
survey is depicted Figure 36). The acoustic signals reflect off the interfaces of each
different rock formation and are captured as they return to the surface, as shown in
Figure 37. Careful surveys are made on land and geopositioning is done at sea to
identify the location of the shot points and geophones (hydrophones) as the survey
progresses.

Figure 36: 2D seismic survey being conducted among a line at sea.

Figure 37: Acoustic signals for a 2D survey are introduced at shot points along the identified lines and
the reflection time to the top of each formation is recorded at the surface for each shot point.
In an actual survey, multiple sources and receivers are deployed at equal spacing
along a line at the surface. The recorded signals are then computer-processed to
improve the clarity of the reflections, and the results are then displayed in the form
of a seismic section for each survey line (Figure 38). This is typically provided
in both reflection-time and depth, with the conversion to depth made using the best
estimate of the acoustic velocity of each formation through which the wave passes.
A cross-section is a geologists valuable tool for visualizing the subsurface
because it gives him/her a profile of the subsurface formations and their relative
thicknesses; however, it does not provide a spatial view of the subsurface. To
provide this areal view we need the geologists second tool, the contour map
a three-dimensional view of the subsurface on a two-dimensional surface. We start
with a plan view (looking down) of the area of the survey as shown on the right
side of Figure 38. We locate survey Line 1 on the surface and then, for a contour
map showing the depth to the top of the formation of interest (reflector) in our
cross-section, say in intervals of 100 feet below the datum (often sea level), we
simply indicate the location along the line where the depth to the reflector is an
increment of 100 feet, i.e. 1100, -1200 and so forth (note: by convention depth
below datum is negative). We then post these individual values at points along the
line in the plan view as shown in Figure 38(b). Note that different colors reflect
different depths. These points, then, refer to the depth to the top of the reflector at
that point along the line.

Figure 38(a): Here is the cross-sectional interpretation of the depth to the top of the formation of interest,
the major reflector, under Line 1 of the survey shown in Figure 35 and its transformation to the plan view.

Figure 38(b): The location of each 100 ft interval in depth to the top of the reflector is transferred to the
plan view as shown here.
We can now plot the location to the reflector, in increments of 100 feet, of all five
seismic cross-sections in our survey onto the plan view as shown in Figure 39.

Figure 39: Here we see the results of transferring the depth to the first reflector for all five seismic lines
onto the plan view.
Now, as you have probably guessed, we simply join the points of constant depth
(i.e. all the -1100 points, all the -1200 points and so forth). The results are shown in
the structural contour map of the reflector shown in Figure 40 below.

Figure 40: Here we see the contour map showing the depth to the top of the first reflector, the formation
of interest.
We usually call this map a structural contour map because it shows the
structure of the top of the reflecting formation. With a little visualization you can see
how the main structure (on the left) has a peak and then falls off in both the E-W
and N-S directions. We say it has four-way closure and, if it has all the attributes
of a potential oil or gas reservoir, we can now classify it as a prospect, assuming
that it has all five attributes of a prospect (source, migration path, reservoir, trap
and cap rock). Note that we also have the beginnings of a prospect to the right, but
because we cannot demonstrate four-way closure, we would likely classify it as a
lead and attempt to extend our seismic survey further to the east to see if we can
delineate it. It could be even bigger than our identified prospect.
These two major tools of the geologists, the cross-section and the contour map,
are very useful ways to view the subsurface and, in earlier years, were drawn by
hand; however, today we have many software systems that allow them to be
drawn electronically. In fact, today, we can even develop 3D visualizations of
the prospect.
Of course we need to keep in mind that a seismic survey provides us with reflection
time for many different reflectors as we see in Figure 41, for an offshore West
Africa seismic line.

Figure 41: The results of a 2D seismic survey before interpretation are shown here for offshore West
Africa. This cross-section is a compilation of data recorded for many geological reflectors along a 60 km
seismic line.
Once the data are processed and interpreted, using actual or estimated acoustic
velocity of each rock type encountered by the seismic wave, the geoscientists
provide us with a picture of subsurface geologic features (Figure 42). Today this
interpretation is usually done on multiple computer screens with the opportunity to
view the results in special rooms using special glasses (see Figure 43).

Figure 42: The figure shows the interpretation of the seismic section of Figure 41 before converting
reflection time to depth on the vertical scale.

(a) Interpreting seismic data

on multiple computers
Viewing 3D seismic data

(b)

Figure 43: Today the modern exploration team interprets seismic surveys on multiple displays (a) and
uses walk-in earth models to see the subsurface (b) (Courtesy of Anadarko).

Seismic Survey for the Pam Basin

Let us now return to our exploration of the Pam Basin, in this case, to conduct a
seismic survey. We have elected to perform a reconnaissance 2D survey with a grid
spacing of 5 km (about 3 miles) as shown in Figure 44.

Figure 44: Seismic lines are located on a 5 km grid for the Pam Basin 2D reconnaissance marine seismic
survey.
The results of this survey, presented on a contour map on the top of our target
reservoir, are shown in Figure 45. Note that we have four-way closure and so we
have identified an attractive prospect. We have all the elements of a prospect: a
source rock in the shale, the migration path to the reservoir, an attractive
sandstone formation for the reservoir rock and a cap rock and seal above the
reservoir.

Figure 45: The structural contour map of the top of the potential reservoir formation is shown in the
upper graphic and the cross-section obtained from the seismic survey is shown below. Note the location
of the potential oil zone at the top of the structure.

3D and 4D Seismic Surveys

For greater resolution and more flexibility in interpreting subsurface data,
exploration companies turned to 3D seismic surveys beginning in the 1970s. In a 3D
survey, reflection data from the acoustic source is recorded at many receivers
located at points in a grid pattern rather than along a horizontal line, as shown in
Figure 46 for land and Figure 47 for sea. A 3D survey, while generally more
expensive than a 2D survey, results in many more data points and greatly improved
quality of information.

Figure 46: 3D seismic surveys record reflection data at many more data points than a 2D survey and
provide much better resolution of the subsurface.

Figure 47: A 3D survey at sea requires multiple air gun source arrays and streamers, containing
hydrophones that are 3-5 miles long as shown here (Courtesy of PGS).

Today about 75% of seismic surveys commissioned internationally are reported to

be 3D. This number is about 50% in the US because of the maturity of exploration in
most basins. The rapid expansion of 3D surveys occurred because the cost of
offshore surveys during the 1990s dropped from $30,000 to about $5000 per sq.
km. As the oil price increased in recent years the cost has risen to about $10,000
per sq. km.
3D surveys provide much better representation of subsurface structures, better
indicators of the presence of hydrocarbons, and, for enhanced recovery projects,
the ability to distinguish where different fluids, such as oil and water, are located.
Figure 48 shows the comparison between 2D seismic data and 3D seismic data.

Figure 48: 3-D versus 2-D seismic survey. Note the larger number of data points in the 3-D survey and
the more detailed seismic section that result.
An actual comparison of 2D seismic data from 1956 and a more recent 3D seismic
data for a field in Abu Dhabi shows significant differences, including the presence of
fracture systems on the 3D image that were not picked up by the 2D contour map
(Figure 49). Fluid movements in the reservoir are significantly different than those
that were imagined with the 1956 interpretation.

Figure 49: Comparison of 2D survey shot in 1956 with 3D survey taken in the same area in 1995 of the
Zakum oil field in Abu Dhabi.
A 4D seismic survey is the repetition of a 3D survey some time later. The
difference between the initial and a repeat survey performed, say, one year later,
known as a 4D seismic survey, can show whether fluids, for example, water injected
to mobilize and push oil to production wells, are moving in the right direction. If they
are not then fluid injection patterns can be modified to move the fluids in the
required direction and increase recovery.

Economics of the Pam Prospect

At this point we are excited to have what looks like a very compelling prospect;
however, it must also be compelling from an economic perspective. Reviewing and
ranking exploration prospects is the first phase of the five-phase Upstream
Project Management Process that the larger oil and gas companies follow in
managing major upstream capital projects (see References). The other phases are
discussed in Module Four of this series. In Phase One, the Opportunities
Assessment Phase, the exploration team must make the case that the prospect is
viable, that it has the potential to at least meet the target return on investment,
that a commitment to drill an exploration well is prudent and that it competes
favorably with other projects for available capital. Oil companies usually have many
prospects in inventory and each must compete for capital funds.

The first step in the economic analysis requires that estimates be made of the
potential oil-in-place in the Pam Prospect (resources) and those that may be
economically recovered (reserves) and whether, on a preliminary basis, the
drilling of an exploratory well and ultimately the development of the field is justified.

Estimation of Resources
To complete this analysis, the exploration team must estimate the volume of oil
(Figure 50) that might be found in the oil-saturated portion of the Pam reservoir
(resources) using a volumetric estimation process as follows:

Figure 50: Oil resources for the Pam Prospect, shown here as an expanded view of Figure 45, are
estimated volumetrically by multiplying the oil zone area by the average oil zone thickness to give a value
for the gross volume of the oil zone. Multiplying this value by reservoir porosity, the oil saturation and
impact of the oil shrinking as it travels to surface conditions will equal the oil resources in stock tank
barrels. Appropriate conversion factor is then applied to convert ft 3 or m3 to barrels (1 barrel = 5.61 ft3
and 0.158 m3).
Resources (Stock Tank Oil Originally in-Place) = reservoir area (A) x average reservoir thickness (h) x
porosity (fraction) ( ) x oil saturation (fraction) (So) / oil shrinkage factor (Bo)

STOOIP, the acronym used by petroleum engineers for the quantity of oil in-place
in the reservoir, represents oil resources and means Stock Tank Oil Originally inPlace.
Stock Tank Oil is the quantity of oil produced and delivered into the storage tanks
at the surface. Crude oil shrinks as it travels from the high-pressure conditions in
the reservoir to much lower, atmospheric pressure conditions at the surface storage
tanks because gas evolves from the oil as the pressure drops. The amount of
shrinkage depends on the volatility of the oil light oils shrink much more than
heavy oils. If 1.4 barrels of light oil in the reservoir (reservoir barrels) shrink to 1.0
barrel as it travels from the reservoir to the surface storage tanks (stock tank
barrels), the shrinkage factor, often called the Formation Volume Factor is
1.4. For the Pam Prospect the exploration team has estimated a formation volume
factor of 1.25 so 125 bbls of reservoir oil will become 100 bbls of stock tank oil.
Before drilling a well into the reservoir, we have neither reservoir rock nor fluid
samples to estimate values for porosity, oil saturation and shrinkage impact
factors. Under these conditions the exploration team will usually assume a range of
data from comparable reservoirs in the same basin (analog fields). Because the
Pam Prospect is in a frontier basin the exploration team assumes a range of values
from a comparable formation in a nearby basin. They estimate possible low, high
and mid-range of values for each of these values, as shown in Table 3 below, for
the Pam Structure in the event of a discovery. Of course, it is possible to drill a dry
hole! As you would expect their range of uncertainty is quite high - the STOOIP
values range from a low of 550 to a high of 1020 million stock tank barrels
(MMbbls).

Estimation of Reserves
Because of the micro-pore structure of reservoirs, it is not possible to recover all of
the oil from an oil reservoir. If we rely only on the natural energy (primary
depletion) available in the reservoir from fluid expansion we may recover
approximately 20% of the oil-in-place (Resources); however, if we supplement the
energy with water or gas injection (enhanced recovery) we may obtain
recovery factors up to 40%. Using these estimates of recovery the exploration team
estimated the potential Reserves (Reserves = Resources x Recovery Factor)
of the Pam Prospect to range from 100-200 million barrels for primary recovery
and 200-400 million barrels for enhanced recovery, as shown in Table 3. At this
stage of the exploration process the range of uncertainty is quite broad but it will
narrow considerably as we drill exploratory wells and obtain more reservoir data.
Pam Prospect Oil Volumetrics
Low
Mid
Areal Extent
(acres)
22,000
27,000
Average Thickness
(ft)
25
50
Porosity
fraction
0.13
0.15
Oil Saturation
fraction
0.85
0.88
STOOIP
(MMbbl)
550
780
Reserves (Primary - 20%)
(MMbbl)
110
156
Reserves (Waterflood (MMbbl)
220
312
40%)
Table 3: Pam Prospect Oil Volumetrics.

High
36,000
65
0.18
0.89
1,020
204
408

Economic Analysis
The economic analysis of the Pam Prospect requires that the exploration team
estimate the capital and operating costs necessary to complete exploration and
development of this offshore prospect. They must also estimate expected revenues
and prepare cash flow projections for the prospect over its life cycle. These
estimates lead to a set of performance indices that the industry typically uses to
assess Upstream Projects.
In order to complete its analysis, the exploration team prepared a preliminary
development plan for each of the three cases shown in Table 3. As shown in Table
4, these plans include an estimate of the required development wells and expected
daily production rates for each case, assuming the more effective enhanced
recovery process will be applied.
The exploration team has also made preliminary estimates of the costs to complete
the exploration and development of the Pam Prospect and then to produce it over
its life cycle. In Table 4, we see that the capital costs, CAPEX, will range from $1-1.6
billion depending on the size of the field.
In addition to capital costs, the exploration team typically prepares a set of costs,
cost-based indices and economic indicators as shown in this table. They include the
following important measures:

Dry Hole Cost is the cost to drill an exploration well to the target formation and
learn whether hydrocarbons are present. If not, the well is abandoned as a dry hole.
The dry hole cost is estimated to be $36 million.
Finding Costs are the exploration costs spent to date plus the additional costs
required to drill the exploration and appraisal wells; in essence, the costs required
to delineate and test the reservoir in advance of making the development decision.
The Unit Finding Costs are the Finding Cost divided by the reserves expected to
be produced.
Development Costs are the costs of developing the field including drilling the
development wells and constructing the surface facilities and pipelines necessary to
bring the field on-stream. The Unit Development Cost is the Development Costs
divided by the reserves expected to be produced.
Production Costs are the annual fixed and variable costs required to manage and
produce the field during a given year of production. The Unit Production Cost is
the Annual Production Costs divided by the crude produced during that year.
These unit cost indices of performance, measured in $/bbl, are used to benchmark
one companys success with others. In Table 4 we see that the range of the Finding
and Development Unit Costs are from a low of $4.13/bbl to a high of $5.06/bbl,
which are well within the industry average. The total unit costs (Finding,
Development and Production) range of $8.15-10.01/bbl are attractive assuming the
price of oil stays high and the Government take, in the form of royalties and taxes
or profit share, is not changed.
Pam Prospect Economics
Low
Mid
High
Number of Wells
5
7
9
Daily Production Design
(bpd)
55,000
70,000
90,000
Rate
CAPEX
$ MM
1,015
1,305
1,575
Time to First Oil
Years
6
6
6
NPV (@ 12%)
$ MM
134
233
339
IRR
(%)
16.36
18.13
19.51
Finding Cost
($/bbl)
0.45
0.32
0.25
Development Cost
($/bbl)
4.61
4.18
3.88
Production/Op. Cost
($/bbl)
4.95
4.39
4.02
Total Unit Cost
($/bbl)
10.01
8.89
8.15
Table 4: Pam Prospect Economics.
Oil companies usually perform a detailed cash flow analysis of the project over its
full life cycle and develop financial measures of its expected returns on invested
capital. These analyses are usually stochastic in nature and incorporate all of the
major project uncertainties (reservoir, costs, oil price etc). They typically use their
own software for these studies or software produced by third parties (e.g. Aries
offered by Halliburton).

For the Pam Prospect the analysis team completed cash flow analyses for each of
the three cases. A graphic profile of one case is shown in Figure 51.

Figure 51: This figure shows a graphical presentation of a typical cash flow analysis for the Pam
Prospect, specifically the high resource case. The annual cash flow is shown to the left, the cumulative
cash flow to the right. It is assumed that exploration takes three years (E1-3), development planning two
years (D1-2), construction three years (C1-3) and production fifteen years (P1-15). The oil price is
assumed to be $50/bbl.
In Figure 51 we see that the investment should be repaid by the fourth year of
production and that the cash flow, after taxes, should reach about $3 billion on a
total investment of $1.6 billion.
Two of the more important financial measures of performance of a project, in
addition to these two, are the Net Present Value (NPV) of the cash flow and the
Discounted Cash Flow Internal Rate of Return (IRR). We calculate the NPV by
discounting each years cash flow by the companys cost of capital (perhaps 12%)
to reflect their value on the first day of the projects life and then summing the
discounted values to obtain the NPV. If the value is positive the company is
achieving a return that is higher than its cost of capital. In Table 4 we see that the
NPV is positive for all three cases and ranges from $134-339 million.
The IRR is the discount factor that causes the NPV to equal zero. In essence the IRR
is the discount factor that causes the negative cash flows in the early life of the
project, discounted to present value at the IRR, to be equal to the positive cash
flows during the later life of the project, also discounted at the IRR. IRR values in the
range of 16-20%, as shown in Table 4 for the three cases, is well within the range
of deepwater prospects that the industry is developing in such places as Angola and
Nigeria.

The Pam Prospect, from our preliminary analysis, appears to be a very attractive
opportunity and, if capital is available, we are now ready to progress to the next
stage the drilling of the exploratory well. If it is a dry hole we will spend about
$36 million but, if it is successful, we may need to commit as much as $1.6 billion
before production begins. This actual penetration of the target reservoir is the only
direct way to learn whether hydrocarbons are present.

Sharing the Risk Inviting Other Companies to Participate

Because the Pam Prospect is a compelling opportunity but will require a significant
commitment of capital, the exploration company, at this point in the process, may
seek partners to participate in the investment (invite others to farm-in). This is
usually done on a promoted basis, with the new entrant(s) typically paying the
cost of the exploration well in return for its participating interest. The two or more
participating companies will form a Joint Venture, execute a Joint Operating
Agreement and name one of the companies as the Operator.

Summary
We have learned that petroleum exploration is a search process where we
methodically gather data about a basin so that we can refine our focus to the area
that is most prospective. In the process we establish exploration leads and, as
data from well logs and seismic surveys provide more structural information about
the subsurface environment, we begin to establish the five fundamentals required
for a prospect hydrocarbon source, migration path, reservoir, trap and cap rock
until we can say that we truly have a prospect. We then must make an economic
estimate of costs versus the value of reserves that might be produced. If the
economics are attractive we should receive the green light to move to the next step
and spend substantially more money on the exploration well.
After you have completed this module we encourage you to continue with the next
step in the Upstream Value Chain - Drilling and Well Completions.

Petroleum Geology & The Exploration Process - Section 2

Note: You have 3 attempts.
assessment.
1 What is the variable actually measured in a seismic reflection survey?
(a) Depth to the seismic reflector
(b) Two-way travel time
(c) Variations in natural radioactivity
(d) Variations in electrical potential
2 Which of these methods are classified as remote sensing techniques?

(a) Surface mapping

(b) Aerial and satellite photography
(c) Gravity and magnetic surveys
(d) Seismic reflection methods
3 What is the primary benefit of a 3-D seismic survey over a 2-D survey?
(a) Less expensive to run
(b) Simpler to design and implement
(c) Greatly improved quality of information
4 What member of the Exploration Team is involved in identifying well locations as well
as modeling fluid flow in the subsurface?
(a) Petroleum Geologist
(b) Exploration Geophysicist
(c) Geochemist
(d) Drilling Engineer
(e) Reservoir Engineer
5 Which of the following cost items is impacted by royalties and taxes?
(a) Finding costs
(b) Development costs
(c) Operating costs
(d) Production costs
(e) None of the above
6 In what type of seismic survey would you use air guns and hydrophones?
(a) Land-based survey
(b) Marine survey
(c) Transition zone survey
(d) All of the above
7 What property can be estimated from a reservoir fluid sample?
(a) Porosity

(b) Permeability
(c) Formation Volume Factor
(d) Oil Saturation
8 What is the primary objective of an exploratory or wildcat well?
(a) To produce oil and gas
(b) To provide detailed information about subsurface formations
(c) To establish the size and continuity of a reservoir
9 What do the lines on a structure contour map represent?
(a) Points of equal depth to the top of a formation
(b) Points of equal formation thickness
(c) Points of equal seismic reflection time
(d) Distances between subsurface features

1 What is the variable actually measured in a seismic reflection survey?

(b) Two-way travel time
2 Which of these methods are classified as remote sensing techniques?
(b) Aerial and satellite photography
3 What is the primary benefit of a 3-D seismic survey over a 2-D survey?
(c) Greatly improved quality of information
4 What member of the Exploration Team is involved in identifying well locations as well
as modeling fluid flow in the subsurface?
(e) Reservoir Engineer
5 Which of the following cost items is impacted by royalties and taxes?
(e) None of the above
6 In what type of seismic survey would you use air guns and hydrophones?
(b) Marine survey

7 What property can be estimated from a reservoir fluid sample?

(c) Formation Volume Factor
8 What is the primary objective of an exploratory or wildcat well?
(b) To provide detailed information about subsurface formations
9 What do the lines on a structure contour map represent?
(a) Points of equal depth to the top of a formation

1 What is the main variable that is needed in order to conduct an economic analysis of a
prospect?
(a) Distance to markets
(b) Potential oil in-place
(c) Reservoir depth
(d) Number of wells
(e) Oil gravity
2 Well logs are obtained from what fraction of the wells that are drilled?
(a) About one-fourth
(b) About one-half
(c) About two-thirds
(d) Well logs are obtained from virtually every well drilled
3 What do the lines on a structure contour map represent?
(a) Points of equal depth to the top of a formation
(b) Points of equal formation thickness
(c) Points of equal seismic reflection time
(d) Distances between subsurface features
4 Which of these methods are classified as remote sensing techniques?
(a) Surface mapping
(b) Aerial and satellite photography
(c) Gravity and magnetic surveys

(d) Seismic reflection methods

5 Which of the following statements is FALSE about 3D Seismic Surveys?
(a) 3D seismic surveys are generally more expensive than a 2D survey.
(b) 3D seismic surveys result in many more data points and greatly improved quality of
information compared to 2D surveys.
(c) In 3D surveys, reflection data is recorded at many receivers located at points in a
grid pattern.
(d) 3D seismic surveys become more popular beginning in the late 1990s
6 Which of the following cost items is impacted by royalties and taxes?
(a) Finding costs
(b) Development costs
(c) Operating costs
(d) Production costs
(e) None of the above
7 What is the variable actually measured in a seismic reflection survey?
(a) Depth to the seismic reflector
(b) Two-way travel time
(c) Variations in natural radioactivity
(d) Variations in electrical potential
8 Which of these is NOT a typical financial measure of performance of a project?
(a) Net Present Value (NPV)
(b) Internal Rate of Return (IRR)
(c) Discount Rate
(d) Breakeven Point
9 Which of these techniques represents the first step in the "funnel process" of
petroleum exploration?
(a) Studies of surface geochemistry and heat flow
(b) Seismic surveys
(c) Remote sensing

(d) Exploratory drilling

(e) Potential field surveys (gravity/magnetics)

1 What is the main variable that is needed in order to conduct an economic analysis of a
prospect?
(c) Not Answered
2 Well logs are obtained from what fraction of the wells that are drilled?
(d) Well logs are obtained from virtually every well drilled
3 What do the lines on a structure contour map represent?
(a) Points of equal depth to the top of a formation
4 Which of these methods are classified as remote sensing techniques?
(b) Aerial and satellite photography
5 Which of the following statements is FALSE about 3D Seismic Surveys?
(d) 3D seismic surveys become more popular beginning in the late 1990s
6 Which of the following cost items is impacted by royalties and taxes?
(e) None of the above
7 What is the variable actually measured in a seismic reflection survey?
(b) Two-way travel time
8 Which of these is NOT a typical financial measure of performance of a project?
(c) Discount Rate
9 Which of these techniques represents the first step in the "funnel process" of petroleum
exploration?
(c) Remote sensing

References

Papers
The Good, the Bad and the Ugly of the Stage-Gate Project Management Process in the Oil and Gas
Industry, Walkup, G. W. and Ligon, J. R.: SPE 102926, Presented at the 2006 SPE Annual Technical
Conference and Exhibition, Sept 24-27, 2007.
Books
Stoneley, Robert: Introduction to Petroleum Exploration for Non-Geologists, Oxford University Press
(1995)
Hyne, Norman J.: Nontechnical Guide to Petroleum Geology, Exploration, Drilling and Production
(2nd Edition), Pennwell (2001)
Laffler, William L., Pattarozzi, Richard A. and Sterling, Gordon: Deepwater Petroleum Exploration &
Production: A Nontechnical Guide, Pennwell Publishing (2003)
e-Learning
International Petroleum Industry Multimedia System (IPIMS), Geology and Geophysics Technology and
Practices, IHRDC Online e-Learning System, www.ipims.com.