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SpeakingOilGas PDF
SpeakingOilGas PDF
SPEAKING OIL&GAS
bhpbilliton.com
SPEAKING
OIL&GAS
Written for BHP Billiton Petroleum Pty Ltd
by Rick Wilkinson
SPEAKING
OIL&GAS
Written for BHP Billiton Petroleum Pty Ltd
by Rick Wilkinson
First published by BHP Petroleum Pty Ltd as Speaking of Oil in April 1988
Revised as Speaking of Oil & Gas in June 1995 and November 1997
This edition revised as Speaking Oil & Gas and published by
BHP Billiton Petroleum Pty Ltd in June 2006
BHP Billiton Petroleum Pty Ltd in 1988, 1995, 1997, 2006
ISBN 0-646-45386-6
Printed in Australia
The cover is printed on 250 gsm Impress Silk which is produced in European mills with full ISO 9001,
ISO 14001 and Eco Management and Audit Scheme (EMAS) certification. Primary fibre is sourced from
sustainable forests and all pulp used is either Elemental Chlorine Free (ECF) or Totally Chlorine Free (TCF).
The text pages are printed on 130 gsm Revive Silk, the only Australian made coated paper that uses
35% recycled fibre. Fibre is sourced from ISO 14001 certified plantations and suppliers, and is bleached
using TCF and ECF technology.
Contents
Foreword
iv
Introduction
Chapter 1.
Geology
Chapter 2.
Surveys
18
Chapter 3.
Drilling
43
Chapter 4.
69
Chapter 5.
Permits
91
Chapter 6.
102
Chapter 7.
110
Chapter 8.
129
Economics
148
Chapter 10.
Downstream Processes
155
Appendix 1.
Petroleum Specialists
163
Appendix 2.
Conversion Factors
167
Glossary
170
Chapter 9.
INTRODUCTION
iii
Foreword
BHP Billiton Petroleum Pty Ltd is a subsidiary of natural resources
company BHP Billiton. BHP, as it was then known, began in the petroleum
business during the late 1950s when it gained title to explore a vast area
of what was then frontier territory in Bass Strait, a stretch of ocean off
southeastern Australia between Victoria and Tasmania encompassing three
offshore sedimentary basins. In the second half of the 1960s BHP Billiton
participated in an amazing run of discoveries in one of these basins the
Gippsland Basin which catapulted the company to the forefront of
Australias oil and gas industry.
With Bass Strait as a stepping stone, BHP Billiton has expanded rapidly
over the last 40 years to become Australias biggest and most successful
petroleum company, both at home and overseas, with interests and
activities in a number of countries. In the 2005 financial year, BHP Billiton
produced 119 million barrels of oil equivalent (combined oil and gas) or
about 326,000 barrels of oil equivalent per day. In June 2005 the company
had proved reserves of 1407 million barrels of oil equivalent, and average
reserves replacement for the three years 20022005 stood at 99 per cent.
In order to aid public understanding of the petroleum business,
BHP Billiton commissioned journalist/author Rick Wilkinson1 to compile
a handbook explaining the technical and regulatory aspects of the
search for, and production of, petroleum in Australia. The book was first
published in 1988, then again in 1995 and 1997.
This revised 2006 edition brings the reader up to date with the latest
technical advances and expands its coverage to include the key fiscal and
regulatory petroleum regimes around the world.
1.
iv
Rick Wilkinson is the author of a number of books about the petroleum industry,
including: A Thirst for Burning the story of Australias oil industry; Where God
Never Trod Australias oil explorers across two centuries; Well, Well, Well behind
Australias wildcat names; and Once Upon a Wildcat images from Australias
petroleum story.
Introduction
Petroleum is among the minerals that have been used by man since earliest
times, certainly prior to metals and coal.
Names like Sweat of the Devil and Shining Water were coined by
primitive peoples who made use of the unusual surface occurrences.
INTRODUCTION
The word petroleum is derived from the Greek word petros, meaning
rock, and the Roman word oleum, meaning oil.
Earliest uses included caulking boats, fuelling lamps and preserving
mummies. Written reports on petroleum come from as far back as 4000 BC
and its use is well documented from countries as far apart as Egypt, China
and Mexico.
The modern era can be traced back to Edwin Drakes 1859 discovery well
in Pennsylvania, yet it is only in the last four or five decades that there has
been any real understanding of petroleum geology.
The technology to begin perfecting the search for, and exploitation of, oil
and gas has an even shorter history and there are still numerous questions
to be answered satisfactorily. Nevertheless petroleum has progressed from
humble beginnings to be a cornerstone of civilization and the key element
in an international industry.
There are signs that it will continue to be a major source of the worlds
energy well into the 21st century.
Chapter 1. GEOLOGY
Sedimentary basins
Sedimentary basins are fundamental to petroleum geology because most
of the worlds commercial oil and gas fields have been found within
them. The basins develop over tens of millions of years and gradually fill
with fragmented material which hardens into rock layers within which
petroleum is formed and trapped.
Normally the history of a basin begins with subsidence of the land which
allows an invasion by the sea. Surrounding mountains and hills are slowly
eroded by wind, rain and ice, aided by the internal stresses caused by heat
and cold. Particles of rock are gradually washed down streams and rivers.
These particles will be deposited as the rivers lose energy in a number of
environments such as lakes, the sea or deltas.
A phase that occurs early in the history of the basin is transgression, where
the sea extends over the land. As time goes by, the amount of sediment
brought by rivers increases and begins to overtake the incoming sea.
GEOLOGY
Eon Era
Period
Epoch
Age*
Recent
0.015
Record of Life
Quarternary
CAINOZOIC
Pleistocene 1.8
Pliocene
5.0
Miocene
24.0
Oligocene
37.0
Eocene
53.5
Paleocene
65.0
Man
Angiosperms
Grasses
Eucalypts
Marsupials
Tertiary
Cetaceans
Starfish
Conifers
Foraminifera
MESOZOIC
PHANEROZOIC
Birds
Cretaceous
135
Jurassic
195
Chelonids
Echinoids
Sponges
Dinosaurs
Ferns
Triassic
235
Permian
290
Ostracods
PALAEOZOIC
Cycads
Plesiosaurs
Carboniferous
345
Devonian
410
Bryozoa
Sharks
Brachiopods
Silurian
Ammonoids
Baragwanathia
(land plant)
Nautiloids
Corals
Ordovician
Lepidodendroids
Fish
Stromatoporoids
435
Glossopteris
Equisetales
490
Graptolites
PROTEROZOIC
ARCHAEAN
PRECAMBRIAN
Gastropods
Cambrian
570
Late
1400
Bacteria
Algae
Conodonts
Middle
1800
Early
2300
Trilobites
Jellyfish
>3800
(greatest age
so far measured)
Worms
Archaeocyathids
GEOLOGY
Crude oil
Crudes vary widely in appearance and consistency from field to
field, ranging from thin yellow-brown mobile liquids to black viscous
semi-solids. However they all consist essentially of hydrocarbons which
are combinations of carbon and hydrogen atoms.
Classification is based on composition and is grouped into three main
types paraffins, asphalts and mixes.
Paraffin-based crude is chiefly composed of isomers of paraffin and
when distilled it leaves a residue of wax. Crudes of this type usually
give good yields of high-grade lubricating oils.
Asphalt-based crudes are mainly composed of naphthenes and very
little paraffin. When distilled they leave a solid asphalt residue. Crudes
of this type yield lubricating oils with viscosities that are more sensitive
to temperature than paraffin-based crudes.
141.5
- 131.5
specific gravity
(at 60 F)
Natural gas
Natural gas is a mixture of gaseous hydrocarbons. It is mostly paraffinic
and consists mainly of the simplest hydrocarbon, methane. It may also
contain smaller amounts of ethane, propane, butane and some pentane, as
well as impurities like sulphur dioxide, carbon dioxide and inert gases like
nitrogen and helium.
Natural gas is generally found in conjunction with oil in a reservoir, but it
can also be found on its own.
GEOLOGY
Condensate
Fluids are contained in subsurface reservoirs at very high pressures and
temperatures. This pressure is released and temperature lowered as
the fluids are brought to the surface. Some of the gas content naturally
condenses into a liquid during the journey and the resultant liquid is called
condensate. At normal temperatures and pressures condensate is a light oil
that can be refined into petroleum products and is therefore sold in the
same way as crude oil. Wet gas contains significant amounts of condensate,
dry gas does not.
Petroleum formation
Most petroleum geologists believe that oil and gas originate from organic
matter of both plant and animal remains when it accumulates rapidly
in fine-grained sediments under conditions of quiet deposition and
a deficiency of oxygen.
The best pointer to the source material is the occurrence of porphyrin
pigments and nitrogen in petroleum itself. The only known source for
porphyrin pigments is the red colouring matter of blood (hemin) and
the green colouring of plants (chlorophyll). Nitrogen is the essential
component of amino acids which are basic components of animals
and plants. Thus the conclusion is that plants and animals are the main
source material for petroleum.
GEOLOGY
Petroleum migration
A vast majority of pores and cavities within rocks below the water table are
filled with water. The balance may be filled with other liquids and gases.
Oil migration
The migration of oil and gas from a source rock to a reservoir rock is
related to hydrology, fluid pressures and water movement. The rate of
water movement may be small and measured in mere centimetres per
year, but the effect of the hydrodynamic conditions can be very important
to the movement of petroleum through the rocks. Migration is split into
two types primary and secondary.
The primary phase refers to movement from the petroleum source to
the reservoir. The oil and gas that has been generated and trapped in
pore water is squeezed out during compaction of the rock. In this process
the petroleum tends to enter only the larger pores because there is less
displacement pressure needed than there is to enter smaller pores.
The secondary phase of migration takes place within permeable rocks
and can be either lateral or vertical movement.
10
Once in a reservoir, gas and oil, being less dense than water, tend to move
upwards. The upward movement continues until the hydrocarbons are
restrained by a fine-grained, relatively impermeable layer. They can then
follow the bottom of this layer until they either reach the surface where
they form seeps, or they reach a position from which they cannot move
further and are trapped.
The path of migration may cover tens or hundreds of kilometres and much
recent study has been done to try and relate the size of the hydrocarbon
kitchen, and hence the volume of hydrocarbons likely to be produced, to
traps in the surrounding areas. For instance, if the kitchen is small, it is
probable only the nearest traps will be oil bearing. If the kitchen is large
and deep, gas may have replaced the oil in traps closest to the generation
point and this oil may have been forced into more distant traps. It is also
known that oil is often released from a source rock in periodic pulses like
a slowed down geyser. Time and migration can change the hydrocarbons
such that different types of oil may be found in different traps along the
migration path even though they all came from the same original source
rock.
The characteristics of reservoir rocks and the types of hydrocarbon
entrapments are at the heart of the petroleum exploration and production
industry.
Petroleum reservoirs
Any rock that has sufficient porosity and permeability to contain significant
volumes of hydrocarbons is considered to be a reservoir rock. The porosity
may occur between grains, within grains, or in joints and fractures. Porosity
and permeability may be original or they may be due to alteration during
burial or by later earth movements like faulting and folding. Sandstones
and carbonates (limestone and dolomite) are the most common
reservoir rocks.
The range of porosity in reservoir rocks is between one per cent and
40 per cent, while permeability can vary between less than one millidarcy
and more than 1000 darcies. The textbook commercial oil reservoir will
GEOLOGY
11
Petroleum traps
Traps are generally grouped into three major categories structural,
stratigraphic, and a combination of structural and stratigraphic.
Structural traps
The simplest structural trap is one formed by the folding of rock layers into
a dome or elliptical dome shape and is known as an anticline or an anticlinal
trap. It is virtually a buried hill and contour lines drawn in a plan view
of the structure will be roughly circular or elliptical. Hydrocarbons may
migrate into this structure from all sides, accumulating in the top where
an impervious roof formation, called a cap rock or seal, brings migration
to an end.
12
GEOLOGY
13
Salt layers have the ability to flow plastically at relatively low temperatures
and, at depth, they are often less dense than the immediately overlying
sediments. Because of this gravitational instability, salt tends to rise
vertically, punching its way through the overlying sedimentary column.
The so-called salt dome structure that is produced provides a number
of trapping mechanisms including faults and anticlines at the head
of the structure, against the impervious flanks of the salt column itself
and against the truncated, overturned or faulted layers along the flanks.
Salt dome traps are common in the Gulf of Mexico petroleum province.
Stratigraphic traps
Stratigraphic traps are defined as those in which the reservoir is sealed due
to depositional or alteration processes rather than structural movements of
the earths crust. They are more difficult to find, but when discovered they
have provided some of the largest fields in the world.
14
GEOLOGY
15
16
A further type of stratigraphic trap can occur when sandy river beds, deltas
or beaches become buried as sand lenses. They form traps when they are
surrounded by finer grained impervious sediments. Changes in the type
and appearance of rocks (such as grain size) occur frequently in regressive
and transgressive sediments. For instance, coarse grained sand is deposited
in shallow waters, but the fine sediments are lighter and are carried further
to be deposited in deeper waters. Thus a porous sandstone may gradually
shale out, i.e. change into an impervious shale or siltstone.
Combination traps
Combination traps are those formed by both stratigraphic and structural
means. In these cases the structure, whether it be a fault, anticline or just
regional dip, does not form the trap alone. It must be associated with a
stratigraphic component, such as a facies change or a truncation.
GEOLOGY
17
Chapter 2. SURVEYS
An accumulation of oil and gas is the product of a whole series of chance
events, including the presence of a source rock, burial of the source rock,
a reservoir and a trap in the right geometrical and historical relationships.
Predicting if and where all these critical events have occurred in the
correct succession is no simple matter, and it is certainly not foolproof.
Nevertheless, the petroleum industry has built up a series of survey
techniques to minimise the risks and delineate bona fide targets.
Field geology
The traditional method of finding oil was by mapping the surface geology
and studying the relationships of the various rock units. Efforts were
concentrated on mapping visible structures and potential reservoir rocks
in areas that had some indication of hydrocarbons like surface seeps.
18
Geophysics
The principle behind geophysical surveys is to identify a contrast to the
general background of data taken from a given region. In other words,
the geophysicist is looking for an anomaly in relation to the surroundings.
Usually the geophysical data is presented and analysed as some form
of image.
Non-seismic techniques
Gravity surveys
Gravity surveys aim to detect large-scale subsurface structures by means
of the disturbance they produce in the earths gravitational field at ground
level. The technique involves measuring the force of gravity at points
on the earths surface or alternatively by measuring gravity gradient
data via airborne means. Variations in gravity are caused by changes in
the mass (hence the density) of subsurface rocks in the vicinity of the
measuring point. The gravity survey attempts to detect these variations
in gravitational pull.
SURVEYS
19
MILLIGALS
TRAVERSE DISTANCE
MILLIGALS
Gravity anomalies relate to geological structure. High values caused by dense rocks
near surface
TRAVERSE DISTANCE
Gravity anomalies relate to geological structure. Low values caused by light rocks
near surface
20
SURVEYS
21
About FALCON
FALCON is an airborne gravity gradiometer (AGG) that measures minute changes
in the earths gravity. This technology has enormous benefits and gives BHP Billiton
a unique competitive advantage in the search for mineral and hydrocarbon deposits.
This competitive advantage is backed by BHP Billitons unique value-added processing
and interpretation capabilities.
Three AGG systems have been built to date, and are currently operational in Cessna
Grand Caravans.
*BHP Billiton has 10.5 exclusivity years for mineral exploration and 10 years exclusivity
for hydrocarbons, beginning October 1999. This means Lockheed Martin cannot
build this technology for other parties during this period.
22
Magnetic surveys
Magnetic surveys are similar in data acquisition and presentation to gravity
surveys and the two techniques are often conducted together. The method
depends on the fact that most rocks contain small, but significant amounts
of ferromagnetic minerals like magnetite, ilmenite and pyrrhotite. Rocks
therefore have a weak magnetism which is partly induced by the earths
magnetic field and partly permanent. Thus a magnetic survey measures
local variations in magnetic field.
The most important fact in magnetic exploration for petroleum is that
sedimentary rocks are nearly non-magnetic and have a very small response
compared to basement rocks and intrusions of volcanic and igneous rock.
Thus a magnetic anomaly generally indicates a lack of sediments and the
survey technique is used to rule out areas that are of no interest for the
petroleum explorer. They are particularly useful in outlining the regional
framework of sedimentary basins. Recent advances can also give an indication
of faulting (because magnetic minerals are often concentrated in a fault plane)
and individual structural elements within a basin.
SURVEYS
23
24
Geochemical surveys
Geochemical surveys are often undertaken in conjunction with other
survey techniques. Exploration geochemistry follows a path that begins
with characterising oil or gas samples taken from wells, or seeps.
In the marine environment seeps (small oil slicks on the surface of the
sea) may be detected by airborne or satellite imagery and attempts can
be made to obtain core samples (known as drop cores) by dropping core
barrels into the sea bed at that location. The samples are analysed and
grouped into types of hydrocarbons. Even in seeps where weathering of
the hydrocarbons may have taken place, detailed analyses can identify the
original hydrocarbons.
Once samples have been classified into hydrocarbon families the
geochemist tries to correlate them back to source rocks in the basin.
The data is built up into a computer model which is then tested in the field.
SURVEYS
25
Satellite imagery
The use of satellites in petroleum exploration has mushroomed in recent
years, particularly in connection with geographic positioning, navigation
and communications. But explorers have also found a niche in terms of
satellite imagery where it is now possible to obtain very high resolution
through the light spectrum. This can be used to present very detailed and
26
Radiometric surveys
Gamma ray spectrometer surveys are used to detect radiation emanating
from concentrations of uranium and thorium which may be associated
with hydrocarbons. Detection of subtle radiation patterns and anomalies
may indicate surface hydrocarbons which, in turn, may point to
subsurface accumulations.
The earths crust contains uranium, thorium and potassium randomly laid
down during the formation of the planet. These elements emit gamma
rays in the course of radioactive decay and contribute to the earths
natural radiation background. Of the three elements, uranium is the
most mobile, being water soluble and easily transported by groundwater.
However when the uranium encounters organic matter, such as subsurface
hydrocarbons, the ion becomes insoluble and immobile. Hence higherthan-background readings of gamma rays may indicate the presence of a
hydrocarbon trap.
The anomalies can be identified by airborne radiometric measurements
using a spectrometer.
SURVEYS
27
28
Seismic techniques
The principal method geologists use to explore the subsurface, besides the
direct and expensive process of drilling, is through the use of sound waves.
Sound waves travelling through the earth are called seismic waves, a term
originally used in reference to earthquakes. Just as ultrasound is used to
investigate the shapes of organs within the human body, seismic waves
are used to map out the geologic structures of the earth. While ultrasound
penetrates a few centimetres into the body using very high frequency
(short wavelength) sound waves, seismic surveys use lower frequency,
longer wavelengths to look many kilometres into the earth.
There are two types of seismic survey: refraction and reflection. Refraction
surveys were common early last century for reconnaissance and salt dome
exploration. They are seldom acquired nowadays, except for deep crustal
studies, because seismic reflection surveys provide far greater information
and accuracy for hydrocarbon exploration.
A controlled pulse of sound is sent into the ground and a range of detectors
are used to pick up the reflected waves as they come back to the surface.
In marine environments the main source of sound energy is an airgun
array a group of pistons which let out a pulse of compressed air.
Typically this will be two or three litres in volume at a pressure of 2000
pounds per square inch (psi).
SURVEYS
29
Seismic survey diagram showing typical reflection and refraction wave patterns
30
On land, vibrating trucks send out a controlled sweep of sound between six
and 16 seconds long. This technique, which sends the vibrations through a
large metal plate pressed onto the ground, has largely replaced the older
method of a dynamite charge set off a few metres down a specially drilled
shothole. By spreading the energy over a longer period of time (many
seconds as opposed to a fraction of a second) the same amount of energy
can be used without damage to the local environment. Seismic surveys
have even been conducted on the Champs Elyses in Paris using a fleet of
vibroseis trucks without danger to life, limb or architectural heritage.
When planning a survey, the geophysicist carefully sets the geophone/
hydrophone spacing to provide the required subsurface information.
For instance, the maximum offset (the distance from the energy source to
the furthermost group of phones along the grid line or the streamer) should
be comparable to the depth of the deepest zone of interest. Conversely, the
minimum offset should be comparable to the depth of the shallowest zone
of interest.
SURVEYS
31
Velocity
feet/second
metres/second
1,0002,000
305610
Sea water
4,8005,000
1,4601,530
Sandstone
6,00013,000
1,8303,970
Shale
9,00014,000
2,7504,270
Limestone
7,00020,000
2,1406,100
Salt
14,00017,000
4,2705,190
Granite
15,00019,000
4,5805,800
Metamorphic rocks
10,00023,000
3,0507,020
Data acquisition
2D surveys
When exploring a new area where little is known of the subsurface geology,
a 2D survey is usually performed. This consists of survey lines spaced one,
two, five or more kilometres apart.
Offshore the seismic vessel will sail along with seismic guns deployed
close off the stern (so they are near the on-board air compression source),
letting out pulses every 25 metres or so, with a 12 second gap between
shots. Behind the guns is the recording cable (or cables) whose length is
measured in kilometres. The cable contains groups of pressure sensitive
hydrophones which record the sound waves as they are reflected back
from the geological layers. The recordings are a few seconds long and
sampled every 12 milliseconds (thousandths of a second). Sound waves
travel at about 1.5 kilometres per second through water and increase to
26 kilometres per second when they pass through rock layers.
32
SURVEYS
33
Onshore the recording devices are called geophones and they are placed
at measured distances along a pre-surveyed seismic line from the shot
or vibration point. Geophones (usually grouped together in arrays, with
three or more connected electrically so that the array acts as a single sound
detector) transform the returned seismic energy into electrical voltage
which is then transmitted by cable to recording equipment housed in a
vehicle accompanying the survey team. Typical seismic records will image
10 or more kilometres down into the earth.
Each time the seismic pulse meets a change in rock properties, for example
going from a shale layer to a sand layer, part of the pulse will be reflected
back to the surface. This is called an event. By measuring precisely the
difference in arrival time of a given event from the nearer and further
hydrophone groups, the velocity of the rock material can be measured.
The seismic measurements are made in time, so if the velocity and time are
known, geophysicists can work out the depth of the event.
A seismic line looks like a cross section through the earth. Initially these are
used to map structural traps where hydrocarbons may accumulate at
its simplest at high points of domes known as anticlines, but also places
where faults or erosion cut off a reservoir. Stratigraphic traps, where the
geology changes laterally from one rock type to another, such as a buried
sandy channel, sand bar, or carbonate reef can also be mapped using
seismic data.
3D surveys
In areas where the larger and more obvious traps are mapped, petroleum
explorers are increasingly using 3D surveys to obtain greater definition.
By placing survey lines much closer together, a more detailed three
dimensional picture can be built.
To economically survey a given area offshore, increasing numbers of
recording cables are being towed behind seismic vessels, with between
eight and 16 cables now the norm. A pair of submerged towed wings pull
the trailing array of cables 50100 metres apart from each other, resulting
in a typically rectangular acquisition system that is one kilometre or more
wide and six kilometres long.
34
SURVEYS
35
Seismic processing
Processing centres are found around the world, but tend to be concentrated
in cities close to exploration activity such as Houston, London and Perth,
Western Australia.
36
Sophisticated software and specialised skills are required to turn the raw
recorded data into the final image of the subsurface geology used by the
seismic interpreters to make their drilling decisions.
Amplitude decay sound waves, like ripples in a pond, spread out,
losing energy as they go. The rock layers reflect some of the energy and
absorb preferentially higher frequencies. These factors cause the signal
to decay with depth. The signal can be boosted, but ambient noise is
also boosted.
Diffractions near surface irregularities cause the sound waves
to diffract and scatter, like rain drops on a car windshield scattering
sunlight. Filters must be designed to remove this noise.
Multiples these are a major problem, particularly on marine surveys.
The water surface acts like a mirror, reflecting all the upcoming energy
from the desired rock-layer reflections back down to generate secondary
and tertiary images. In shallower water, trains of multiples are thus
generated. Significant effort is required to predict and accurately
remove these multiples.
SURVEYS
37
38
SURVEYS
39
Seismic interpretation
The final processed data is generated as a number of three dimensional
volumes and turned over to a team of specialists for analysis.
Interpreters map key horizons.
Seismic stratigraphers infer the depositional environment from the
shapes of the geological bodies.
Structural geologists recreate the structural history of the data by
examining the relative positions of faults, unconformities and in
some places the shape of the salt bodies. Salt, being lighter than the
surrounding sediments, flows like an extremely viscous fluid pushing
up through overlying rock layers. This is slower than glaciers, but it does
move over long distances in geologic time. The structural interpretation
recreates the geometry of the geologic layers over time, predicting how
hydrocarbons may have moved.
Basin analysts use the inferred depositional history and what is known
of geothermal gradients to predict where, when and what type of
hydrocarbon may have been generated.
Petrophysicists use well bore measurements to tie the seismic data to
the well logs.
40
SURVEYS
41
Seismic interpretation systems are able to store the large volumes of data
generated by the seismic survey and quickly manipulate them so that the
interpreter can scan through it as horizontal or vertical slices. The systems
can be used to generate semi-translucent 3D volumes so interpreters can
better understand relationships between the features they are examining.
They can change the colour, amplitude and orientation of the data. They can
strip away geologic layers to look at the patterns on a horizon of interest.
And they can stretch the data from time recording to depth, if this has not
been done in the original processing.
Even so, seismic interpretation is subjective, particularly in new areas
where there is little or no well control. A number of interpretations can
be made from the same data depending on the number and experience of
interpreters and the variation in guidelines and exploration philosophies in
vogue at the time. It is at this point that a potential target can be condemned
by one explorer, yet seized upon and made into a discovery by another.
Despite all the technical difficulties and unknowns outlined above,
amazingly detailed images of the subsurface can be made in areas of
good signal penetration. Petroleum geologists today have vastly more
information available to make their interpretations than their peers in
academia or the mining industry. High quality seismic surveys covering
thousands of square kilometres allow unprecedented understanding of the
geological history to depths of 1020 kilometres.
42
Chapter 3. DRILLING
Once interpretive maps have been completed highlighting prospects worth
investigating, the only way to find out if hydrocarbons are present and in
commercial quantities is by drilling. This introduces the most colourful
side of the industry, both in terminology and activity.
Geologists, geophysicists and drilling engineers combine their professions
to produce a well prognosis which is an attempt to predict the stratigraphic
column (including the depths to each formation) that will be penetrated by
the drill bit. In new areas the prognosis is more difficult than it is in drilled
regions where subsurface information is available, but it still serves as a
guide to the formations and conditions that may be encountered down
the hole.
Prior to 1900 most wells were sunk either by hand digging or by cable tool
(percussion) drilling. In the latter method the bit was dropped attached
to a cable, raised by a surface winch and dropped over and over again.
The weight of the bit penetrated the formation gradually, with pauses
DRILLING
43
from time to time to extract the fragmented rock cuttings from the hole.
Percussion drilling in some areas was used until the late 1950s. However
modern drilling is by rotary means whereby the bit is connected to lengths
of pipe and mechanically rotated on the bottom of the hole.
Rig types
Bottom-supported
Submersible
Floating
Jack-up
Semi-submersible
Drillship
Essentially all rotary drilling units have the same components and the only
real differences in rigs themselves stem from the medium in which they
are used.
On land the large rigs can be broken down into a number of loads for
transport to and from drilling locations, while smaller rigs are permanently
mounted on a truck or trailer. When working in dense jungle or other areas
inaccessible by surface transport, a heli-rig is used. It is simply a land rig
capable of being broken down to load sizes that can be airlifted to location
by helicopter usually about 2000 kilograms per load.
Offshore rigs are of four types submersibles, jack-ups, drillships and
semi-submersibles.
44
DRILLING
45
Jack-up rig development drilling at John Brookes gas field, Carnarvon Basin,
offshore Western Australia
Courtesy of Santos
46
THRUSTERS
TELESCOPING JOINT
RISER
BALL JOINT
BLOWOUT PREVENTER
DRILL HOLE
DRILLING
47
Submersibles are fitted with ballast tanks so they can be floated to shallow
water locations, then ballasted to sit on the sea bed or lake bed to provide
a stable drilling base.
Jack-ups arrive on location (usually towed by tugs) and mechanically jack
their legs down to the sea bed, raising their hulls clear of the water for
drilling mode. They are usually used in water depths up to 150 metres,
although some of the larger units can drill in up to 300 metres.
Drillships are ship-shaped vessels usually with the drilling derrick placed
amidships to drill through a central hole (moonpool) in the hull. Some early
vessels were also equipped to drill over the side with the derrick mounted
on rails so it could be skidded across the deck. The vessels have their own
propulsion, although a variation the drilling barge does not have its
own locomotion and has to be towed.
Drillships are either anchored or kept in position by a dynamic positioning
system which employs computer-controlled propellers along the hull to
continually correct drift in any direction. These vessels are used in medium to
deep waters, but suffer the usual ship instability in rough weather.
Semi-submersibles are mobile vessels with superstructures supported by
columns sitting on hulls or pontoons ballasted below the depth of wave
action for drilling mode. For transport mode the hulls are deballasted to
the surface. Anchoring can be conventional or via dynamic positioning.
Some semi-submersibles have their own locomotion, but many are towed
or placed on a barge (especially for long distance moves). These vessels
are remarkably stable in rough weather and can be used in medium to
deep waters.
Rig systems
No matter what the transport or carrying mode, a rotary drilling rig has
five main systems hoisting system, rotary system, circulation system,
power system and blowout prevention/safety system.
48
Drilling system
DRILLING
49
The rotary system has three main components. First is the rotary swivel
for suspension of the drill string to the travelling block. Second is the
rotary table located in the rig floor and turned mechanically. Its speed and
direction is controlled by the driller. The third item is the kelly, a hexagonal
or square hollow pipe about 15 metres long which is attached to the rotary
swivel at the top and to the drill pipe at the bottom by tapered screw
threads. A piece called the kelly bushing fits into the rotary table so the
rotary motion can be transferred from the table to the drill pipe via the
kelly. The kelly bushing runs freely up and down the kelly, but cannot
rotate independently of the kelly.
Another method of rotating the drill string is a top drive system. This
involves hanging a motor from the hook and connecting it directly onto the
drill pipe from above. It imparts the rotation without the need for a kelly
or rotary table. The method promotes faster drilling and is particularly
advantageous during directional drilling programs.
50
DRILLING
51
The power system to operate the rig is either a diesel motor via a direct drive
compound system, or (particularly offshore) a direct current electric drive.
The blowout prevention system consists of a series of hydraulicallyoperated valves and pipe rams which are open to allow the mud to
circulate during drilling, but which can be quickly closed around the
pipe if excessive pressure (a kick) enters the well and threatens to circulate
during drilling. If a kick occurs (i.e. excessive pressure from the formation
being drilled suddenly entering the well), the pipe rams are closed to
prevent this overpressure reaching the surface out of control. The last line
of defence in such an emergency are the shear rams which, if necessary, cut
right through the drill string and seal the well completely.
Well types
Petroleum industry wells are of three types wildcat, appraisal and
development.
A wildcat is the first exploration well in a new or previously undrilled
target. The term seems to have originated from 19th century drilling in the
backwoods of the USA where drillers reported wildcats (pumas perhaps)
lurking in the vicinity. If the well is the first in a completely new region
where there are no close reference points, it can be called a rank wildcat.
Appraisal (sometimes called delineation) wells are drilled as follow-up
exploration wells on structures where wildcats have been successful. They
are often located to try to provide a rough outline of the field and evaluate
its various parameters.
Development (or production) wells are drilled once the discovery has been
appraised and judged economically viable. They are drilled specifically to
tap the hydrocarbons at definite places in the reservoir.
On some occasions during a drilling program only a small diameter hole
is required as an initial exploration tool because it is cheaper, or because
conditions deem it more practical. This is referred to as slim hole drilling.
52
DRILLING
53
54
DRILLING
55
Bit types
Drill bits can be divided into several classifications.
The rolling cutter bit (or tri-cone bit) for rotary drilling was first successfully
designed by Howard Hughes in 1909. It has hardened steel or tungsten
carbide teeth of varying lengths and spacings, mounted on three roller
cones. The cones are designed to attain maximum cutting rate without
causing the teeth to clog.
For soft formations the teeth are long and widely spaced and the cones are
offset such that their axes do not intersect at a common point. This offset
produces a gouging action on the formation as the bit is rotated.
For progressively harder formations the teeth are shorter and more closely
spaced, while the cone offset is made less and less until, for very hard
rock, there is no offset at all. These bits rely on destroying the compressive
strength of the rock being drilled.
The diamond bit, adapted from the mining industry, imparts a grinding
action as the drill is rotated. The bit itself consists of industrial diamonds
embedded in a metal matrix. It is long-lasting in all but the hardest
formations, thus reducing the number of bit changes while drilling.
Diamonds are also used in core head bits which have a hole forged through
their centres allowing a core of rock to pass through into a core barrel
mounted directly on the drill pipe behind it.
The polycrystalline diamond compact (PDC) bits have come into use in
the last 15 years or so and have dramatically increased penetration rates.
PDCs are very durable man-made diamond cutters set into a body to
produce a very aggressive cutting action.
As mentioned in the previous section, a relatively recent evolution is the
use of downhole motors (and also turbines) attached to the drill string
to turn the bit. The power to rotate is supplied by the circulatory drilling
mud and it requires a greater pumping effort from the surface than in
conventional rotary drilling. The drill pipe itself is also rotated slowly
56
DRILLING
57
and independently from the bit to prevent sticking. Generally mud motors
rotate at 150250 rpm, while turbines can rotate at 2000 rpm and are used
when penetrating hard rock.
Hole sizes
The diameter of the drill bits used, and thus the hole itself, becomes
successively smaller as the well is deepened. There are no hard and fast rules
relating hole depth to bit sizes because much depends on the stability of the
formations being drilled and the target depth of the well.
Nevertheless, it is usual to run through a series of sizes beginning with
the spud in or surface bit of 36 inches in diameter for offshore wells and 26
inches diameter for land wells. Drilling then progresses through diameters
of 26 inches, 17 inches, 12 inches, 8 inches, down to 6 inches.
In most wells the hole is cased (lined) with steel pipe to prevent caveins and to retain circulation of drilling fluid. The casing is inserted prior
to every bit diameter change and the casing sizes correspond to the bit
sizes just mentioned: 40 inches or 30 inches for surface (conductor) casing,
20 inches, 13 3/8 inches, 9 5/8 inches down to 7 inches, the latter sometimes
called a liner or production tubing if the well is a development well.
In slim hole drilling, diameters usually begin at 10 or 8 inches and end at
between 5 and 3 7/8 inches. Early slim hole work was limited to probing
relatively shallow targets, but advancing technology and the use of special
high-strength drill string able to withstand the high torque forces involved
in rotary drilling now enables the bit to reach depth of 3000 metres
and more.
Casing
Casing is made up of lengths of steel pipe screwed together, much like
drill pipe, which lines the well and acts as a pressure vessel establishing
barriers between different producing formations and the surroundings.
The surface, or conductor, casing is anchored to the wellhead and each
successively smaller casing size is hung from the preceding one as the
58
hole is deepened. Usually casing is cemented into place against the well
sides by pumping cement under pressure down the centre of the pipe and
back up the outside. When set, the cement casing shoe left at the bottom of
the well is drilled out, and drilling into new, deeper formation continues.
A specialised form of casing can be manufactured with a diameter profile
in the form of two D shapes. This is then pushed down over a wedge
placed in the bottom of the hole to drive the two D sections apart making
an inverted Y shape. This is used for drilling two lateral (directional) wells
from the same location.
Drilling fluid
Drilling fluid is often referred to as drilling mud a term relating to
earlier times when water used to help drill the well became mixed with
drill cuttings from downhole to produce a muddy liquid. At first the fluid
was discarded, but then explorers found the drilling was easier when
using this natural mud. The discovery sparked experiments into variations
of drilling fluid. Today muds can be divided into several categories.
Water-based muds (fresh water and salt water) can be simple clay-water
mixes, clay-water plus chemical additives, or numerous other combinations.
The most commonly used clays are bentonite or montmorillonite, both of
which are sodium aluminium silicates that expand to about 10 times their
original volume when mixed with water.
For some operations (such as high inclination wells where there can be
torque problems on the drill string as well as a danger of hole collapse)
and in some geological formations (such as water-reactive shales), waterin-clay is not appropriate because it can destroy permeability and prevent
accurate evaluation of a reservoir formation.
Sometimes specialised chemical mud, such as potassium chloride and
polymer solutions, is used to counter these difficulties.
Another category is oil-based mud. This can be an oil-in-water or water-in-oil
emulsion. The oil used today is diesel, synthetic or pseudo (ester).
DRILLING
59
60
Logging
The purpose of logging a well is to compile a comprehensive record while
it is being drilled and immediately after it has reached its total depth.
In this sense cuttings and core samples can be included in the category as
well as the various electronic devices used to identify the formations and
their properties encountered downhole. Three types of information are
obtained through logging methods: rock type and porosity, fluid content
of the pores, and mechanical and fluid flow conditions of the well.
Mud logging includes a routine geological examination of the drill
cuttings as they are flushed from the hole, plus a comprehensive record of
the variations in drilling rates, the variations in mud pumping pressure,
the depths of formation changes and an analysis of the mud properties,
including hydrocarbon content measured by a gas detector. Any oil in the
cuttings causes them to fluoresce under ultraviolet light.
Coring is usually restricted to a reservoir zone or to a section of interest
encountered during drilling. Core is collected in a core barrel, which is a
cylindrical tube about 20 metres long mounted just above the special coring
bit. Once brought to the surface, core is examined on site by a geologist and
then sent to a laboratory where porosity, permeability, hydrocarbon saturation,
water saturation and detailed lithology (rock composition) are determined.
DRILLING
61
62
Electric logs measure the resistivity of the rock and also determine rock
type. In general, shale has a low specific resistivity, while limestone and
sandstone resistivity is relatively high. Oil and gas within a rock will
increase resistivity because they are non-conductive materials.
Nuclear logs measure gamma rays and thermal neutrons and can be
used to determine porosity (including fractures) and lithology in a
given formation. They are also the only porosity determinants which
can be used in a cased hole.
Acoustic logs measure the velocity of sound within the formation in the
same way as seismic surveys on the surface detect changes in formations.
Acoustic logging is mainly used for porosity determinations and to help
in differentiating gas-bearing zones from liquid-bearing zones.
Other logs are run specifically to assess mechanical and fluid flow
conditions down the well. They include a calliper log (which measures
well diameter), a cement bond log (which measures strength and bonding
of cement to casing), a temperature log (which detects the top of the
cement column outside the casing because heat is given out when
cement sets), and the dipmeter (which measures the formation dip
relative to the well), and a compass to determine the well orientation.
Electric logging
DRILLING
63
Testing
Notwithstanding all the logging techniques, the final confirmation of the
presence and character of hydrocarbons is by producing a sample from the
reservoir formation. There are two methods of obtaining such a sample,
and both depend on allowing the natural pressure of the reservoir to drive
the formation fluids to the well collection point.
A wireline formation interval test involves lowering a test chamber
on the end of a wire to the depth of the reservoir and sealing it against
64
the well walls using expanding rubber packers above and below.
Pressure inside the chamber is atmospheric and a valve assembly, when
opened, allows reservoir fluids to flow naturally into the chamber.
If there is no flow, a shaped charge is detonated, piercing the formation
and opening a flow channel to the chamber.
The volume collected in these tests is small (about 1015 litres), but
it does give an indication of the formation fluids in the reservoir.
The test also records pressure of the incoming fluid and some general
extrapolations can be made about flow rates. The wireline test is particularly
useful in locating hydrocarbon/water contacts and the extent of transition
zones.
A drill stem test is more expensive and involves the lowering of a test tool
into the well on the end of drill pipe. Packers again isolate the section to
be tested and, when the valve is opened, the reservoir fluid is allowed to
flow into the drill pipe. It is then recovered when the pipe is pulled out
at the end of the test. Alternatively the hydrocarbons may be allowed to
flow to surface in a full production test where they are controlled via a series
of chokes of different sizes. Pressure and volume of fluids are measured.
Oil is collected, while gas is flared.
An open hole test is one that is done on a part of the hole that has not
been cased. In a cased hole the test is conducted through perforations shot
through the steel walls at the level of the reservoir zone.
Often the test will be shut in after a time to allow the pressure in the
reservoir to build up again after the initial flow. Then it is reopened for a
second and even a third measurement. Continuity of pressure during a test
run and rapidity of pressure build-up between tests give some indication
of the permeability of a reservoir and its potential performance in full
production mode.
Occasionally, when the discovery is small or marginal, companies will run
a long-term production test, stopping and starting the well flow over a
period of months to better determine the economics and overall viability
of a full development program.
DRILLING
65
Abandonment or completion
If a well is dry, or if hydrocarbons found are non-commercial, the well
is plugged and abandoned (P & A). This process calls for isolating various
formations with cement, taking particular care to block the reservoir zones
and any high pressure zones that may have been encountered.
Sometimes wells are suspended by setting cement plugs as a temporary seal.
At a later date the well may be re-entered for evaluation and the cement
plugs are simply drilled out using standard drilling techniques.
If the well has tested commercial hydrocarbons, it is usually completed as
a producing well or suspended so that completion can be carried out at a
later date. A completed well has production tubing installed and the well
casing is perforated in the reservoir zone. A system of valves (known as a
Christmas tree) is placed at the wellhead on the surface for later hook-up to
the production system.
66
Remedial work
Few wells are textbook operations in practice and any number of problems
can be encountered during drilling or testing.
DRILLING
67
Some of these include the drill pipe sticking in the hole, twisting off a
section of drill pipe in the hole, the loss of equipment such as logging or
test tools down the hole, washouts and loss of mud circulation into the
formation and, most serious of all, formation fluids overcoming drilling
mud pressure causing blowout and possible fire, explosion and equipment
damage at the surface.
When there is a stuck pipe or equipment is dropped or sheared off downhole,
the operator has three alternatives. They can fish for the obstruction with
specially designed grappling, cutting, grinding and magnetic tools.
Another option is to drill around the obstruction by deviating from a
point a little above it (sidetracking). However, if a sidetrack is also likely to
be difficult, the operator may decide on the third (albeit very expensive)
alternative drill a completely new well from the surface.
Loss of circulation and washouts in soft formation can also be difficult to
contain and often the well program must be changed so that casing is run
through the troublesome section earlier than originally planned. Recently
a way around this dilemma has been provided by the development of
expanding casing which is made of very pure steel. Once in position over
a bad patch in the well, a cone is pushed down through it to open out the
diameter. This avoids the need to set the next casing size and thereby lose
diameter for the next part of the hole.
An increase in the density of mud weight, and blowout equipment in
working order, can usually overcome any sudden pressure inflows in a
well. In such events too, a lot depends on the experience of the drilling
personnel. A crew trained in well control and blowout prevention can
circulate a kick of high pressure out of the system using the valves and
chokes in the well.
Another form of remedial operation is the well workover. This can either be
a program of widening, cleaning or re-perforating an old abandoned well,
or a producing well that has already had a long life and needs rejuvenating.
The workover is usually carried out with a small drilling rig on land and
on a production platform, or one of the four types of offshore rigs suitable
for an offshore location.
68
Chapter 4.
EVALUATION & PRODUCTION
Evaluation of a discovery is still, strictly speaking, an exploration function
and involves detailed appraisal work.
Reserves estimates
Once exploration drilling has discovered an oil and gas accumulation,
appraisal drilling is needed to determine whether or not it is large enough
to be commercially viable. As the drilling results come in, the geological/
reservoir engineering team makes an evaluation of the discovery and an
estimate of the reserves. Naturally enough, the more well data collected,
the more confidence can be placed in the estimate.
69
Appraisal
Appraisal wells are sited to determine the physical parameters or dimensions
of the field. For instance, if the discovery well has successfully penetrated
the crest of a structure, the appraisal wells will probably be drilled down
the flank to establish the lateral extension in four directions by finding the
oil/water contact. If the discovery well has penetrated a structural flank
and already established an oil/water contact, then there is scope to drill an
appraisal well closer to the crest (or up-dip) to try and find a gas/oil contact
point. This can indicate the true height of the highest and lowest point
of oil in the structure (the hydrocarbon interval or pay zone). Sometimes
oil may not have a gas cap and this can be determined by drilling on the
top (crest) of the structure. A purely gas reservoir will be indicated if the
appraisal finds a gas/water contact.
Appraisal work includes input from seismic mapping, downhole log data
and well tests. The results are used to determine the oil/gas, oil/water
and/or gas/water contacts and to indicate the horizontal and vertical
dimensions of the trap. This in turn, enables an estimation to be made
of the potential volume of oil and/or gas in place (in situ). However, the
calculations are rarely straightforward. Complications arise through errors
or uncertainties in seismic interpretation, faulting, lithological changes
and erosional features. A general rule is: the thicker the pay zone, the more
continuous it is likely to be. But this is by no means absolute.
Three other factors of major importance are net pay, porosity and
hydrocarbon saturation.
Net pay thickness in the reservoir or reservoirs is the interval filled with
hydrocarbons, and is generally derived from core or cuttings and logs or
interpretations from test results.
Porosity is the capacity of a given volume of the reservoir to hold
fluids. An estimate is made from the well logs and core analysis.
Hydrocarbon saturation is also derived from well logs and is the fraction
of the porosity that is hydrocarbon filled. The degree of confidence in the
estimate varies with the type of lithology, the type and quality of the logs
and the availability of data from previous wells in the area.
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Recovery estimates
The so-called recovery factor, which denotes the percentage of hydrocarbons
in situ that will be recoverable, depends on three main items nature of
the fluid, reservoir drive mechanism and productivity.
The nature of the oil or gas in a reservoir is described by chemical analysis
of its components. For oil, measurements of the API gravity value, the
pour point (the temperature at which oil changes from liquid to solid), the
bubble point (the point, during decreasing pressure, at which gas begins to
come out of solution with the oil), the viscosity and the gas/oil ratio (GOR)
are also relevant.
The drive mechanism of the reservoir is the availability of natural means of
supporting the pressure in the reservoir. There are three common types:
A water drive occurs when water in the reservoir formation is directly
in contact with the oil (or gas). As oil (or gas) is produced, pressure in
the reservoir is reduced causing an influx of the water, which in turn
sweeps through the pores of the rock and pushes the oil (or gas) out as
it advances.
A solution gas drive occurs where pressure support is provided solely
by the oil. The drop in pressure caused by production releases gas
from solution in the oil. As the gas expands, it displaces an increasing
quantity of oil from the pores.
71
A gas cap drive occurs when there is a large gas cap in direct
communication with an oil zone. As the pressure is reduced, the gas
cap expands and sweeps oil ahead of it.
Often the drive mechanism is a combination of these and other mechanisms.
Water drive is the most favourable and solution gas is the least favourable.
In all cases, pressure, and therefore production, declines with time.
Productivity is often the least predictable parameter. It is mainly a function
of the reservoir permeability and fluid viscosity. It can be determined in
part from cores and interpretation of test results.
Reserves classification
Common terms used when describing petroleum reserves in a field are
proved, probable and possible. They reflect the confidence that is felt about
the reserves calculated. Proved reserves reflect a very high degree of
confidence (90 per cent certainty and labelled P1 reserves). At the other
end of the scale possible reserves have a very low degree of confidence
attached to them (10 per cent certainty or P3 reserves). Probable reserves
represent the mid-range of confidence (50 per cent certainty, or P2).
Companies sometimes also use a slightly confusing notation 1P, 2P and
3P when reporting reserve figures. Taken respectively these simply
mean proved reserves only, proved plus probable reserves, and the sum of
proved plus probable plus possible reserves.
Market potential
Modern field evaluation techniques also include preliminary marketing
investigations. For oil discoveries, the field operator will run a detailed
assay to determine the exact nature of the crude, including a breakdown
of its components and the type of petroleum products that may be
obtained when it is refined. This step is also a check for any impurities
in the crude that need to be dealt with to comply with companies strict
health and safety programs, as well as to give an early start in establishing
plans for their removal during any development stage. The assays are
done on samples obtained upon discovery and during appraisal drilling.
72
The assay results are circulated to potential buyers to gauge interest and
the possibilities for sale, if and when the field is brought on stream.
For gas, assays to determine the nature and percentage of the
components (including any impurities such as carbon dioxide, nitrogen
and sulphur compounds) are an important factor in establishing economic
value. However, it is usual when dealing with gas accumulations to
establish a market before development can take place. Hence an initial
market evaluation, domestically and internationally, is often carried out in
conjunction with field appraisal work.
In some instances the results of market surveys can influence the
nature of development plans and the design of the production facilities.
Once the reserves for a field are estimated and declared viable, planning
for development can begin. Sometimes the go-ahead to proceed to
development will be given immediately. At other times a more cautious,
stepped approach is taken which involves preliminary design (or feasibility
studies) followed by a front end engineering and design (FEED) stage.
The FEED stage provides definitive costs and technical data to enable a
decision on whether or not to make a final commitment to finance a full
development plan.
Development drilling
Offshore, petroleum engineers draw on their knowledge of the field gained
during the evaluation (aided by the computer-generated models based on
the acquired data) to choose an optimum number of well locations to
effectively and efficiently drain the reservoir across the whole field. Generally
these wells must be identified prior to actual development to permit proper
design of the facilities. Wells can be vertical, deviated or horizontal and may
be drilled from one or more central platform locations. Sometimes well slots
on a platform are not used immediately. Rather, those wells are drilled at
a later date when the engineers have some idea of the fields production
history. For instance, they may be directed into spots in the reservoir where
oil has been left behind, or to boost production from an area that is flagging.
Development wells can also be individual subsea completions and in this case
it is often possible to re-use exploration wells as subsea production wells.
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Production techniques
Field production comes under three main headings primary, secondary
(or supplementary) and tertiary (or enhanced) recovery.
In primary recovery the reservoir pressure (drive mechanism) forces oil
and gas to the well and hence to the surface under natural flow. Some
fields may have several producing horizons, each with a different pressure,
petroleum type and other variables that need separate production. This
can be accomplished with separate wells. Alternatively, a dual or multiple
completion can be established in the one well.
The latter methods are mechanically more complex and therefore more
difficult to maintain, despite the fact that they are cheaper to install than
drilling second and third wells using single completions in each zone.
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75
Natural flow accounts for most of the worlds oil production but, as
previously mentioned, only a portion of the hydrocarbons are recovered
via this means.
Secondary or supplementary recovery is achieved in a number of ways.
Re-injection is a method where reservoir pressure is maintained by
returning natural reservoir fluids such as water (water flooding) or gas
to the producing zone via strategically placed wells in the field that are
dedicated to re-injection. This technique bolsters the main (primary) drive
as long as possible.
Gas lift (or artificial lift) is also a means of extending natural oil flow.
It involves increasing the amount of gas produced with the oil by
injecting gas directly into the flowing column in a well rather than into the
reservoir. Gas lift is accomplished by using special valves set up at various
depths and then controlling the amount of gas entering the flow stream.
The increase in gas/oil ratio reduces the pressure needed to drive the oil
to the surface.
Pumping is another form of artificial lift and is accomplished in three
ways a beam or rod pump (the familiar oil field nodding donkey),
a hydraulic pump or a submersible electric pump. The latter two pumps
are installed in the well bore itself.
Tertiary or enhanced recovery involves oil production only. It is achieved
by injecting fluids which are not normally present into the reservoir with
the aim of altering the properties of the oil to enable a greater proportion
to be produced. Enhanced recovery methods are generally applied after
primary and secondary techniques have been exhausted. The methods
include injection of miscible fluids like carbon dioxide and nitrogen and
injection of complex polymers or steam. Another technique is in situ
combustion, particularly for viscous oil. This involves igniting some of the
oil in the underground reservoir to heat the remaining oil and render it less
viscous and thus more able to flow to the wells.
These tertiary methods can raise ultimate petroleum recovery by 10 20
per cent under favourable conditions.
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77
Production hardware
The production process for oil and gas is generally the same onshore as it
is offshore and any differences in technique are a matter of economics and
designing an engineering solution to best deal with the fluids involved. Space
limitations offshore may also influence the process design.
Processing includes six systems gathering, separation, treatment/
storage, water treatment, safety, and utility handling facilities.
The gathering system is a series of small diameter pipelines connecting
to each wellhead and feeding into the main processing inlet.
The separation system relies on the fact that oil, water and gas have
different densities and will settle into separate layers. Internal devices
in the separation vessels assist in speeding up the process.
The treatment, storage and disposal system for oil and gas is usually
split into two streams. Oil leaving the separation system is virtually
free from dissolved gas and is termed stabilised. However, it may still
contain water in emulsion form. Further treatment can remove this
water using various techniques, including the introduction of chemicals
or the use of electrostatic separation.
Gas leaving the separation system is saturated with water vapour
and hydrocarbon liquids, with the amount of liquid depending
on temperature and pressure. Water is removed with absorbing
substances such as glycol. Special membranes remove carbon dioxide,
and dehydration enables the capture of sulphur compounds. Nitrogen
and hydrocarbon liquids, mainly ethane, butane and propane, are then
separated using a refrigeration process until the various components
condense out of the gas stream.
The water treatment and disposal system involves further action on
the water to reduce residual oil content to acceptable environmental
levels before it is discharged. The methods may include de-aeration,
filtration or chemical treatment, with time allowed for settling out of
the two phases.
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GAS
Flare system
Pipeline
Compression
Gas
dehydration
system
Gas liquids
recovery
system
Gas lift
Compression
GAS
Reservoir
Gathering
system
Separation
system
WATER
Gas re-injection
OIL
Pipeline
Oil
treatment
system
Storage
system
Pumping
system
Oily water
separation
system
Filtration
system
De-aeration
system
WATER
SEA
Pumping
system
Tanker
Water
injection
system
The safety system includes installation of alarms, automatic shutdowns, back-up units on important equipment, exhaust (flare) stacks
and fire fighting equipment, plus strict administrative procedures and
frequently practised emergency containment and evacuation plans.
The utility systems include power generation and facilities for normal
services, all of which can be, and frequently are, powered by the gas or
oil being processed in the plant.
79
STEEL
PILED
CONCRETE
GRAVITY
FLOATING
GUYED
TOWER
TENSION
LEG
80
FLARE
BRIDGE &
CONTROL
ROOM
HELIDECK
SHUTTLE
OFFTAKE TANKER
HAWSER
UNIVERSAL
JOINT ASSEMBLY
MOORED STORAGE/
PRODUCTION TANKER
RISER
CHAIN TABLE
ANCHOR CHAINS
SUBSEA
WELLHEAD
ANCHORS
FLOWLINES &
CONTROL UMBILICAL
Offshore, there are various ways of tackling the production layout, space
being at a premium on a production platform or production vessel.
For medium to large fields it is common to have one or more fixed
platforms which house all the wellheads and the processing equipment,
plus accommodation for the field workers. A pipeline can then be run to
shore to permit more extensive processing and storage and/or distribution.
In some isolated oil fields, a short pipeline may be laid from a platform to
a nearby buoy mooring system which is used to load the oil directly into
offtake tankers.
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West Tuna concrete gravity based facility being towed out from Port Kembla to Bass Strait
Platforms vary in size, shape and type depending on the size of the field, the
water depth and the distance from shore. Most common is a steel structure
with piles sunk into the sea bed, but there are also concrete and/or steel
structures that are held onto the sea bed by their own weight (gravity
structures) or converted jack-up exploration rigs that stand on the sea bed.
Other systems employ floating vessels (usually ship-shaped) known as
floating production, storage and offtake facilities (FPSO). Another type is a
tension leg platform that is tethered to the sea bed by vertical cables and yet
another is the guyed tower which is supported upright by radiating cables
anchored into the sea bed, acting much like the guy ropes of a tent.
In fixed platforms, the legs have a primary function of supporting the deck
and its load of processing facilities. The leg structure also surrounds and
protects the well conductors (hence the term jacket). Some fixed platforms,
particularly the concrete gravity type, also contain oil storage tanks in their
bases or in the column legs.
If the water is shallow and land (or another platform) is nearby, small
platforms may be used with the main processing facilities located ashore
(or on a centrally-located master platform).
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In other cases, subsea production units are used. These sit on the sea
bed and feed oil and gas into fixed platforms or floating production
and storage units via flexible flow lines and buoyed marine risers.
The floating facility can range from a vessel just for storage purposes to a
disconnectable, self-propelled tanker. Processing is still done on the facility,
not on the sea bed, although subsea processing is a developing technology.
The subsea units may be open to the sea (a wet tree) or, in the past,
encapsulated in a chamber under which pressure is kept at atmospheric
levels to allow operators to enter and work under normal conditions (a dry
tree). Dry chambers permitted manual intervention beyond diver depths
and opened the door to deep water development.
Production engineering is continually pushing the frontiers of technology,
especially in offshore applications. At the same time, the best designs
include equipment and systems that are as simple as possible to improve
reliability and avoid potential flow problems. Robust system design
enhances economic performance. There is also consideration given to
geographic location. If the field is remote from infrastructure, such as West
Africa or the North West Shelf off Australia, construction vessels have
to be brought in especially and this may increase the overall cost of the
project. On the other hand, in the active Gulf of Mexico or North Sea, many
construction vessels are employed in the region and mobilisation costs to
a project are much less.
As the industry tackles deeper and deeper water, FPSOs connected to
subsea wellheads are replacing fixed platforms as the main development
technique. FPSOs allow the facilities to be placed over the field. Platforms
in shallow water often have longer tie-backs, while the reservoirs on the
edge of the continental shelf are developed subsea. Oil flow lines between
the wells and the production facilities can be up to 30 kilometres long and
must combat pressure drop-off, heat loss and an increase in oil viscosity.
For gas, the flow lines can be much longer (up to 200 kilometres) allowing
production to flow directly to a shore plant rather than an offshore facility.
In some instances artificial islands have been created for shallow water
and Arctic applications.
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There have also been recent advances in the remote control of subsea
wellheads. Undersea umbilicals carrying the hydraulic, power and
electronic communication cables can be up to 150 kilometres long. In the
Arctic, work is being done to perfect an umbilical system that runs under
the ice to connect with and control a subsea system 400 kilometres away.
Steel tubes are replacing the thermo-plastic hoses of earlier umbilical
design. Another emerging technology is the development of autonomous
control systems where the umbilicals only carry the communication cables,
and the power for operating the subsea valves is actually generated at the
wellhead. Electric trees are also being developed for long distance and
very deep water application.
An alternative technique is the use of remote controlled buoys stationed in
the ocean above the subsea system, such as the East Spar field off Western
Australia. However these buoys are best for relatively short distances from
the shore line. For over the horizon applications, satellites are needed
as relay stations to bounce the control signals. In addition, the logistics
of supplying chemicals such as the injection of glycol or methanol at the
wellhead to improve the oil flow rate from the subsea wells is more difficult
with a remotely controlled buoy system.
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Pipelines
Pipelines are an important part of all phases of production, from the
gathering systems joining wells to process facilities and in the distribution
system delivering oil and gas to refineries and markets. Pipelines vary from
simple steel tubes to state-of-the-art spiral-wound, flexible lines. They may
vary in diameter from 50 millimetres to two metres.
Laying of pipelines can be expensive, particularly offshore where
sophisticated techniques are used to ensure the line is properly placed.
The traditional approach offshore is to weld lengths of pipe together on
a lay barge and progressively lower or slide the pipeline to its designated
sea bed location. The pipe is guided and supported for a short distance
after leaving the lay barge by a ramp called a stinger mounted at the stern
of the vessel. It is possible to lay pipe in 1000 metres of water using these
conventional techniques.
For deeper water, up to 2500 metres, a J-lay method is used whereby
the pipe, still welded into a continuous length on the barge, is dropped
vertically and then laid on the sea bed in a bowed incline (like the letter J).
Lines of up to 700 millimetres diameter have been laid in very deep water
with this technique using heavy lift/lay barges.
Other methods for shallower water include welding the pipe lengths
together onshore and then pulling (or towing) the completed line into
the desired location as one whole unit. For smaller (up to 150 millimetres
diameter) lines, it is feasible to have the pipe delivered on a reel to
a specially designed reel barge which then unrolls the line along the
appointed route.
Onshore pipelines are also welded and laid in sections. Usually the onshore
lines are buried, thus the laying operation is preceded by trench cutting
and followed by burial.
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Many offshore lines are also buried, especially in shallow water where
currents and tides may cause scouring and movement if laid on top of the
sea bed. Sometimes, if not buried, the lines are given thick outer coatings
of concrete to weigh them down. However, there is no need for weight
coating in very deep water as the currents are less and the increased
thickness of the steel needed to withstand the higher external pressures at
depth adds sufficient weight to keep them in place.
Petroleum pipelines are also coated with several layers of protective
material and fitted with cathodic protection devices that inhibit corrosion.
Internal pipe maintenance and cleaning is conducted by sending a
scrubbing device or pig (originally named because of the squealing noise
early versions made as they traversed the line) through the pipeline at
regular time intervals. Other, more sophisticated pigs are able to inspect
the integrity of welds and the internal condition of the pipe as they
move along.
Some pipelines, particularly from offshore oil and gas fields to shore
production facilities, carry oil, gas and condensate together. This is known
as multi-phase flow. At the shore end of the line a device called a slug catcher
(a series of parallel horizontal pipes) slows down the flow and enables the
liquid (oil and condensate) slugs to be separated from the gas.
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However the gas trapped on the coal surfaces cannot be released until the
water pressure holding it there is decreased. This is done by physically pumping
water from the wells until gas comes free and begins to flow naturally up
the wells. The time taken for gas to begin flowing after starting the pumps
can vary from several weeks to several months. The water can be re-injected
into formations below the coal seams, or collected in dams at the surface
where it is allowed to evaporate. Research is also being conducted into the
potential for using the water for agriculture and other purposes.
CSM is typically found at shallower depths than conventional gas
(200 metres 1000 metres compared to 1500 metres 4000 metres plus)
and reaches the surface at very low pressure. It must be compressed before
being sent through pipelines to market. Nevertheless, the shallower depths
do enable the use of small truck-mounted rigs to drill the wells which
improves the economics of an operation.
Wells are generally drilled in groups of five one central well and four
surrounding it called a five spot. The four outer wells are designed
to drain water away from the central well which can then flow gas to
surface. Development of a CSM field progresses when the four outer wells
are themselves surrounded by newly drilled wells pumping water until the
four also become producers and so on. A CSM field can contain hundreds
of wells during its lifetime.
Not all parts of a coal seam are conducive to CSM production and explorers
concentrate on sweet spots areas that have the highest degree of natural
fractures. These can be detected using the same geophysical techniques
employed in conventional petroleum exploration. Sometimes a CSM operation
is employed in advance of underground coal mining, the extraction of the
gas lessening the risk of explosion during the mining operation.
CSM has become an important source of natural gas in the USA where it
supplies about eight per cent of the nations gas demand. In Australia, CSM
is being produced in the Sydney Basin of New South Wales and in the
Bowen and Surat Basins of Queensland. The Queensland CSM flow supplies
30 per cent of the States gas demand.
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Chapter 5. PERMITS
The ownership of oil and gas resources is usually vested in the government
of the country concerned, although a notable exception is the onshore USA
where the landholder holds the rights. In fact, in the USA, the landowner
can bequeath and/or sell all or a portion of these rights to other parties.
Over time this can lead to a complicated ownership structure, even to the
extent that there might be different owners to the petroleum rights in a
vertical sense in other words, one individual or group of people may
own the rights from the surface down to, say, 1500 metres while another
group may own the deeper rights.
Any oil company wishing to explore for petroleum must make a contract
or agreement with the owners or their representatives before exploration
can begin. The contract regulates the relationship, and the rights and
obligations of the parties to it. Contracts can be forged between oil
companies and host governments, between oil companies and national
petroleum or energy companies representing host governments and
(in onshore USA) between oil companies and the private owners of the
petroleum rights. Additional agreements are made between oil company
partners, one of which is elected operator of the joint venture.
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In 1960 Indonesia took the industry on a new turn when it introduced the
concept of a Production Sharing Contract (PSC). Essentially this is a system
where a contractor (international oil company) is exclusively appointed to
conduct petroleum operations within a specific contract area for a specific
period, but under stringent conditions and strict supervision. The company
carries all the financial risks, provides capital expenditure, personnel and
expertise. It also deals directly with the national petroleum company which
takes a high percentage of any production. The international company is
allowed to recover costs from production, but often pays royalties before
it can make any profits via its percentage of production agreed with the
national company. The PSC system is now widely used for petroleum
permits around the world, including countries in South East Asia, Africa
and South America.
Further inroads into the former international oil company dominance came
in 1969 when Libya broke the 50:50 split by imposing a 50 per cent tax to
the companies half share of production. In effect companies working in
Libya received only 23 per cent of the oil they produced.
The oil crises of the 1970s introduced the concept in Middle East countries
of exacting a 20 per cent royalty plus a tax of 85 per cent on all production
and added the clause that there would be mandatory participation by the
relevant national petroleum company in each production concession. This
system is still widely used throughout the Middle East.
Today, most petroleum permit systems are based on the production
sharing contract or the concession agreement. The overriding point is that
nationalism plays a key role in both.
Permit variations
Concessions versus PSCs
Essentially the principles of PSCs and concession agreements are similar.
The oil companies (contractors in PSCs or licensees in Concessions) have
an exclusive right to explore for and produce hydrocarbons from a given
area over a given period of time. In addition, the oil companies carry all
PERMITS
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the financial risks and supply all the expertise, personnel and capital
expenditure. Both systems also incorporate the obligation to submit work
programs, progress reports (including all geological and geophysical data,
test results etc) and budgets for approval.
However there are differences between the two systems. Some of the main
ones are:
In a PSC, oil companies deal with the national petroleum company,
while in a Concession they deal with the host government.
In a PSC, oil companies agree, and are subject to, a production split after
being allowed to recover costs from initial production. In a Concession
the companies can take all the petroleum produced, but they must pay
a royalty based on a percentage of production. (Royalties are sometimes
incorporated in a PSC arrangement as well).
In a PSC, oil companies may be asked to market the national oil
companys share of production.
In a PSC the oil companies are subject to regular audits.
In a PSC the title to assets (including equipment and production outlets)
are transferred to the national petroleum company when costs are
recovered. In a Concession the title to assets are returned to the host
government at no cost upon termination of the permit.
The fiscal regimes vary between both systems and between individual
countries using the same system. A general principle has been to have a
taxation level that is generous to oil companies when a country has untried
potential and wishes to entice exploration. When that potential is proven
with discoveries, oil companies wanting to join the hunt are subjected to
a more onerous taxation level. The country then returns to a generous tax
regime when its petroleum province has matured and the government
wants to entice companies to look at less prospective or frontier areas.
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PERMITS
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Participation
Most agreements now include participation rights for the national
petroleum company. For instance, the national company may be carried
through the exploration stage (i.e. the international oil company will pay
the national companys share of exploration costs) and then be given the
option to participate in the production phase.
The arrangement may specify that the international oil company is able
to recoup payment of the national companys percentage of exploration
costs through a future share of its production, but often not. Usually,
however, the national company will pay its own way in production and
development costs. Sometimes the international oil company will market
the national companys share of production on its behalf, but often the
national company is large enough to do that for itself.
Permit applications
The method of application for exploration permits generally falls into two
categories tender in response to an invitation (or gazettal) and by direct
application at any time.
Calls to interested parties for gazetted (publicly advertised) areas
are generally made known through government or trade journals
and notify the petroleum industry of a governments intention
to licence new permits. The size of each permit is specified.
The notice sets a deadline for explorers to consider the areas on offer
and make applications as well as informing them what type of bid is
required. In countries like Australia, Britain and the USA (offshore) the
gazettals will be held at regular intervals usually once or twice per
year. Often the government will also make available a data package
of geological information about the areas in question to aid potential
bidders in their decision making.
The most common bid application is a work program bid whereby
companies submit an indication of the type and amount of exploration
work (research, surveys and number of wells drilled) they intend to
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PERMITS
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98
PERMITS
99
The area of production and retention leases is much smaller than that
of the exploration lease as they encompass only the region immediately
surrounding the discovery. They are excised from the surrounding
exploration permit and again the boundaries are generally based on lines
of latitude and longitude. Usually the company makes a judgment about
the size of the area it wants to apply for, but the ultimate area is determined
by the regulatory authority.
Farm-ins
A farm-in is a way in which a company, individual or group can join a
licensee in an exploration or production permit. The move involves
commercial negotiations between the incoming company (farminee) and
the company, individual or group already in the permit (farminor) which
is willing to farm-out some of its percentage interest.
The entry sometimes involves a straight cash settlement and/or a grant of
company stock, but the more usual case is that the farminee undertakes to
pay for all or some of the work program in the permit to earn a percentage
interest from the farminor. The farminor is thus financially carried through
that particular part of the program.
Most farm-in/farm-out negotiations are done with the knowledge and
permission of other interest holders or joint venturers in the permit.
Nevertheless, any negotiated agreement must have the approval of the
regulatory authority before the new interests can become effective.
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Other interests
A member of a consortium which actually pays its percentage of program,
whether it be survey, drilling or development, and enjoys a proportional
part of the resultant benefits, is said to have a working interest.
Other companies may have an override interest which is negotiated with one
or more members of the working consortium and is usually a percentage
of production, in cash or in kind. Usually this occurs when a company
holding the initial licence sells all its working interest to an incoming party
in return for an agreed percentage of the proceeds from any commercial
discovery.
A third type is net profit interest where a company negotiates a percentage
of the net profit from production after deduction of royalties and other
charges. This often has a strict legal framework drawn up, and the
deductions can vary from case to case.
Pipelines
Although pipelines are often a part of a field development program,
licences to build and operate petroleum pipelines are quite separate
from production licences and are usually applied for under separate
legislation. The application for a pipeline permit must include a
detailed map of the proposed route as well as the construction plan.
It must also include environmental studies for all sections of the proposed
route and must have permissions from all affected parties along that route,
including native title and other landholder agreements.
PERMITS
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Chapter 6.
PUBLIC REPORTS & REPORTING
Stock exchanges
Listing
Petroleum companies, in common with companies of every endeavour,
may choose to list on a stock exchange principally to raise money in the
public market place. Some companies with operations and/or shareholders
in a number of places around the world choose to list with more than
one exchange so they can raise funds in different capital markets and give
shareholders the convenience of trading locally.
Stock exchanges that are often used by resources companies are the London
Stock Exchange (LSE), New York Stock Exchange (NYSE), Australian Stock
Exchange (ASX), Johannesburg Stock Exchange (JSE) and the National
Association of Securities Dealers Automated Quotation better known as
NASDAQ. Smaller companies sometimes choose a listing on an exchange
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that specialises in the smaller end of the market, such as the Alternative
Investment Market (AIM) in London which was begun by the London
Stock Exchange in 1995.
Listing requirements
As part of the listing requirements for all stock exchanges, companies are
required to submit a number of reports about their activities. The general
rule in the UK and Australia is to notify the exchange immediately in order
to inform the market about any inside information that may affect the share
price. This is known as continuous disclosure and may include events such
as petroleum discoveries and takeover bids. Companies are typically also
required to disclose more routine occurrences like a change in directors on
the company board or a change in the registered office address.
One of the contentious issues is the reporting of a companys petroleum
reserves, and efforts have been made to standardise this around the world.
Different rules have been adopted in different jurisdictions, including
guidelines on how reserves should be calculated and who is authorised
to sign off on the calculations. These rules are designed to give investors
a degree of confidence in the information they receive in the companys
reports. Unfortunately, the rules are not identical in all jurisdictions,
leading to slight differences and reporting complexities for companies
with listings in multiple jurisdictions.
For listed resources (including petroleum) companies, there are a number
of other regular mandatory reports, including quarterly exploration,
development and production reports, and half-yearly and annual financial
reports (which must be audited).
When drilling wells, smaller petroleum exploration companies will also
need to submit regular drilling reports to meet their continuous disclosure
obligations. These drilling reports usually include details such as well
name, permit location and position in relation to previous wells (if any),
other fields and facilities. In addition, the report should contain the time
and date, any hydrocarbon indications or test results, the depth of the well
and particulars of the companys interests in the consortium.
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Drilling reports
There are some basic parameters contained in drilling reports that are
useful indicators of the well outcome.
Type of test
A drill stem test will usually give more information about a potential
reservoir than the small samples obtained in repeat formation tests.
Flow rate
A strong flow indicates good permeability and good reservoir drive
mechanism, but it can be qualified by other factors during the test.
Some wells may have a very strong initial flow rate, but quickly decline if
the reservoir is small. So the duration of the test is important. If it is short
there may not be enough time to indicate whether the flow rate will decline
and how long it will take to stabilise at a certain rate.
In other cases, some horizons may not be very strong-flowing, perhaps
because the formations have been damaged during drilling. That doesnt
necessarily mean the reservoir is not commercial. Explorers may be able to
make a viable development using different drilling techniques.
Some reports give total or combined flow rates from several reservoir
horizons which can be misleading when trying to draw conclusions about
the size and potential of the find.
Choke size
If the reservoir pressure is high, an open hole test (one where casing is not
used) or a large choke size will allow a large flow, whereas a small choke
size will restrict flow from the same reservoir.
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Fluid recovery
If the flow contains water, it can mean the test zone is at or near the oil/
water contact. This may indicate a thin reservoir pay if the test has been
made at the top of the formation.
Condensate values recorded with a gas flow are usually an enhancement
of the commercial prospects of the find.
Interval tested
If the test is over a thick horizon and it is all pay, a good flow can indicate
a sizeable reservoir.
Pressure build-up
Some tests are run for a time, stopped for a while and then resumed.
If the flow during the second test is as strong as the first it indicates
there is rapid pressure build-up and a strong reservoir drive. If the
second flow is not as strong it can mean there is a slow pressure
build-up and indicate the reservoir zone is thin or the drive mechanism
is weak.
Report assessment
All the above parameters need to be looked at together when assessing a
well result. No single factor can pronounce or dismiss viability. In addition,
most discoveries need at least one and probably two or three appraisal
wells before an accurate commercial assessment can be made. Good results
in a wildcat do not necessarily mean a commercial field has been found.
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Examples
Zephyr-1 exploration well tested lower Cretaceous age sands over
the interval 4939m 4942.7m using a inch choke. The test recovered
80 barrels of fluid during a three-hour period. The fluid contained 70 barrels
of muddy water and 20 barrels of oil/oil-water emulsion. Testing of other
zones of interest is continuing.
This report identifies the reservoir under test is in lower Cretaceous rocks,
so knowledge of other wells in the area will help the reader decide whether
it is the usual reservoir in the region, or a potentially interesting new zone.
However the 3.7 metre test interval gives no indication of the potential net
reservoir pay zone.
A inch choke indicates the diameter of the test orifice and a recovery of
80 barrels in three hours indicates the flow, although it does not necessarily
translate to 640 barrels a day in practice. The fluid composition indicates
there is little oil in that zone, although its presence at all could be noted as
encouraging for further tests in other zones in the well.
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The well number in this report indicates it is some time since the original
find was made and makes the discovery of a new pool at this stage
something of a surprise. The worth of the well is spelt out by the statement
that it will be completed as an oil producer. A cased hole means the well
was cased and then perforated in the test zone.
The oil, at 46 degrees API gravity, is a fairly light variety and it flowed at
a good rate of 1500 barrels a day. The gas flow at 5600 cubic metres a day
is minor.
The reference to a second zone identified by logs and due for completion
later, indicates there is a full knowledge of the region from other wells
and fields nearby which can be correlated across to the discovery with
confidence in its accuracy. However the second zone would be tested
before an attempt was made to bring it on stream.
1.6 cu m gas
10.0 litres of 38 degree API oil
3.0 litres water/mud filtrate
2440m
0.2 cu m gas
0.3 litres oil
20.0 litres water/mud filtrate
2450m
2430m
1.1 cu m gas
5.0 litres oil
10.0 litres mud/water filtrate
2415m
3.5 cu m gas
0.5 litres 57 degree API condensate
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More information
Other pieces of information about the economics of a discovery can be
gleaned from the more descriptive quarterly and annual reports.
Discoveries on land generally have lower production and operating
costs than those offshore (especially in deep water).
Discoveries close to existing infrastructure enhance the economics of
development.
Shallow reservoirs are usually less costly to develop than deeper
reservoirs because of the need for less drill pipe and casing, and the
shorter time required for drilling development wells.
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Chapter 7.
TAXATION, PRICING
& MARKETING
Taxation
There are numerous types and rates of taxation on petroleum around the
world, but the basic principle is to try and reconcile two objectives that
often appear to be in conflict. The tax system is an attempt to maximise
a governments revenue from a depletable resource and yet preserve
an appropriate (but not excessive) incentive for an explorer to find and
develop those resources.
Usually a government owns the rights to the resources and relies on the
private sector for discovery and development. So when setting tax rates,
the government must understand the effect of after-tax incentives as
perceived by private-sector explorers. On the one hand, under-taxation
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112
113
114
115
which yield more of the lower value products like fuel oils. Therefore
light sweet crude oils, such as Gippsland (Bass Strait, Victoria) and Cossack
(offshore Western Australia) which yield lots of transport fuels, are valued
higher than the heavier sourer crudes from the Middle East which contain
more fuel oil and residues and also more contaminants, such as sulphur
and nitrogen.
Oil and condensate can be sold on the spot market (in which cargoes
are priced individually at the market rate at the time of sale) or on term
contracts (where shipments of a particular crude are contracted and sold to
one buyer or group of buyers for a fixed term at a negotiated price set at a
differential to the floating price of a bench mark crude).
In fact, crude oil can be priced, bought and sold anywhere along its supply
chain from the point of loading, through the transportation period and the
refining process to the individual end products stage. The end buyer of
crude and condensate is the refiner, but a shipment can be bought and
on-sold by oil traders or intermediaries before the physical crude shipment
reaches the refinery. Oil producers must be able to sell their crude oil
otherwise their storage will fill up (tank tops) and they will be forced to
shut in production, which is a very costly process. At times when demand
for crude is less than the supply available, producers find themselves in
this predicament and therefore oil shipments that are unsold become
known as distressed cargoes. To make a sale, the producer or trader must
take a loss on the deal.
During the 1980s the practice of forward selling crude and condensate
became a significant marketing strategy and established a futures market
in the commodity. This involves producers offering crude for sale which
they will not produce from their fields for several months or more, giving
rise to the term paper crude.
Buyers (refiners or traders) negotiate a price which they believe will be
competitive when the physical crude is available. This involves a degree of
risk-taking and judgment about future world crude prices. The practice is
known as hedging. The price that producers and buyers negotiate may prove
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Specific Gravity
C8
0.8400.876
3730
Mixed (Aromatic)
C16
Residue
2515
0.9000.970
Naphthenic (Heavy)
Asphaltic
C60
1000+
Naphthenic Naphthenic
Solid
Asphaltenes
520
Lubricating Oils
Heavy
Fraction
380
Naphthenic Paraffinic
Liquid
350
Fuel
Oils
C14
Gas Oils
Kerosenes
Naphthas
250
Middle
Fraction
200
Paraffinic Naphthenic
C5
150
Gasolines
heavy
Pentane Plus
LPG
light
Light
Fraction
30
Note: The classifications shown in this table are intended to be representative, and no precise demarcations are implied
3847
Typical API
Gravity Range
Paraffinic (Light)
C4
wet
Base Classification
C4 and
lower
Gases
Gases
-10
Paraffinic Paraffinic
C1
dry
-200
US Bureau of Mines
Correlation Index
Hydrocarbon
Range
Main Components
General
Classification
Boiling Point
Range C
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Natural gas
Natural gas leaving a treatment facility to be sold into the retail market
(sales gas) usually has strict specifications in terms of its content that are
demanded by the buyer. The gas is virtually 100 per cent methane, but
there are traces of other compounds. The specifications set limitations
(in parts per million) on the amounts of these other ingredients, such as
ethane, propane, butane and inert gases like nitrogen and carbon dioxide.
Sometimes higher amounts of ethane, propane and butane are left in the
gas if a dedicated industrial customer wants to extract them for their
own use.
The price paid for the sales gas by consumers typically comprises four
main parts:
Ex-plant price is the price at which producers sell their gas.
Transmission cost is the cost of transporting gas to main market centres
through high-pressure pipelines, including a return for the pipeline
owner.
Distribution cost is the cost of transporting gas to the end consumer
through low-pressure pipelines, including a return for the pipeline
owner.
Retail margin is the margin obtained by the seller of gas.
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Ex-plant price
These prices are set by negotiations between gas producers and gas buyers
and are usually controlled by market forces rather than by regulation.
Gas buyers may be gas utilities that then on-sell the gas to consumers.
Sometimes large gas users buy gas directly from the producers.
Some typical characteristics of gas contracts include:
Long terms, sometimes 1020 years.
Maximum quantity provisions.
Minimum quantity provisions (take or pay i.e. buyers contract to take
a certain volume and if they dont, they pay for the contract volume
anyway).
Pricing clauses that enable regular renegotiation of prices between the
parties.
Price arbitration provisions that enable an arbitrator to set a price if
buyers and sellers cannot agree at a renegotiation.
Transmission cost
Gas is usually transported from the producing basins to major markets
via large diameter, high-pressure pipelines, sometimes referred to as trunk
pipelines. In most cases trunk lines represent natural monopolies, i.e. it is
not economically efficient to duplicate them and therefore they are often
subject to regulation to ensure that monopoly rents are not extracted.
Often there are trunkline access provisions established by regulatory
authorities to enable third parties to negotiate access to pipeline
transmission systems on fair and reasonable commercial terms.
In addition, transmission tariffs are usually approved by the regulator,
although the party seeking access is free to accept a set reference tariff or try
to negotiate for a lesser transmission fee with the pipeline operator.
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Distribution cost
Typically, gas is transported from the point where the high-pressure line
ends (often referred to as the city gate) to individual gas users via a grid of
low-pressure pipelines referred to as a distribution system. As with trunk
pipelines, distribution systems are usually natural monopolies, although
there may be several different distributors serving different sectors of a
city or metropolitan area. Again this area is often subject to regulation.
Retail margin
Usually consumers buy gas from a retail company, often privately owned
and competing with other gas retailers. (The exception may be a large
customer able to buy its gas direct from the producer). Retailers charge a
margin which is calculated as a percentage of the sum of the wholesale price
of gas plus network charges that include transmission and distribution
charges, as well as the cost of metering individual consumers.
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Market place
Globally, LNG is a rapidly growing market, firstly because of continuing
Asian demand and secondly because there is now a marked and steady
increase in USA and European demand.
In Asia the Japanese (and Korean) market is already large and growing
steadily. However it is the demand for LNG in China that is driving
the speed and size of new increases in the overall Asian market.
This has come about because of environmental problems surrounding
Chinas traditional use of coal, plus the high cost and difficult logistics of
transporting coal and indigenous gas from the countrys west to industrial
centres in the east. Hence importing LNG has become a viable option.
The other big growth area is the Atlantic Basin particularly the east
coast and Gulf coast of the USA, but also Europe and notably the UK.
In general the Pacific Basin market (including the USA west coast) is catered
for by Australian/Asian suppliers, while Middle East/African suppliers
cater to the Atlantic Basin and the Mediterranean region. Some exceptions
to this are a contract negotiated by Yemen to supply Korea and another
for Oman to supply Japan. This trend is expected to continue as the LNG
market becomes more global. The increasing need for power generation
fuel is a large driver for the growth in demand for LNG, especially in the
Asian region.
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Decreasing costs
The real cost of LNG has been falling since the early 1990s. The first LNG
carriers had capacities of 125,000 cubic metres and less. Now vessels of
165,000 cubic metres capacity are becoming the norm and some are being
built with a capacity up to 220,000 cubic metres. In addition, the capacity
of LNG production trains has markedly increased from about 2.7 million
tonnes per year in the mid 1980s to 6 million tonnes a year per train today.
Overall, the economies of scale that result from these capacity increases have
reduced the cost of the LNG product. However, partially offsetting this is
the remoteness and/or harshness of the new producing regions such as
Sakhalin, a Russian island north of Japan.
Terminals are also becoming cheaper to build because of technological
advances, modularisation of components and competition between
construction groups. And there is increasing competition on the supply
side as more and more players enter the market.
As a consequence LNG can now compete with pipeline gas where the
pipeline is more than 15002000 kilometres long. For example, in the UK,
the Southern North Sea gas fields have depleted to the extent that Britain
has become a net importer of gas, but as the country is located at the far
end of the European pipeline system, LNG has become a viable competitor
for the still growing UK market.
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Another example is the USA. Although there are some pipelines connecting
the east and west USA states, the connection is not across the full network.
Thus the east and west USA are really two different markets and both can
be served, at least in part, by LNG coming in from the Atlantic and Pacific
Basins respectively.
Pricing mechanisms
The export price of LNG has historically been linked to the price of crude oil
on international markets. In the main north Asian markets, LNG competes
with alternative fuels like diesel, naphtha and fuel oil. An oil price marker
called the Japan Crude Cocktail (JCC) is used which relates to the average
price of crude oil imported into Japan in a particular month. Other factors
taken into account in the price formula are the cost of insurance and the
freight costs for landing fuels in Japan.
In the USA, UK and Europe the main competitor for LNG is pipeline gas
and hence this has become a significant base for LNG price negotiations.
There is a need to match the daily market prices of natural gas traded on
well known commodity exchanges like the New York Mercantile Exchange
(NYMEX).
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LNG price formulae can be fixed for the life of the contract or reviewed
periodically by mutual agreement, taking into consideration changing
market conditions. There is also a small, but growing spot market in
LNG, particularly during periods of peak demand, such as the northern
hemisphere winter. The spot market makes up about six per cent of the
world LNG trade and some LNG vessels are being built to cater exclusively
for it.
LNG can be priced on FOB (free on board) terms where the buyer arranges
the shipping, or CIF (cost including freight), sometimes also referred to
as ex-ship terms, where the seller provides the transport arrangements.
The difference in price between the two arrangements relates to the cost of
ocean freight from the loading to the discharge point.
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Uses
The primary use of LPG is as an automotive fuel, favoured because it has
lower sulphur dioxide and nitrogen oxides than petrol and diesel fuel.
Japan is traditionally a large user, although the market there has plateaued
in the last few years. Australia is one of the largest users of LPG as an
automotive fuel in the world, per head of population. Western Europe is
also a major market, largely because of the environmental considerations.
Manufacturers are now designing vehicles especially to run on LPG and
incorporating the gas cylinders into a fuel tank rather than taking up extra
space in the boot.
A secondary use of LPG is as a feedstock for the petrochemical industry
and a tertiary use is as an industrial fuel.
There is also domestic use of the commodity in heating and cooking,
particularly in regions not served by natural gas. In this sense LPG can be
looked upon as a frontier commodity that is used in remote areas until
the demand becomes high enough to justify construction of natural gas
pipelines into the region. In fact, LPG can also be reticulated and, with a
few minor adjustments to the hardware (burners etc), the LPG reticulation
system can be used when natural gas arrives.
LPG for the leisure market (camping gas) is very strong.
In the USA the LPG mix in a cylinder is generally 90 per cent propane
and 10 per cent butane, while in Europe the balance is 80 per cent butane
and 20 per cent propane. This preference has to do with the individual
properties of the two gases. For instance, propane vapourises at lower
temperature than butane and is more suitable for cold weather starts.
(As an aside, butane is used for cigarette lighters because it requires very
little pressure for the liquid phase.)
In Australia the LPG distributed in cylinders and used for domestic heating
and cooling contains a high proportion of propane. Automotive LPG can
obtain up to 50 per cent butane with the remainder being predominantly
propane under Australian national fuel standard legislation.
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Market place
Butane and propane are sold as separate commodities on world markets
and each requires specialised handling. LPG carriers can take both in one
cargo using a refrigeration system, but the on-board tanks require separate
temperature control to keep each in its liquid phase. Any boil-off gas is
recompressed into a liquid and reintroduced to the respective tanks.
The standard carrier size for an LPG carrier is 45,000 tonnes and the
vessel is known as a VLGC (very large gas carrier). Loading and reception
terminals are built to match this capacity. Any increase in trade is more
likely to result in an increased number of vessels rather than construction
of larger individual vessels.
World production of LPG is likely to rise in the short to medium term
because of the increase in natural gas production (especially the huge
600 trillion cubic feet of reserves coming on stream in Qatar). There is also
likely to be a substantial ongoing demand for LPG. China in particular is
seen as an important emerging market. Although that country is increasing
its intake of LNG, the terminals and distribution networks for natural gas
are around the coastal areas. LPG will still be required in the inland regions.
LPG is closely associated with the production of oil and gas. If the LPG
cannot be sold, the whole production system is halted. Hence it is important
to find and maintain a steady outlet for LPG. Regular and predictable
offtake is achieved by setting supply contracts for terms of one to two
years with reliable and flexible buyers.
However, in recent years the growing Chinese demand is also leading to
an increase in spot market sales.
Pricing mechanisms
The LPG price tracks other hydrocarbon prices and is seasonal, especially
in the northern hemisphere where winter cold increases the demand for
heating fuel.
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There are two main marketing divisions in the world for LPG west of
Suez and east of Suez.
West of Suez (USA and Europe) LPG is priced against the liquid market,
i.e. the price of competitive crude oil and product prices.
East of Suez (Asia) the LPG price tends to be based on a Saudi ArabianJapanese producer-buyer price agreement. This latter arrangement, known
as the Saudi Aramco contract price, is struck every month and has become
a world marker. The price for propane and butane is set separately. Other
buyers and sellers then take these prices as the lead.
LPG sold into Japan is usually on an FOB basis because Japan has a fleet
of specialised LPG carriers. The trade with China is on CIF terms and the
LPG is carried in ships owned by international LPG traders.
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Brent
North Sea, UK
West Texas
Intermediate
USA
Tapis
Malaysia
Mad Dog
Gulf of Mexico, USA
Liverpool Bay
Irish Sea, UK
Calypso
Trinidad
Saharan
Algeria, North Africa
Griffin
Cossack
Northwest Australia
ORIGIN
Northwest Australia
CRUDE OIL
Gippsland
49.3
47.7
54.0
60.0
45.7
29.0
44.7
27.7
45.3
38.7
37.9
Key Properties
API Gravity
degrees API
Sulphur
Wgt%
Pour point
degrees C
-24
-12
-30
-60
-42
-39
-28
Viscosity @
20C
Centistokes1
1.7
1.9
1.3
0.8
2.4
7.7
4.9
11.9
11.9
12.2
12
11.9
11.7
0.30
0.35
0.10
<0.1
0.85
0.25
2.52 0.029
0.45
0.45
12
-24
-3
32.9
3.5
5.5
5.6
12.1
11.7
12.2
11.9
11.9
2.6
0.94
6.7
0.45
1.55
2.10
UOP K factor2
Carbon
Residue
Wgt%
3
Nickel
ppm
0.1
0.9
0.5
<0.1
0.3
15
<0.1
29
1.7
1.5
Vanadium
ppm
<0.1
<0.1
<0.1
<0.1
<0.1
78
<0.1
103
<0.1
7.7
Yields vol%
C4 minus4
<20C
2.1
1.4
3.9
5.2
5.1
0.1
3.4
1.7
3.1
2.9
4.2
Naphtha
20-165C
44.0
40.1
47.6
68.6
33.4
10.9
32.3
15.8
27.4
26.9
25.0
Jet/kerosene
165-230C
12.7
15.4
20.4
13.5
16.1
11.0
11.9
11.0
16.4
13.8
12.2
Diesel
230-360C
23.2
22.9
20.9
12.2
22.9
36.0
24.1
23.1
30.9
23.2
23.2
16.1
17.0
6.7
0.5
22.5
42.0
28.3
48.4
22.2
33.2
35.4
1.9
3.2
0.5
6.2
12.6
7.2
27.5
3.4
12.1
12.6
Long residue5
360C+
(LSWR)
Short residue
540C+
128
Chapter 8.
HEALTH, SAFETY,
ENVIRONMENT & COMMUNITY
The petroleum industry has been acutely aware of environmental issues for
many decades. Geologists, geophysicists and design/production engineers
are keen observers. Their training has taught them to respect and conserve
the natural phenomena which surround them every time they venture
into the field to initiate and build a project. As a consequence, through
their work the petroleum industry has been taking steps to minimise its
disturbance to flora and fauna, both on and offshore, for a number of years
prior to the recent wave of public concern.
It was realised as early as the 1950s, for instance, that using dynamite as
a wave-generating source for seismic surveys had the potential to cause
problems, such as the cratering of surface limestones. While dynamite is still
used in some regions of the world, the industry has developed alternative
and generally safer, more sophisticated techniques for supplying the
seismic source in many areas.
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During the 1960s in Australia, the oil search on Barrow Island off the
Western Australian coast led to the early industry environmental
protection initiative of contracting a professional naturalist as a consultant
to the exploration program and the field development that followed.
Today, as preparations are being made on the island to build new facilities
to liquefy gas fed in from the offshore Gorgon and Jansz fields, Barrow
has become a classic example of the industrys ability to explore for and
produce petroleum without serious or lasting disturbance to the delicate
ecosystem of the region.
Another recent example is the development of oil and gas fields in Liverpool
Bay in the United Kingdom. The near-shore facilities are close to densely
populated sections of both the Welsh and English coasts and have been
the focus of very tight environmental controls. These include measures to
immediately combat any oil spill, no matter how small, and dealing with the
odour caused by natural mercaptans (strong-smelling compounds of carbon,
hydrogen and sulphur) in the natural gas. A well-managed and professionallystaffed community and education centre was established to inform and
maintain contact with the local population.
More than ever, the modern petroleum industry is aware of the need to pay
close attention to environmental matters and safety in its operations and to
work with the local and broader communities in which it operates. Public
concern and government legislation dictates that an increasing amount of
detailed research and data collation is carried out to produce environmental
impact assessments prior to any oil or gas program or project going ahead,
onshore or offshore. There is also a continual monitoring of systems and
procedures during the exploration, appraisal and construction phases as
well as during a projects working life. In addition, as part of a projects
design and implementation phase there must be detailed consideration
given to the removal of exploration and/or production equipment, and to
the restoration of sites once a program has been completed or fields have
been depleted. Decommissioning plans are now a standard part of any
project design.
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Health
Employee health and associated occupational illness, such as noise-induced
hearing loss, respiratory problems and long-term chronic exposure to lowlevel chemical substances, is a key focus of health management. The aim
is to remove or avoid hazards through engineering or design solutions
wherever possible. As a final line of defence, this approach includes
continued improvement of personal protective equipment. It also involves
establishing monitoring and reporting procedures which point to areas of
potential harm so that measures can be taken to mitigate exposure.
In some instances the industry (and individual company) standards and
medical surveillance are more stringent than those set by regulatory
authorities.
Many companies also work with public authorities to implement
community health programs where diseases like malaria, tuberculosis and
HIV/AIDS may impact the workforce.
Safety
The public expects that risks from industrial activities like petroleum
exploration, production, refining and distribution will be regulated
and controlled. People should be able to work in an environment that
assures their safety and wellbeing. Many countries have safety regulating
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Safety case
The safety case regime stems from the 1988 Piper Alpha disaster in
the North Sea when a series of massive explosions and fire destroyed
the production platform on the Piper oil and gas field. The incident
resulted in 167 deaths and substantial financial losses to the UK industry
and the British Government. The world petroleum industry and
most governments studied the lessons from the disaster and rapidly
put in place a safety regime to ensure that it could not occur again.
The result is an internationally recognised regime of risk assessment where
companies establish self-regulated controls to avert mishaps.
The output of the safety case regime is a document produced by the
companies operating every petroleum facility which identifies the hazards
and risks and describes how the risks are controlled. It also describes the
safety management system in place to ensure those controls are effectively
and consistently applied.
Safety cases must be produced by the operator of a facility, the principle
being that those who create the risk must manage it. The operator must
assess the processes, procedures and systems to identify and evaluate
risks, and establish the appropriate controls because it is the operator that
has the greatest in-depth knowledge of the various installations.
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The safety case must identify both the technical and managerial aspects of
safety. It is also vital that the operator establishes a performance standard
required of a system, an item of equipment, a person or a procedure that is
used as a basis for managing the risk of a major incident.
Equally, the company workforces must be involved in the process so they know
what happens in practice and why, rather than rely on a rules-based culture.
Each safety case is assessed by an independent regulator to ensure the
arrangements set out in the document demonstrate that the risks will be
reduced to as low as is reasonably practicable. Following acceptance of a
companys safety case, the regulator will visit the facilities to monitor the
practical application of the arrangements.
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Environment
Environmental management covers the whole range of upstream and
downstream petroleum operations from exploration and appraisal right
through to decommissioning and rehabilitating upstream facilities, then
transportation, refining, distribution and retail of downstream products.
Many countries now have legislation in place that addresses the likely
environmental impacts of any petroleum (and other industrial) programs.
In countries with less sophisticated legislation and regulation, the World
Bank imposes similar requirements for any project that it finances.
The wording and names of the various legislations may vary, but
internationally the moves and the intent are the same. Basically, any proposed
project needs to test itself against its potential impacts on a number of key
receptors: air, water, land, flora/fauna and natural resources, and people.
Environmental controls
In some cases the petroleum industry sets more stringent environmental
controls on its own operations than are called for in government regulations
or legislation. Toxicological tests are carried out before any substance or
material is used. Some examples of petroleum industry moves to ensure
no contamination and minimal disturbance to the environment are:
Drilling fluids all drilling muds are ecologically tested to ensure
there are no toxic effects on the surrounding environment. This involves
extensive laboratory work as well as studies of natural reef, sea bed and
shoreline conditions in areas where drilling is to take place.
Biocides and oil-based muds (made with biodegradable synthetic oils) are
only used in special circumstances. Where downhole difficulties do require
their use, stringent controls are employed to ensure minimum discharge
and coating of cuttings.
Waste disposal regulations governing the chemical and heavy metal
content of waste material are strictly adhered to and often surpassed,
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135
136
137
There have been a number of well-documented oil spills around the world
over the past few decades, most of them from tanker accidents. These
incidents have led to a world-wide cooperation of petroleum industry,
shipping industry and non-government enterprises in preventing and if
necessary combating marine oil spills. Some of those bodies involved are:
International Petroleum Industry Environmental Conservation
Association (IPIECA)
International Association of Oil and Gas Producers (OGP)
Oil Companies International Marine Forum (OCIMF)
International Tanker Owners Pollution Federation (ITOPF)
International Association of Independent Tanker Owners (INTERTANKO)
International Maritime Organisation (IMO).
Today there are a number of large, specially equipped oil spill response
centres located around the world. Each is close to major airports and
available for call out on a 24 hour, 365 days a year basis. The equipment
is pre-packed and always at the ready. It is customs-secured for rapid
transport to anywhere in the world at very short notice. These key centres are:
Australian Marine Oil Spill Centre (AMOSC) in Geelong, Victoria,
Australia
Clean Caribbean and Americas (CCA) in Fort Lauderdale, Florida,
USA
East Asia Response Pte Ltd (EARL) in Singapore
Fast Oil Spill Team (FOST) in Paris, France
Oil Spill Response Ltd (OSRL) in Southampton, England
Petroleum Association of Japan (PAJ) in Tokyo, Japan.
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139
Climate change
The debate about climate change suggests that greenhouse gas emissions
associated with human activity are contributing to global warming and that
steps must be taken to mitigate this. The petroleum industry globally is both
a user and producer of fossil fuel energy products that create greenhouse
gas emissions. Fossil fuels are still an important source of world energy
and are likely to remain so, at least for the next three or four decades.
The use of these fuels underpins economic growth and development.
Thus the petroleum industry sees its challenge as balancing the need to
help meet the worlds energy needs while mitigating the potential impact
of greenhouse gas emissions on world climates.
Many petroleum companies now set out to reduce greenhouse gas
emissions in all their operations, setting themselves targets and publicising
the results. Some put an absolute value on their reduction targets, others
prefer to set intensity targets which are commitments to reduce emissions
on a per-unit-of-output basis.
The companies require their individual sites to develop greenhouse
management strategies and energy conservation plans. They ask
management to price carbon in all investment decisions. They also fund
research and development activities and collaborate with customers by
assessing emissions over the life cycle of products, i.e. estimating the level
of emissions emitted by customers using a companys products. This
latter initiative leads to an improvement in the overall energy efficiency in
downstream consumption of energy products.
Some of the main initiatives to curb greenhouse emissions are:
Operational efficiency this may be as simple as better design of
buildings to take advantage of natural light or using less lighting at night
or installing better insulation to cut down the energy needed to power
heating or cooling appliances.
140
Efficiencies are also aided by new technology such as improved flare stack
efficiency and control. In addition, gas produced in association with oil is
used as much as possible to run project facilities. There is also continued
research into the conversion of excess gas into methanol for separate sale,
even from remote locations.
Another push has been to phase out the use of lesser known greenhouse
gases such as halons, which have been part of fire protection systems both
offshore and in onshore production and treatment facilities. These are
known to be ozone-depleting substances as well as contributing to the
enhanced greenhouse effect.
Coal Seam Methane methane, which would otherwise be vented to
atmosphere, can be drained from coal mines ahead of mining. Methane
has a global warming potential more than 20 times that of carbon dioxide,
hence this can represent a significant reduction in greenhouse emissions.
It also provides a safer mining environment and the drained methane can
be used as a fuel in an associated power plant to generate electricity.
Carbon dioxide sequestration there are two types of sequestration
currently being researched, and in some cases, used around the world.
Biological sequestration is the natural absorption of carbon dioxide
into plants. For instance, trees absorb carbon dioxide from the air
and release oxygen. Large tree plantations are being established in a
number of countries such as the USA and Australia to offset carbon
dioxide emissions from other activities, including land clearing and the
consumption of fossil fuels.
Geosequestration is a relatively new concept that injects carbon dioxide
into deep, secure underground geological storage, including deep
geological reservoir formations under the ocean. The concept is for
carbon dioxide to be captured from industrial flue gas streams, such
as power stations, refineries and petroleum production facilities and
injected underground via specially drilled wells. The captured carbon
dioxide is liquefied under high pressures and must be injected to depths
of at least 800 metres below ground to be kept in the liquid state.
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142
143
144
The scheme works on a cap and trade basis where member state
governments are required to set an emission cap for all installations
covered by the scheme. Each installation is then allocated allowances for
the particular commitment period. The installation is required to have its
annual emissions verified. Allowances equal to these verified emissions
will then be retired.
In the USA the concept of dealing with unwanted emissions has its roots in
a bid to curb acid rain in the 1990s. Although a separate issue to greenhouse
emissions, a cap was put on how much sulphur dioxide a fossil-fuelled
plant could emit. Then, extending this idea into the greenhouse arena,
New York State obtained a commitment from nine northeast states in
2003 to cap and trade carbon dioxide emissions. There is also an informal
trading scheme in California and some southeastern states. However, as
yet there is no USA-wide scheme in place for carbon trading.
Cleaner fuels
Since lead was removed from petrol beginning in the early 1970s, the
refining industry has made a number of additional improvements to petrol
and diesel fuel. Vehicles running on these new fuels run more cleanly and
efficiently and hence reduce pollution.
In the USA the most important improvement has been the development of
reformulated gasoline (petrol), particularly for use in smog-affected cities.
This is a refined and blended product aimed at reducing smog-forming
and toxic pollutants in the fuel. Individual refiners are allowed to use their
own formulae provided they meet the government standard.
145
In the USA and elsewhere, sulphur has also been reduced, to the point
where advanced emissions reduction equipment will produce only about
three per cent of the emissions of a vehicle manufactured in the 1960s.
The technologies that have made these improvements possible include:
Additives that allow petrol to more fully combust, thus improving
vehicle efficiency while reducing emissions.
Improved catalysts and refining processes which have helped reduce
the volatility and sulphur content of petrol and diesel fuels, leading to
lower emissions.
Community
For many petroleum companies, consultation with local communities
is carried out well before a project even reaches the design stage.
In some cases community participation is also sought in project audits
so that people understand the type of development envisaged, while the
company benefits from local knowledge and opinion. The aim is to develop
a trust that will continue through construction and commissioning to the
ongoing production stage for the life of the project.
In addition, a number of companies become involved with the local
communities, particularly in remote areas, by helping to provide services
and supporting existing community organisations and initiatives. These
can range from support for medical and educational facilities and
programs (including traineeships, work experience, career guidance and
scholarships) through to aid for local economies, conservation and heritage
programs. BHP Billiton, for instance, allocates one per cent of its pre-tax
profit to community projects throughout its areas of operation.
In other instances, companies and petroleum industry associations fund
research projects relevant to their operations such as whale migration
and breeding patterns, coral reef habitats, studies of wetland biodiversity
and health watch programs to study the long-term health of petroleum
industry employees.
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147
Chapter 9. ECONOMICS
Crude Oil
Price history
Crude oil prices behave the same way as any other commodity there are
wide price swings in times of shortage or oversupply. The crude oil price
cycle can extend over several years in response to changes in demand as
well as to OPEC (Organisation of Petroleum Exporting Countries, formed
in 1960) and non-OPEC supply.
The history of oil prices post World War II shows that when adjusted for
inflation and expressed in 2004 USA dollars, the world price has averaged
US$22.86 per barrel to 2004. In fact, until 2000 oil prices only exceeded
US$23 a barrel in response to war or conflict in the Middle East.
From 1948 to 1957 the price of oil rose from US$2.50 to about US$3 keeping
pace with inflation. From 1958 to 1972 prices were stable at about US$3 a
barrel (actually declining in real terms), but by 1974 the price had quadrupled
148
to US$12. This came about because of the 1973 Yom Kippur War when
Egypt and Syria invaded Israel and many western nations (headed by
the USA) supported Israel. As a result several Arab oil exporting nations
imposed an embargo on Israels supporters and curtailed production by
5 million barrels a day (bbl/d). One million barrels a day was made up by
increased production in other countries, but the net loss of 4 million bbl/d
represented seven per cent of non-communist world production.
From 1974 to 1978 world crude oil prices remained stable ranging from
US$12.21 13.55 a barrel (actually a moderate decline when adjusted
for inflation). Then between November 1978 and June 1979 the Iranian
revolution cut 2.5 million bbl/d from world production. This loss was
compounded in 1980 when Iraq invaded Iran and the combined production
from both countries fell to 1 million bbl/d, some 6.5 million bbl/d less
than the previous year. In world terms crude oil production in 1980 was
10 per cent lower than in 1979. The events in Iran and Iraq sent prices from
US$14 a barrel in 1978 to US$35 a barrel in 1981.
Some countries, such as the USA, imposed price controls on domestically
produced crude oil during this period in an attempt to lessen the impact,
and in the short term this did ease the recession induced by the 19731974
oil price rises. On the other hand it took away incentives for USA domestic
exploration and production and did nothing to curb domestic oil consumption
or promote efficiency in energy use. Consequently the USA was more
dependent on crude oil imports and less prepared for the price increases
of 19791981 than it might have been without the earlier price controls.
Australia was also somewhat insulated from the rapid world oil price
spikes because it already had in place a complicated system of governmentimposed levies that prevented the bulk of indigenous production being
sold at world prices. The government did not allow free-market prices for
Australian crude until 1988.
Interestingly during 19791980, Saudi Arabia, the worlds largest oil
producer, warned other OPEC countries that continued spiralling prices
would lead to a reduction in demand. This is exactly what happened as
ECONOMICS
149
150
Price impacts
There are a number of factors within the petroleum industry linked to the
prevailing price of crude oil.
Rig count the number of exploration drilling rigs, both on and offshore,
is often seen as a barometer of the industrys activity. The number of rigs
around the world rose steadily following the price rises of the 1970s as
explorers took to the field buoyed by the potential higher rewards from
new discoveries. The number declined again after the price collapse of the
mid-1980s, albeit with a years lag between the start of price decline and
the fall in the rig count. In recent years the number of rigs is rising again
although the response time of rig count to significant price changes is now
down to a few months.
Well completions not all wells that discover oil (or gas) are completed
for production. The general rule is that if the well can produce sufficient oil
or gas to cover the cost of completion and subsequent ongoing production
costs it will be developed. Hence, a high oil price will improve the viability
of small discoveries that may be marginal at low prices, and increase the
number of economic well completions.
ECONOMICS
151
152
Natural gas
Unlike oil, which is easily transported across the world through pipelines
and tankers and hence considered as one global market, natural gas prices
follow local markets. Although gas can be transported long distances
(from North Africa to and across Europe, across the USA and some long
distances in Asia/Australasia) as well as via an expanding LNG fleet, the
availability on a global scale is more limited than oil.
Like other commodities, natural gas is governed by supply and demand
but, because of long lead times, response can be measured in months or
even years, not hours and days as for oil. Similar to oil, low gas prices
inhibit exploration expenditure and subsequent production. At the same
time low prices increase demand. Overall though, supply is relatively
inelastic in response to changes in price.
There is often an incentive to continue producing even in the face of lower
prices. This is because:
If production is halted, it may not be possible to restore production
because of reservoir and well characteristics.
Net present value of recapturing production in the future may be
negative, i.e. it is better to produce today rather than wait as there are
no guarantees the future prices will be higher.
Some gas is associated with oil production and hence to stop gas flow
will mean stopping oil as well.
A producer may be contract-bound to produce specific volumes of gas.
There is no world price for natural gas, although it is often linked, at
least in part, to the price of oil. Gas price also depends on factors such as
its proximity to market and its status in relation to other fuels. In some
instances customers may be able to switch fuels (for example from gas to
coal) to take advantage of price changes.
ECONOMICS
153
154
Chapter 10.
DOWNSTREAM PROCESSES
Crude oil
Crude oil is delivered from the wellhead generally by pipeline to a
stabilising plant which removes water and associated natural gas, although
for offshore gas this treatment may now occur on a floating unit. It is then
piped or shipped to a refinery to be made into petroleum products.
The basic process in refining crude oil involves distillation. Just as
boiling water turns into steam, so oil a complex mixture of different
hydrocarbon molecules plus olefins, aromatics and impurities like sulphur
can be separated into its different parts by heating. Distillation takes
place in a heated refinery tower about 45 metres high where crude oil is
fed in continuously at the bottom. The heat causes the various parts (called
fractions) to boil off.
DOWNSTREAM PROCESSES
155
The lightest fractions gases like butane and propane have simple
molecular structures and are boiled off first. They rise to the top of the
column where they are removed. The rising vapours of other fractions
cool sufficiently to condense back into liquid form and they are taken off
at progressively lower condensation points in the tower. Fuel oils and
bitumen at the heavy end are taken from near the tower base.
This distillation process separates the crude into eight basic components
which are then subjected to a secondary refining process known as cracking.
This usually combines more intense heat in the presence of a zeolite
catalyst hence the term catalytic cracking or cat cracking. The treatment
rearranges the particular fractions molecules which are then sorted and
blended, sometimes with the addition of other chemicals, to make final
products like kerosene, petrol, diesel, lube oils and asphalts.
The products are distributed by pipeline, road and sea to distribution
terminals, then to smaller depots and finally to the end consumers.
Natural gas
Pipeline gas
Natural gas flows from the wellhead to production facilities that initially
separate out oil, condensate and water. This is followed by a process to
remove remaining water and any sulphur compounds and scrubbing to
remove inert gases like nitrogen and carbon dioxide as well as natural gas
liquids such as butane and propane. Sometimes ethane is also removed.
The remaining methane sales gas is piped to market or it is liquefied to be
transported as LNG.
156
The first stage of the process is the same as for production of domestic
sales gas, i.e. removal of all impurities, inert gases, water and heavier
hydrocarbons (oil, condensate, butane and propane). If left in the gas
stream they would freeze and disrupt the cooling process.
The liquefaction plant can be likened to a giant household refrigerator
where the four main elements in the cooling cycle a compressor, a
condenser, a pressure-expansion valve and an evaporator are built on a
huge scale. A single liquefaction unit (called a train) can contain hundreds
of kilometres of special cold-resistant nickel steel and aluminium alloy
piping. Ordinary steel is unsuitable because it becomes brittle at low
temperatures.
The cooling cycle begins with the compression of a low pressure gas
(a refrigerant). Compression raises its temperature and pressure. The warm
high pressure gas is then passed through a condenser where it gives up its
heat to a coolant (which may be water or the directed flow of ordinary air).
The refrigerants temperature falls and it liquefies. Using the principle that
the lower the pressure, the lower the boiling point, the refrigerant is then
passed through an expansion valve to lower its pressure.
With the low temperature thus produced, the refrigerant can then be used
to take heat from the raw natural gas stream. This is done in an evaporator
where a heat exchange lowers the temperature of the natural gas and
increases that of the refrigerant to the point where the latter regasifies.
The refrigerant gas is returned to the compressor to begin its cycle again,
while the continuous heat exchange in the evaporator cools the natural gas
stream to its liquefaction point.
To keep the LNG in a liquid state, special steels and insulating materials
are used in the tanks in which it is stored, as well as in the loading lines to
seagoing LNG carriers and in the carriers onboard cargo tanks. Despite this,
a proportion of the LNG inevitably evaporates. This so-called boil-off gas is
compressed and recycled back to the LNG plants fuel system. In the LNG
carrier the boil-off gas is used to fire the vessels boilers.
DOWNSTREAM PROCESSES
157
Crude Oil
<90
Gas processing
90220
220315
Naphtha
Cat Reforming
315450
Kerosene
Hydrotreating
450650
650800
Cat Cracking
800+
Flashing
158
C4H10 Butane
C3H8 Propane
C2H8 Ethane
CH4 Methane
Liquefied
Petroleum Gas
N2 Nitrogen
CO2 Carbon Dioxide
Natural Gas
H2O Water
Constituents of the respective gases
There has been some work done on the design of floating offshore LNG
plants as well as locating LNG plants on artificial islands, but as yet there
has not been any commercial application.
Methanol
Another process of growing importance and using natural gas as a
feedstock is the production of methanol. Methanol in turn can be used
as a feedstock for chemical manufacture, such as acetic acid and
formaldehyde, and is being considered as a fuel for power generation
as well as in fuel cell technology. In addition it can be used as a petrol
extender, i.e. blending small amounts with petrol for use in an internal
combustion engine. Methanol is also a mid-stage in the process for making
petrol from natural gas.
The conversion of natural gas to methanol involves removing impurities
followed by production of synthesis gas (a mixture of carbon dioxide, carbon
monoxide, hydrogen and oxygen) using hot water and steam. This synthesis
gas is then passed over a catalyst which promotes the rearrangement of
chemical elements to produce methanol.
DOWNSTREAM PROCESSES
159
Hydrogen
Ammonia
Methanol
Ammonium
Sulphate
Fertilisers
Urea
formaldehyde
Plastics &
Adhesives
Natural Gas
Ethene
Naphtha
Ethylene
Polyethylene
Ethanol
Chemicals
Styrene
Plastics &
Adhesives
Benzene
Insecticides
Cyclohexane
Synthetic
Fibres
Xylene
Polyesters
Paints, Varnishes
Toluene
Phenols
Plastics
Synthetic Rubber
Chemicals
Butadiene
Propylene
Acetone
Plastics,
Synthetic Fibres
160
There has also been research into miniaturising a methanol plant for use in
remote natural gas fields offshore, either as a floating facility or built on a manmade concrete island. The former concept prompted construction of a small
research facility built by BHP Billiton near Melbourne in Victoria, Australia
which takes gas from Bass Strait as its feedstock. Plans to construct a floating
facility have not yet come to fruition.
The island concept however, is under design feasibility stage for the
proposed Tassie Shoals 1.7 million tonnes per year methanol project
planned for shallow water in the Timor Sea off northern Australia, which
will take gas from the nearby Evans Shoal field.
Petrochemicals
Some of the products from the oil refinery cat cracker and the gas
fractionation plants are further treated by refrigeration, compression and
chemical reaction in a separate plant to produce a range of petrochemicals.
The most familiar of these are polymers or plastics such as polyethylene,
polypropylene, nylon and perspex. Petrochemical products also include
synthetic rubber, pesticides, fertilisers and a host of solvents which are
used as additives in petrol, anti-freeze, pharmaceuticals, foods, cosmetics,
paint and detergents.
Although economic alternatives may be found for some petroleum fuels
during the next three or four decades, the wide range of applications
and growing array of end products from the petrochemical industry has
established petroleum as a cornerstone of modern living. Its significance
is unlikely to diminish in the foreseeable future.
DOWNSTREAM PROCESSES
161
162
Appendix 1.
PETROLEUM SPECIALISTS
Assayer an analyst who performs physical and chemical tests on petroleum
samples to determine the type and amount of each component.
Derrickman a member of the drilling crew who works on the monkey
board up in the rig derrick above the floor and guides the top end of each
stand of drill pipe as it is pulled out or run into the hole.
Diver/Sub-mariner carries out underwater mechanical tasks down to
depths of 200 metres during drilling and production via diving bells.
For deeper waters a remotely operated vehicle (ROV) is used and controlled
electronically by an operator from the surface.
Driller the senior member of the drilling rig crew who manages the
drilling operation and keeps a log or drilling report which is a narrative
account of events on the rig floor during his/her tour of duty.
Drilling Superintendent head of a companys drilling department
who is in overall charge of drilling operations, often with responsibility
for work being done by several rigs at one time. Duties include planning,
supervision and liaison with other company departments.
Electrical/Electronic Engineer is responsible for electrical and electronic
systems used in production and treatment facilities and in refineries.
Environmental Engineer responsible for design aspects that minimise
environmental impact of the equipment and various processes used in
production and treatment of petroleum and petroleum products.
Geochemist studies the chemical composition of the earths crust and
analyses sediments above likely petroleum-bearing formations that could
help determine the presence of petroleum traps.
163
Geologist studies the origin, history and construction of the earths crust
and uses knowledge of rock types, fossils and structural movements to
help pinpoint places where petroleum traps may be found. Some geologists
look at the global big picture to determine which countries and regions of
the world are the most prospective for petroleum discoveries.
Geophysicist studies the structure of the earth by physical measurement
and uses a range of techniques such as seismic pulses, magnetics and
gravitational forces to define potential petroleum traps. There are
geophysicists who look at whole basins and entire regions to determine
major structural features and trends within the global context.
Jughound (Juggie) a member of the survey crew who places geophones
and cables in position (onshore).
Landman (USA only) an agent who works on behalf of an oil company
to acquire land for oil field operations through lease arrangements, direct
purchases and access/usage agreements with land owners.
Marketer/Trader responsible for sale and/or purchase of petroleum
and petroleum products using knowledge of global supply and demand,
petroleum prices and hedging techniques.
Motorman a member of the drilling rig crew who maintains the prime
mover motors that keep the drill turning.
Mud Engineer plans the type and weight of drilling mud that best suits
the formations being drilled.
Petrochemical Engineer a chemical engineer responsible for the design,
management and control of the process which transform crude oil into
energy products, such as petrol, diesel and gas, and other products such
as plastics, fibres and paint. Processes can include gas-to-methanol and
gas-to-oil techniques.
164
165
Other Roles
In addition to the above, there are a number of positions in the petroleum
industry that call for specialisation within broader professions. Examples
include lawyers who specialise in areas like joint venture contracts, lease
agreements and production sharing contracts. There are finance people
liaising with banks and lending institutions and looking after project
finance negotiations, and economists who become involved in corporate
strategy. There are safety specialists and industrial relations people as well
as those skilled in personnel and recruitment for the specialised jobs in the
petroleum industry. And there are those involved in the medical side and
community liaison. The petroleum industry, more than most, is made up
of a vast range of skills and job descriptions.
166
Appendix 2.
CONVERSION FACTORS
Product figures shown are typical. However the actual value for any
particular sample of a product can differ to some extent from the typical
figure, depending on crude oil source, method of refining or blending etc.
Abbreviations
Some common abbreviations and their metric equivalents used in the
petroleum industry are:
M
= thousand
= 103
6
= k (kilo)
MM = million
= 10
= M (mega)
= 109
= G (giga)
= billion
= trillion
12
= 10
1015
18
10
= T (tera)
= P (peta)
= E (exa)
167
Equivalents
1 barrel
1 kilolitre
1 Imperial gallon
= 0.02859 barrels
= 4.546 litres
= 1.2009 USA gallons
1 USA gallon
= 0.02381 barrels
= 3.785 litres
= 0.8327 Imperial gallons
1 cubic metre
= 1000 litres
= 35.315 cubic feet
1 cubic foot
1 megajoule
1 therm
= 100,000 BTU
= 29.31 kWh
= 105.5 megajoules (MJ)
168
To convert Volume
Multiply by
0.21997
4.54609
0.0038
0.023
0.00325
0.1364
Barrels to kilolitres
0.159
42.00
12765.0
0.017232
1.38
8.68
0.7
0.028
0.02
0.18
6.29
To convert Mass
Multiply by
0.98421
1.01605
Kilograms to pounds
2.20462
Pounds to kilograms
0.45359
169
Glossary
acidise injecting acid solution down a well to dissolve carbonate rocks in
a reservoir, or improve the flow of hydrocarbons to the well.
acoustic log a measurement of the velocities of sound waves imparted to
a formation in a well and used mainly for determination of rock porosity.
anomaly a divergence from the background levels of physical or chemical
properties of an area under survey.
anticline an upfold in rock strata producing an arch or dome structure.
One of the most common hydrocarbon traps.
API American Petroleum Institute. API gravity is a standard method of
measuring density of crude oils and is expressed in degrees.
appraisal well a well or wells drilled to follow up a discovery and
evaluate its commercial potential.
assay a mini distillation process carried out in a laboratory to determine
the exact composition and the physical properties of crude oil.
associated gas natural gas found as part of or in conjunction with other
constituents of crude oil, as opposed to gas found on its own.
AVO amplitude variation with offset. This is a variation in seismic
reflection amplitude with a change in the distance between the energy
source and the geophone/hydrophone. It indicates differences in lithology
and fluid content in rocks above and below the reflecting layer.
ballast extra weight taken on to increase a ships stability to prevent
rolling and pitching. Most ships use seawater as ballast. Empty tank space
is filled with inert (non-combustible) gas to prevent the possibility of fire
or explosion.
barite a sulphate of barium used to add weight to drilling fluids.
170
GLOSSARY
171
cat cracking a secondary refining process which uses heat and the presence
of a catalyst to crack apart the molecules of the various components of
crude oil obtained from the primary distillation process to form refined
petroleum products.
cement bond log a measurement of the strength and bonding of cement
to the casing in a well.
choke a valve or valves used to control the flow of hydrocarbons from a
well by changing the diameter of the orifice.
Christmas tree the system of valves and controls placed at the wellhead.
CIF cost including freight, where the seller of a cargo of petroleum or
petroleum product provides the transport to its destination.
city gate the point at which high pressure pipelines deliver natural gas to
low pressure pipelines for distribution to individual users.
closure a term used to indicate that a trap exists in the subsurface and
there are no avenues for hydrocarbons (if present) to escape.
completion the final preparations to ready a well for production.
concession an arrangement whereby an oil company is given exclusive
permission by a government to explore a large portion of a country over
a long period of time in return for an agreed percentage of any oil or gas
production that results.
condensate hydrocarbons which are gaseous in a reservoir, but which
condense to form a liquid as they rise to the surface where the pressure is
much less.
conductor the first casing string in a well.
coning this occurs when an oil well is produced at excessive rates.
The reduction in reservoir pressure may draw up water underlying the oil
and gas can be drawn down from an overlying gas cap.
coring an operation whereby a sample of rock being drilled is allowed
to pass through the centre of a special bit and be collected in a core barrel
mounted directly behind it.
172
GLOSSARY
173
174
GLOSSARY
175
176
heavy crude crude oil with high viscosity and high specific gravity.
The API classifies heavy oil as crudes with a gravity below 22.3 API.
hedging forward selling of petroleum shipments at a price believed to be
competitive when the physical cargo is available.
heli-rig a land rig capable of being broken down into loads small enough
to be carried by a helicopter. Usually used in inaccessible terrain to replace
land transport.
horizontal drilling a technique for deviating wells through up to
90 degrees from the vertical, usually to produce thin reservoirs by exposing
more of the oil zone to the well perforations.
hydrocarbon kitchen the part of a sedimentary basin containing mature
petroleum source rocks. A general term for conditions deep in the subsurface
rich in organic sediments which, with the necessary burial history (heat
and pressure) generate significant amounts of hydrocarbons.
hydrophones the marine equivalent of geophones.
infill drilling production wells drilled between existing wells to increase
hydrocarbon recovery. Often the wells are drilled to reach oil or gas
stranded by the rising water drive in a reservoir and unable to flow to the
original wells.
injection well a well through which water or gas is injected to maintain
reservoir pressure.
in situ (in place) refers to total oil or gas reserves contained in a reservoir
in the ground as opposed to those reserves which may be recovered.
isogals contour lines drawn through points of equal gravity values and
referring to the gal which is the unit of gravity measurement.
jacket the leg section of an offshore production platform, so called because
it surrounds and protects the well conductors as well as supporting the
deck and its equipment.
jack-up a type of mobile drilling rig which jacks its legs down to the sea
bed and then hoists its deck and drill floor above the sea surface.
GLOSSARY
177
jet bit a drilling bit with nozzles through which fluids like air, mud or water
are forced under pressure, thus breaking up the formation to be penetrated.
J-lay an offshore pipe laying technique in which the pipeline is lowered
vertically to the sea bed from the lay barge and then allowed to bend in a
J-curve shape as the vessel moves forward adding new sections of pipe.
joint venture a group of companies or individuals who share the cost
and rewards of exploring for and producing oil or gas from a permit.
kelly hexagonal or square pipe about 15 metres long attached to the top
of the drill string and turned by the rotary table. It is used to transmit the
twisting movement from the rotary machinery to the drill string and thus
the bit.
kelly bushing a piece of equipment which fits around the kelly at the
point where it passes through the rotary table. It is often used as a datum
from which to measure the depth of a well.
kerogen the organic matter which is the base for the formation of oil or
gas.
kick a sudden influx of high pressure into a well, usually experienced
while drilling.
kill the process of increasing drilling fluid weight to control a potential
blowout.
landmen generally only applicable in the USA where the rights to
subsurface minerals are often owned by private individuals. These
individuals are entitled to ask for a royalty on any oil or gas production
from their portion of the subsurface. These subsurface rights began by
being attached to the surface landholding of the original landholder.
However, they can be bequeathed or sold and onsold separately to the
surface rights, such that after a period of time it is difficult for an oil
explorer to trace who actually owns the rights in question and who to
deal with when negotiating royalties. Landmen are employed by the oil
explorers specifically to unravel the paper trail and find the royalty holders
in the lease they want to drill.
178
lay barge a specially designed vessel used to lay a pipeline along the
sea bed.
lease a specific area of land or sea bed marked out by a government
and usually put up for tender. The successful bidder is given exclusive
right to explore for oil and gas for a specified length of time provided it
upholds the work program mentioned in the winning bid and obeys the
set conditions of the leasehold agreement.
light crude generally refers to crude oil with an API gravity of 30 degrees
or more.
liner steel tube of small diameter extending into a producing reservoir
from the bottom of the last string of casing in a well.
lithology a study of the rock types in a given region, including
descriptions of mineral content.
LNG liquefied natural gas.
LNG train the liquefaction of natural gas to form LNG is carried out in
a refrigeration unit that has four main elements in the cooling cycle a
compressor, a condenser, a pressure-expansion valve and an evaporator.
A single liquefaction unit is called a train. An LNG plant may comprise
just one train. Larger plants comprise a number of trains arranged side by
side each doing exactly that same liquefaction task.
logging tools devices lowered down a well to measure various parameters
and properties of the formations being drilled (electric loop).
LPG liquefied petroleum gas, usually refers to propane and butane.
marine riser the conductor pipe for offshore wells. It extends from the
drill floor to the sea bed.
marker crude a commonly traded crude oil in a particular region that is
used as a quality standard to price other crudes.
mercaptans compounds of carbon, hydrogen and sulphur found in sour
crude and natural gas which have a strong, repulsive odour. They are
re-introduced in small amounts as a safety measure so that the presence of
sales (retail) gas can be detected by smell.
GLOSSARY
179
180
packer a device (often rubber) which seals off a section of the well during
testing.
paper crude crude oil which is sold on the futures market, but which will
not be physically produced for several months or longer.
pay zone a formation within a reservoir containing producible
hydrocarbons.
percussion drilling a system whereby the drill bit penetrates rock with a
hammer action. The drill can either be dropped using its own weight and
gravity or it can be pressure driven into a rock face.
perforations holes punched through the casing of a well at the pay zone
to allow oil and gas to enter the well.
permeability the degree to which fluids can move through a rock.
permit an area of specified size within a sedimentary basin which is
licensed or allocated to a company or companies by the government for the
purpose of exploring for and producing oil and gas. In Australia separate
licences are issued for exploration and production.
petroleum resource rent tax (PRRT) a form of profit-based tax which
applies after a producing oil/gas project has reached a set rate of return.
The tax itself is levied at specified percentage. Usually exploration and
development costs can be deducted from cash flow so they are recouped
before tax trigger or threshold is reached.
pig a mechanical device sent through a pipeline to scour the inside walls
or to run internal checks on the integrity of the line.
plug a seal deliberately placed in a well to prevent escape of high pressure
material from the substance after it has been abandoned. Usually plugs are
of cement.
plugged and abandoned where all the reservoir and high pressure zones
in a well are sealed off with cement so that no fluids can escape after the
drilling rig leaves the location.
GLOSSARY
181
182
GLOSSARY
183
rotary swivel the part of a rotary drilling rig which connects the travelling
block to the drill string.
rotary table a flat plate in the drill floor which is turned mechanically
at varying speeds and directions imparting the rotary action to the drill
string which passes through its centre.
roughneck a rig worker who handles the drill pipe and other equipment
on the drill floor.
round trip the complete operation of pulling out the drill string from a
well (for instance to change a bit) and then running it back into the well.
roustabout a general labourer on a rig.
safety case where government sets broad safety goals to be attained
at industrial facilities and the companies concerned develop the most
appropriate methods for achieving those goals. The basic tenet is that the
ongoing management of safety is the responsibility of the operator and
not the regulator.
sales gas natural gas that is sold into the distributor/retail market after
being treated to remove impurities.
sand lenses porous sandstone reservoirs that are completely surrounded
by fine-grained impervious rocks. The lenses are often buried river beds
or deltas.
sedimentary cycle the period encompassing an encroachment of the sea
over the land and then a subsequent withdrawal of the sea.
seep a point where migrating oil or gas, not already trapped, reaches the
earths surface.
seismic survey a method of determining the subsurface features by
sending sound waves into the various buried rock layers in the earth and
measuring the time they take to return to the surface.
184
GLOSSARY
185
186
GLOSSARY
187
188
SPEAKING OIL&GAS
bhpbilliton.com
SPEAKING
OIL&GAS
Written for BHP Billiton Petroleum Pty Ltd
by Rick Wilkinson