DEPARTMENT OF PETROLEUM ENGINEERING

PE8010
INTEGRATED OIL/GAS FIELD EVALUATION
OBJECTIVE:
To impart knowledge on different oil/gas field evaluations in order to maximize the production
and improvement of facilities.

UNIT I 9
Geological studies: - Structural contour maps and various geological models. Estimation of
reserves. Hydrodynamic Study, Techno-economic Evaluation for normal and marginal fields.
Innovative ways to asset development.

UNIT II 9
Petroleum project evaluation-mineral project evaluation case studies. The design and evaluation
of well drilling systems-Economic appraisal methods for oil field developmental project
evaluation including risk analysis, probability and statistics in decision-making and evaluations.
case studies.
UNIT III 9
An integrated reservoir description in petroleum engineering-usage of geophysical, geological,
petrophysical and engineering data-emphasis on reservoir and well data analysis and
interpretation, reservoir modeling (simulation), reservoir management (production optimization
of oil and gas fields) and economic analysis (property evaluation)
UNIT IV 9
An integrated reservoir development in petroleum engineering-reservoir and well evaluation-
production optimization-nodal analysis, stimulation, artificial lift facilities-surveillance
UNIT V 9
Evaluation of well completions-placement of casing, liners and well tubing. Evaluation,
performance of horizontal wells. Evaluation of acidization treatments.
OUTCOMES:

Students will be able to understand the different evaluation methods of oil/gas fields and
reserves.

TEXT BOOKS:

1. Katz D.L.et al., Natural Gas Engineering (Production & storage), McGraw-Hill, Singapore.
nd
2. Standard Handbook of Petroleum and Natural Gas Engineering. 2 Edition. William C
Lyons, Gary C Plisga. Gulf Professional Publishing.

3. Mc.Cray. A.W and Cole.F.W. ‗Oil Well Drilling Technology‘ University of Oklahoma
Press, Norman 1959.

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 UNIT –1
1.0 STRUCTURAL CONTOUR MAPS (OR STRUCTURE MAP),

Structure contour maps are basically the same as topographic maps, where the surface
being mapped is some geologic surface, often in the subsurface
A map portraying a subterranean structural surface. Examples of suchsurfaces include
the top or bottom of a stratigraphic unit; marker beds and horizons; andsurfaces of
unconformity, of fractures, of mineral deposits, and of aquifers.
The data used in constructing a structurecontour map may be obtained from geological
surveys, the drilling of holes, mining, or geophysical investigations. On the basis of these data,
the depth of the structural surface is established at various points in the area under study.
Theform and depth of occurrence are portrayed by means of structure
contour lines, which areconstructed in much the same way as contour lines on a topographic map
; the structure-contour lines take into account all the data on the geologic structure of the area
Figure 1. (1) Block diagram of an anticline with an oil-bearing stratum, (2)structure-
contour map (top) and block diagram (bottom) of the samesection with the roof of the oil-
bearing stratum removed; the numbersindicate the absolute depths of the structure-
contour lines in meters

Structure contours of a plane follow these rules:

they are straight lines with a trend parallel to the strike of the plane.
the contour lines are evenly spaced, with spacing distance that is a function of the dip.
from strike and dip one can construct the structure contours if you know the x,y,z
position of one point, or can calculate strike and dip if giving the structure contours.

VARIOUS GEOLOGICAL MODELS

Geologic modelling, or Geomodelling, is the applied science of creating computerized
representations of portions of the Earth‘s crust based on geophysical and geological observations
made on and below the Earth surface. A Geomodel is the numerical equivalent of a three-
dimensional geological map complemented by a description of physical quantities in the domain
of interest.
A geological model is a spatial representation of the distribution of sediments and rocks in the
subsurface. The model is traditionally presented by 2D cross-sections, but increasingly visualised
as digital 3D models

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 DEPARTMENT OF PETROLEUM ENINGEERING
PE8010 – INTEGRATED OIL/GAS FIELD EVALUATION

The distribution of sediments controls the groundwater flow, and the migration of e.g. pollutants
or saltwater in the subsurface, due to the varying physical, chemical and microbiological
properties of the different sediment types

Geomodelling generally involves the following steps:

1. Preliminary analysis of geological context of the domain of study.
2. Interpretation of available data and observations as point sets or polygonal lines (e.g. ―fault
sticks‖ corresponding to faults on a vertical seismic section).
3. Construction of a structural model describing the main rock boundaries (horizons,
unconformities, intrusions, faults)
4. Definition of a three-dimensional mesh honoring the structural model to support
volumetric representation of heterogeneity (see Geostatistics) and solving the Partial
Differential Equations which govern physical processes in the subsurface (e.g. seismic
wave propagation, fluid transport in porous media).

Geologic modeling components

1. Structural framework
Incorporating the spatial positions of the major formation boundaries, including the effects of
faulting, folding, and erosion(unconformities). The major stratigraphic divisions are further
subdivided into layers of cells with differing geometries with relation to the bounding surfaces
2. Rock type
Each cell in the model is assigned a rock type. In a coastal clastic environment, these might be
beach sand, high water energy marine upper shoreface sand, intermediate water energy marine
lower shoreface sand, and deeper low energy marine silt and shale. The distribution of these rock
types within the model is controlled by several methods, including map boundary polygons, rock
type probability maps, or statistically emplaced based on sufficiently closely spaced well data.

3. Reservoir quality

Reservoir quality parameters almost always include porosity and permeability, but may include
measures of clay content, cementation factors, and other factors that affect the storage and
deliverability of fluids contained in the pores of those rocks. Geostatistical techniques are most
often used to populate the cells with porosity and permeability values that are appropriate for the
rock type of each cell.
4. Fluid saturation
Most rock is completely saturated with groundwater. Sometimes, under the right conditions,
some of the pore space in the rock is occupied by other liquids or gases. In the energy

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 DEPARTMENT OF PETROLEUM ENINGEERING
PE8010 – INTEGRATED OIL/GAS FIELD EVALUATION

industry, oil and natural gas are the fluids most commonly being modelled. The preferred
methods for calculating hydrocarbon saturations in a geologic model incorporate an estimate of
pore throat size, the densities of the fluids, and the height of the cell above the water contact,

5. Geostatistics

An important part of geologic modelling is related to geostatistics. In order to represent the

observed data, often not on regular grids, we have to use certain interpolation techniques. The
most widely used technique is kriging which uses the spatial correlation among data and intends
to construct the interpolation via semi-variograms.

6. Mineral Deposits
Geological Modeling: different tracks
Geologists involved in mining and mineral Reservoir Data
exploration use geologic modelling to
Seismic, borehole and wirelogs
determine the geometry and placement of
mineral deposits in the subsurface of the Data-driven modeling Process modeling
earth. Geologic models help define the Deterministic Sedimentary
Stochastic Model
volume and concentration of minerals, to Model Process Model
which economic constraints are applied to
determine the economic value of the Static
mineralization. Reservoir Model

Upscaling
Flow Model

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 DEPARTMENT OF PETROLEUM ENINGEERING
PE8010 – INTEGRATED OIL/GAS FIELD EVALUATION

ESTIMATION OF RESERVES.
Reserves are those quantities of petroleum which are anticipated to be
commercially recovered from known accumulations from a given date forward. All reserve
estimates involve some degree of uncertainty. The uncertainty depends chiefly on the amount of
reliable geologic and engineering data available at the time of the estimate and the interpretation
of these data. The relative degree ofuncertainty may be conveyed by placing reserves into one of
two principal classifications, either proved or unproved. Unproved reserves are less certain to be
recovered than proved reserves and may be furthersub -classified as probable and possible
reserves to denote progressively increasing uncertainty in their recoverability.

Estimation of reserves is done under conditions of uncertainty. The method of estimation is

called deterministic if a single best estimate of reserves is made based on known geological,
engineering, and economic data. The method of estimation is called probabilistic when the
known geological, engineering, and economic data are used to generate a range of estimates and
their associated probabilities.
Identifying reserves as proved, probable, and possible has been the most frequent classification
method and gives an indication of the probability of recovery. Because of potential differences in
uncertainty, caution should be exercised when aggregating reserves of different classifications.

Proved Reserves
Proved reserves are those quantities of petroleum which, by analysis of geological and
engineering data, can be estimated with reasonable certainty to be commercially recoverable,
from a given date forward, from known reservoirs and under current economic conditions,
operating methods, and government regulations. Proved reserves can be categorized as
developed or undeveloped.
If deterministic methods are used, the term reasonable certainty is intended to express a high
degree of confidence that the quantities will be recovered. If probabilistic methods are used,
there should be at least a 90% probability that the quantities actually recovered will equal or
exceed the estimate.
Unproved Reserves
Unproved reserves are based on geologic and/or engineering data similar to that used in
estimates of proved reserves; but technical, contractual, economic, or regulatory uncertainties
preclude such reserves being classified as proved. Unproved reserves may be further classified as
probable reserves and possible reserves.
a. Probable Reserves
Probable reserves are those unproved reserves which analysis of geological and engineering data
suggests are more likely than not to be recoverable. In this context, when probabilistic methods
are used, there should be at least a 50% probability that the quantities actually recovered will
equal or exceed the sum of estimated proved plus probable reserves. probable reserves may
include

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 DEPARTMENT OF PETROLEUM ENINGEERING
PE8010 – INTEGRATED OIL/GAS FIELD EVALUATION

(1) reserves anticipated to be proved by normal step-out drilling where sub-surface control is
inadequate to classify these reserves as proved,
(2) reserves in formations that appear to be productive based on well log characteristics but lack
core data or definitive tests and which are not analogous to producing or proved reservoirs in the
area,
(3) incremental reserves attributable to infill drilling that could have been classified as proved if
closer statutory spacing had been approved at the time of the estimate,
(4) reserves attributable to improved recovery methods that have been established by repeated
commercially successful applications when (a) a project or pilot is planned but not in operation
and (b) rock, fluid, and reservoir characteristics appear favorable for commercial application,
(5) reserves in an area of the formation that appears to be separated from the proved area by
faulting and the geologic interpretation indicates the subject area is structurally higher than the
proved area,
b. Possible Reserves
Possible reserves are those unproved reserves which analysis of geological and engineering data
suggests are less likely to be recoverable than probable reserves. In this context, when
probabilistic methods are used, there should be at least a 10% probability that the quantities
actually recovered will equal or exceed the sum of estimated proved plus probable plus possible
reserves.
possible reserves may include
(1) reserves which, based on geological interpretations, could possibly exist beyond areas
classified as probable,
(2) reserves in formations that appear to be petroleum bearing based on log and core analysis
but may not be productive at commercial rates,
(3) incremental reserves attributed to infill drilling that are subject to technical uncertainty,
(4) reserves attributed to improved recovery methods when (a) a project or pilot is planned but
not in operation and (b) rock, fluid, and reservoir characteristics are such that a reasonable doubt
exists that the project will be commercial,
Undeveloped Reserves:
Undeveloped reserves are expected to be recovered: (1) from new wells on undrilled acreage,
(2) from deepening existing wells to a different reservoir, or (3) where a relatively large
expenditure is required to (a) recomplete an existing well or (b) install production or
transportation facilities for primary or improved recovery projects.

The process of estimating oil and gas reserves for a producing field continues throughout the life
of the field. There is always uncertainty in making such estimates. The level of uncertainty is
affected by the following factors:
1. Reservoir type,
2. Source of reservoir energy,
3. Quantity and quality of the geological, engineering, and geophysical data,

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 PE8010 – INTEGRATED OIL/GAS FIELD EVALUATION

4. Assumptions adopted when making the estimate,

5. Available technology,
6. Experience and knowledge of the evaluator.
The oil and gas reserves estimation methods can be grouped into the following categories:
1. Analogy,
The analogy method is applied by comparing factors for the analogous and current fields or
wells. A close-to-abandonment analogous field is taken as an approximate to the current field.
This method is most useful when running the economics on the current field; which is supposed
to be an exploratory field.
2. Volumetric,
The volumetric method, on the other hand, entails determining the areal extent of the reservoir,
the rock pore volume, and the fluid content within the pore volume. This provides an estimate of
the amount of hydrocarbons-in-place. The ultimate recovery, then, can be estimated by using an
appropriate recovery factor. Each of the factors used in the calculation above have inherent
uncertainties that, when combined, cause significant uncertainties in the reserves estimate
3. Decline analysis,
Decline curve relationships are empirical, and rely on uniform, lengthy production periods. It is
more suited to oil wells, which are usually produced against fixed bottom-hole pressures. In gas
wells, however, wellhead back-pressures usually fluctuate, causing varying production trends
and therefore, not as reliable. The most common decline curve relationship is the constant
percentage decline (exponential). With more and more low productivity wells coming on stream,
there is currently a swing toward decline rates proportional to production rates (hyperbolic and
harmonic). Although some wells exhibit these trends, hyperbolic or harmonic decline
extrapolations should only be used for these specific cases. Overexuberance in the use of
hyperbolic or harmonic relationships can result in excessive reserves estimates.
4. Material balance calculations for oil reservoirs & Material balance calculations for gas
reservoirs,
Material balance calculation is an excellent tool for estimating gas reserves. If a reservoir
comprises a closed system and contains single-phase gas, the pressure in the reservoir will
decline proportionately to the amount of gas produced. Unfortunately, sometimes bottom water
drive in gas reservoirs contributes to the depletion mechanism, altering the performance of the
non-ideal gas law in the reservoir. Under these conditions, optimistic reserves estimates can
result. When calculating reserves using any of the above methods, two calculation procedures
may be used: deterministic and/or probabilistic.
7. Reservoir simulation.
The material balance method is actually a subset of the mathematical techniques that are
available to modern petroleum engineers. Reservoir simulators use material balance as well as
fluid flow equations to model the reservoir as a group of interconnected tanks. The advent of
powerful computers has made the use of numerical simulation quite common for estimating
reserves and recovery as well as initial volume in place. Since reservoir simulation can account

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 DEPARTMENT OF PETROLEUM ENINGEERING
PE8010 – INTEGRATED OIL/GAS FIELD EVALUATION

for performance history through history matching, this method incorporates facets of all the
techniques discussed. With sufficient data and prudent use of simulators, this method provides
the best recovery estimates for complex reservoirs.

HYDRODYNAMIC STUDY
Hydrodynamic flow may be defined as fluid movement which is caused other than by buoyancy
effects. The application of subsurface fluid movement or hydrodynamics concepts to
hydrocarbon exploration has in recent years g.?ined renewed acceptance in the petroleum
exploration industry.
To achievethe project objectivesthe hydrodynamic evaluation was required to
characterise the formation water system, the trapped static hydrocarbon phases, and the
interactions between the two. Standard hydrodynamic approaches to characterising flow systems
in aquifers include the analysis of pressure data, both in vertical profile (e.g. pressure-elevation
plots), and within the plane of the aquifer by conversion to hydraulic head. Pressure data are
supplemented with formation water analysis and formation temperature data to aid in the
evaluation of the flow system as these parameters can be related to hydrodynamic processes

BRIEF REVIEW OF HYDRODYNAMIC THEORY

Potentiometric Surface
Oil and gas fields are commonly found in permeable reservoir rocks that cover wide areas. The
portion of the reservoir that is not filled with hydrocarbons can be assumed to be filled with
water. This water-bearing portion is called the aquifer.
The water-phase pressure in each field (below the oil-water contact) is simply the height of the
vertical column of formation water below the elevation of the outcrop. The level or surface to
which such a hypothetical column of water could rise in wells penetrating the aquifer is called
the potentiometric surface. The pressure in the oil phase in each field is a function of the density
differences between the oil and the water
Gravitational Fluid Flow
In a hydrodynamic environment, fluid movement occurs in response to potential energy
differences; flow is from regions of high to low energy. Commonly this is caused by difference
in elevation of an aquifer which is exposed at the surface at relatively high topographies
Flow through such an aquifer is defined by Darcy's Law and is dependent upon a large hydraulic
head and relatively few permeability barriers.
Three - Dimensional Flow
It is not logical, however, to assume that this flow is strictly two-dimensional even though
apparently confining beds, such as shales, envelop the reservoir in questionSince the magnitude
of the flow of a fluid is directly proportional to the cross-sectional area and inversely
proportional to the length of the flow path, the low permeability of a shale is overshadowed by
the large cross-sectional area of the contact between the formations and the relatively small

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 PE8010 – INTEGRATED OIL/GAS FIELD EVALUATION

distance of flow across the tight formation. Thus, the possibility of three-dimensional flow
should also be considered.
Effect of Subsurface Fluid Movement
Hydrodynamics, or present-day subsurface fluid movement, influences oil migration pathways,
and may modify the geometry or location of pre-existing accumulations. Common effects
include tilted oil-water contacts, flushed or partially flushed traps, structurally offset oil and gas
accumulations, hydrocarbon accumulations in non-closed geologic features, and gas
accumulations downdip from, and underlying, water.

Migration .and Flow

migration of subsurface fluids is along paths of local minimum potential, and accumulation
occurs at potential minima. When pore water is at rest, potential energy is constant, and
petroleum migration is primarily determined by buoyancy (the difference in deasity between
hydrocarbons and water), involving vertical or updip movement only. When the pore water is in
motion, a component of lateral motion is imparted to the migrating petroleum. The magnitude of
this component depends upon the density difference of the fluids, whereby, as the density of the
petroleum approaches that of the water, the closer are their directions of motion. The direction of
gas migration will be essentially vertical, due to its lower density relative to oil and water.
Flow Patterns in Mature Basins
Most hydrodynamic studies worldwide have been conducted within mature compacted interior
basins which have undergone significant uplift and erosion following deposition and burial.
Pressures in such basins typically range from subnormal to artesian, depending upon the height
of the potentiometric surface relative to surface elevation. The potentiometric surfaces typically
are subdued replicas of the regional topographic expression, and are characterized by
hydrodynamic flow from upland recharge areas to discharge areas which commonly coincide
with topographic depressions.

Determine exploration prospectivity in the surveyed area • Determine deeper potential in a

producing field • Determine development locations following an appraisal campaign • Determine
development locations using 4D seismic volumes
The final presentation should include a report on the data analyzed including relevant maps,
cross sections, and recommendations for future action. Future work might include additional
seismic analysis and/or well locations to be drilled. Justification for these recommendations
should be presented in the context of risk reduction and/or economics. A typical project in the
―real world‖ can require several months of full time effort. Therefore, it‘s important that the
teams keep the project scope appropriately limited.

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 PE8010 – INTEGRATED OIL/GAS FIELD EVALUATION

EVALUATION OF HYDRODYNAMIC CONDITIONS

FLOW CHART FOR HYDRODYNAMIC STUDIES

FORMATION PRESSURES, WATER ANALYSES,

DETERMINE REGIONAL FLUID GRDIENT
DATA BASE

ELIMINATION AND RANKING OF PRESSURES

DATA SCREERNING ELIMINATION OF CONTAMINATED WATERS

PRESSURE-DEPTH PLOTS ESTIMATION OF RESERVOIR CONTINUTY

IDENTIFICATION OF LOCAL PRESSURE SYSTEMS

POTENTIOMETRIC CONVERT PRESSURES TO POTENTIOMETRIC SURFACE RECOGNITION

OF BARRIERS, ANOMALIES DEFINE REGIONAL FLOW PATTERNS
SURFACE MAPPING

INTEGRATION WITH GEOLOGICAL DATA, LOCATION

HYDROCARBON OF FAVORED SITES FOR ACCUMULATION
ENTRAPMENT MAPPING

COMPUTER MODELLING IF FEASIBLE AND COST EFFECTIVE, MODEL

FLUID FLOW WITH RESERVOIR SIMULATOR

REGIONAL SYNTHESIS COMBINE WITH REGIONAL DATA AND KNOW LEDGE

PROSPECT RECOMMENDATION RANK PROSPECTS IN ORDER OF PRIORITY

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TECHNO-ECONOMIC EVALUATION FOR NORMAL AND MARGINAL FIELDS
A Marginal oil field is ―any oil discovery whose production would, for whatever reasons,
fail to match the desired or established rates-of-return of the leaseholder‖
Marginal fields as, ―non-producing fields whose economics is not considered robust enough
using conventional development methods under the prevailing fiscal regime‖. According to the
Department of Petroleum resources, a marginal field is any field that has reserves booked and
reported annually to the Department of Petroleum Resources (DPR) and has remained un-
produced for a period of over 10 years. Marginal fields are usually left undeveloped for a long
period of time due to one or more of the following factors:

I. Very small sizes of reserves/pool to the extent of not being economically

viable II. Lack of infrastructure in the vicinity and profitable consumers
III. Prohibitive development costs, fiscal levies and technological constraints
IV. Reservoir and fluid characteristics such as low permeability, low API gravity, high viscosity
V. Water depth
In general, marginal fields describe economically sensitive fields usually in the range of
5-20 million barrels reserves. However, should technical or economic conditions change; such
fields may become commercial fields. Marginal fields have several parameters that affect them.
These include environmental concerns, political stability, access, remoteness and, of course, the
price and price stability of the produced gas/liquids (Society of Petroleum Engineers, 2014).
However, from an economic stand-point, a marginal field is one that can be developed with
marginal profits regardless of the actual size of the oil field, and so require special field
development planning and reservoir management strategies in order to yield acceptable returns
on investment (ROI).
The various cycles which affect our oil industry have emphasised the need for detailed control
of expenditure for development and production of small discoveries.
Marginal fields refer to discoveries which have not been exploited for long, due to one or
more of the following factors:
Very small sizes of reserves/pool to the extent of not being economically viable
Lack of infrastructure in the vicinity and profitable consumers
Prohibitive development costs, fiscal levies and technological constraints
However, should technical or economic conditions change, such fields may become
commercial fields.
Marginal fields have several parameters that affect them. This includes environmental
concerns, political stability, access, remoteness and, of course, the price and price stability of
the produced gas/liquids.
This course will describe parts of unconventional methods to develop the marginal fields and
mainly focus on innovative methods and new technology in developing those marginal fields.

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ASSET MANAGEMENT

The reasons for investment diversification across political borders vary from seeking the highest-
quality assets, increasing energy security for the home country, or transferring relevant
technologies and skills to hedging geopolitical risks or engaging in diplomacy. The
technocommercial evaluation of these assets by investors provides for an exciting work
experience for E&P industry professionals. The process is not purely technical or limited to the
evaluation of the asset‘s production performance. Careful consideration is also given to the
business environment, fiscal policy stability, and political stability of the country, among other
factors.

Oil and gas companies maintain a balanced portfolio of exploration, development, and
production assets, and the proportion of these assets is governed by the company‘s overall
strategy. Risk-averse companies may prefer to farm into a producing asset and acquire a stake as
a nonoperating partner. Companies with exploration experience and risk appetite may bid on
government auctions for exploration blocks or farm into exploration assets.

Some companies focus on successful exploration and prefer to make a profitable exit by
selling their stake before the development of the asset begins. E&P companies, in general, seek
out investments in assets based on their corporate risk profile and production and/or reserve
booking and replenishment targets. Monitoring the operability of the equipment, maintenance
planning and accounting for replenishment of spare parts and maintenance tools.

The Oil & Gas industry is challenged with effectively maximizing asset performance,
increasing uptime and controlling cost. Drilling and exploration operations have additional
concerns because they have movable assets which complicates equipment tracking and
maintenance. Refineries, due to the high cost of downtime, can not afford unplanned outages and
they strive to manage planned turnaround projects with least time and cost. Refineries also must
deal with process safety management issues.

The generally accepted definition of asset integrity is the ability of an asset to perform its
planned function effectively and efficiently for its intended purposes throughout its service life.
In its abbreviated form it is often referred to as Fitness-for-Service or FFS. The scope of asset
integrity management programs is to prevent loss of containment and damage typically to critical
structures, safety systems, electrical systems and controls, floating and subsurface systems,
flexible lines and subsea connections, storage tanks and ballast tanks, as well as machinery and
processing equipment. The focus is on identifying and reducing safety risks before they escalate
(design integrity), maintaining effective hardware barriers (technical integrity) and working
within operating barriers (operating integrity).

Current practices often follow these phases:

• Identification of critical assets or bad actors, particularly where the consequences of
failure are high,
• Development of inspection and maintenance plans,
• Execution of inspection and maintenance plans and making it a process,

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 • Monitoring and managing deviations such as discrepancies in material conditions or
overdue integrity tasks,
• Continuous improvement.
In the oil and gas industry, most inspection and testing plans focus on deterioration
processes, which are inevitable in harsh and extreme conditions. The objective of most
inspection and monitoring programs is to minimize business risks associated with safety and loss
of production. Today the key question is how to reduce operating costs while maintaining
acceptable levels of safety and reliability.

Maintain exploration and production assets regardless of communications connectivity and

track asset movement
Use a hierarchy view to move rigs and
equipment Easily transfer assets
Specify security access restrictions based on role, rig and country assignments
Easily view all work orders, cost and equipment history following each asset
movement
Maintain refinery assets to maximize performance, minimize downtime and control costs
Manage shutdowns and projects to plan, schedule and execute in the shortest amount of time
with predictable cost.

Asset management solutions helps companies:

Maximize asset performance

Keep plant, equipment, and facilities available, reliable and safe
Reduce maintenance, spare parts inventory and purchasing
costs Make better decisions faster
Improve operations
Reach environmental, compliance and service goals

One of the key tasks of Asset Management for oil and gas production is to ensure plant
safety while maintaining high economic efficiency. In a typical production field, operations
personnel must deal with several thousands of operating limits and operating parameters, which
make it impossible to effectively monitor them and take timely actions.

Some benefits of executing integrated Asset Management include:

•Lower capital expenditures, operating expenditures, and market risk

• Refined process designs and superior control system software designs

• Higher plant performance efficiency and increased process uptime

• Better operator effectiveness and agility through faster, equivalent on-the-job training

Shorter plant commissioning schedules

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 • Better regulatory compliance documentation

Most companies have an asset-screening process for new investments. This is designed to reduce
the opportunities to be evaluated to a manageable and practical number. The screening criteria
may be a combination of:

1. Technical considerations—based on asset quality and the company‘s expertise and

experience
2. Financial considerations—based on the amount of investment, expected post-tax returns,
cash flow constraints
3. Geopolitical considerations—based on political stability of the region, fiscal regimes,
safety considerations

Technical Considerations

The essential technical questions in their simplest form are:

How much hydrocarbon is present?

How much hydrocarbon can be economically recovered?

Exploration assets require extensive analysis by geologists, petrophysicists, and geophysicists,

with an emphasis on seismic data availability, data quality, and information availability from
nearby analogue fields. Development or producing assets are more production-oriented—for
these fields, reservoir performance analysis, reservoir modeling, and field development planning
are usually more important than seismic interpretation. As the number of wells increases and
production histories grow longer, confidence in earth models (geocellular or static models) and
reservoir simulation models (dynamic models) increases.

Typically, the seller provides a data package, which can be purchased at a nominal price by
interested investors to perform their own analysis. For exploratory blocks the data package
generally includes available seismic data, geology reports, well logs, and core reports. For
producing assets the data package may contain information on production history, well designs,
complete asset models (including both earth and dynamic models), surface facility designs, and
evacuation options.

In addition to the expected hydrocarbon volumes, production rates, and drilling schedules, there
is also the element of development costs. Estimation of capital expenditure (drilling costs and
facilities costs) and operating expenditure influences asset profitability. There are multiple
software tools available that use historical, regional cost databases to provide estimates of capital
and operating expenditures based on the development plan. It is interesting to note that
depending on the phase of the development, these cost estimates can vary by as much as ±40%.
During the tendering and procurement stage, for example, the cost estimates are well-defined and
stay within a ±5% range. Relevant health, safety, and environment considerations, such as the
age and condition of existing infrastructure and the history of safe operations, are also accounted
for.

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Financial Considerations

Oil and gas assets in the exploration and appraisal stage usually require large investments with a
long gestation period, but development assets or producing assets may offer a quicker payout.
The investing company must align the magnitude of the investments and the cash flow schedule
with its corporate cash flow planning.

Companies often elect to bid as a consortium, with each partner having a varied stake and the
largest stakeholder usually operating the assets. Depending on its technical capabilities and
presence (or lack thereof) in the region, a company may choose to opt for an operating stake or a
nonoperating stake in the consortium.

The project‘s profitability is calculated based on the revenue and cost estimates and compared
using standard measures such as net present value, internal rate of return, return on investment,
and payback period. Due to fluctuations in the price of oil and uncertainty in production profiles,
the ability of revenue streams to hit certain predetermined targets is not always guaranteed;
depending upon the lease or concession duration, these forecasts may have to be prepared for 10
to 40 years. A longer concession period implies higher uncertainty in revenue and costs. The
economic calculations must always be weighed against all technical, financial, and geopolitical
risks.

Geopolitical Considerations

Some regions may have unstable governments, safety risks for employees, risks of pilferage
and/or theft, and supply disruptions. The threat may even be political in nature. An abrupt change
in fiscal and monetary policy, for example, could change tax rates and impact profitability.
Independent rating agencies, including the Global Peace Index, Political Stability Index, and
Ease of Doing Business Index, among others, prepare yearly rankings of countries that are useful
as screening tools for investors to avoid assets that come with high geopolitical risk.

Countries with higher risk will often, however, offer a better reward; as such, many companies
continue investing in high-risk areas to chase high returns. Additionally, a review of the legal
structure and tax regime in the country of operation is needed to accurately calculate post-tax
profits and other bidding parameters.

Asset evaluation studies are multifaceted and time-bound, with sellers often having fixed
disinvestment timelines and government auctions of blocks always having deadlines. Sometimes
the first-mover advantage comes into play when there is no structured bidding timeline defined
by the seller. A team of experienced, multidisciplinary experts performs these evaluations
rapidly, sometimes in timeframes of weeks rather than months. Specialized software tools and
information databases are available for these studies, with some companies outsourcing them to
technical, financial, and legal consultants to expedite completion. High-value investments
require the best quality of due diligence. Predicting the profitability of multibillion-dollar
investments in oil and gas assets, after all, is no easy task.

15
 UNIT - 2
PETROLEUM PROJECT EVALUATION
Project—This represents the link between the petroleum accumulation and the decision-
making process, including budget allocation. A project may, for example, constitute the
development of a single reservoir or field, or an incremental development for a producing field,
or the integrated development of a group of several fields. In general, an individual project will
represent the level at which a decision is made on whether or not to proceed (i.e., spend money),
and there should be an associated range of estimated recoverable volumes for that project.
A hydrocarbon field has a long life cycle: From the discovery of a petroleum deposit to the first
oil/gas, exploration and production activities are spread over several decades. Five main steps
can be distinguished in the life of an oil or gas field:

DISCOVERY EVALUATION DEVELOPMENT PRODUCTION

ABANDONMEN

EXPLORATION AND EVALUATION

Field discovery
> oil and gas are trapped in reservoir rocks buried underground (on shore/ off shore),
> to locate hydrocarbon accumulation, geoscientists analyze images of the earth‘s subsurface
produced by seismic echography. They build a model of geological layering of the subsurface,
and then identify potential reservoirs called «prospects»,
> exploration wells need to be drilled to check if the identified prospect does indeed contain
hydrocarbons. These wells are typically several kilometers deep.

Field evaluation
Once discovery has been confirmed, 3D numerical reservoir simulation models are built:
> to estimate the initial volume of oil and gas in the reservoir,
> to simulate the reservoir fluid flow behavior and optimize the field development scenario
(number, type and location of wells, level of field production, etc…).
Appraisal wells are drilled to improve the field description through further data acquisition.

OIL & GAS PRODUCTION

Field development
A field development plan establishes the following:
> the number of wells to be drilled to reach production objectives, > the recovery techniques to
be used to extract the fluids within the reservoir,
> the type and cost of installations, such as platforms, depending on the marine environment
(tides, storms, waves, winds, corrosion, …),

16
> the separation systems for gas and fluids,
> the treatment systems needed to preserve the environment.

Field production
The time period over which hydrocarbons may be extracted varies between 15 to 30 years and
may be extended up to 50 years or more for «giant fields». The lifetime of a reservoir is
composed of different successive phases:
> a period of production increase, > a stabilization phase or «plateau»,
> injection phases (water, gas or chemical products) to «assist» the hydrocarbon recovery and
thus maintain a satisfactory volume of produced resources,
> the depletion period when hydrocarbon production declines progressively
Field abandonment
When the hydrocarbon production rate becomes non economical, the reservoir is abandoned.
Before abandoning the field, the oil companies:
> dismantle facilities such as platforms,
> put the well in a safe state,
> preserve the field‘s residual hydrocarbon reserves of the field,
> clean, depollute and rehabilitate the site.

MINERAL PROJECT EVALUATION CASE STUDIES

A mine project is the scheme of facilities needed to mine and extract minerals from
defined ore bodies: it normally requires a special investment or allocation of resources such as
capital and completion within a specified time period. The evaluations should:

a) provide a base on which economic decisions are made,

b) identify and quantify risk,
c ) establish project priority.
At least four aspects of the environment in which the project is evaluated may be identified.
a) Technical aspects. These include the geological setting of the deposit and technology that
determines the production system.
b) Financial aspects. The amount, type and cost of capital available for a mining project will
depend partly upon the financial environment at the time the investment is undertaken.
c) Social aspects. These involve the social costs and benefits derived from a mining project. The
development of infrastructure, the utilisation of local labour and material resources can provide
positive contributions to society. On the other hand mines produce tailings and effluents that may
have a negative impact on the natural environment.
d) Political aspects. By political aspects are meant the mineral, fiscal, foreign exchange and
employment policies of the local and national governments where the deposit is situated. They
are particularly important to governments participating in mineral projects.

17
TECHNICAL INPUTS TO EVALUATION

a. The Mineable Reserves

In a mining project it is the ore that forms the major resource input to the mining process The
mining method will be determined mainly by estimates of the size, shape, strength, depth and
orientation of the orebody and its geological environment. The production rates and life of the
operation will depend upon the quantity and quality of mineable reserves. Run of mine ore,
consisting of rocks and minerals of varying density, quality and grade, feeds the process plant
that will recover only part of the valuable mineral content. A model of the orebody is pre-
requisite for modelling and evaluating a mining system.

Mineral resources and ore reserves have been classified in various ways and phrases such as
'possible', 'probable', and 'proven' or 'measured', 'indicated' and 'inferred'.

18
 b. Production Rates

The selection of possible production rates for mining projects forms part of early decision
making. It might be assumed that the production rate (s) should be found to optimise a financial
criterion such a Net Present Value or the Internal Rate of Return.

average production rate (APR) = 'expected ore tonnage' (EOT) / life of the mine (LOM)

Factors relating to the life of the mine include:

Legal limitations.
Market or product
life Political stability
Strategic objectives.

Factors that relate to the production rate include:

a) The accessibility of the ore. Shaft dimensions limit the ability to hoist rock and ore.

b) Economies of scale. Many authors indicate that both capital and operating costs per unit of
production tend to decrease as the production rate increases

c) The ability to transport or sell the planned production at the rate being proposed

d) Limitations to the capital available may well limit the size of a mining operation This often
leads to a strategy of starting at one rate and then financing increases from profits.

c. The Production System

The evaluator of a mining project will need to know that these are realistic. This could involve
engineering in a wide range of disciplines — mining, processing, mechanical, electrical and
electronic, civil, architectural etc. Each facility will need to meet the production or service needs
of the project at least during the critical early years. The following aspects are important:

a) capacity. There is a temptation for engineers to over-design as this outcome is less

serious than that resulting from plant being under capacity. This problem can be
overcome by establishing an acceptable range of production rates for any system,
b) mining dilution, recovery and efficiencies of the systems,
c) appropriateness. It is normally not good practice to develop inovative and relatively
untried technology at a new mine nor is it sensible to rely on sophisticated processes and
equipment at a mine that is unlikely to have sufficient technical support close at hand,
d) safety and health. The mine may well be planned for an area where there are limited
safety and environmental regulations. These may need to be imposed on the project,

19
 e) resources. Provision must be made not only for the initial investment and operating
requirements but also for the replacement of equipment and for improvements to the
systems as time passes,
f) time. A realistic schedule is needed covering investigations, negotiations and
permissions, detailed design, procurement, construction, commissioning and operation.

COST ESTIMATION

The design basis for a project is probably the most important technical criterion for the accurate
estimate of the cost of the outcome. A major purpose of a conceptual study is to identify 'the'
optimum design for an eventual project. To change the scope of a project during the construction
phase can be exceedingly costly.

The following types of cost are typical:

a) Preproduction Capital: the investment needed to bring a mine into production.

b) Working Capital: the funds to provide for stocks of consumable materials and spares, funds
for salaries and wages etc. both at the start of and during production operations,

c) Replacement Capital: the predetermined expenditure needed to replace plant and equipment
worn out or becoming obsolete during the operating phase.

d) Improvements Capifal: needed for ongoing significant improvements to the mine, plant or
infrastructure. It can be justified by technical, financial, social or political reasoning.

e) Operating Costs: identified by function — mining, treatment, engineering, administration, etc;

or by reseource — labour, supplies, equipment, services, overheads etc.

REVENUE ESTIMATION

Estimating the costs for a mining projet may seem difficult but estimating the revenues that may
accrue can be very risky. There is the problem of the selling price of the product a few years after
the decision to commence construction. Although it may be possible to negotiate initial contracts
for the sale of the product at prices based on various formulae, the operation will eventually have
to be able to cope with the normal commodity supply and demand within the context of
substitution, competition and economic cycles.

In making decisions regarding the continued exploration and investigation or the development of
a mineral deposit the evaluator may consider different revenue scenarios

TAXATION

It is possible to compare two similar internal projects within a company without taking taxation
into account.

20
A number of means by which a government can gain direct benefit from a project can be
considered.

a) Taxes on Revenue — Royalties.

b) Taxes on Resources — Import Taxes, Value added tax.

c) Taxes on operating profits less allowances.

d) Withholding taxes

e) 'Free' ownership where the host country does not finance the equity but still has a share of the
ownership and dividends from the project.

f ) Lease payments for land and mineral rights.

EVALUATION

The basis for a financial assessment is the estimated annual cash flow of the project over its life.
The inputs to the cash flow have been discussed with the exception of loans, repayment and
interest.

Annual cash flow = Capital Expenditure + Revenue — Operating Costs — taxes — increases in
working capital + loans — loan repayment — interest.

Number of values and indices that can be used in financial evaluation. These include: a)
Maximum cash exposure, b) Payback period, c) Net Present Value (NPV) at a predetermined
discount rate and, d) Internal Rate of Return (IRR).

THE DESIGN AND EVALUATION OF WELL DRILLING SYSTEMS

The well design process begins with an understanding of the environment in which the well will
be drilled. Interpretations of local geologic structure, geo-pressure and formation strengths are
developed. These interpretations may be derived either from local drilling experience or from
seismic data. It should be noted that uncertainties will exist in the interpretation of the data and
ultimately in the description of the geologic environment.

The quality of geologic predictions (e.g., pore pressure, fracture gradient, bottom hole
temperature and pressure, formation fluids, H2S, CO2, chloride concentration, etc.) often relies
on the amount of control within a given area. As such, these predictions are usually expected to
be more reliable for development wells than for exploration wells. However, for drilling
operations in established deepwater fields, the pore pressure and fracture gradient often
demonstrate variability due to production.

With a description of the geologic environment in place, constraints are then introduced by the
designer to address specific well requirements. These include the directional drilling objectives

21
and the required well depth. Production or evaluation requirements dictate the hole size desired
at total depth. Depending on the geographical location, some wells will require an additional
surface casing string for the isolation of shallow water or gas flows.

In some locations, the salt will provide a higher fracture strength which may reduce the number
of casing strings required to reach the ultimate well objective.1 The presence of salt in other
locations may present drilling challenges such as shear/rubble zones, inclusions, or abnormal
pressures within or around the salt. These troublesome zones may offset the benefits of the
increased fracture strength of the salt, possibly increasing the number of casing strings required.

Zones that may prove troublesome in drilling operations are addressed in the design.

These trouble zones might include lost circulation intervals, faulted or mechanically destabilized
zones, plastic or chemically sensitive formations, abnormally or sub-normally pressured zones,
and intervals that have been pressure depleted (or charged) by production.

Once the well has been drilled, it must be completed. Completing a well consists of a number of
steps, such as installing the well casing, completion, installing the wellhead, and installing lifting
equipment or treating the formation, if required.

In developing the casing program, the designer must also consider the presence of hydrocarbon-
bearing intervals and any depleted or flow zones requiring isolation. When drilling in mature
deepwater fields, additional casing strings are often required to isolate highly pressure-depleted
zones with associated low fracture gradients. Casing may also be set based on geologic
considerations.

Tight-clearance casing programs necessitate the use of hole enlargement devices such as
underreamers and bi-center bits.

Well Design Process

Prior to the commencement of the well design process, the following considerations shall be
established:
• Type of well (exploration, appraisal, production)
• Location and installation (integrated platforms, wellhead platforms, subsea)
• Main and secondary targets
• Data collection demands
• Well evaluation methods to be applied (coring, logging, sampling, testing, stimulation)
• Application of the well (exploration, appraisal, production, injection, monitoring, relief/killing)
• Characteristic inclinations and depths (vertical, deviated, horizontal, side-track, HPHT,
deepwater)

22
• Type of drilling-, production-, and workover system (fixed-, floating-, subsea installation, jack-
up)
• Life time prognosis (permanent-, temporary abandonment, production-, injection completion,
partial completion and later tie-back, expected time between workovers, downhole pressure and
temperature profile)
• Environmental and safety constraints
All well design activities shall include the following minimum of activities:
• Definition of objectives
• Fall back objective if unable to meet main objective
• Definition of design basis
• Definition of well's lifecycle
• Collection of background information
• Identification of governing regulations and standards
• Collection and evaluation of information from reference wells, experience transfer report
system or databases and other relevant sources
• Collection and evaluation of information from vendors of equipment and services
• Well design with special emphasis on relevant procedures
• Review and verification of design
• Well design upgrade if deemed necessary
• Design review
• Design approval
Underbalanced Drilling Design To succeed in proper well design, the issues below shall be
considered:
• Wellbore stability and consolidation
• Safety and well control
• Inability to use conventional MWD technology for through-string injection techniques
• Gravity drainage effects in high permeability zones
• Condensate drop-out or gas liberation effects
• Near wellbore damage
• Probability for corrosion problems
• Discontinuity of the underbalanced situation
Barrier Elements Examples of recognised barrier elements are: • BOP arrangements • Christmas
tree arrangement • Properly cemented casing • Production tubing • Cement plugs • Production
packer elements • Mechanically/hydraulically operated plugs/packers • Well safety valve

23
(SCSSV) • Lubricators • BOP system of coil tubing/snubbing unit • Seal assembly of
casing/production tubing • Wellhead systems • ASV (Annulus Safety Valve)

Casing Design

General Requirement When performing the casing design, the casing strings shall be set at such
depth that full control of the well can be maintained at all times. This further means that casing
shall be installed in such a way as to take account of geological and pressure related conditions
in the well in order to maintain full control of the well at all times.

Casings shall be of such diameter, weight and strength, and shall otherwise be made, installed
and anchored in such a way that they can withstand the pressures and loads from fluids and gases
that can be expected in the well at all times. Casings shall also be of such quality that they can
withstand particularly corrosive media in the well (H2S, CO2 etc.), if they can be expected to be
exposed to such environment.

Casings shall be designed and installed in such a way as to enable cutting without the use of
explosives. If an exploration or appraisal well is planned to be a future production well, the
casing design must also take into account temperature expansion causing an increased collapse
force on the production casing.

Well Design Criteria

The casing shall be designed with respect to realistic load conditions during the lifetime of the
well.

The load shall be corrected for additional loads and effects:

• Biaxial stress - collapse • Casing wear • Bending in deviated hole sections • Temperature
effects • Corrosion • Plastic Formations and reservoir compaction • Pressure during completion,
workover and kill operations

Cement Design

Design parameters and objectives Based on the objectives and the design criteria, necessary
design parameters are established for the final cementing programme. It is important that the
drilling programme indicates design parameters that are specific to the individual cementing
operation. The minimum requirement for cementing of the various casings will be that the well
shall be cased in such a way that full control can be maintained in further operations. The design
criteria set out below for cementing of various casing strings are based on current industry
practice.

Primary Cementing Operations

1. Conductor casing

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Conductor casing shall be cemented back to the sea bed if a hole for the casing has been made by
water-jetting or drilling (exceptions may apply for conductor driving). When cementing the
conductor casing, the requirement that it shall be capable of providing the necessary support for
the surface casing and also be capable of absorbing the forces that occur when well control
equipment is placed on the sea bed, shall be taken into consideration.

2. Surface casing
The primary function of the surface casing is to ensure adequate anchorage of the BOP stack.
Therefore the surface casing shall be planned cemented so that sufficent vertical and lateral
support is achieved. If the casing is planned to be cemented back to the sea bed, secondary
cementing shall be considered to ensure sufficent anchorage.
3. Intermediate/Production casing
The cement shall be of such quality and shall have sufficient compression strength so as to be
able to resist expected pressure in the next section, and provide a reliable and permanent seal
against permeable formations in the cemented area
4. Liners
Objectives for cementing of liners coincide with those applicable to intermediate/innermost
casing. In addition, the annulus between the liner and casing string shall be secured with a
cement plug of at least 100 meters or a packer.
Secondary Cementing Operations
Objectives, design criteria and design parameters are determined in the same way as for primary
cementing operations. Cement plugs intended to have a permanent sealing function against
downhole influx or isolation, shall be designed so that strength reduction and/or altered
permeability over a period of time will not entail operational or safety problems This is
applicable in particular if the plug is expected to be subjected to a temperature that exceeds 115
degrees C.

25
ECONOMIC APPRAISAL METHODS FOR OIL FIELD DEVELOPMENTAL
PROJECT

The procedure of economic evaluation of oil exploration projects can be divided into the
following phases:

Phase 1. Geological estimates of the probability of success (factors for: the existence of a valid
trap, reservoir quality, seal, source rock, favourable migration - - coincidence of factors 10
produce a hydrocarbon accumulation);

The probable factors are:

Existence of a valid trap;

Reservoir quality;
Seal;
Source rock;
favourable migration - co incidence or factor to produce a hydrocarbon accumulation

Geological estimates of probabilities are expressed as a percentage and, assuming that the
evaluated geological probabilities are independent, we can apply the multiplication theorem
which will give the complex value - discovery probability. Each probability factor can be
subdivided into more components but in such a case the overall probability of success
(discovery probability) will be lower.

Phase 2. Evaluation of exploration costs (bonuses, seismic, drilling);

The exploration costs are evaluated from experience and current market prices. The sum of these
also represents the risk that will have to be taken in case of failure as expressed financially.
Many otherwise attractive projects with a high expected value can be dropped because of this
parameter alone, as the investor simply feels the amount or risk money is to high for him to take.

Phase 3. Evaluation of reserve parameters (acreage, bed thickness, accumulations);

Profit evaluation starts with the evaluation of the size of the reserves. Here it is possible to:

a) evaluate the size or the reserves based on neighboring fields so in this case no further compl
icated calculations are necessary.

b) evaluate the parameters of reserve calculations, and by multiplication using the volumetric
formula, reach the total size of the reserves. Reserves (m)) = average x bed thickness x porosity x
oil saturation x percentage of recoverability of total reserve x volumetric factor.

c) Many authors consider that the evaluation of parameters such as a unique size does not
represent the possible size of reserves, (as we can not be certain that the chosen size is realistic),
but they recommend the parameters to be evaluated in the range from-to with or without stress

26
on the most probable value, and that the use or the special multiplication procedure known as
"Monte Carlo simulation" leads to the most probable reserves sizes.

Phase 4. Evaluation of field development parameters (price of oil, price of development well,
required number of wells, cost of other development, well life, percentage of the oil sharing and
the participation in the profit, taxes, choice of the discount rate);

Phase 5. Compilation and integration calculation (probability theory, expected values and Monte
Carlo multiplication's) and conclusion.

The ultimate aim is a comparison of expected gain versus risk. In order to do this the expected
value of profit (arithmetic average of profit multiplied by the probability of discovery) was
compared with the excepted value of loss (multiplication of the exploration cost with the
probability of a negative well) .If the expected profitability value is higher than the expected loss
value a decision can be undertaken as 10 either undertaking the risk or further evaluation.

Economics drives the entire oil/gas producing industry. Almost every decision is made on the
basis of an economic evaluation. Economic evaluations are also performed to determine reserves
and the "standardized measure of value" for reporting purposes for publicly held companies. In
many cases, the goal of the company is to make decisions that have the best chance of
maximizing the present day profit. This chapter discusses economic evaluation under two
conditions. First, techniques that assume we know the future parameters with certainty are
discussed. Later, methods of handling the inherent uncertainty involved in oil/gas operations are
discussed.

Having stated a company goal in terms of profit, it behooves us to examine the definition of
profit. There are at least three ways to calculate profit, each with its own set of assumptions and
rules and each leading to a different answer. The three models are the net cash flow model, the
financial net income model, and the tax model.

In the simplest analysis, profit for a period is the revenue received during the period less the
costs incurred during the period. Note that profit is defined for some time period, which can be
arbitrarily long. In the oil/gas business the period is usually one month or one year. The amount
of revenue received during the period is usually similar for all three models, especially for yearly
periods. There might be some timing differences in revenue recognition, but they are usually
relatively minor. The three models differ considerably in the timing of the costs. Costs can be
further subdivided into expenses, which benefit only the current period, and investments, which
benefit more than one period. The cash flow model assumes that 100% of both the investment
and the expenses are recognized when they occur. The financial net income model attempts to
match the revenue with the costs to produce that revenue. This leads to recognizing the expenses
in the current period and recognizing the investment over a longer time period—often the life of
the project. The total cost over the life of the project is the same in the cash flow model and the
financial net income model, but the portion of the costs allocated to each time period is
significantly different. The concept of spreading the investment over the productive life of the
project leads to depreciation.

27
RISK ANALYSIS IN OIL FIELD

Risk definition

―the possibility that something unpleasant will happen‖

―Risk is most commonly conceived as reflecting variation in the distribution of possible

outcomes, their likelihoods, and their subjective values‖

Risk is defined as the possible variation in results and can be either positive or negative

―In some situations, risk arises from the possibility of deviation from the expected outcome
or event‖ but it ―is generally used only when there is at least the possibility of negative
consequences.‖

Project Risk

A project is a certain type of service which gathers different products together in order to
achieve an inclusive solution. From this perspective, projects are generally considered to have
greater risk than products. Project risk is categorized separately from financial or technical risks.

Risk is involved in the nature of all projects and zero risk projects do not generate attraction to
follow due to the fact that facing with risk is a major factor to earn desired benefits in return for
ventured resources. Project risk can be considered as threat or opportunity which affects time,
cost, quality, performance and productivity of the project.

A risk may have one or more causes and, if it occurs, it may have one or more impacts‖. A cause
can be considered as an assumption, condition, constraint, or a requirement that makes the
probability of positive or negative results, and project objectives consist of cost, time, resource,
scope and quality.
There are three types of risk in all oil and gas industry projects: economic risk, political risk, and
environmental risk. These risks apply to all large, long lead-time industry capital projects, such
as:

Onshore drilling rigs

Offshore drill ships or semi-submersibles
Engineered equipment manufacturing
facilities Oil and gas production platforms
Refineries
Gas-to-liquids plants
Additionally, Exploration & Production (E&P) development projects have another large
item, geological risk.
The chart, Managing Risk Across the Industry, is an index of the relative size of
economic risk as it translates into capital and expense and affects a company‘s financial

28
 performance. Every risk needs to be quantified as part of the project planning and
investment evaluation decision process.
Economic Risk
Economic risk on international projects includes:

Oil prices collapse

Capital cost overruns
High operating costs
Loss of demand from the facility
Some overlap occurs with political risk in assessing the factors that also can affect the economics
of a project:

Stability in the tax system (regime)

Ability to repatriate earnings
Currency exchange rate stability

Political Risk
Political risk is a detailed evaluation of all the risks of doing business inside a particular
country. A change in country management or political philosophy can often result in a new
evaluation of a host country‘s oil, gas, and commodity reserves. Some examples of possible
changes are as follows:

Renegotiation of economic terms

Change in royalty payment and tax rate
structure Revisions to production shares
Ability to repatriate interest, profit, and dividends
History has shown that there is a direct correlation between the value of the commodity or
resource and the host country‘s relationship with the oil and gas companies. As the resource
value increases, the host countries take a stronger position in controlling their commodity assets.
The best deals for the international oil and gas companies seem to be made when the price of a
resource is low; however, the agreements are often re-negotiated when resource prices increase.
The ultimate political risk is the possibility of expropriation of assets, where the host government
takes over the investment, with or without compensation. There have been multiple examples of
major oil asset expropriation in the past. Venezuela has a long history of expropriating oil assets
under former President Hugo Chavez (but continuing in the new regime). More recently, Russia
and Ecuador have also used this technique to gain control of energy resources.
Environmental and Safety Risk
The other major factor is environmental risk. Environmental impact statements are a pivotal
part of new projects, including detailed attention to the project‘s carbon footprint.
In addition to what is normally considered environmental risk, such as pollution or inattention
to the ecological surroundings, other items, such as personnel safety, damage to equipment, fire,

29
flood, and disaster, are also important. All environmental risks that can affect project economics
need to be considered and quantified.
Another substantial environmental impact item in the upstream today is what the host
governments are calling a ―zero-flare tolerance.‖ Basically, the operator cannot produce the oil
unless an outlet is found for the associated gas which is often flared, or burnt off, at the well.
The environmental policy of zero-flare has become a significant capital and expense item in
developing new production prospects.
However, this policy is also driving research in uses for this wasted resource. Currently, diesel
generators often provide the electric power needed to run pumps and other equipment at the
well site. Using the available natural gas to power this equipment could save significant
amounts of money while reducing emissions.
Many companies now have applied environmental risk assessment technology and
resultant economic measurements to every international business decision.
Geological Risk
In evaluating geological risk, it is important to remember that there is a very high degree of
uncertainty in E&P, that is, the lack of true visibility on the oil or gas reservoir. What can only be
estimated by maps and seismic data is actually of great important to the success of the future
project.
Even with all of today‘s seismic and evaluation technologies and very sophisticated computer
modeling, the prospect could still contain:

Poor source rock

No reservoir
rock No cap rock
Faulted or poorly consolidated
reservoir Tight sands
All these factors affect the well‘s ultimate productivity economics. However, none of these
factors are well known until money is spent to drill exploratory and development wells, each of
which can cost in the tens of millions of dollars.
Risk-Return Profiles
The risk-return profiles for an oil and gas company vary greatly by the type of assets in
their existing and planned portfolio. These are some general assumptions:

An asset with a regional business driver and regulated rates, such as a pipeline, has a
low risk profile and gathers a lower, but stable, return.
Assets impacted by global events like refineries, GTL plants, and liquefied natural gas
(LNG)facilities, which are affected by supply-demand and commodity price
fluctuations, have a higher risk profile.
E&P projects are considered one of the highest risk options in the industry and can provide
high returns, if successful.

30
 Commodity trading is unusual. Because it depends on knowledge assets, it is considered
very high risk. It is difficult to forecast or depend on the ability of individuals and
groups to correctly forecast and act on future market direction.

Project Risk Management

"Project Risk Management includes the processes of conducting risk management planning,
identification, analysis, response planning, and monitoring and control on a project. The
objectives of Project Risk Management are to increase the probability and impact of positive
events, and decrease the probability and impact of negative events in the project."

Risk management is considered more than only one single approach to accomplish projects
within defined timeframes and costs. This approach provides many benefits for various types of
enterprises. Some examples are, but not limited to:

The improvement of decision-making methods in order to be less subjective and

more systematic.

Enable the projects to be compared together for sturdiness against particular uncertainties.
Illustrate the importance of any single risk.
Provide an advanced image of the project by recognizing the risks and developing
response strategies. Express the corporation‘s responsibility to the clients.
Strongly influence managers by providing an understanding about the variety of
probable outcomes of projects.
Enhance company‘s track record and successfully executed portfolio of projects.

31
Risk Management and Decision Making

Today, corporate planners use asset portfolio optimization principles and sophisticated
mathematical models to assess various risk-return relationships. Corporate metrics and
quantitative tools are common and available.
Data indicate that planners and decision makers who evaluate risk with a probability profile
rather than a single point estimate make better investment decisions.
Modeling
As the chart Multiple Analysis Approaches Used indicates, oil and gas companies employ three
basic analysis approaches to develop risk profiles for the various asset categories, and to
consistently tie the project analysis to the company‘s long-term business strategy. The analysis
approaches rank from more subjective methods to more quantitative.
Scenario planning was introduced by the Shell Oil Company in the 1960s to help account for
the uncertainty inherent in speculating about the future. In practice, it consists of three steps:

1. Formulating scenarios
2. Identifying ―robust‖ strategies
3. Developing specific strategic actions or changes in strategy as events unfold
This technique is the most subjective. However, it is becoming an increasingly popular concept
and tool, because most of the drivers affecting the industry economic results are outside the
control of the traditional oil and gas participants.
Quantitative modeling is the most common technique used by oil and gas and oilfield services
companies when they evaluate physical plants and facility assets. The basic concept of
quantitative modeling, often called ―rank and cut‖, is to:

1. Evaluate each project with a consistent set of assumptions

2. Use the same tool and metric to quantify and rank the economic return potential of each
project
3. Budget those projects for which the company has the available capital
Portfolio management simulates varying combinations of proposed projects, and especially the
interaction among the projects. In this method, all potential E&P projects are characterized
consistently and objectively with regard to reserves, cash flows, and investments costs.
However, a likely outcome of the analysis is expressed as a probability distribution of returns—
not a single point, or range of returns—which would be generated in more traditional
approaches. This method is much more sophisticated and demanding, but leads to better long-
term accuracy for E&Passets than the traditional, ―rank and cut‖ technique.
Time value of Money
As project investment options are analyzed, an important concept is the time value of money.
The basic premise of this concept is that the revenue or cash flow achieved in the future needs to
be discounted, because it is not as valuable as cash today.

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The first step in conducting this type of analysis is to develop a profile of the future, cumulative,
cash flow from the project. As the More on Qualitative Modeling chart shows:

In the early years of project investment, the annual cash required to fund the project makes
the cumulative cash flow negative.
As the project is completed and comes on stream, net revenue (cash) is generated.
In the case of E&P projects, the cash generated deteriorates over time as the field
production decline curve takes effect. The cash flow is also affected by changes in crude
oil prices and natural gas prices as well as unforeseen events that affect production rates,
such as hurricanes and political turmoil.
The cash flow stops when the asset is retired or sold.
Corporate Metrics (standard)
Typical corporate planning metrics to analyze the forecasted cumulative cash flow from a project
are:

Net Present Value (NPV) is the point where the cumulative cash flow from a project is
discounted using a percentage factor set by the company. An investment is attractive if the
NPV is greater than zero. Projects are ranked from the highest NPV (most attractive) to
the lowest during the budgeting process.
Discounted Cash Flow Return (DCF) or Internal Rate of Return (IRR) is the discount
rate where cumulative cash flow from a project equals zero. An investment is attractive if
its rate of return is greater than the corporation‘s cost of capital, or a hurdle rate return.
DCF and IRR measure the return of an investment relative to the company‘s cost of
capital.
Return on Investment (ROI) is where the cumulative cash flow is divided by cumulative
capital (plus any overhead on capital, such as interest cost). ROI describes how much
profit is generated per unit of capital investment.

Quantitative Oil and Gas Risk Assessment

Significant risks faced by the oil and gas industry coupled with massive investments
involved to sustain operations have driven the need to deploy leading-edge methodologies
to evaluate projects and measure risks. Mitigation strategies are most effective when oil
and gas risk assessment involves an in-depth study of risks involved, including detailed
determination and quantitative evaluation of risks involved to optimize investment returns.
DCF or Discounted Cash Flow, Sensitivity and Scenario Analyses The Discounted
Cash Flow method compares the targeted rate of return or hurdle rate to the estimated net
present value of the cash flow of the project. The DCF method is widely used in the
industry as it provides a sound approach to accounting for the time value of financial
investments, and it provides a clear base line for critical decision making. This method
comes with a few inherent issues, including assumptions that cash flow is static,

33
 the discount rate sufficiently accounts for project risks and inadequate assessment of risk
mitigation efforts.

Application of sensitivity analysis and scenario analysis methodologies may address these
shortcomings of the DCF method. Evaluating for uncertainty generates a range of values
for the projects metrics although the output may not adequately describe the ranges of
possible outcomes for the project.

Quantitative Risk Analysis

Quantitative risk analysis takes each input and defines a set of characteristics to describe
probability distributions. These metrics may include minimum and maximum values,
expected values, standard deviations and percentiles. Valuation models correlate the
distributions to generate a relevant description of possible outcomes.

The Application of Quantitative Risk Analysis Techniques in the Oil and Gas Industry
Investment projects in the oil and gas industry involve great technical challenges,
considerable risks and massive financial resources. Given the inherent obstacles required to
make any project successful, this industry has served as a proving ground for cutting edge
project valuation methodologies and tools, such as quantitative risk analysis. As oil and gas
organizations attempt to maximize the value of each project and optimize their portfolio of
investment opportunities, it is imperative that all risks are properly identified and quantified,
to maximize value and increase the effectiveness of mitigation strategies.

Discounted Cash Flow, Sensitivity and Scenario Analyses

The Discounted Cash Flow (DCF) method is the most commonly used tool for decision analysis
in project valuation. It is based on the estimation of the net present value (NPV) of the cash flow
of the project under consideration, discounted at the company‘s hurdle rate. Easy to implement
and widely used in the oil and gas industry and management schools, DCF acknowledges the
time value of money, provides a common language for valuation, establishes clear decision
criteria and allows comparison of projects based on metrics. However, DCF fails to address a
number of key factors:
 The uncertainty of future cash flow (assumptions about cash flow components are all static)
 The recognition of explicit project risks (risks are all assumed to be accounted for by the
discount rate)
 The valuation of risk mitigating strategies
Sensitivity analysis and scenario analysis attempt to address these issues by acknowledging
uncertainty over the project‘s inputs and evaluating their impact on the project, thus generating
ranges for the project‘s metrics in the form of spider graphs, sensitivity tornadoes, and other
outputs. Unfortunately, neither sensitivity analysis nor scenario analysis appropriately provides
probabilities for the ranges of possible outcomes of the project. For project managers and other
decision makers, there is a clear need to fill the gaps left by these processes.

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Examples of Risk Analysis in the Oil and Gas Industry
With quantitative risk analysis, uncertainty in relevant inputs is explicitly modeled as risks, using
probability distributions and stochastic processes. Determining which inputs are relevant relies
on the nature of the project being evaluated and the business environment surrounding it. Typical
risks observed and modeled in the oil and gas industry include exploratory success chance, oil,
gas and water production curves, capital expenditures (CAPEX) and operational expenditures
(OPEX). Quantitative risk analysis also addresses commodity prices and demands, which are
more challenging to model, as they often rely on elaborate stochastic processes and
political/regulatory risks, where data to estimate the model is always an issue.
In the oil and gas industry, quantitative risk analysis is usually undertaken at different stages of a
project, shifting the focus to the specific tasks at hand:
 Integrated project risk analysis forecasts the risks surrounding the oilfield projects and
considers the probability distribution of the project‘s NPV as its main output
 Cost risk analysis focuses on the cost structure of the project, explores the deeper details of
cost inputs and provides the probability distribution of the CAPEX as its main output
 Schedule risk analysis focuses on the time required to complete each task, and its main
outputs are the probability distribution of the project‘s first oil and its possible critical paths
Some risks have a compound effect on schedule and cost that need to be acknowledged, like the
drilling time in an offshore oil project, for example. Larger, more complex models can even
combine the three analyses simultaneously.
Benefits of Quantitative Risk Analysis for Decision Making
Quantitative risk analysis acknowledges uncertainty project outcomes, offering new metrics to
project valuation in terms of ranges and probabilities, including the probabilities of achieving
target values, correlation tornadoes and statistical contingencies. Quantitative risk analysis also
allows identifying the key risk drivers underlying a project, which is not possible using
traditional DCF, sensitivity or scenario analysis. Clearly identifying a project‘s key risk drivers is
crucial to effectively designing and evaluating risk-mitigating strategies according to their cost
and benefits. Usually, the benefits of a risk-mitigating strategy are not better expected values, but
better risk profiles, in the form of a lower standard deviation of the project‘s NPV distribution, a
higher probability of positive NPVs, reduced downside and so forth. Ultimately, decisions are
based on the probability distributions of the project outcomes, their expected and extreme values,
available mitigation strategies and remaining risks.
Advantages of Risk Analysis
Quantitative oil and gas risk assessment provides for a broader and more in-depth accounting
for uncertainties in project outcomes. The qualitative portion of the analysis identifies
underlying factors that enhance risks. The ability to evaluate critical risk factors for oil and
gas projects is crucial to optimizing outcomes and planning for effective and cost-efficient
risk mitigation programs.

Substantial investments are required for gas and oil exploration and production projects. The
attendant risks involved in this industry are considerable especially given increased regulation

35
and vulnerability to political factors, which are among the wide-ranging factors affecting this
sector.

Regardless of the size of the project or the outfit, operators may benefit from experts who
specialize in petroleum economics consulting. Professionals with the experience and skill set
to audit project risks, generate risk assessment surveys and present mitigation strategies based
on possible outcomes will certainly provide industry-relevant parameters for managing oil
and gas projects.

Mitigating Factors
The upstream petroleum industry today faces unprecedented waves of added costs and
new regulatory challenges as it tries to navigate the shoals of risk management toward
preserving its bottom line . The historical risk factors—e.g., commodity price volatility,
geopolitics, etc.—facing the industry have become more complex.

Oil and gas price movements are now tethered more to macroeconomic influences than they
are to physical supply and demand factors; that makes hedging through commodity-related
financial derivatives—a key risk management tool—a dicier proposition. At the same time,
huge capital costs have grown even larger, given the industry‘s increasing proclivity for
mega-projects that leverage economies of scale. Mega-projects have become commonplace in
the upstream oil and gas industry, as activity fans out in more challenging physical
environments. With the expanding project scope comes bigger challenges to manage project
risk.

Offshore oil and gas development increasingly tilts toward the mega-project scale because of
the burgeoning exploratory success the industry is enjoying in ultra-deep waters, where
development project costs routinely run into the billions and schedules can span half a decade
or more.

Such projects entail enormous challenges in logistics, planning, scheduling, communications,

data management, and risk analysis. With mega-projects comes a great need to better
collaborate and share information across the value chain that ultimately will drive down costs
and increase the accuracy of delivery dates. Owner-operators, contractors, and suppliers
working in the upstream petroleum industry all must find innovative solutions to minimize
complexity and risk in these massive undertakings, as it becomes a top priority to have all
players on a project team work more closely together.

All of these factors and more are adding costs or reducing revenues and creating new risk
management challenges for oil and gas companies. Add to those concerns a greatly
heightened regulatory oversight and public scrutiny regarding environmental and safety risks.

Mitigating Factors For the upstream side of the oil and gas industry, these solutions provide a
marvelous suite of collaborative tools that help an E&Control contracts and documents

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. Implement earned-value management;

Improve collaboration;

Manage project change and quickly resolve issues;

Control and manage project portfolios in real time;

Reduce project complexity through interactive dashboards;

Predict and manage risk;

P company answer the question, ―To drill or not to drill,‖ by enabling the operator to:
Identify and select the right projects;

Real-TimeMonitoringandPredictiveMa intenancetoPreventInc
ident,Failure,orNon-ProductiveTime

Refineries have been ahead of upstream in deploying advanced maintenance approaches.

However, in the past few years, the upstream industry has adopted many of the same techniques
to improve capital asset management. Best-in-class companies use a variety of techniques to
reduce maintenance costs, increase uptime, and increase availability. These techniques include:

● Condition-based monitoring. Placement of sensors to measure various conditions (temperature,

vibration, etc.) to detect situations that may indicate potential equipment failure. The more
sophisticated systems have alerting capabilities and are integrated with enterprise asset
management applications that can automatically generate inspection or work orders.

● Predictive maintenance. Predictive maintenance goes beyond condition-based maintenance in

applying advanced analytics to predict potential equipment failures, providing enough notice to
procure complex non-commodity replacement equipment. The algorithms identify a departure
from normal operating levels of a piece of equipment rather than comparing performance with
expected performance levels for the equipment class.

● Criticality-based maintenance. This technique informs decisions on maintenance strategy by

identifying which assets are critical to the process and what the process impacts would be if the
asset were to fail. Criticality-based maintenance also informs procurement strategy so that
inventories, and the costs associated with keeping them, are reduced but not at the expense of
increased downtime.

● Performance center or center of excellence. The most advanced companies have adopted
centers of excellence where engineering staff are able to bring together engineering knowledge
for root cause analysis when potential problems are identified. Centers of excellence can also

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have a view of multiple assets to support decision making and maintenance planning and even
suggest future equipment design modification

PROBABILISTIC ESTIMATION PROCEDURES (RESERVE)

Probabilistic methods of reserve and resource estimation provide a structured approach to

account for uncertainty. Probabilistic methods help ensure that quoted quantities are appropriate
relative to the requirements of certainty. Probabilistic methods do not introduce new information,
nor do they introduce radical changes. They bring clarity to the expressions of certainty or
uncertainty. The change that they facilitate is an evolutionary enhancement of the methods used
previously, and not a break with the traditions they represent. Deterministic methods do not
address uncertainties in terms of probabilities. They require that reserve/resource volumes be
described in terms of discrete estimates. In theory and practice, there is no difference between a
deterministic method and a probabilistic one when the probabilistic method addresses the
expected (mean) value only. The expected values behave like deterministic values in the sense
that the expected value of a sum is equal to the sum of the expected values (and likewise for
products of uncorrelated factors).

Probabilistic methods of reserves estimation start by identifying the project for which reserves
are to be quantified. Intuitively, this is the (uncertain) amount of petroleum to be recovered from
one or more petroleum accumulations. More specifically, a reserve quantity is the amount of
petroleum to be recovered in response to a given effort to get it (i.e., from a specific development
plan or project). Thus, a field may have petroleum resources in several resource categories
simultaneously. A field with oil reserves may, for instance, have associated or free gas (or
potential for improved recovery) that does not meet the requirements that the resource definitions
set for quoting it as reserves, but which could be contingent resources.

The field also may have prospective (undiscovered) resources. The probabilistic quantification of
proved reserves must ensure that quantities are not affected by upside potentials that it would be
unreasonable to include, or that would be in conflict with the requirements of the definitions. The
following guidelines accomplish this: • Those estimated recoverable quantities that are fully
consistent with the criteria for proved reserves are identified and their expected value (EV)
determined (or a single deterministic analysis undertaken).

All estimated recoverable quantities that are fully consistent with the criteria for discovered
resources of any category (including proved) are identified and the value that has at least a 90%
probability of being exceeded (i.e., at least the P90 value) determined for the complete inventory
of those discovered resource quantities.

The value selected as the proved reserves quantity should be the lower of the EV of the proved
reserves quantities (or deterministically assessed proved value) or the P90 value for the complete
inventory of discovered resources quantities.

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Probabilistic reserve estimates developed as a sum of production forecasts in time may benefit
from the following:

• Determining the factors on which uncertainty in production forecasts depend and ranking them
in order of importance.

• Identifying dependencies between factors and developing, where possible, aggregated

descriptions to replace strongly dependent factors.

• Developing key alternative realizations of production forecasts by varying the factors that have
sufficient impact on uncertainties, and correlating the forecasts to the factors varied.

• Using the correlations together with information on the pdfs of the factors varied to develop
large sets of forecasts with associated probabilities or a large set of representative equiprobable
forecasts.

• Applying the formulas of commercial agreements and fiscal frameworks to determine

entitlement to each forecast and summing them up over time to get the appropriate entitlement
volumes.
• Producing the pdfs for the scalar quantities of interest.

Monte Carlo Simulation

Monte Carlo simulation is a computerized mathematical technique that allows people to
account for risk in quantitative analysis and decision making. The technique is used by
professionals in such widely disparate fields as finance, project management, energy,
manufacturing, engineering, research and development, insurance, oil & gas, transportation, and
the environment.

Monte Carlo simulation furnishes the decision-maker with a range of possible outcomes and the
probabilities they will occur for any choice of action.. It shows the extreme possibilities—the
outcomes of going for broke and for the most conservative decision—along with all possible
consequences for middle-of-the-road decisions.

The technique was first used by scientists working on the atom bomb; it was named for Monte
Carlo, the Monaco resort town renowned for its casinos. Since its introduction in World War
II, Monte Carlo simulation has been used to model a variety of physical and conceptual
systems. How Monte Carlo Simulation Works
Monte Carlo simulation performs risk analysis by building models of possible results by
substituting a range of values—a probability distribution—for any factor that has inherent
uncertainty. It then calculates results over and over, each time using a different set of random
values from the probability functions. Depending upon the number of uncertainties and the
ranges specified for them, a Monte Carlo simulation could involve thousands or tens of
thousands of recalculations before it is complete. Monte Carlo simulation produces distributions
of possible outcome values.

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 By using probability distributions, variables can have different probabilities of different
outcomes occurring. Probability distributions are a much more realistic way of
describing uncertainty in variables of a risk analysis.

Common probability distributions include:

Normal
Or ―bell curve.‖ The user simply defines the mean or expected value and a standard deviation
to describe the variation about the mean. Values in the middle near the mean are most likely to
occur. It is symmetric and describes many natural phenomena such as people‘s heights.
Examples of variables described by normal distributions include inflation rates and
energy prices.
Lognormal
Values are positively skewed, not symmetric like a normal distribution. It is used to
represent values that don‘t go below zero but have unlimited positive potential. Examples of
variables described by lognormal distributions include real estate property values, stock
prices, and oil reserves.
Uniform
All values have an equal chance of occurring, and the user simply defines the minimum and
maximum. Examples of variables that could be uniformly distributed include manufacturing
costs or future sales revenues for a new product.
Triangular
The user defines the minimum, most likely, and maximum values. Values around the most likely
are more likely to occur. Variables that could be described by a triangular distribution include
past sales history per unit of time and inventory levels.
PERT
The user defines the minimum, most likely, and maximum values, just like the triangular
distribution. Values around the most likely are more likely to occur. However values between
the most likely and extremes are more likely to occur than the triangular; that is, the extremes are
not as emphasized. An example of the use of a PERT distribution is to describe the duration of a
task in a project management model.
Discrete

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The user defines specific values that may occur and the likelihood of each. An example might be
the results of a lawsuit: 20% chance of positive verdict, 30% change of negative verdict, 40%
chance of settlement, and 10% chance of mistrial.

During a Monte Carlo simulation, values are sampled at random from the input probability
distributions. Each set of samples is called an iteration, and the resulting outcome from that
sample is recorded. Monte Carlo simulation does this hundreds or thousands of times, and the
result is a probability distribution of possible outcomes. In this way, Monte Carlo simulation
provides a much more comprehensive view of what may happen. It tells you not only what
could happen, but how likely it is to happen.
Monte Carlo simulation provides a number of advantages over deterministic, or
―single-point estimate‖ analysis:

o Probabilistic Results. Results show not only what could happen, but how likely each
outcome is.
o Graphical Results. Because of the data a Monte Carlo simulation generates, it‘s easy
to create graphs of different outcomes and their chances of occurrence. This
is important for communicating findings to other stakeholders.
o Sensitivity Analysis. With just a few cases, deterministic analysis makes it difficult
to see which variables impact the outcome the most. In Monte Carlo simulation,
it‘s easy to see which inputs had the biggest effect on bottom-line results.
o Scenario Analysis: In deterministic models, it‘s very difficult to model different
combinations of values for different inputs to see the effects of truly different
scenarios. Using Monte Carlo simulation, analysts can see exactly which inputs
had which values together when certain outcomes occurred. This is invaluable for
pursuing further analysis.
o Correlation of Inputs. In Monte Carlo simulation, it‘s possible to model
interdependent relationships between input variables. It‘s important for accuracy
to represent how, in reality, when some factors goes up, others go up or down
accordingly.

ELEMENT OF PROJECT ECONOMICS AND ANALYSIS

Introduction

Project analysis consists of analysis of all available information to determine the feasibility of
a project. It is a multidisciplinary exercise. The best economic evaluations are team efforts
consisting of geologist, petroleum engineers, tax accountants, and economists.

Procedure for project analysis

1. Study the problem to determine its various aspects and to understand its nature
and scope.

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 2. Breakdown the problem into component parts. Establish relative importance
of each and relationships between them.
3. Become acquainted with all pertinent facts the have been established
by experience or reach.
4. Summarize the known and the unknown elements.
5. Solve the component parts separately and then fit them together.

Economic evaluation uses

1. Guide for management decisions.

2. Basis for negotiating loans.
3. Sale or exchange of property.
4. Future exploration and development policy.
5. Accounting and taxation purposes.
6. Unitization agreements.
7. Lease bidding
8. Evaluation of government regulation.

Economic factors influencing evaluation

Following are some of the factors that influence an evaluation

1. General economic – affect supply and demand.

2. Marketing factors – local factors, for example: availability of pipeline, refining facilities etc.
3. Role of the project in the company‘s overall organization – what is relationship of the project
to the overall company structure, size of company , facilities available, nature of company,
expertise.
4. Drilling, development and production costs – should be obtained from experience – look at
costs in neighboring areas, similar circumstances
5. Value of money – varies with:

I . Time necessary for return.

II. Cost of obtaining it.
III. Opportunity cost of capital
IV. Availability – equity / loan financing.
6. Reserves – requires largest geological and engineering effort. Magnitude of reserves is a
serious area of disagreement because of interpretation.
7. Rate of production – govern flow of profit. Depends on reservoir , characteristics.
8. Historical trends – give an idea of value to use. In the case of oil and gas we have to consider
the following:

i. Oil and gas prices.

ii. Inflation.
iii. Historical finding rates for oil and gas.

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 UNIT-3

RESERVOIR DESCRIPTION –( Integrated Reservoir Description)

Reservoir description, sometimes called reservoir characterization or reservoir modeling,
attempts to create a static and a dynamic three-dimensional description of an oil or gas reservoir,
based on the one- and two-dimensional data from well bores and seismic surveys. A good
reservoir description costs money and requires an integrated, multi-discipline approach.

The direct aims of the static reservoir description are:

1. Extrapolate core data to uncored wells
2. Define quantity and distribution of porosity, saturation, and permeability in each well
3. Interpolate rock property data between wells
4. Identify flow units from porosity vs permeability populations
5. Build a knowledge base that evolves with the reservoir development

The direct aims of the dynamic reservoir description are:

1. Test the static model for accuracy by matching production history
2. Predict future performance under various operational scenarios
3. Optimize production for maximum long-term economic return

―Integrated‖ reservoir models are based on the multi-discipline approach to the model. Integrated
reservoir description combines geology, geophysics, petrophysics, reservoir engineering,
production engineering, and numerical simulation. All of the disciplines listed above talk to each
other and iterate their interpretations until all the data fits a common definition of the reservoir.

For example, a history match may fail because there is not enough reservoir volume to account
for production and pressure trends to date. Reservoir volume can be increased by changing the
parameters and cutoffs that go into petrophysical calculations or the geological mapping can be
more generous in contouring the data. One of the biggest problems is up-scaling from the sub-
millimeter pore distribution through all the steps to the multi-meter grid cells of a reservoir
simulation model. An open mind and a willing heart might be needed to overcome a lot of
problems!

A large fraction of the data for the static model comes from the petrophysical analysis, along
with the core and petrographic data used to calibrate the log analysis.

Petrophysics is the study of the physical and chemical properties of rocks and their included
fluids, based on well log measurements, laboratory data, and the fundamental laws of math and
physics.

Petrophysicists see reservoir description as the evaluation of well logs to obtain reservoir rock
and fluid properties, such as shale volume, porosity, water saturation, permeability, and lithology
on a foot by foot basis, as well as sums and averages over specific reservoir units. This work is
usually calibrated by core analysis and petrographic data where it is available. When well log
data is combined with other geoscience data to form a coherent picture, it is called Integrated

43
Petrophysics. Some work, such as analysis of formation microscanner images, may be at the
centimeter level, but most is done at the tool resolution level – usually 0.3 to 1 meter.

Core analysts think reservoir description is the measurement of porosity, permeability, grain
density, capillary pressure, relative permeability, and electrical properties of the rocks, as well as
facies description from observation of the depositional environment seen in slabbed core and
core photographs. This work is at the centimeter level.

Geophysicists see reservoir description as the creation and mapping of seismic attributes or
inverted seismic data to illuminate variations in reservoir properties between well control. This
work is at the multi-meter level vertically and horizontally, but provides finer spatial resolution
than logs and cores, which are dictated by well spacing. Attributes are usually calibrated to
petrophysical log analysis results.

Geologists perceive reservoir description as the interpretation and mapping of petrographic

results, core analysis, petrophysical rock properties, and seismic attributes into stratigraphic
sequences and/or flow units. In the simplest cases, the mapping is based solely on correlation of
raw log curves. In more elaborate studies, all of the measured and computed data will be
mapped. Dipmeter and pressure transient analysis results may be introduced to assist in
correlation or definition of reservoir boundaries or fault planes.

These maps are also at the multi-meter level vertically and either the seismic shot point spacing
or well spacing areally. The geological model obtained is the static reservoir description which,
of course, can be monitored and varied over time by acquisition of new petrology, core data, or
petrophysical rock properties from new wells or logs run through casing. Time-lapse (4-D)
seismic or through casing logs may also be used to monitor hydrocarbon contact changes.

Reservoir engineers view reservoir description as the analysis and interpretation of pressure
transient data from drill stem tests or production tests. Flow capacity (permeability times
thickness) and distance to reservoir boundaries (if they are close enough to be sensed by the
pressure response) are the usual results obtained.

In addition, pressure changes with production versus time provide grist for the material balance
calculation mill. Production history (oil, gas, and water volumes versus time) coupled with
decline curve analysis leads to predictions of ultimate hydrocarbon recovery. This work is also at
the multi-meter level vertically and limited to the tested or produced wells only. Reservoir
engineers are concerned with this dynamic reservoir description, as well as the static description
for calculating reservoir volume and recoverable reserves.

Simulation engineers visualize reservoir description as a totally dynamic description of reservoir

performance. They do use the static reservoir description (the geological model) as the basic
foundation for the reservoir simulation. The bricks and mortar added to this foundation are the
pressure and production data, and fluid properties, from the reservoir engineer.

The object of the simulation is first to match production history, then to predict future behaviour
of the reservoir. A good history match usually means that the geological model is reasonably

44
accurate. The critical test is to compare the performance prediction with actual performance after
a few years has elapsed. The reservoir simulation grid is usually a few to many meters vertically
and many meters areally. Since more than one geological model could provide an adequate
history match, calibration can only come with the passage of time and the arrival of new well
data. Various production scenarios may be run in order to optimize reservoir recovery and
economics.

Production and facilities engineers see the dynamic reservoir model as a template for design and
economic evaluation of production, gathering, treating, and pipeline equipment required to
handle the predicted reservoir performance. The timing of compressor installations, water
disposal wells, and conversion of wells to injection are paramount considerations. Both
undersized and oversized facilities reduce the economic return from hydrocarbon production.

Drilling and production engineers use the various scenarios to plan in-fill drilling and re-
completion operations on the wells in the reservoir.

Economic engineers use the dynamic and static models to predict cash flow, financing
requirements, and investment decisions. Management and shareholders use the models to assist
in making decisions as well.

The truth is that all these definitions are true, but the sum of the parts is even more true. Multi-
disciplines generate the most complete reservoir description. Teamwork is everthing! Few people
are talented enough to do it all without help from other specialists.

RESERVOIR AND WELL DATA ANALYSIS AND INTERPRETATION

Stepwise Analysis/Interpretation Procedure

In order to improve the "function" of production data analysis, we propose and employ the
following step-by-step process for the diagnosis, analysis, and interpretation of production data:

Step 1: Data Review → Review "Production History Plot" for data quality/correlation.

Step 2: Data Review → Data correlation check (pwf (or ptf) vs. rate plot). Crude
comparison, only for general trends.

Step 3: Clean/Edit Data for Clarity → Remove spurious data from log-log data plots used for
diagnosis. Step

4: Identify Flow Regimes (Diagnostics) → Identify characteristic flow regimes (normalized

PI/Blasingame plots).

Step 5: Compare Data to Reservoir Model → Use "Type Curves" to compare/match data with
a reservoir model.

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Step 6: Refine Model Parameters → Improve match of model parameters (k, s, xf, FcD, ...
etc.) using individual type curves, simulation models, and/or regression methods.

Step 7: Summary History Match → Final "history match" of model and raw well performance
data (pwf and q).

Testing well

The main reason for testing an exploration well is to take a fluid sample. Further reasons are to
measure the initial pressure, estimate a minimum reservoir volume, evaluate the well
permeability and skin effect, and identify heterogeneities and boundaries. Testing producing
wells aims at verifying permeability and skin effect, identifying fluid behavior, estimating the
average reservoir pressure, confirming heterogeneities and boundaries, and assessing hydraulic
connectivity.

How Do We Test Wells?

We create a step change in rate—for instance, by closing a flowing well or an injection

well (buildup or falloff, respectively); by opening a well previously shut in (drawdown); or by
injecting in a well previously closed (injection). This rate change creates a change in pressure in
the same well (exploration or production testing) or in a different well (interference testing). In
layered reservoirs, there is also a change in the rates from each individual layer, which can be
measured with a production logging tool (PLT).

A change in rate can be created at the surface by shutting or opening the master valve or
at the bottom of the well with a special downhole shut-in device. Wellhead shut-in is commonly
used in wells already in production, whereas bottomhole shut-in is standard practice after drilling
[a drillstem test (DST)]. The way the rate signal is created is not important as far as well test
analysis is concerned. The same interpretation methods are used for production tests, DSTs,
analysis of wireline formation tests, and now for testing while drilling. What is most important
for analysis is the quality of the rate input signal—which must be of the proper shape and
duration—and the quality of the measured pressure output signal.

How Do We Interpret Well Tests?

We try to identify an interpretation model that relates the measured pressure change to the
induced rate change and is consistent with other information about the well and reservoir. This is
an inverse problem without a unique solution. Petroleum professionals are confronted with the
inverse problem whenever they interpret data and model processes (for instance, in geophysical
interpretation, in geological interpretation, in log interpretation, and in the reservoir modeling
aspect of reservoir simulation). The problem of nonuniqueness is well recognized in the oil
industry and accounts for the increasing use of stochastic modeling techniques, which aim at

46
providing alternative equiprobable representations of the reservoir to capture the uncertainty
associated with predictions. Nonuniqueness decreases as the amount of information increases.

What Is a Well Test Interpretation Model?

The interpretation model is made of the combination of the individual flow regime components
that dominate the flow period at different times. The number of interpretation model components
is limited to three types (Fig. ), namely

The basic dynamic behavior of the reservoir during middle times, which is usually
the same for all the wells in a given reservoir
Near-wellbore effects at early times resulting from the well completion that may vary
from well to well or from test to test
Boundary effects at late times, determined by the nature of the reservoir boundaries,
which is the same for all the wells in a given reservoir, and by the distance from the
well to these boundaries, which may differ from well to well

Although there are few possible interpretation model components, their combination can
yield several thousand different interpretation models to match all observed well behavior.
The challenge for the well test interpreter is to diagnose from the observed well behavior
which components should be included in the interpretation model. A schematic of the
complete interpretation process is shown in Fig.

47
Reservoir performance

The fundamental goal of the explorationist is to predict the performance that a reservoir will
have over the production life of the field. Reservoir performance affects the economic viability
of a play or prospect and is a function of reservoir system quality. Performance is expressed by
Initial production rate and production rate decline over time
The percentage of hydrocarbon recovered from the hydrocarbon originally in place (recovery
factor)
Reservoir system quality

Reservoir system quality is the capacity of a reservoir to store and transmit oil or gas. The quality
of a reservoir system is determined by its
Pore throat size distribution and pore geometry (including natural fractures; see also Pore and
pore throat sizes) . Absolute size of a pore throat is the radius of a circle drawn perpendicular
to fluid flow and fitting within its narrowest point. Absolute size of a pore is the radius of the
largest sphere that will fit inside it. The cross-sectional shape of fluids moving through
intergranular porosity is roughly circular. Both pores and pore throats can be divided into
petrophysically significant size ranges.

48
Pore volume
Permeability to hydrocarbon
Permeability is the capacity of a rock layer to transmit water or other fluids, such as oil. The
standard unit for permeability is the Darcy (d) or, more commonly, the millidarcy (md).
Relative permeability is a dimensionless ratio that reflects the capability of oil, water, or gas
to move through a formation compared with that of a single-phase fluid, commonly water.
Water saturation (hydrocarbon pore volume)
Water saturation (S w) of a reservoir is a function of height above free water (h) and pore
type. Sw interpretations should be made accounting for h, r35, and pore throat size
distribution in the reservoir. The Archie equation is the most widely used method of
determining Sw.

Lateral continuity, number, and position of flow units and containers

The principle of lateral continuity states that layers of sediment initially extend laterally in
all directions; in other words, they are laterally continuous
Reservoir pressure and drive mechanism
The reservoir drive mechanism supplies the energy that moves the hydrocarbon located in a
reservoir container toward the wellbore as fluid is removed near the wellbore. There are five
common drive mechanisms:
Water drive
Gas expansion
Solution gas
Rock or compaction drive
Gravity drainage
RESERVOIR MANAGEMENT

Petroleum reservoir management is a dynamic process that recognizes the uncertainties in

reservoir performance resulting from our inability to fully characterize reservoirs and flow
processes. It seeks to mitigate the effects of these uncertainties by optimizing reservoir
performance through a systematic application of integrated, multidisciplinary technologies. It
approaches reservoir operation and control as a system, rather than as a set of disconnected
functions. As such, it is a strategy for applying multiple technologies in an optimal way to
achieve synergy.
The following situations, however, can reduce the effectiveness of reservoir management
programs:

 Personnel changes
 Altered priorities
 Insufficient surveillance data

49
 Lack of documentation

Methods for assessing the effectiveness of reservoir management programs, including

identifying strengths and areas for improvement, are needed to approach the topic from a quality
perspective (i.e., benchmark to an ideal, best-practice standard). Making these assessments on a
systematic, regular basis can be effective in developing a common terminology that improves
communication and in ensuring a comprehensive review and a more complete listing of
improvement opportunities.

Reservoir management processes

Fig. illustrates reservoir management processes. The processes are divided into those stewarde
by the reservoir management team (RMT) and those guided by the supervisors and managers
associated with reservoir management who comprise the reservoir management leadership team
(RMLT). The arrows in the RMT box show work flow and how data and opportunities are
captured.
The reservoir management process must be tailored to individual fields depending on:

 Size
 Complexity
 Reservoir and fluid properties
 Depletion state
 Regulatory controls
 Economics

50
Data management
This process represents the organizing of raw and interpreted data into a readily accessible form.
It is not intended to imply what type or quantity of data is needed. Those issues are addressed in
other processes.

Data captured
This information includes raw data such as:

Seismic records
 Well logs
 Conventional and special core analyses
 Fluid analyses
 Static pressures
Pressure-transient tests
 Flowing pressures
 Periodic well production tests
 Monthly produced volumes of oil, gas, and
water Interpreted data could include:

 Seismic time maps

 Seismic conversion of time-to-depth maps
 Seismic attribute maps
 Log analyses
 Formation tops
 Structure and isopach maps
 Cross sections
 Geologic models
 Simulation models
How much information and how to capture this information varies with:

 Size of the database

 Size of the resource
 Remaining life of the resource

Quality assurance
Processes for the timely capture and quality maintenance of data also should be established.
Personnel may be required for this specific purpose. While this assignment may be a drain on
limited manpower, the benefits of readily available, high-quality data will save time spent in
reorganizing, checking, and reinterpreting data each time a study is conducted. The time savings
more than returns the cost of quality data capture. Studies of work output indicate that as much

51
as 50% of the time spent on a project can be consumed by finding and organizing data that is not
maintained in a readily accessible, high-quality format.

Reservoir description
This process is the development of an up-to-date, detailed description of the reservoir that
incorporates available data and technology into a fieldwide interpretation consistent with
observed historical reservoir performance. Variations and risks in the description should be
included. Again, the effort that goes into this description depends on the size of the remaining
resource.
Geophysical, geological, and engineering interpretations are expected to produce information on
the distribution of hydrocarbons in place and reserves. These interpretations include:

 Field and regional structure maps, including fluid-contact locations and the size of aquifers
 Isopach and porosity maps
 Number of flow units or individual producing zones
 Depositional environment including information on diagenetic changes and vertical and areal
barriers to flow (or lack thereof) 
 Variations in fluid saturations and permeabilities
The expected variability in these values should be included in these assessments. Descriptions
from hand-drawn maps and correlations may suffice for small resources; however, in most cases,
a geologic model is developed to capture these interpretations, with more complex models being
needed for larger resources. The power of PCs and their software makes it more attractive to
develop geologic models for all resources. (See Reservoir geology, Reservoir geophysics
overview and petrophysicsfor information on geophysical, geological, and petrophysical
interpretations and how they are used to develop a reservoir description.)

Original in place volumes

Initially, the geologic model is used to estimate the amount and distribution of original in-place
hydrocarbon volumes. These estimates include:

 The range of uncertainties in rock properties

 Fluid saturations
 Geologic interpretations and the resulting range in estimated in-place volumes

Fluid-flow characteristics
The mapping of depositional environments, flow barriers, and flow test and core data aid in
understanding the productivity and recovery trends in the reservoirs. This understanding is
important in optimizing well placement and spacing and in recovery process selection.

52
Updating
Periodic collaboration between geoscientists and engineers is needed to include new seismic data
and interpretations, well data, and performance characteristics into the geologic model. This
work accomplishes the following:

 Produces a better description of reservoir contents

 Reduces uncertainty
 Establishes a basis for improved future development and reservoir operations

Reservoir models
Most depletion plans are based on some type of reservoir model.

Model types
Reservoir models are basic tools for addressing reservoir management questions and issues. In
selecting a model, it is normally desirable to select the simplest model that will give reliable
results (i.e., selecting a model that will adequately discriminate among alternatives and lead to an
optimal decision, although absolute results may not be precise). Several types of models of
varying complexity are available that may be adequate for different uses. These models include:

 Analog
 Decline curve
 Analytical (material-balance, Darcy-law, Buckley-Leverett, pressure-transient)
 Small numerical (well, cross-sectional, pattern-element, 3D-segment)
 Large-scale, full-field models
See Reservoir simulation for details on building reservoir simulation models.

Reservoir issues
The first step in model selection is to identify the questions to be answered and their relative
importance. The following issues must be addressed during this step.

 Exploration prospect forecast of oil, gas, and water production

 Annual forecasts of oil, gas, and water production
 Monthly tanker scheduling and storage requirements
 Pressure maintenance requirements
Evaluation of alternative recovery processes: gas-cap expansion; natural waterdrive; and
water, gas, or other fluid injection
 Operational guidelines for pressure levels, injection volumes and distribution, and individual
well and field total production targets
Well performance predictions: coning, artificial lift requirements
 Stimulation evaluation
 Gas- and water-handling requirements

53
 Need for and timing of reservoir depressuring

Model description and data

A second consideration in model selection is deciding which primary forces will dominate
reservoir performance. It must be determined whether viscous, gravity, or capillary forces, as
reflected in coning, gas overrun, water underrun, or pressure drop, will dominate reservoir and
well performance.
Most models require at least some data describing fluid properties and reservoir description and
may require multiphase flow (relative permeability and capillary pressure) and well performance
[coning correlations, gas/oil ratio (GOR), water/oil ratio (WOR)] functions. Based on
experience, certain simplifying assumptions may be acceptable. For example, if the reservoir
description is dominated by a fining or coarsening upward depositional sequence, this may be
more important than capturing the areal variation in reservoir description.

Case design
Careful thought should be given to identifying cases to be run with the model to avoid running
all combinations of the variables being studied, a number that can run in the several thousands
for even modest-sized resources. In some cases, this may involve starting with a simple model to
test the importance of some variables. For example, before building a full-field model, it can be
helpful to build well, cross-sectional, 3D-segment, or pattern-element models.

Small models
Coarse-grid 2D or 3D simulation models are useful for making a distributed volumetric balance
in cases in which reservoir fluid migration and/or significant pressure gradients are issues. 3D
models are useful for doing a multizone volumetric balance in which there is fluid migration
between zones through commingled wellbores, along fault planes, or across fault planes by sand-
on-sand contact. Also, these models are useful for regional aquifer modeling in which aquifers
are:

 Irregular in shape
 Heterogeneous
 Subject to pressure interference between fields

Large models
Large simulation models with more than 100,000 gridblocks are now constructed for many
medium and large fields. The models usually are based on a detailed geologic model that may
contain one million or more gridblocks. Methodologies are now in place to convert
these geologic models into a more manageable reservoir model while retaining a good
representation of the variation in reservoir characteristics.

54
ECONOMIC MODEL FOR OIL AND GAS (PROPERTY EVALUATION)

The cash flow model is the most common model used to evaluate oil/gas projects. Normally,
only very large acquisitions are evaluated by examining the impact of the acquisition on the
financial net income. The tax model is used only if an after-tax analysis is done.

Cash flows for the project are forecast for each year or each month until the well or project is no
longer economical. Because of the ready availability of powerful computers, evaluations are
usually done on a monthly basis, and the results are reported on an annual basis. Monthly
calculations are more detailed but not necessarily more accurate. (There is often a tendency to
consider more detailed calculations as being more accurate. The use of finer time increments
does not necessarily lead to projections that are more in conformity with truth.)

Gross Production
Gross production is the volume of oil/gas that is projected to be produced during the particular
month or year being calculated. Gross production is one of the most important numbers entering
the net cash flow calculation and, simultaneously, one of the most difficult to determine
accurately. Much of the science and art of petroleum engineering is involved in estimating these
numbers for future time periods.

Shrinkage
"Shrinkage" is used to reduce the volumes produced from a well to the volumes sold from a well.
Usually the decline curves that are used to forecast future revenues are based on production
rather than sales. If there is significant shrinkage, that should be taken into account before
calculating the cash flows. Typical causes of shrinkage include lease use of gas for heater treaters
or compressor fuel. Oil shrinkage might occur because of basic sediment and water (BS&W)
corrections or because of temperature differences between the volume of oil measured at the tank
and volume of oil measured at the refinery.

Gross Sales
Gross sales is the volume of oil/gas that is projected to be sold during the time period. If
shrinkage is negligible, gross sales will equal gross production.

Typically, the people who drill and operate a well do not own the minerals they are extracting.
For example, the U.S. Government, state governments, Indian tribes, or private citizens usually
own minerals in the United States. In most other countries, the state usually owns the minerals.
The producers lease the right to develop the minerals from the mineral owners. This leads to
various kinds of interests in the property.

Working Interest
Working interest is a share of the costs. The total of all the working interests in a well must be
equal to one. Along with the share of the costs comes a reduced (usually) share of the revenue. It
is quite common for a company to own less than 100% of the working interest in a well or
project. Owning smaller interests in many projects, called diversification, is one of the ways to
manage the risk involved in drilling for oil/gas. Working interest may also change over time as a
result of "oil field deals." Sometimes one party will pay a disproportionate share of the costs to

55
drill the first well on a prospect to earn a share of a lease held by some other oil company. As
deals become more and more complex, it becomes very difficult to determine ownership. One
[1]
method of answering the "who, what, when" question is discussed in Thompson and Wright .

Royalty
Royalty is a share of the revenue free and clear of all costs of development and production. The
royalty is paid to the owner of the mineral interest under the land associated with the well. In the
United States, the mineral interest can be "severed" from the surface ownership so that the
person who owns the surface may not have any interest in the minerals and may not receive any
income from a well. In rare cases the owners of the working interest will own the minerals and,
in that case, there is no royalty. Typical royalty rates in the U.S. range from 1/8 (12.5%) to 25%
of the production. Royalties in other countries can range from zero to more than 30%. Some
royalties, such as Alberta‘s, increase with increasing production and price.

Overriding Royalty
Overriding royalty is the same as a royalty, except it does not come about because of ownership
of the mineral interest. An "override" is a classic way for a lease broker or geologist to be
compensated for buying leases or putting a deal together. Overrides may range from 1% of large
deals to 7.5% of really "hot" or promising prospects.

Net Revenue Interest

For net revenue interest, the working interest owners pay all of the costs. Because the royalty and
overriding royalty interest owners share in the production, but not in the costs, the working
interest owners as a group receive less than 100% of the revenue. In many cases, the working
interest owners receive around 80% of the gross revenues, although sometimes it might be as
high as 87.5% or as low as 70% (or less). The share of the gross production from the well is
referred to as "net revenue interest." If there is a 12.5% royalty, a 7.5% overriding royalty, and
you own a 50% working interest, then your net revenue interest is 40% (100% less 12.5% less
7.5% times 50%).

Net Sales
Net sales is the product of gross sales and net revenue interest. It is your share of the production
after accounting for shrinkage, royalties, and splitting the proceeds with other working interest
owners.

Price

Oil is usually priced in U.S.$/barrel except in some countries where it is priced by the tonne. Gas
is priced either in $/million British Thermal Units (MMBtu) or by the cubic meter. Be careful to
use the same volume units on the sales forecast and the price forecast. The price of oil/gas varies
dramatically with time and less dramatically with the quality of the oil or gas. There are several
"benchmark" crudes in the world, for which the price is reported on a daily basis. Benchmark
crudes include Brent in the North Sea, Minas in Indonesia, Urals in Russia, Dubai in the
Persian/Arabian Gulf, and others. The most commonly quoted number in the U.S. is West Texas
Intermediate (WTI) delivered at Cushing, Oklahoma.

WTI is the underlying product for the New York Mercantile Exchange (NYMEX) futures prices.

56
According to the NYMEX, "crude oil is the world‘s most actively traded commodity. Over the
past decade, the NYMEX division light, sweet (low-sulfur) crude-oil futures contract has become
the world‘s most liquid forum for crude oil trading, as well as the world‘s largest volume futures
contract trading on a physical commodity.

Net Operating Income

Sometimes called "cash generated from operations" or other names, net operating income is the
cash flow to the working interest owner after operating costs and state and local taxes have been
paid, but before investments have been made. This represents the cash generated during the
period that is available for investment.

Income Tax
Almost all federal governments including the United States Government and most state
governments levy a tax on income. The calculation of these taxes can be fairly straightforward in
countries such as Indonesia or extremely difficult, especially when a single project is being
evaluated for a reasonably large company in the U.S. Even when the appropriate software is
available to aid in the evaluation, the input data necessary to accurately calculate income tax is
often hard to obtain. For this reason and because income tax often has a relatively low impact on
the final decision, it is common practice to calculate before federal income tax (BFIT) net cash
flows when evaluating U.S. properties. Major oil companies are more likely to attempt to include
the effects of income tax in their calculations, while independents seldom include it. The effect
of using BFIT numbers on the ultimate decision is highly dependent on the individual case, but
experience indicates that in the U.S. it seldom changes the decision.

Investment
Investments are costs that benefit future periods as opposed to operating costs that only benefit
the current period. Examples include buying a lease, drilling a well, buying and installing a
pumping unit, and building tank batteries. In all of these cases, the goods purchased are expected
to help produce money far into the future.

Net Cash Flow

Net cash flow is the amount of money that flows into or out of the treasury during any one
period. It is equal to the net operating income (either before or after income taxes) less the
investments.

Each of these items is estimated for every future time period until the net operating income is no
longer positive. At that time the well(s) is (are) usually assumed to be plugged and abandoned.
There may be an additional expense at that time for abandonment costs, or the salvage value of
the equipment may be equal to or greater than the abandonment costs.

RESERVOIR MANAGEMENT | INTEGRATED RESERVOIR MODELING

RESERVOIR MODELS

57
 A ‖reservoir model‖ is a mathematical representation of a specific volume of rock
incorporating all the ―characteristics‖ of the reservoir under study. It can be considered as a
conceptual 3D construction of a single reservoir or in some cases of an oil/gas field.

Data derived from various sources are integrated by deterministic or geostatistical methods, or a
combination of both, to construct the model. Its setting up, however, is a dynamic process, since
a reservoir model must be continuously up-to-dated and revised when new data become available
or inconsistencies between the predicted and real reservoir behavior are found.

In the oil and gas industry, reservoir modeling involves the construction of a computer model
of a petroleum reservoir, for the purposes of improving estimation of reserves and making
decisions regarding the development of the field, predicting future production, placing additional
wells, and evaluating alternative reservoir management scenarios.
A reservoir model represents the physical space of the reservoir by an array of discrete cells,
delineated by a grid which may be regular or irregular. The array of cells is usually three-
dimensional, although 1D and 2D models are sometimes used. Values for attributes such
as porosity, permeability and water saturation are associated with each cell. The value of
each attribute is implicitly deemed to apply uniformly throughout the volume of the reservoir
represented by the cell.
Reservoir models typically fall into two categories:

Geological models are created by geologists and geophysicists and aim to provide a
static description of the reservoir, prior to production.
Reservoir simulation models are created by reservoir engineers and use finite difference
methods to simulate the flow of fluids within the reservoir, over its production lifetime.
The reservoir model is, therefore, the result of studies whose main objective is to understand and
describe the dynamic behavior of a hydrocarbon reservoir in order to predict its future
performance under different development and production strategies.

From practical point of view, the integrated reservoir modeling represents now the most valuable
technical approach for estimating the oil/gas reserves and computing the future production
profiles, reducing the uncertainties always associated with the static and dynamic reservoir
descriptions.

58
 There are several reasons why an integrated reservoir modeling has found a strong and
rapid development:

For a reliable evaluation of the bulk and net rock volumes, and the original hydrocarbons
in place – which are of utmost importance in
o assessing the economics of a reservoir development project o
selecting the development schemes and exploitation strategy o
selecting the basic design and size of the production facilities

o allocating equity shares with partners

59
 For an assessment of the minimum well number required to produce the reservoir
economically, as well as for the optimal selection of well type (e.g. vertical, slant,
horizontal, multilateral, etc.) and locations
For an economic/technical evaluation of implementing IOR/EOR processes to increase
the final recovery
For verifying the consistency of all static and dynamic data reducing the uncertainties
always present in a reservoir model.
The integrated reservoir modeling finds application in different stages and phases of the reservoir
life cycle.

In the case of field development it is used for:

Estimating the HOIP

Selecting the field development strategy
Selecting the optimal number and locations for injector and producer wells
Computing the production profiles (oil, gas, and water)
Estimating the oil and gas technical reserves
Obtaining some basic data required by the economic
evaluation Identifying and quantifying the key uncertainties.
In the case of producing field it is used for:

Calibrating the geological model by matching the past production history (fluid rates,
GOR, WC, pressures, etc)
Identifying the undrained oil/gas bearing zones
Optimizing the production rate and the final recovery
Keeping the right injection rate for the optimal reservoir pressure maintenance and/or for
the maximum sweep efficiency of the displacement processes
Locating infilling wells
Modifying the well patterns
Selecting the best well construction and completion design
o vertical vs. horizontal, completions
Updating production profiles and economics.

60
 Dynamic reservoir model
for production forecasts

In addition, the 3D integrated reservoir modeling:

Helps the integration in a quantitative model of soft information such as

sedimentological and depositional models, faults transmissibility etc.
Enables and promotes the joint team work of geoscientists and engineers
Reduces the inconsistencies that can be generated by the different geo-
modeling workflows
Allows a good and reliable volumetric evaluation of fluids initially in place even in
case of complex reservoir geometries
Allows the most advanced 3D gridding techniques and the upscaling the
geological models
Helps to select in a real time the optimal final well target while drilling.

Static Model
A static reservoir model is the one incorporating all the geological features (i.e. structural,
sedimentological, petrophysical, etc.) of an underground volume of rock that can store fluids
(hydrocarbons and/or water) and can allow their movement.

In general, the static model of a reservoir is the final integrated product of the structural,
stratigraphic and lithological modeling activities, where each of these steps is developed
according to its specific workflow.

A static reservoir study typically proceeds through four main stages.

1. Structural modeling

Reconstruction of the geometrical and structural properties of the reservoir, by defining a

map of its structural top and the set of faults running through it. This stage of the work is
carried out by integrating interpretations of the geophysical surveys with the available
well data.

61
 A structural model
showing faults and
layering

2. Stratigraphic modelling

Definition of a stratigraphic scheme using well data, which form the basis for well
to well correlations. The data consist of electrical, acoustic and radioactive wireline logs,
and of results of core analysis, integrated where possible with information from specialist
studies and production data.

Example of a 3D Stratigraphic Model

3. Lithological modeling

o Definition of the lithological types (basic facies), which are characterized on the
basis of lithology, sedimentology, and
petrophysics. This classification into
facies is a convenient way of
representing the geological
characteristics of a reservoir, especially
for the purposes of subsequent three-
dimensional modelling.

Example of a stochastic model of facies

62
4. Petrophysical modeling

o A quantitative
interpretation of well logs to determine
some of the main petrophysical
characteristics of the reservoir rock,
(porosity, water saturation, and
permeability). Core data represent the
essential basis for the calibration of
interpretative processes.

A petrophysical model
showing porosity
distribution and values

The results of these different stages are integrated in a two (2D) or three-dimensional (3D)
context, to build an integrated geological model of the reservoir.

This model represents the reference frame for calculating the quantity of hydrocarbons in place,
and on the other, forms the basis for the initialization of the dynamic model.

Dynamic model
The dynamic model combines the static model, pressure- and saturation-dependent properties,
well locations and geometries, as well as the facilities layout to calculate the pressure/saturation
distribution into the reservoir, and the production profiles vs. time.

A dynamic model can be used to simulate several times the entire life of a reservoir, considering
different exploitation schemes and operatinconditions to optimize its depletion plan.

63
Reservoir simulation is a branch of petroleum engineering developed for predicting reservoir
performance using computer programs that through sophisticated algorithms numerically
solve the equations governing the complex physical processes occurring during the production
of an oil/gas reservoir.

Basically, a reservoir simulation study involves five steps:

1. Setting objectives
2. Selecting the model and approach
3. Gathering, collecting and preparing the input data
4. Planning the computer runs, in terms of history matching and/or performance prediction
5. Analyzing, interpreting and reporting the results.
Factors to consider in selecting the simulation model are

The recovery process of the reservoir

o the model must be able to reproduce the main reservoir drive mechanisms

Quality and type of the available information- which influence the level of detail to use in
the modeI

Type of answer required

o The desired accuracy of the expected results will influence the design of the
simulation model

Available resources

o human, economic and technological resources

Different types of simulators are used to represent the drive mechanisms of different types of
reservoirs, and the selection depends on the type and behavior of the original reservoir fluids and
on the predominant process controlling the reservoir production and hydrocarbon recovery:

Black-oil model

o It assumes that the thermodynamic behavior of the reservoir hydrocarbon system

can be well represented only by two components: the ‖stock-tank oil‖ and the
―separator gas‖. The classical PVT studies supply all the data required by this
approach.

Compositional model

64
 o It assumes that the reservoir hydrocarbon system can be well represented only by
a number of components and pseudocomponents (C1+N2, C2, …, C7+, …). The
thermodynamic behavior of such system is described by the use of an EOS
(equation of state) that is usually calibrated with the data of PVT studies.

Thermal model

o It is used in case of reservoirs where an EOR process based on thermal recovery

techniques is applied. This is the case of heavy oil, extra heavy oil, and bitumen
reservoirs, in which the oil viscosity is so high that does not allow any primary
production or the implementation of any conventional injection process (cold
water, gas).

o The thermal EOR processes that can be simulated include: SAGD, cyclic steam
injection, steam flooding, hot and cold water injection, and in situ combustion.
Upscaling of the geological models is key issue in the reservoir simulation. It is basically a
process by which a very heterogenous region of the reservoir rock described with a huge amount
of ―fine grid cells‖ is replaced by an equivalent less heterogeneous region made up of a number
of single coarse-grid cells. The ―upscaled geological model‖ must, however, maintain the same
storage and transport properties of the reservoir rock described with detail by the ―fine geological
model‖. The upscaling process, therefore, is essentially an averaging procedure in which the
static and dynamic characteristics of a fine-scale model are approximated by those of a coarse-
scale model.

Conceptual illustration of the upscaling process

65
In a numerical simulation study historical production/injection data (oil, gas, and water rates)
must be supplied to the mathematical model. Of course, good quality production/injection data
are essential for a reliable simulation study, in terms of direct input data and reference data to
evaluate the accuracy of the history match phase.

Past history matching is the most practical method for testing a reservoir model‘s validity and for
calibrating the geological model. Basically history matching is a process of reservoir parameter
adjustment in such a way that the simulated reservoir behavior reproduces the actual reservoir
behavior.

History matching process should also help to identify possible points of weaknesses in the initial
reservoir model, and should help to find and evaluate the most efficient ways to overcome them.
Once calibrated, the simulation models are then used to compute the production forecasts
considering various hypotheses for the reservoir exploitation.

In simple cases, this prediction phase can be performed in a few days, while the in more complex
cases it can take several months depending on:

the size (i.e. number of cells), the type (i.e. black oil, compositional) and geological
features of the model,
the complexity of the wellbore system and of the surface facilities
layout the number of predictions to be run.
A general sequence for running the prediction phase can be summarized as follows:

Input Data for predictions – definition of the cases to be run

Setting guidelines and constraints – to simulate the future production performance of a
field
Inflow and outflow well performance
Running the prediction cases
Uncertainty assessment.

66
Schematic of a 3D uncertainty workflow. It shows the most
common inputs, stages in the 3D modelling process and
corresponding outputs

67
Casing Design
Casing and tubing strings are the main parts of the well construction. All wells drilled for
the purpose of oil/gas production (or injecting materials into underground formations) must be
cased with material with sufficient strength and functionality.

Casing

Casing is the major structural component of a well. Casing is needed to maintain borehole
stability, prevent contamination of water sands, isolate water from producing formations, and
control well pressures during drilling, production, and workover operations. Casing provides
locations for the installation of blowout preventers, wellhead equipment, production packers, and
production tubing. The cost of casing is a major part of the overall well cost, so selection of
casing size, grade, connectors, and setting depth is a primary engineering and economic
consideration.

Casing Strings
There are six basic types of casing strings

Conductor Casing. Conductor casing is the first string set below the structural casing (i.e., drive
pipe or marine conductor run to protect loose near-surface formations and to enable circulation
of drilling fluid). The conductor isolates unconsolidated formations and water sands and
protects against shallow gas. This is usually the string onto which the casing head is installed. A
diverter or a blowout prevention (BOP) stack may be installed onto this string. When cemented,
this string is typically cemented to the surface or to the mudline in offshore wells.

Surface Casing. Surface casing is set to provide blowout protection, isolate water sands, and
prevent lost circulation. It also often provides adequate shoe strength to drill into high-pressure
transition zones. In deviated wells, the surface casing may cover the build section to prevent
keyseating of the formation during deeper drilling. This string is typically cemented to the
surface or to the mudline in offshore wells

Intermediate Casing. Intermediate casing is set to isolate unstable hole sections, lost-
circulation zones, low-pressure zones, and production zones. It is often set in the transition zone
from normal to abnormal pressure. The casing cement top must isolate any hydrocarbon zones.
Some wells require multiple intermediate strings. Some intermediate strings may also be
production strings if a liner is run beneath them.

Production Casing. Production casing is used to isolate production zones and contain formation
pressures in the event of a tubing leak. It may also be exposed to injection pressures from
fracture jobs, downcasing, gas lift, or the injection of inhibitor oil. A good primary cement job is
very critical for this string.

68
Liner. Liner is a casing string that does not extend back to the wellhead but instead is hung from
another casing string. Liners are used instead of full casing strings to reduce cost, improve
hydraulic performance when drilling deeper, allow the use of larger tubing above the liner top,
and not represent a tension limitation for a rig. Liners can be either an intermediate or a
production string. Liners are typically cemented over their entire length.

Tieback String. Tieback string is a casing string that provides additional pressure integrity from the
liner top to the wellhead. An intermediate tieback is used to isolate a casing string that cannot
withstand possible pressure loads if drilling is continued (usually because of excessive wear or
higher than anticipated pressures). Similarly, a production tieback isolates an intermediate string
from production loads. Tiebacks can be uncemented or partially cemented. An example of a typical
casing program that illustrates each of the specified casing string types is shown in Fig.

Tubing

Tubing is the conduit through which oil and gas are brought from the producing formations to
the field surface facilities for processing. Tubing must be adequately strong to resist loads and
deformations associated with production and workovers. Further, tubing must be sized to support

69
the expected rates of production of oil and gas. Clearly, tubing that is too small restricts
production and subsequent economic performance of the well. Tubing that is too large,
however, may have an economic impact beyond the cost of the tubing string itself because the
tubing size will influence the overall casing design of the well.

Casing Design

To design a casing string, one must know the purpose of the well, the geological cross section,
available casing and bit sizes, cementing and drilling practices, rig performance, as well as safety
and environmental regulations. To arrive at the optimal solution, the design engineer must
consider casing as a part of a whole drilling system. A brief description of the elements involved
in the design process is presented next.

Design Objective

The engineer responsible for developing the well plan and casing design is faced with a
number of tasks that can be briefly characterized.

 Ensure the well‘s mechanical integrity by providing a design basis that accounts for all the
anticipated loads that can be encountered during the life of the well. 
 Design strings to minimize well costs over the life of the well. 
 Provide clear documentation of the design basis to operational personnel at the well site.
This will help prevent exceeding the design envelope by application of loads not considered
in the original design. 

While the intention is to provide reliable well construction at a minimum cost, at times failures
occur. Most documented failures occur because the pipe was exposed to loads for which it was
not designed. These failures are called "off-design" failures. "On-design" failures are rather
rare. This implies that casing-design practices are mostly conservative. Many failures occur at
connections. This implies that either field makeup practices are not adequate or the connection
design basis is not consistent with the pipe-body design basis.

Design Method
Phases of Design Process
The design process can be divided into two distinct phases.

Preliminary Design. Typically the largest opportunities for saving money are present while
performing this task. This design phase includes data gathering and interpretation; determination
of casing shoe depths and number of strings; selection of hole and casing sizes; mud-weight
design; and directional design. The quality of the gathered data will have a large impact on the
appropriate choice of casing sizes and shoe depths and whether the casing design objective is
successfully met.

70
Detailed Design. The detailed design phase includes: Selection of pipe weights and grades for
each casing string. Connection selection. The selection process consists of comparing pipe
ratings with design loads and applying minimum acceptable safety standards (i.e., design
factors). A cost-effective design meets all the design criteria with the least expensive
available pipe.

Required Information

The items listed next are a checklist, which is provided to aid the well planners/casing
designers in both the preliminary and detailed design.

 Formation properties: pore pressure; formation fracture pressure; formation strength

(borehole failure); temperature profile; location of squeezing salt and shale zones; location of
permeable zones; chemical stability/sensitive shales (mud type and exposure time); lost-
circulation zones, shallow gas; location of freshwater sands; and presence of H2S and/or
CO2.
 Directional data: surface location; geologic target(s); and well interference data.
 Minimum diameter requirements: minimum hole size required to meet drilling and
production objectives; logging tool OD; tubing size(s); packer and related equipment
requirements; subsurface safety valve OD (offshore well); and completion requirements.
 Production data: packer-fluid density; produced-fluid composition; and worst-case loads that
might occur during completion, production, and workover operations. 
 Other: available inventory; regulatory requirements; and rig equipment limitations. 

Preliminary Design

The purpose of preliminary design is to establish casing and corresponding drill-bit sizes, casing
setting depths and, consequently, the number of casing strings. Casing program (well plan) is
obtained as a result of preliminary design. Casing program design is accomplished in three
major steps. First, mud program is prepared; second, the casing sizes and corresponding drill-bit
sizes are determined; and next, the setting depths of individual casing strings are found.

Mud Program
The most important mud program parameter used in casing design is the "mud weight." The
complete mud program is determined from: pore pressure; formation strength (fracture and
borehole stability); lithology; hole cleaning and cuttings transport capability; potential formation
damage, stability problems, and drilling rate; formation evaluation requirement; and
environmental and regulatory requirements.

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Hole and Pipe Diameters
Hole and casing diameters are based on the requirements discussed next.

Production. The production equipment requirements include tubing; subsurface safety valve;
submersible pump and gas lift mandrel size; completion requirements (e.g., gravel packing);
and weighing the benefits of increased tubing performance of larger tubing against the higher
cost of larger casing over the life of the well.

Evaluation. Evaluation requirements include logging interpretation and tool diameters.

Drilling. Drilling requirements include a minimum bit diameter for adequate directional control
and drilling performance; available downhole equipment; rig specifications; and available BOP
equipment.

These requirements normally impact the final hole or casing diameter. Because of this, casing
sizes should be determined from the inside outward starting from the bottom of the hole.
Usually the design sequence is as described next.

Based upon reservoir inflow and tubing intake performance, proper tubing size is selected.
Then, the required production casing size is determined considering completion requirements.

Detailed Design
Load Cases
In order to select appropriate weights, grades, and connections during the detailed design phase
using sound engineering judgment, design criteria must be established. These criteria normally
consist of load cases and their corresponding design factors that are compared to pipe ratings.
Load cases are typically placed into categories that include burst loads; drilling loads;
production loads; collapse loads; axial loads; running and cementing loads; and service loads.

Design Factors
In order to make a direct graphical comparison between the load case and the pipe‘s rating, the
DF must be considered.

where

DF = design factor (the minimum acceptable safety factor), and

72
SF = safety factor.

It follows that

Hence, by multiplying the load by the DF, a direct comparison can be made with the pipe
rating. As long as the rating is greater than or equal to the modified load (which we will call the
design load), the design criteria have been satisfied.

Other Considerations
After performing a design based on burst, collapse and axial considerations, an initial design is
achieved. Before a final design is reached, design issues (connection selection, wear, and
corrosion) must be addressed. In addition, other considerations can also be included in the
design. These considerations are triaxial stresses because of combined loading (e.g., ballooning
and thermal effects)—this is often called "service life analysis"; other temperature effects; and
buckling.

RESERVOIR SIMULATION
Reservoir simulation is an area of reservoir engineering in which computer models are used to
predict the flow of fluids (typically, oil, water, and gas) through porous media.

Reservoir simulation models are used by oil and gas companies in the development of new
fields. Also, models are used in developed fields where production forecasts are needed to help
make investment decisions. As building and maintaining a robust, reliable model of a field is
often time-consuming and expensive, models are typically only constructed where large
investment decisions are at stake. Improvements in simulation software have lowered the time to
develop a model. Also, models can be run on personal computers rather than more expensive
workstations.
For new fields, models may help development by identifying the number of wells required, the
optimal completion of wells, the present and future needs for artificial lift, and the expected
production of oil, water and gas.
For ongoing reservoir management, models may help in improved oil recovery by hydraulic
fracturing. Highly deviated or horizontal wells can also be represented. Specialized software may
be used in the design of hydraulic fracturing, then the improvements in productivity can be
included in the field model. Also, future improvement in oil recovery with pressure maintenance
by re-injection of produced gas or by water injection into an aquifer can be evaluated. Water
flooding resulting in the improved displacement of oil is commonly evaluated using reservoir
simulation.
The application of enhanced oil recovery (EOR) processes requires that the field possesses the
necessary characteristics to make application successful. Model studies can assist in this

73
evaluation. EOR processes include miscible displacement by natural gas, CO2, or nitrogen and
chemical flooding (polymer, alkaline, surfactant, or a combination of these). Special features in
simulation software is needed to represent these processes. In some miscible applications, the
"smearing" of the flood front, also called numerical dispersion, may be a problem.
Reservoir simulation is used extensively to identify opportunities to increase oil production in
heavy oil deposits. Oil recovery is improved by lowering the oil viscosity by injecting steam or
hot water. Typical processes are steam soaks (steam is injected, then oil produced from the same
well) and steam flooding (separate steam injectors and oil producers). These processes require
simulators with special features to account for heat transfer to the fluids present and the
formation, the subsequent property changes and heat losses outside of the formation.
A recent application of reservoir simulation is the modeling of coalbed methane (CBM)
production. This application requires a specialized CBM simulator. In addition to the normal
fractured (fissured) formation data, CBM simulation requires gas content data values at
initial pressure, sorption isotherms, diffusion coefficient, and parameters to estimate the
changes in absolute permeability as a function of pore-pressure depletion and gas desorption.

Fundamentals
Traditional finite difference simulators dominate both theoretical and practical work in reservoir
simulation. Conventional FD simulation is underpinned by three physical concepts: conservation
of mass, isothermal fluid phase behavior, and the Darcy approximation of fluid flow through
porous media. Thermal simulators (most commonly used for heavy crude oil applications) add
conservation of energy to this list, allowing temperatures to change within the reservoir.

Numerical techniques and approaches that are common in modern simulators:

Most modern FD simulation programs allow for construction of 3-D representations for use
in either full-field or single-well models. 2-D approximations are also used in various
conceptual models, such as cross-sections and 2-D radial grid models.
Theoretically, finite difference models permit discretization of the reservoir using both
structured and more complex unstructured grids to accurately represent the geometry of the
reservoir. Local grid refinements (a finer grid embedded inside of a coarse grid) are also a
feature provided by many simulators to more accurately represent the near wellbore multi-
phase flow effects. This "refined meshing" near wellbores is extremely important when
analyzing issues such as water and gas coning in reservoirs. Other types of simulators
include finite element and streamline.
Representation of faults and their transmissibilities are advanced features provided in many
simulators. In these models, inter-cell flow transmissibilities must be computed for non-
adjacent layers outside of conventional neighbor-to-neighbor connections.

74
 Natural fracture simulation (known as dual-porosity and dual-permeability) is an advanced
feature which model hydrocarbons in tight matrix blocks. Flow occurs from the tight matrix
blocks to the more permeable fracture networks that surround the blocks, and to the wells.
A black oil simulator does not consider changes in composition of the hydrocarbons as the
field is produced, beyond the solution or evolution of dissolved gas in oil, or vaporisation or
dropout of condensate from gas.
A compositional reservoir simulator calculates the PVT properties of oil and gas phases once
they have been fitted to an equation of state(EOS), as a mixture of components. The
simulator then uses the fitted EOS equation to dynamically track the movement of both
phases and components in field. This is accomplished at increased cost in setup time,
compute time, and computer memory.
The simulation model computes the saturation change of three phases (oil, water and
gas)and pressure of each phase in each cell at each time step. As a result of declining
pressure as in a reservoir depletion study, gas will be liberated from the oil. If pressures
increase as a result of water or gas injection, the gas is re-dissolved into the oil phase.
A simulation project of a developed field, usually requires "history matching" where
historical field production and pressures are compared to calculated values. It was
realised at an early stage that this was essentially an optimisation process, corresponding
to Maximum Likelihood. As such, it can be automated, and there are multiple
commercial and software packages designed to accomplish just that. The model's
parameters are adjusted until a reasonable match is achieved on a field basis and usually
for all wells. Commonly, producing water cuts or water-oil ratios and gas-oil ratios are
matched.

Software
Open Source:

BOAST - Black Oil Applied Simulation Tool (Boast) simulator is a free software package
[1]
for reservoir simulation available from the U.S. Department of Energy. Boast is an
IMPES numerical simulator (finite-difference implicit pressure-explicit saturation) which
finds the pressure distribution for a given time step first then calculates the saturation
distribution for the same time step isothermal. The last release was in 1986 but it remains as
a good simulator for educational purposes.
MRST - The MATLAB Reservoir Simulation Toolbox (MRST) is developed by SINTEF
Applied Mathematics as a MATLAB® toolbox. The toolbox consists of two main parts: a
core offering basic functionality and single and two-phase solvers, and a set of add-on
modules offering more advanced models, viewers and solvers. MRST is mainly intended as
a toolbox for rapid prototyping and demonstration of new simulation methods and modeling

75
 concepts on unstructured grids. Despite this, many of the tools are quite efficient and can be
[2]
applied to surprisingly large and complex models.
OPM - The Open Porous Media (OPM) initiative provides a set of open-source
tools centered on the simulation of flow and transport of fluids in porous media

ECONOMIC ANALYSIS (PROPERTY EVALUATION)

The business purpose is to make a profit by buying smart, whereby your purchase price is
recoverd AND the property‘s revenue generates an acceptable return on your investment.
Financial evaluation of existing production is most often performed via discounted cash flow
(DCF) analysis. Alternatively a simple cash-flow multiple may be useful or appropriate.
In the acquisition and divestiture of oil and gas properties, there are essentially two methods of
calculating Present Value. The formal method is to select a discount factor and apply the
mathematics of discounting to a future cash flow stream and calculate the present value for a
given discount rate. A simple informal, but effective, order of magnitude method is to calculate a
simple multiple of current cash flow.
Cash Flow Multiple
For a series of cash payments into the future, this method provides an informal, quick method of
valuation, and it provides an ―order of magnitude.‖
Discounted Cash Flow
A formal method of calculating the present value (PV) relative to a chosen Discount Rate (%)

The future cash flow is highly dependent on three items.

1) The forecast rate of production decline provides future volume and timing. How much oil or
gas remains (the ―Reserves‖) to be produced from the property?
2) What will the future price of oil or natural gas be?
3) What will the future operating expenses (LOE) be?
Simple Future Cash Flow is: Production volume X Price/BBL X NRI (your share) minus LOE X
WI (your share). Of course you also must deduct any Severance Taxes. Reserves Categories

Proved
Unproved
Probable
Possible
Developed or Producing
Undeveloped or Non-producing
Common Reserves Categories
Proved Developed Producing - PDP
Proved Developed Non-Producing – PDNP
Proved Undeveloped – PUD

76
 Probable – PROB
Possible – POSS
PDP: the Value of Current Production starts with Calculating Reserves for Current
Production Methods of Reserves Calculation
Volumetric
Material Balance – BHP/Z (gas)
Decline Curve (performance)
Types of Decline Curves
Exponential
Hyperbolic
Harmonic
Exponential Decline Curves
Decline Rate is Constant
Rate-Time is linear on semi-log plot

Production forecasts

A production engineer is responsible for generating the production forecast for a well or for a
field. Where does the engineer start? Darcy‘s law gives an estimate of the initial production. The
following factors influence how long, or if, the well or field will maintain a plateau production
rate:

 drive mechanism

 physical constraint

 regulations

 reserves

 well geometry

Once production drops from the peak or plateau rate, the engineer needs an estimate of decline
rate. One can quickly realize that, with all these uncertainties, production forecasts are another
candidate on which to use risk analysis techniques to help quantify the uncertainty. Ironically,
even producing wells with historical data have uncertainty about their decline rates because of
errors or omissions in production monitoring and because of noise or erratic production profiles
that allow for various interpretations.

77
 UNIT - 4

WELL EVALUATION

Reservoir evaluation seeks to describe the spatial distribution characteristics of shale reservoir
both qualitatively and quantitatively and to simulate the storage and production status of gas in
shale. Five major steps are included in the evaluation flow
(1) Carry out analysis on the physical properties of cores, basic parameters of geochemistry, rock
mineral composition, and the like in key wells;
(2) carry out gas desorption and adsorption tests of cores in the field and calculate the isothermal
adsorption curves to gain the adsorbed capacity of shale in theory, which can determine the gas
saturation to calculate the content of adsorbed gas;
(3) based on well logging curves (calibrated by core data), an interpretation model can be
established via a core-logging comparison to gain gas saturation, water saturation, oil saturation,
porosity, organic matter abundance, rock types, and so on;
(4) boundaries of gas-bearing shale can be confirmed by sedimentary facies, characteristics of
rock assembly, and interpretation results of well logging;
(5) economical evaluation can be carried out by 3D seismic data and various parameters (such as
original oil/gas in place, mineral composition, fluid saturation, relative proportion between
adsorbed gas and free gas, buried depth, temperature, and pressure) to optimize exploration
targets and to determine the distribution scales of ―sweet spots.‖
The requirement for reservoir formation evaluation arises at the critical initial stages of
exploration and production projects.

Reservoir formation evaluation sees oil and gas organisations faced with the challenge of
indirectly assessing a well for its production viability under complex conditions.

Each reservoir‘s unique environs need to be explored and understood using a range
of measurements taken from inside the wellbore.

The end result is the use of this data to produce logs calculating the quantity of oil and gas
stored within the rock, enabling companies to make informed decisions on their subsequent
drilling plans.
With maximum efficiency, speed and cost-effectiveness as priorities, you need a reservoir
formation evaluation partner with the ability to understand the unique conditions and
challenges of your reservoir.

Rock and fluid properties will determine how much oil and natural gas can be recovered from
a reservoir. After an exploratory well has been drilled, it is evaluated to determine if there is

78
enough oil and natural gas in the reservoir to make it economically feasible to initiate recovery
operations.

The volume of hydrocarbons in a reservoir can be calculated:

1. directly by volumetric methods

2. indirectly by material balance methods

Volumetrics provide a static measure of oil or gas in place. Accuracy of volumetrics depends on
data for: • porosity

• net thickness

• areal extent

• hydrocarbon saturations

Material balance methods provide a dynamic measure of hydrocarbon volumes. Accuracy

depends on quality of data for:

• pressure surveys • temperature surveys • analysis of recovered fluids Normally mass

balance methods increase in accuracy as the reservoir is produced.

VOLUMETRIC ANALYSIS

Also known as the geologist's method because it is based on geological maps, core logs and
analysis of wireline logs. Isopach maps are used to compute the bulk volume of the reservoir (V).
For an oil reservoir above the bubble point the oil-originally-in-place (OOIP) is given by:

OOIP = (V.n).(1 - Swi)

The stock tank oil in place is given by:

STOIP = (V.n).(1 - Swi) / Bo

where Bo is the oil formation volume factor.

The volume x porosity is the pore volume for the reservoir (PV). So the OIP is also known as the
hydrocarbon pore volume

(HCPV): HCPV = (V.n).(1 - Swi) = PV.(1 - Swi)

The moveable oil volume (MOV) is given by:

MOV = PV.(1 - Swi - Soi)

GAS VOLUMES The volume of free gas in a gas reservoir or gasinitially-in-place is given by:

79
GIIP = Gr = (V.n).(1 - Swi)

In terms of standard volumes at STP, the gas volume is:

G = (V.n).(1 - Swi) / Bg G = (V.n).(1 - Swi).E

where Bg is the gas formation volume factor and E is the gas expansion factor. For oil and gas
reservoirs below the bubble point, the total hydrocarbon in place is given by the

HCPV: HCPV = (V.n).(1 - Swi)

The stock tank oil volume can be computed as: STOIP = (V.n).(1 - Swi - Sg) / Bo

The standard gas volume at STP is given by: G = (V.n).(1 - Swi - So) / Bg

VOLUME CALCULATIONS

To calculate volumes it is necessary to find the areas between isopach contours. There
are several methods:

1. grid square counting 2. planimeter 3. digitizer table

Given the areas between contours, volumes can be computed using:
1. Trapezoidal rule 2. Simpson's rule
For the trapezoidal rule with a contour interval, h, and where hn is z-distance from the top
contour to the crest of the reservoir :
V = h.[Ao + 2A1 + 2A2 + ...+ 2An-1 + An] + hn.An /2
Using Simpson's rule with a contour interval, h, and an even number of intervals (odd number
of lines) : V = h.[Ao + 4A1 + 2A2+ ... + 2An-2 + 4An-1 + An] + hn.An/ 2

Reservoir Evaluation Tools

Core Analysis In drilling an oil or gas well with rotary tools (the drill bit rotates at the bottom of
the hole as opposed to moving up and down as in cable-tool drilling), it is possible to use a
special type of drill bit that works much like a doughnut cutter and permits the operator to cut
plugs or cores from the formation and bring them to the surface as samples of the rock being
drilled. This operation is referred to as ―coring. ‖ The samples so obtained can then be subjected
to various types of analyses.
Geologists and engineers examine cores of Brown shale to detect fractures or joints, The visual
appearance, odor, or taste of a core sample provides an indication of the presence of gas, oil, or
water in the pores of the core. After a quick gross examination, 6-inch long pieces of the core
may be sealed in cans or other containers to maintain the fluid content insofar as possible. These
samples are used to determine the porosity, permeability, and fluid saturation of the shale. It is
important to note that the laboratory procedures used to analyze the Brown shale were designed
for normal sandstone and limestone reservoirs which have much greater porosities and
permeabilities.4

80
 Basic to an understanding of the gas production potential of the Brown shale is the need for
analytical techniques capable of accurately determining critical reservoir characteristics from
core samples. If it is not possible to determine accurately from the core samples (1) the physical
nature of the pore structure that constitutes the reservoir (subsurface gas container); (2) the
percentage of the total bulk volume of the reservoir that is made up of pore space; (3) the ability
of fluids to flow through these pores; and (4) the percent of pores occupied by gas, liquid
hydrocarbons, solid hydrocarbons, and water, then there is much smaller chance of determining
these same parameters from less direct methods such as electrical logs. A log is a record of some
physical property (e.g., electrical resistivity or radioactivity) of the rocks penetrated in a well,

Permeability, Porosity, and Saturation

The permeability, porosity, and saturation of the Brown shale are vastly different from the same
parameters of most gas-producing reservoirs. A general comparison of these characteristics is
given in table 3. The HugotonAnadarko, San Juan, and Permian Basins represent some of the
better known gas-producing areas. They tend to contain reservoirs that are on the ―tight‖ (low
permeability) side, as compared with offshore production, where the reservoirs may have a
permeability of 1,000 mD and a porosity of 35 percent. Nevertheless, the typical sandstone
reservoir has permeabilities and porosities that are much greater than those of Brown shales. This
is a strong indication that methods different from those used in conventional gas-producing
reservoirs must be used to obtain commercial rates of production from the Brown shale.
Development and evaluation of such methods can only come from basic research and field
testing

Formation evaluation
In petroleum exploration and development, formation evaluation is used to determine
the ability of a borehole to produce petroleum. Essentially, it is the process of
"recognizing a commercial well when you drill one".
Modern rotary drilling usually uses a heavy mud as a lubricant and as a means of producing a
confining pressure against the formation face in the borehole, preventing blowouts. Only in rare
and catastrophic cases, do oil and gas wells come in with a fountain of gushing oil. In real life,
that is a blowout—and usually also a financial and environmental disaster. But controlling
blowouts has drawbacks—mud filtrate soaks into the formation around the borehole and a mud
cake plasters the sides of the hole. These factors obscure the possible presence of oil or gas in
even very porous formations. Further complicating the problem is the widespread occurrence of
small amounts of petroleum in the rocks of many sedimentary provinces. In fact, if a sedimentary
province is absolutely barren of traces of petroleum, it is not feasible to continue drilling there.
The formation evaluation problem is a matter of answering two questions:

1. What are the lower limits for porosity, permeability and upper limits for water saturation
that permit profitable production from a particular formation or pay zone; in a particular
geographic area; in a particular economic climate.

81
 2. Do any of the formations in the well under consideration exceed these lower limits.
It is complicated by the impossibility of directly examining the formation. It is, in short, the
problem of looking at the formation indirectly.

Formation evaluation tools

Tools to detect oil and gas have been evolving for over a century. The simplest and most direct
tool is well cuttings examination. Some older oilmen ground the cuttings between their teeth and
tasted to see if crude oil was present. Today, a wellsite geologist or mudlogger uses a low
powered stereoscopic microscope to determine the lithology of the formation being drilled and to
estimate porosity and possible oil staining. A portable ultraviolet light chamber or "Spook Box"
is used to examine the cuttings for fluorescence. Fluorescence can be an indication of crude oil
staining, or of the presence of fluorescent minerals. They can be differentiated by placing the
cuttings in a solvent filled watchglass or dimple dish. The solvent is usually carbon
tetrachlorethane. Crude oil dissolves and then redeposits as a fluorescent ring when the solvent
evaporates. The written strip chart recording of these examinations is called a sample log or
mudlog.
Well cuttings examination is a learned skill. During drilling, chips of rock, usually less than
about 1/8 inch (6 mm) across, are cut from the bottom of the hole by the bit. Mud, jetting out of
holes in the bit under high pressure, washes the cuttings away and up the hole. During their trip
to the surface they may circulate around the turning drillpipe, mix with cuttings falling back
down the hole, mix with fragments caving from the hole walls and mix with cuttings travelling
faster and slower in the same upward direction. They then are screened out of the mudstream by
the shale shaker and fall on a pile at its base. Determining the type of rock being drilled at any
one time is a matter of knowing the 'lag time' between a chip being cut by the bit and the time it
reaches the surface where it is then examined by the wellsite geologist (or mudlogger as they are
sometimes called). A sample of the cuttings taken at the proper time will contain the current
cuttings in a mixture of previously drilled material. Recognizing them can be very difficult at
times, for example after a "bit trip" when a couple of miles of drill pipe has been extracted and
returned to the hole in order to replace a dull bit. At such a time there is a flood of foreign
material knocked from the borehole walls (cavings), making the mudloggers task all the more
difficult.
Coring
One way to get more detailed samples of a formation is by coring. Two techniques commonly
used at present. The first is the "whole core", a cylinder of rock, usually about 3" to 4" in
diameter and up to 50 feet (15 m) to 60 feet (18 m) long. It is cut with a "core barrel", a hollow
pipe tipped with a ring-shaped diamond chip-studded bit that can cut a plug and bring it to the
surface. Often the plug breaks while drilling, usually in shales or fractures and the core barrel
jams, slowly grinding the rocks in front of it to powder. This signals the driller to give up on
getting a full length core and to pull up the pipe.
Taking a full core is an expensive operation that usually stops or slows drilling for at least the
better part of a day. A full core can be invaluable for later reservoir evaluation. Once a section of
well has been drilled, there is, of course, no way to core it without drilling another well.

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Another, cheaper, technique for obtaining samples of the formation is "Sidewall Coring". One
type of sidewall cores is percussion cores. In this method, a steel cylinder—a coring gun—has
hollow-point steel bullets mounted along its sides and moored to the gun by short steel cables.
The coring gun is lowered to the bottom of the interval of interest and the bullets are fired
individually as the gun is pulled up the hole. The mooring cables ideally pull the hollow bullets
and the enclosed plug of formation loose and the gun carries them to the surface. Advantages of
this technique are low cost and the ability to sample the formation after it has been drilled.
Disadvantages are possible non-recovery because of lost or misfired bullets and a slight
uncertainty about the sample depth. Sidewall cores are often shot "on the run" without stopping
at each core point because of the danger of differential sticking. Most service company personnel
are skilled enough to minimize this problem, but it can be significant if depth accuracy is
important.
A second method of sidewall coring is rotary sidewall cores. In this method, a circular-saw
assembly is lowered to the zone of interest on a wireline, and the core is sawed out. Dozens of
cores may be taken this way in one run. This method is roughly 20 times as expensive as
percussion cores, but yields a much better sample.
A serious problem with cores is the change they undergo as they are brought to the surface. It
might seem that cuttings and cores are very direct samples but the problem is whether the
formation at depth will produce oil or gas. Sidewall cores are deformed and compacted and
fractured by the bullet impact. Most full cores from any significant depth expand and fracture as
they are brought to the surface and removed from the core barrel. Both types of core can be
invaded or even flushed by mud, making the evaluation of formation fluids difficult. The
formation analyst has to remember that all tools give indirect data.
Mud logging
Mud logging (or Wellsite Geology) is a well logging process in which drilling mud and drill bit
cuttings from the formation are evaluated during drilling and their properties recorded on a strip
chart as a visual analytical tool and stratigraphic cross sectional representation of the well. The
drilling mud which is analyzed for hydrocarbon gases, by use of a gas chromatograph, contains
drill bit cuttings which are visually evaluated by a mudlogger and then described in the mud log.
The total gas, chromatograph record, lithological sample, pore pressure, shale density,D-
exponent, etc. (all lagged parameters because they are circulated up to the surface from the bit)
are plotted along with surface parameters such as rate of penetration (ROP), Weight On Bit
(WOB),rotation per minute etc. on the mudlog which serve as a tool for the mudlogger, drilling
engineers, mud engineers, and other service personnel charged with drilling and producing the
well.
Wireline logging
The oil and gas industry uses wireline logging to obtain a continuous record of a formation's rock
properties. Wireline logging can be defined as being "The acquisition and analysis of
geophysical data performed as a function of well bore depth, together with the provision of
related services." Note that "wireline logging" and "mud logging" are not the same, yet are
closely linked through the integration of the data sets. The measurements are made referenced to
"TAH" - True Along Hole depth: these and the associated analysis can then be used to infer
further properties, such as hydrocarbon saturation and formation pressure, and to make further
drilling and production decisions.

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Wireline logging is performed by lowering a 'logging tool' - or a string of one or more
instruments - on the end of a wireline into an oil well (or borehole) and recording petrophysical
properties using a variety of sensors. Logging tools developed over the years measure the natural
gamma ray, electrical, acoustic, stimulated radioactive responses, electromagnetic, nuclear
magnetic resonance, pressure and other properties of the rocks and their contained fluids. For this
article, they are broadly broken down by the main property that they respond to.
The data itself is recorded either at surface (real-time mode), or in the hole (memory mode) to an
electronic data format and then either a printed record or electronic presentation called a "well
log" is provided to the client, along with an electronic copy of the raw data. Well logging
operations can either be performed during the drilling process (see Logging While Drilling), to
provide real-time information about the formations being penetrated by the borehole, or once the
well has reached Total Depth and the whole depth of the borehole can be logged.
Real-time data is recorded directly against measured cable depth. Memory data is recorded
against time, and then depth data is simultaneously measured against time. The two data sets are
then merged using the common time base to create an instrument response versus depth log.
Memory recorded depth can also be corrected in exactly the same way as real-time corrections
are made, so there should be no difference in the attainable TAH accuracy.
The measured cable depth can be derived from a number of different measurements, but is
usually either recorded based on a calibrated wheel counter, or (more accurately) using magnetic
marks which provide calibrated increments of cable length. The measurements made must then
be corrected for elastic stretch and temperature.[1]
There are many types of wireline logs and they can be categorized either by their function or by
the technology that they use. "Open hole logs" are run before the oil or gas well is lined with
pipe or cased. "Cased hole logs" are run after the well is lined with casing or production pipe.[2]
Wireline logs can be divided into broad categories based on the physical properties
measured. Electric logs
In 1928, the Schlumberger brothers in France developed the workhorse of all formation
evaluation tools: the electric log. Electric logs have been improved to a high degree of precision
and sophistication since that time, but the basic principle has not changed. Most underground
formations contain water, often salt water, in their pores. The resistance to electric current of the
total formation—rock and fluids—around the borehole is proportional to the sum of the
volumetric proportions of mineral grains and conductive water-filled pore space. If the pores are
partially filled with gas or oil, which are resistant to the passage of electric current, the bulk
formation resistance is higher than for water filled pores. For the sake of a convenient
comparison from measurement to measurement, the electrical logging tools measure the
resistance of a cubic meter of formation. This measurement is called resistivity.
Modern resistivity logging tools fall into two categories, Laterolog and Induction, with various
commercial names, depending on the company providing the logging services.
Laterolog tools send an electric current from an electrode on the sonde directly into the
formation. The return electrodes are located either on surface or on the sonde itself. Complex
arrays of electrodes on the sonde (guard electrodes) focus the current into the formation and
prevent current lines from fanning out or flowing directly to the return electrode through the

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borehole fluid. Most tools vary the voltage at the main electrode in order to maintain a constant
current intensity. This voltage is therefore proportional to the resistivity of the formation.
Because current must flow from the sonde to the formation, these tools only work with
conductive borehole fluid. Actually, since the resistivity of the mud is measured in series with
the resistivity of the formation, laterolog tools give best results when mud resistivity is low with
respect to formation resistivity, i.e., in salty mud.
Induction logs use an electric coil in the sonde to generate an alternating current loop in
the formation by induction. This is the same physical principle as is used in electric transformers.
The alternating current loop, in turn, induces a current in a receiving coil located elsewhere on
the sonde. The amount of current in the receiving coil is proportional to the intensity of current
loop, hence to the conductivity (reciprocal of resistivity) of the formation. Multiple transmitting
and receiving coils are used to focus formation current loops both radially (depth of
investigation) and axially (vertical resolution). Until the late 80‘s, the workhorse of induction
logging has been the 6FF40 sonde which is made up of six coils with a nominal spacing of 40
inches (1,000 mm). Since the 90‘s all major logging companies use so-called array induction
tools. These comprise a single transmitting coil and a large number of receiving coils. Radial and
axial focusing is performed by software rather than by the physical layout of coils. Since the
formation current flows in circular loops around the logging tool, mud resistivity is measured in
parallel with formation resistivity. Induction tools therefore give best results when mud
resistivity is high with respect to formation resistivity, i.e., fresh mud or non-conductive fluid. In
oil-base mud, which is non conductive, induction logging is the only option available.
Until the late 1950s electric logs, mud logs and sample logs comprised most of the oilman's
armamentarium. Logging tools to measure porosity and permeability began to be used at that
time. The first was the microlog. This was a miniature electric log with two sets of electrodes.
One measured the formation resistivity about 1/2" deep and the other about 1"-2" deep. The
purpose of this seemingly pointless measurement was to detect permeability. Permeable sections
of a borehole wall develop a thick layer of mudcake during drilling. Mud liquids, called filtrate,
soak into the formation, leaving the mud solids behind to -ideally- seal the wall and stop the
filtrate "invasion" or soaking. The short depth electrode of the microlog sees mudcake in
permeable sections. The deeper 1" electrode sees filtrate invaded formation. In nonpermeable
sections both tools read alike and the traces fall on top of each other on the stripchart log. In
permeable sections they separate.
Also in the late 1950s porosity measuring logs were being developed. The two main types are:
nuclear porosity logs and sonic logs.
Porosity logs
The two main nuclear porosity logs are the Density and the Neutron log.
Density logging tools contain a caesium-137 gamma ray source which irradiates the formation
with 662 keV gamma rays. These gamma rays interact with electrons in the formation through
Compton scattering and lose energy. Once the energy of the gamma ray has fallen below 100
keV, photolectric absorption dominates: gamma rays are eventually absorbed by the

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formation. The amount of energy loss by Compton scattering is related to the number electrons
per unit volume of formation. Since for most elements of interest (below Z = 20) the ratio of
atomic weight, A, to atomic number, Z, is close to 2, gamma ray energy loss is related to the
amount of matter per unit volume, i.e., formation density.

OPTIMIZATION
Optimization is an act, process, or methodology of making as fully perfect, functional, or
effective as possible, specifically the mathematical procedures involved in this.
The term ‗‗production optimization‘‘ has been used to describe different processes in the oil and
gas industry.
• Production Optimization means Balance between Production rate / Deliverability and demand.
• Production Optimization includes a good understanding about Production Systems and
Reservoir Fluid.

PRODUCTION OPTIMIZATION OF OIL AND GAS FIELDS

Production Optimization includes a good understanding about Production Systems and
Reservoir Fluid
Production Optimization means… Balance between Production rat demand Production Optimization

A production system includes:

Reservoir (inflow performance relationship)
Wellbore (completions, tubing etc)
Surface facilities (flow lines, separator, pipe lines, etc)
Production systems can be very simple to complex
Simple – reservoir, completion, tubing, surface facilities
Complex – Artificial lift system, water injection and multiple wells.
Phase Behavior
Dry gas / Wet Gas, Condensate, oil, water
Fluid Properties
Gas Properties, Liquid Properties
Laboratory Measurements
Composition, Constant volume depletion
Reservoir fluid properties
FVF (formation volume factor

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 Produced gas / oil ratio
Solution gas oil ratio
Compressibility
Bubble point
Gas and oil gravities
Densities & viscosities

PRODUCTION OPTIMIZATION USING NODAL ANALYSIS

NODAL ANALYSIS

Nodal analysis is the analysis of flow performance at different points or nodes of a pipeline
network. Node is a point in the network, where either the profile of the pipeline, size, inclination,
phase or flowing conditions of the medium getting transported change. Such as, from bottom of a
well to surface it may be a vertical multiphase tubing. from the well head it may be either a
single well flow line or several wells connected n to one line. from the collecting station, it may
be single phase gas or oil pipelines. each section has to be simulated separately as the conditions
vary from each other. The entire network can be simulated by compiling the information
generated by each simulation. Nodal analysis is very important to find any impediments or
restrictions in maintaining the flow through the system, debottlenecking and ensuring the
production at optimum capacity etc.

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Well deliverability is determined by the combination of well inflow performance and wellbore
flow performance. • This work focuses on prediction of achievable fluid production rates from
reservoirs with specified production string characteristics. • The technique of analysis is called
―Nodal Analysis‖
After improve nodal analysis for horizontal well, two important section will be increased that are
following: • Horizontal Section • Inclination Section

systems analysis has been used for many years to analyze the performance of systems
composed of multiple interacting components

The objective of systems analysis is to combine the various components of the production
system for an individual well to estimate production rates and optimize the components of
the production system.

Necessity of examining flow through system

The flow of reservoir fluids from the subsurface reservoir to the stock tank or sales line requires
an understanding of the principles of fluid flow through porous media and well tubulars. As the
fluid moves through the production system, there will be an associated pressure drop to
accompany the fluid flow. This pressure drop will be the sum of the pressure drops through the
various components in the production system. Because of the compressible nature of the fluids
produced in oil and gas operations, the pressure drop is dependent on the interaction between the
various components in the system. This occurs because the pressure drop in a particular
component is not only dependent on the flow rate through the component, but also on the
average pressure that exists in the component.

As a result, the final design of a production system requires an integrated approach, since the
system cannot be separated into a reservoir component or a piping component and handled
independently. The amount of oil and gas produced from the reservoir to the surface depends on
the total pressure drop in the production system, and the pressure drop in the system depends on
the amount of fluid flowing through the system. Consequently, the entire production system must
be analyzed as a unit or system.

Systems analysis is based on the concept of continuity. At any given point in the production
system, there is a particular pressure and production rate associated with that point for a set of
conditions. If there is any change in the system, then there will be an associated change in
pressure and/or production rate at that same point. This concept allows the production system to
be divided at a point of interest for evaluation of the two portions of the system. This evaluation
determines the conditions of continuity of pressure and production rate at the division point,
which is the estimated producing condition for the system being evaluated.

The approach provides the flexibility to divide the production system at any point of interest
within the system to evaluate a particular component of the system. The most common division
points are at the wellhead or at the perforations, either at the reservoir sandface or inside the
wellbore. The terminal ends of the system will be the reservoir on the upstream end of the system

88
and the separator at the downstream end of the system or the wellhead if a wellhead choke
controls the well.

The components upstream of the division point or node comprise the inflow section of the
system, while the components downstream of the node represent the outflow section. Once the
system is divided into inflow and outflow sections, relationships are written to describe the rate-
pressure relationship within each section. The flow rate through the system is determined once
the conditions of continuity are satisfied:

 Flow into the division point equals flow out of the division point 
 The pressure at the division point is the same in both inflow and outflow sections of the
system

Systems analysis may be used for many purposes in analyzing and designing producing oil and
gas wells. The approach is suited for evaluating both flowing wells and artificial lift
applications. The technique provides powerful insight in the design of an initial completion.
Even with limited data, various completion scenarios can be evaluated to yield a qualitative
estimate of expected well behavior. This process is very useful in analyzing current producing
wells by identifying flow restrictions or opportunities to enhance performance.

Typical applications include:

 Estimation of flow rates

 Selection of tubing size
 Selection of flowline size
 Selection of wellhead pressures and surface choke sizing

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 Estimation of the effects of reservoir pressure depletion
 Identification of flow restrictions

Other typical applications are:

 Sizing subsurface safety valves

 Evaluating perforation density
 Gravel pack design
 Artificial lift design
 Optimizing injection gas-liquid ratio for gas lift 
 Evaluating the effects of lower wellhead pressures or installation of compression
 Evaluating well stimulation treatments

In addition, systems analysis can be used to evaluate multiwell producing systems. Systems
analysis is a very robust and flexible method that can be used to design a well completion or
improve the performance of a producing well.

WELL STIMULATION

Well stimulation is a well intervention performed on an oil or gas well to increase production by
improving the flow of hydrocarbons from the drainage area into the well bore. Stimulation is
the opening of new channels in the rock for oil and gas to flow through easily.

While drilling an oil well, oil well operations like circulation of drilling fluids, pumping of
cement slurry, perforation and pumping of fluids into the wellbore through the surface equipment
are carried out. The suspended particles that are present in these fluids interact with the materials
that are originally present in the reservoir. High temperature and pressure modifies the
permeability of the formation or sometimes plugs the formation itself.
This phenomenon is referred to as formation damage or skin effects. In simple terms, any
operation carried out on a well that can lead to formation damage to some extent and reduce the
productivity of the well. Well Stimulation techniques are designed to increase permeability of
formation. This is achieved by two ways, i.e., matrix acidization and reservoir fracturing.
Matrix acidization involves pumping calculated quantity of acid into the wellbore at certain
pressure without fracturing the formation which dissolves the foreign material thus improves the
permeability. Hydrofluoric acid is used for sandstone while hydrochloric acid is used for
limestone.
Fracturing is an essential operation that is done in order to break down the rocks inside the earth,
so that accessing the oil and gas reservoir is easy. When acid is used to induce fractures beneath
the earth, it is referred to as fracture acidizing or acid fracturing. This process makes use of acids
such as hydrochloric acid, which is injected inside the oil well. Focused on disintegrating the
carbonate rock formations, the acid reacts with the rocks, which are partially soluble. Thus, this
process leads to the erosion of the rocks that leads to the fracturing. Acid fracturing is ideal for
inducing fractures in carbonate reservoirs.

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Hydraulic fracturing involves pumping of fluids (proppant, water acid, corrosion inhibitors, etc.)
into the wellbore at higher pressure that causes the reservoir to from cracks. This creates higher
permeability thus allows the hydrocarbons to flow.
This technique, a blended liquid which is usually a mixture of water, sand granules, aluminum
pellets, glass beds, and other proppants is pumped down with high pressure into the tight rock
formation which produces cracks/fractures in the rock. When the pressure is released at the
surface, the small grains of this fracking fluid hold the fractures partially open allowing the
channels for hydrocarbons to flow through them into a producing well.
The pressure and injection rate can reach up to 100 Mega Pascal equivalents to 15000 psi and
265 liters per second by fracturing equipment used in performing this technique of enhancing oil
or gas productions. Generally this technique is more commonly used in horizontally drilled gas
wells (Shale Gas).

The purpose and methods of stimulation

The life cycle of any gas or oilfield falls into three distinct stages:

initially, production rate is up with the progress of infill drilling,

in the second stage, production rate is fairly constant and any potential drops are offset by
additional wells,
well productivity decreases in the third stage and cannot be offset by drilling more wells.

At that point in well history stimulation procedures have to be applied in order to enhance well
productivity by removing natural and drilling-induced barriers to the flow of hydrocarbons.
Unlike enhanced oil recovery techniques, well stimulation has no effect on reservoir pressure.

Well productivity can be stimulated in two ways:

by enhancing permeability of reservoir

rocks, by lowering viscosity of the crude oil.

The existing techniques are of double action and fall into the following procedures:

mechanical: use of explosives and propellants, hydraulic fracturing,

thermal: heat flooding, in situ combustion,
chemical: acidizing.

Technologies that are used today reach way beyond the immediate vicinity of the well bore and
the so-called ―skin damage‖ area, as it had been the case in early history of oil production. The
improvements were driven by the oil crisis of the 1970's in an effort to enhance recovery from
indigenous oilfields, then considered as commercially non-viable, following OPEC's decision to
increase dramatically the price of their crude product. Stimulation techniques were further
improved in the 1990's with focus on reservoirs of medium to high permeabilities. Nowadays, oil
and gas companies are in disposal of a wide array of stimulation solutions that have been
developed in the past 150 years with good oilfield management in mind.

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Well shooting

Explosives were first used for enhancing oil flow to the borehole as early as in the 19th century.
In 1865, E. A. L. Roberts used 8 pounds of black powder in ―Ladies Well‖. This marked the
beginning of the well shooting era. In addition to powder, subsequently discovered nitroglycerine
and dynamite were used.

Oilfield explosives had to display the following characteristics:

plasticity (fitting pipes of different diameters),

brisance (rock shattering capacity),
resistance to the action of hydrocarbons and water in the borehole.
Explosives were placed in rigid (sheet metal) or flexible (hemp warp, sail-cloth)
containers called torpedoes. This method had been increasingly popular before the advent
of the much more efficient and safer hydraulic fracturing in the 1940's.
Poland saw the first well shooting attempts in the interwar period, but most of them were
unsuccessful. After WW2, approx. 900 well shooting jobs were effected from 1945 to
1957, mostly in the Carpathian Mountains. This technique was no longer used in the
1960's. The last well shooting job worldwide took place in Pennsylvania in 1990.
Nowadays, well shooting is used exclusively for fishing purposes (to remove obstacles
from the well bore). This is due to the way of explosive action in the borehole.
Torpedo acts in two ways – mechanically and thermally. The former one crushes the
near-well zone so as to induce a network of fractures and fissures through which reservoir
fluids may flow to the borehole. However, the range of explosion impact is usually small
and does not exceed 10 metres.
Heat is the second way of action. Paraffin wax, asphalt, etc. deposits in the formation
pores often impede the flow of crude oil to the borehole. The heat from torpedo blasting
dissolves the deposits and reopens migration channels. Nonetheless, well shooting has
several inherent flaws. First, the explosion prevents any subsequent drilling operations, as
blast-compacted rock is impenetrable to normally used drilling tools. This may
completely block the flow of crude oil to the borehole. Heat generated by torpedo
explosion may have a similar effect, if the temperature is exceedingly high. Formation
walls may get melted, closing the pores with resulting decrease in oil production rate.
Due to all these deficiencies, well blasting is no longer applied in the oil and gas industry,
it was superseded by more efficient techniques. Nevertheless, it is important to have an
idea of well shooting in order to understand the origin of contemporary techniques, such
as cumulative perforation, powder pressure generators or hydraulic fracturing.

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Cumulative perforation and powder pressure generators

The so-called cumulative perforation marked the next step in the development of oil and gas well
stimulation.

Having noticed that well shooting is low effective and its course is hardly predictable, in 1930's
oilfield engineers attempted to improve process predictability by making the explosion
directional.

At first, mortar shells were used, but to poor effect. The second World War and a significant
progress in cumulative charge technology meant a breakthrough for the application of explosives
in oilfields. The new technique was first used on a commercial basis in California oilfields in
1946. In Poland, initial tests were performed in the 1950's and the method was generally adopted
soon thereafter.

Cumulative perforation was initially intended to enable access to the reservoir by perforating the
borehole walls. It was only some time later that oilfield engineers noticed well productivity
enhancements following the procedure. This is due to the fact that the rocks surrounding the well
are perforated along with casing pipes. The mechanism is similar to the well shooting, but it is
much more efficient, insofar as a network of radially propagated fractures is induced around the
point of perforation, rather than a compacted rock mass that prevents the flow of hydrocarbons.
Moreover, the range of these fractures is much longer than that produced by well shooting.
Cumulative charges are placed in special units (guns) that are lowered to a vertical well using a
shot cable.

In case of directional and horizontal wells, perforators are lowered on drillstem or on tubing
(Tubing Conveyed Perforation) or using the so-called PCP, i.e. permanent completion
perforating. This method is much more time- and labour-intensive comparing with now
increasingly popular coiled tubing, but more expensive. Moreover, the perforators' parameters
have to be adjusted to downhole pressure and temperature conditions, as well as to the presence
of drilling fluids at the target perforation depth. Therefore, perforators intended for use at greater
depths are placed in sealed containers, whilst charges that are to be fired nearer the surface are
placed directly in the guns and lowered on a steel tape. Powder pressure generators are
frequently in the form of a tubular compacted rod.

Cumulative perforation is still being perfected and commonly applied in exploration for mineral
waters, geothermal waters and sulfur. It is frequently the first step preceding such jobs as
hydraulic fracturing, acidizing or the application of powder pressure generators.

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Hydraulic fracturing

Hydraulic fracturing is currently the most commonly used production stimulation technique.

Its history started in the USA in the 1940's. In 1947, the first fracturing job using napalm-
thickened gasoline was made in Kansas. Fracturing fluid with sand was used two years later.
Initially, oil-based fracturing fluids were applied. Water has been the first choice at fracturing
fluid formulation since the 1960's.

Hydraulic fracturing has been used for shale oil and gas production since 1988. Its application in
horizontal wells boosted production efficiency by extending the range of effects on oil and gas
accumulations. The so-called ―shale revolution‖, which made USA the top natural gas producer
worldwide, enabled to refine the process and bring the cost down.

Fracturing was introduced in Poland in 1956-57, mainly in the Carpathian Foothills Region. At
first, the effects proved to be unsatisfactory, as most of the wells were percussion drilled with
non-cemented casing. The necessity to protect the wells meant additional costs with adverse
effects on fracturing efficiency.

The 1970's saw a great progress in fracturing technology with the advent of natural and synthetic
polymers as fracturing fluid components easily accommodating the fluid to various downhole
conditions.

However, the cost of fracturing is so high that well productivity must be at least doubled in order
for the operation to be economically viable.

Like in the case of well shooting and powder pressure generators, the process is intended to
induce a network of fractures that enhance permeability of the reservoir rock. The key difference
is much longer time of rock mass exposure to high pressure and, consequently, a much wider
range of the fractures.

Fracturing mechanism first involves fluid injection to the well to induce fractures, followed by
injection of the fluid carrying a proppant material. At that time the well is closed with a high
pressure wellhead. Subsequently, flowback water and reservoir fluids are recovered from the
well.

Fracturing fluid is critical to the success of any fracturing project. The desired characteristics of
the fluid are in the first place:

high slickness,
stable viscosity,
excellent proppant carrying capability,

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 low penetrability into fracture walls,
low price.

The fluids used in the industry fall into the following categories:

gels,
network polymers,
emulsions,
foams.

Network polymers meet most of these requirements.

Fracturing fluid is usually composed of water (95%), proppant (4.5%) and chemical additives
(0.5%), although the parameters are frequently changed during a single job so as to optimize the
process.

The application of proppant and chemical components makes hydraulic fracturing apart from
other pressure-based stimulation procedures. Proppant fills the induced fractures to prevent them
from collapsing and helps to keep the reservoir fluid flowing to the well bore over long time.
Early in the history of fracturing riverbed sand was used as proppant but with mixed success due
to its non-homogeneity and variability of parameters. Therefore, better proppants have been
sought in the past fifty years. Ideally, proppant should be resistant to squeezing, chemically
neutral, homogenous and available at a low cost, considering huge amounts needed for a single
job. Tested materials included: nut shells, aluminum, glass and plastic beads. None of them was
economically viable. Today, well sorted natural sand or ceramic materials are commonly used as
proppant.

Equally important are various chemicals added to the fracturing fluid. They include among
others:

clay stabilizers (to prevent clay swelling; potassium chloride is commonly

used), gelling agents that increase viscosity (most often of plant origin),
bactericides that prevent bacterial degradation of polymers,
surfactants,
networking agents that bind polymer chains and make the fluid highly viscous (boron
ions, titanium),
post-job slickening agents,
temperature stabilizers,
buffers to control pH (mostly acids).

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Since recently, environmental organizations have increasingly contested hydraulic fracturing for
shale gas production, although the aforementioned substances are commonly used in households.
The protests started a few years ago, but fracturing jobs have been performed since more than
fifty years.

Hydraulic fracturing may seem the most efficient stimulation technique, but it should be
emphasized that its scope of application is limited to non-plastic rocks such as sandstones,
dolomite, limestone, whilst sandy, clayey or loamy formations are not suitable for hydraulic
fracturing.

The main downside of hydraulic fracturing is the cost. In case of horizontal well fracturing the
cost is equal to approx. USD 1.5 – 2.5 million (about 25% of the total well drilling cost) in the
United States. Cost items include such facilities as manifold, pump sets, blender, sand conveyors,
etc., as well as fracturing fluid (160 m3 on average) and proppant (30 tonnes).

Procedures other than standard hydraulic fracturing include: multiple fracturing (to expand the
range) combined with well shooting (that helps to minimize pumping requirements), use of
implosion or liquid carbon dioxide and nitrogen. The latter technique is particularly interesting
as, comparing to the standard job, it offers a better effectiveness at depleted reservoir pressures,
if problem of migrating rock particles is encountered, as well as in coal beds. Liquid CO2 and
N2 should be applied wherever the risk of fracturing fluid reaction with clay is present.
Moreover, an additional advantage of this technique is that it helps to increase the rate of
fracturing fluid recovery from the reservoir. Liquid carbon dioxide has been used since the
1980's, mostly in Canada (more than 1200 treatments in the years 1981- 1995). The ―shale
revolution‖ prompted the application of this technique to the production of unconventional
hydrocarbons, albeit solely from shallower and low-energy accumulations.

Acidizing

Besides techniques that have physical effects on the reservoir rocks, chemical methods are
available, of which acidizing of the near-well zone is most commonly applied.

Like other aforementioned techniques, well acidizing was invented in the late 19th century. The
idea behind the invention was to take advantage of the dissolving effect of hydrochloric acid
(HCl) on carbonate reservoir rocks. Initially, corrosion attack on the pipes was the key problem
that oilfield engineers were unable to cope with. The 1930's saw a heyday of that technique
following the application of corrosion inhibitors that permitted multiple acid treatments. In
Poland, a method of Jurassic limestone acidizing was developed and tested in the 1950's, and
since then has been successfully applied elsewhere.Technically, acidization involves injection of
an acid-containing substance to the well in order to expand fractures and pores in the near-well
zone or to remove damage caused by clay swelling. This technique may only be used in

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carbonate rocks (dolomite, limestone) or if the rock matrix is calcareous. Most frequently used
inorganic acids are: hydrochloric acid at concentrations of 7-15% and hydrofluoric acid; organic
acids include acetic and formic acids. The former are more corrosive and react quicker and more
actively than the latter ones. Accordingly, mixtures of organic and inorganic acids are used.
Other acidizing fluids include: dry ice, hydrophobic emulsions and foam, but the mechanism of
the reaction is similar. Reaction of acid with a calcareous rock produces water and carbon
dioxide, but frequently other undesirable products are deposited in the pores or on production
equipment and damage the latter. In order to protect the integrity of the well various chemical
substances are introduced: corrosion inhibitors (formalin, sulfur and nitrogen compounds);
stabilizers that prevent precipitation of reaction products from the solution (acetic acid); anti-
emulsifying agents that prevent formation of water- and acid-oil emulsion that impede the flow
of crude oil; and reaction retardants to enable deeper penetration of the fluid.

Well bottom cleanup from any loose material and injection of working fluid (e.g. crude oil) is the
first step of acid treatment. Subsequently, acidizing fluid is injected until working fluid is
recovered and then the wellhead annulus valve is closed. In the next stage, acidizing fluid is
injected into the reservoir, the well is closed for a time required by acid reaction with reservoir
rocks (for a few to several dozens of hours). Eventually, the well is cleaned from reaction
products before resuming extraction. Acidizing fluid composition is selected on a case by case
basis depending on reservoir pressure. Acid treatment may be delivered on an uncontrolled basis,
i.e. in the entire reservoir, or selectively – if the acid is injected into specific layer or reservoir
zone of a lower permeability. The latter approach involves the use of packers or flexible Coiled
Tubing to isolate specific sections of the borehole. Alternatively, blocking agents are used to
block larger pores so as to enlarge the smaller ones.

Acid treatment is sometimes combined with hydraulic fracturing. In that case proppant is no
longer necessary, as the acid sufficiently widens the induced fractures. Acid treatment
significantly improves fracturing effectiveness, but its application is limited to calcium
carbonate-containing rocks. Acid treatment is also applied in places where fracturing would be
ineffective, for example if folded geological structures are present. This is the case of Monterrey
shale gas formation (California) where the application of this technique is envisaged, should the
planned moratorium on shale gas production be not adopted.

Thermal methods

Thermal methods, called heat flooding, which involve reservoir rock heating in order to decrease
oil viscosity, are the final group of well stimulation techniques. Basically, they are used in heavy
oil reservoirs that contain a high share of the paraffin ends. Heat flooding of oil wells may be
done using several methods: with chemicals, electricity, steam, electromagnetically or in situ
combustion.

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The former of the aforementioned methods is based on exothermic chemical reactions, for
example of magnesium or a nitrogen base with hydrochloric acid. The chemical method is
frequently combined with acid treatment, as similar substances are used in these techniques.
Lowering electric heater on a wireline or on tubing into the well is another heat flooding
technique. The desired temperature should enable paraffin melting, but may not be too high in
order to avoid evaporation of light ends (optimal range: approx. 60-65ºC).

Historically, steam flooding is among the first thermal stimulation methods used. The downside
of that technique is huge heat loss into the rock mass and the formation of water-oil condensates
at the well bottom that adversely affect permeability of the reservoir rock. Furthermore, this
method is not suitable for shallow wells due to the potential risk of surge at the surface.
Nonetheless, this relatively straightforward technique is fairly frequently used in the United
States, Venezuela, Canada, Russia and Poland.

Electromagnetic flooding is a novel method wherein heat is generated by the flow of current,
either by induction in the casing (the current does not flow through the reservoir) or by the
current flowing between electrodes in the reservoir (resistance method). Reservoir rock must
contain a certain amount of water to enable the flow of current. A horizontal well is frequently
drilled out to act as an electrode. The reservoir is more efficiently heat flooded thanks to a larger
surface of contact with the reservoir. This technique has been successfully applied in highly
viscous oil reservoirs in Russia, Brazil and Canada.

In situ oil combustion is the last stimulation technique presented herein. It was first applied
commercially in the United States in 1952. Following the success of that project, in situ
combustion has been used in other countries around the world. It is intended to decrease oil
viscosity by distilling light ends directly in the reservoir. At the same time, a higher reservoir
pressure is produced (in English literature of the subject it is attributed to enhanced oil recovery
(EOR) methods).

The procedure consists of setting fire in a well into which air is injected to maintain combustion.
The combustion front and light ends move towards the next producing wells. Comparing with
previously discussed methods, the advantage of in situ combustion is that it covers a significant
portion of the field, rather than just the near-well zone. On the down side are: loss of burned
hydrocarbons and unpredictability of the process. Other techniques that are not discussed herein
include: reservoir (rather than near-well zone) steam flooding, hot water flooding or hot air
flooding.

Stimulation techniques make it possible to increase the volume of hydrocarbon production,

which is important considering the shrinking oil and gas reserves. They enhance commercial
viability of production from marginal or heavy oil fields that are numerous in Poland. The
development of stimulation techniques – from well shooting to hydraulic fracturing – enabled oil

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and gas production from unconventional accumulations such as the shale formations. Some of
the techniques presented herein are of interest to historians only, but other will certainly be
applied in that domain.

ARTIFICIAL LIFT FACILITIES

Artificial lift is needed in wells when there is insufficient pressure in the reservoir to lift the
produced fluids to the surface. The lifting process transfers energy to the downhole or decreases
fluid density in the downhole so as to reduce the hydrostatic load on the formation, which makes
the formation to flow. Classification of lifting methods:

Artificial lift methods categorized into two groups, ones that use pumps and others that use gas.

A) Pump system Types

Beam Pumping / Sucker Rod Pumps (Rod

Lift) Progressive Cavity Pumps
Subsurface Hydraulic Pumps
Electric Submersible Pumps

B) Gas system involves injecting compressed gas.

Each method has its own advantages and disadvantages. So, it is important to choose the best
method for the well, considering its location, reservoir properties, depth, estimated production
and other factors. Artificial lift considerations should ideally be part of the well planning process.

Artificial lift systems are man-made techniques to bring the well back to life. Wells only flow
when the reservoir pressure is enough to force the hydrocarbons through the pore spaces of the
reservoir, into the production string up to the surface and through the surface facilities into the
storage tank. Where we want the hydrocarbon fluids to be is in the storage tanks, not in the pore
spaces of rocks. (Learn more about pore spaces in the article The Significance of Porosity to
Original Hydrocarbon in Place.)

The Concept of Pressure Equilibrium

Due to the overburden pressure from overlying rocks, hydrocarbon fluids in reservoirs are
usually found under pressure, which over time reaches equilibrium. The moment a well is drilled
into the reservoir, this equilibrium pressure is disturbed and the hydrocarbons in the reservoir
tend to flow from the zone of high pressure to the zone of low pressure. (For more about this
topic, see Understanding Reservoir Drive Mechanisms.)

A carbonated drink that is given a vigorous shake will have its pressure at equilibrium within the
container after a while. But opening the drink creates a pressure disturbance that forces the fluids
in the can out under pressure in a bid to return pressure back to equilibrium.

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Similarly, a drilled well opens up the reservoir and creates a communication between the
reservoir and the surface. So fluids in the reservoir will be forced to the surface as the well tries
to achieve pressure equilibrium with the surface. As long as the reservoir pressure is greater than
the surface pressure, the well will continue to flow. And as fluids flow from the reservoir to the
surface, the fluid pressure will continue to drop. The moment the reservoir pressure equals the
surface pressure, a pressure balance is achieved and the well will stop flowing.

Let‘s look at an example for a well operating at a reservoir pressure of 5200 psi and a surface
pressure of 15 psi. We can clearly see that the reservoir pressure is higher than the surface
pressure. The pressure communication between the reservoir and the surface through the drilled
well will tend towards equilibrium and will force pressurized fluids out of the reservoir.

The well will continue to flow until the reservoir pressure drops to 15 psi. At this pressure, both
the reservoir and the surface pressures are equal, right? False. The well might stop flowing when
the reservoir pressure is at 400 psi. Do not forget that a well flows when the reservoir pressure is
enough to force the reservoir fluids not only through the pore spaces of the reservoir rock, but
also enough to push the reservoir fluids into the production string, up the production string to the
surface, through surface facilities and into the storage tanks.

Factors that Affect Fluid Flow

Oil density

The denser the oil, the heavier it is. There is something called hydrostatic pressure, which is the
pressure of the fluid column in a vertical string of pipe. This hydrostatic pressure increases

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with fluid density. Thus, more energy is needed to push heavier crude from the reservoir all the
way through surface facilities to the storage tank. Do not forget that fluids from reservoirs have
to flow vertically upwards through the production string. The denser the fluid the greater the
hydrostatic pressure of the vertical fluid column that must be overcome before the fluid flows to
the surface.

The natural life of a well is considerable increased when the reservoir contains light crude that
can easily be pushed through the production string all the way to the surface. This is why some
heavy crude and bitumen will not even flow at all. And something must be done to reduce the
oil‘s viscosity, making it lighter and easier to flow before even installing some type of artificial
lift in the well.

Frictional drag in the reservoir and production string

Rock and fluid interaction in the reservoir can generate some frictional drag as the fluid makes
contact with the walls of rock grains. This frictional drag consumes reservoir fluid energy and
reduces the efficiency of the fluid flow from the reservoir into the production string. Even after
the pressure drops in the reservoir, when the fluid nears the wellbore, they all have to squeeze
through the small openings created by perforations. What this means is that the pressure drops
while the fluid's molecules have to wait in a queue to pass through these small perforation
openings.

As if this is not enough, when the fluid reaches the production string, there is further contact with
the internal walls of the production string. Every pipe has some degree of roughness, so contact
between the fluids and the inner walls of the production string will generate some frictional drag
that must be overcome for the fluid to flow any further. Even for horizontal wells, the horizontal
section still offers this frictional drag. Therefore, the frictional drag can reduce the natural life of
a flowing well.

Length of the production string

This one is easy. The deeper a well is, the longer the length of the production string and the
greater the pressure drop as the fluid flows from the well's bottom to the surface. So
comparatively, the pressure drop for deeper wells is higher than the pressure drop for wells
drilled into shallow reservoirs. The same reservoir pressure that could not push the fluids from
the reservoir to the surface in deeper wells may be just enough if the reservoir depth was just a
few hundred feet less than what it is.

Force needed to push fluid through surface facilities into storage tanks

It is not enough to flow to the surface. The reservoir pressure must be enough to move the fluids
through surface facilities such as surface pipes and separators on the way to the storage tank.
Once again, energy is lost in terms of a pressure drop. So for the well to flow the reservoir
pressure must be enough to complete this flow all the way from the reservoir to the storage tank.

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SURVEILLANCE (Equipment and design for intelligent wells)

Optimization is the action of bringing down the operational costs of oil and gas processes by
making the processes work smoothly and effectively. This is done so as to ensure that wastage is
minimized and output is maximized in the upstream, midstream and downstream sectors of the
oil industry. Optimization plays an important role in ensuring that the recovery of hydrocarbons
is maximized.

In the oil and gas industry, the process optimization is a necessary step to ensure that the
industrial operations operate at their maximum efficiency. For example, in the case of developed
reserves, each producing well is monitored to make sure it operates at its maximum efficiency.

Some of the techniques that can be used to optimize the processes can be-:

Integration of field data into a field simulator. This helps in gaining a technologically
advantage on stimulating the field geological data, other reservoir data, etc., fed into
simulator.
Interfacing the reservoir simulator.
Integration of the optimization software.

Intelligent wells are downhole flow control devices, sensors, power and communication systems,
and associated completion equipment. This equipment is used to optimize production, improve
recovery, and manage well integrity.

Surveillance (or production) engineering, i.e. monitoring of existing fields and optimization of
production and injection rates. Surveillance engineers typically use analytical and empirical
techniques to perform their work, including decline curve analysis, material balance modeling,
and inflow/outflow analysis.

The generic term ―intelligent well‖ is used to signify that some degree of direct monitoring
and/or remote control equipment is installed within the well completion. The definition of an
intelligent well is a permanent system capable of collecting, transmitting, and analyzing
wellbore production and reservoir and completion integrity data, and enabling remote action to
better control reservoir, well, and production processes. The concept of the intelligent
completion does not generally refer to any capability for automated self-control but relies upon
manual interface to initiate instructions to the well.

Remote completion monitoring is defined as the ability of a system to provide data, obtained in
or near the wellbore, without requiring access and entry for conventional intervention to the
well. Remote completion control implies that information and instructions can be transmitted
into the well to alter the position or status of one or more completion components.

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The primary objectives of these abilities are normally to maximize or optimize
production/recovery, minimize operating costs, and improve safety. As of 2002, there were some
80 intelligent-well completions with a variety of systems installed worldwide. Hydraulic motive
power supplies predominate for these systems, although various hybrid electrohydraulic and
optohydraulic completions have been successfully deployed.
Design considerations
Developing an intelligent-completion solution requires the clear definition of well and/or project
objectives. The well operating conditions and depletion plan define the requirements for the
intelligent well completion which could include:
 Well type

 Number of zones
 Ranges of expected flow rates
 Well conditions (pressure, temperature, chemical composition, etc.)
 Expected life of well
 Surveillance parameters
 Flow control
 Well integrity
Flow control
Flow control devices
Initially flow control devices were based on conventional wireline-operated sliding-sleeve. These
valves were reconfigured to be operated by hydraulic, electrical, and/or electrohydraulic control
systems to provide on/off and variable position choking. Further development resulted in flow
control devices with the capability for high pressure service and resistance to erosional effects. A
combination of these control devices with pressure and temperature sensors led to the concept of
the intelligent completion.
Operating practices
Operating practices for intelligent wells depend on many variables, which could include – well
type, well design, fluid distribution within well and reservoir, flow control valve cycling and
timing, metallurgy, reservoir and rock properties.
The timing of flow control valve closure is in practice determined by the starting position, viable
stroke speed (vs. power), and shock considerations. Opening and closing actuation times may be
limited by sand-production considerations. Reliability of intelligent-completions is influenced
heavily by the quantity and controlled nature of the cycling.
Again, intelligent-completion installations are designed to fulfill specific operational
requirements such as severe environmental conditions. For example, scaling of wellbores can
adversely affect the performance of control devices. Careful monitoring of the performance of
these devices is required to determine any degradation such that regular exercising can be
completed to maintain full operability. Again, in these environments, some degree of capability

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for mechanical intervention may be advantageous to reinstate the operability of seized (because
of scale) control devices.
Additional considerations for intelligent-completion design will be field-specific based on well
conditions. Common short-term failures include wellhead penetrators, cable and control line
continuity, and poor installation. Long-term failures may be caused by:
 Erosion
 Temperature effects on electronics
 Wear and tear (dynamic seals) 
 Inoperable moving components (eg. scale or production debris) 
The reliability of intelligent-completions is related to the complexity of the system. There is a
balance between complexity and functionality to obtain desired results without compromising
well integrity and performance.
Sensors
Current industry pressure and temperature data specifications are summarized next.
Fiber optics
Downhole fiber optic systems consist of the downhole fiber in a control line, the laser source,
and the associated surface hardware and software.
Electrical sensing
Permanent downhole electrical sensing relies on downhole completion hardware and software,
power and communication systems, and surface power and data acquisition.
Additional completion equipment
Packers, seal assemblies
Power and communications systems
Surface control equipment

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 UNIT -5

EVALUATION OF WELL COMPLETIONS

Completion, in petroleum production, is the process of making a well ready for production (or
injection). This principally involves preparing the bottom of the hole to the required
specifications, running in the production tubing and its associated down hole tools as well as
perforating and stimulating as required. Sometimes, the process of running in and cementing the
casing is also included. After a well has been drilled, should the drilling fluids be removed, the
well would eventually close in upon itself. Casing ensures that this will not happen while also
protecting the wellstream from outside incumbents, like water or sand.

Completion planning involves choosing and organizing the equipment to be used, selecting
materials, establishing production line tubing dimensions, stipulating production intervals, and
finally defining the mode of formation fluid production.
This evaluation must take into account the evolution of the productive characteristics of the well,
according to the production forecast.

The production capacity of a well is determined on the basis of reservoir data such as reservoir
pressure, permeability and the thickness of the pay rock around the well, and according to the
results of previous production tests, which are used to determine the Productivity Index (PI).
Using the productive capacity, defined as a function that combines the flow rate and the acting
pressure regime, which is known as the Inflow Performance Relationship (IPR), the service
conditions of the well are determined. On the basis of these, the diameter and thickness of the
tubing are chosen.
The frequent presence of carbon dioxide and/or hydrogen sulphide in the hydrocarbon water
mixtures leads to the formation of acid solutions that attack the materials the completions are
made of. This is why the materials generally used, such as special stainless steels, elastomers,
and composite materials, have a good resistance to corrosive agents, and good retention of
mechanical properties.

The temperature also influences in different ways the acidic components‘ effect on the materials,
and the mechanical behaviour and stability of the plastic and elastomeric materials.

The type of completion adopted will depend on the structural/geological characteristics of the
reservoir, and on the type of mineralization. There are two categories of completions:
conventional completions and so-called smart completions.
Some completion jobs aim to prevent problems that may arise during the productive phase. For
example, the completion could get clogged up by solids dragged up through the production plant,
causing erosion to the plant in general, or to specific parts of it, such as valves or bends. It is

105
therefore necessary to separate the solid particles from the fluids, by installing filters and sand-
catching devices.

Rock and fluid properties will determine how much oil and natural gas can be recovered from a
reservoir. After an exploratory well has been drilled, it is evaluated to determine if there is
enough oil and natural gas in the reservoir to make it economically feasible to initiate recovery
operations.

Drill Cuttings and Core Samples - As the drilling mud is brought to the surface, it is run
through a sieve to removed the drill cuttings (pulverized rock) before the mud is recycled down
into the well. Small pieces of rock are selected for microscopic analysis to determine the type of
rock being drilled, how porous it is, and whether oil is present. The drilling mud also is analyzed
with sensors to see if trace amounts of oil or natural gas are present — an indication of a possible
accumulation at depth. In the past, rock cuttings were the principal source of well information.
Well Logging - A special bit can be used to cut a cylindrical piece of rock that can be brought to
the surface for analysis. The core is sent to a laboratory where the exact porosity and
permeability can be determined. This gives a good indication of how well oil or natural gas
would flow through the rock. Fluid samples can be taken and analyzed to determine the amount
and type of hydrocarbon present in the rock.
Wells are completed for production if the value of the recoverable oil and/or natural gas is
greater than the cost of drilling and producing them and delivering them to market. If not, the

106
well is plugged In accordance with industry standards and federal or state requirements
(depending on the location) and the site is restored.
Step 1 - A pipe, called the casing, is lowered down the drilled hole. Sections of casing fit
together just like the drill pipe. Cement is then pumped through the bottom of the casing so that
it fills the area between the casing and side of the well. The casing prevents oil, gas and deep
brines (underground salt water) from entering and contaminating aquifers (underground fresh
water).
Step 2 - Because the casing and the liner must remain in a well for a long time and their repair or
replacement would be costly, another string of pipe is placed in the well through which oil or gas
is usually produced. This string of pipe is called "tubing". This is like a double-hulled tanker in
that it provides an extra layer of protection for groundwater supplies. Tubing is pulled out of the
hole on occasion and inspected to see if it needs to be repaired. (Casing is cemented in and can
be repaired, but not as easily as the tubing).
Step 3 - Operators do not want anything but oil and natural gas to enter the well. To allow
underground fluids to enter the pipe and flow to the surface, the tubing and casing must be
perforated. Explosive charges are lowered to the precise depth of the oil reservoir. Detonating the
charges forces holes in the casing. Fluids can then flow into the casing and up the tubing toward
the surface.
Step 4 - A "Christmas Tree" is a device that is placed on the well at the surface. It regulates the
flow from the well into the pipelines that take the oil and natural gas to facilities for processing
and sale. It consists of a series of valves that are opened and closed to regulate flow for optimum
field production or to shut down a producing well if a problem is detected. Some Christmas
Trees have computer systems that allow them to be monitored, opened and closed remotely.

COMPLETION COMPONENTS
The upper completion refers to all components from the bottom of the production tubing
upwards. Proper design of this "completion string" is essential to ensure the well can flow
properly given the reservoir conditions and to permit any operations as are deemed necessary for
enhancing production and safety.
Wellhead
This is the pressure containing equipment at the surface of the well where casing strings are
suspended and the blowout preventer or Christmas tree is connected.
Christmas Tree
This is the main assembly of valves that controls flow from the well to the process plant (or the
other way round for injection wells) and allows access for chemical squeezes and well
interventions.
Tubing hanger[
This is the component, which sits on top of the wellhead and serves as the main support for the
production tubing.

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Production tubing
Production tubing is the main conduit for transporting hydrocarbons from the reservoir to surface
(or injection material the other way). It runs from the tubing hanger at the top of the wellhead
down to a point generally just above the top of the production zone.
Downhole safety valve (DHSV)
This component is intended as a last-resort method of protecting the surface from the
uncontrolled release of hydrocarbons. It is a cylindrical valve with either a ball or flapper closing
mechanism. It is installed in the production tubing and is held in the open position by a high-
pressure hydraulic line from surface contained in a 6.35 mm (1/4") control line that is attached to
the DHSV's hydraulic chamber and terminated at surface to an hydraulic actuator. The high
pressure is needed to overcome the production pressure in the tubing upstream of the choke on
the tree. The valve will operate if the umbilical HP line is cut or the wellhead/tree is destroyed.
This valve allows fluids to pass up or be pumped down the production tubing. When closed the
DHSV forms a barrier in the direction of hydrocarbon flow, but fluids can still be pumped down
for well kill operations. It is placed as far below the surface as is deemed safe from any possible
surface disturbance including cratering caused by the wipeout of the platform. Where hydrates
are likely to form (most production is at risk of this), the depth of the SCSSV (surface-controlled,
sub-surface safety valve) below the seabed may be as much as 1 km: this will allow for the
geothermal temperature to be high enough to prevent hydrates from blocking the valve.
Annular safety valve
On wells with gas lift capability, many operators consider it prudent to install a valve, which will
isolate the A annulus for the same reasons a DHSV may be needed to isolate the production
tubing in order to prevent the inventory of natural gas downhole from becoming a hazard as it
became on Piper Alpha.
Side pocket mandrel
This is a welded/machined product which contains a "side pocket" alongside the main tubular
conduit. The side pocket, typically 1" or 1½" diameter is designed to contain gas liftvalve, which
allows flow of High pressure gas into the tubing there by reducing the tubing pressure and
allowing the hydrocarbons to move upwards.
Electrical submersible pump
This device is used for artificial lift to help provide energy to drive hydrocarbons to surface if
reservoir pressure is insufficient.
Landing nipple
A completion component fabricated as a short section of heavy wall tubular with a machined
internal surface that provides a seal area and a locking profile. Landing nipples are included in
most completions at predetermined intervals to enable the installation of flow-control devices,

108
such as plugs and chokes. Three basic types of landing nipple are commonly used: no-go nipples,
selective-landing nipples and ported or safety-valve nipples.
Sliding sleeve
The sliding sleeve is hydraulically or mechanically actuated to allow communication between the
tubing and the 'A' annulus. They are often used in multiple reservoir wells to regulate flow to and
from the zones.
Production packer
The packer isolates the annulus between the tubing and the inner casing and the foot of the well.
This is to stop reservoir fluids from flowing up the full length of the casing and damaging it. It is
generally placed close to the foot of the tubing, shortly above the production zone.
Downhole gauges
This is an electronic or fiberoptic sensor to provide continuous monitoring of downhole pressure
and temperature. Gauges either use a 1/4" control line clamped onto the outside of the tubing
string to provide an electrical or fiberoptic communication to surface, or transmit measured data
to surface by acoustic signal in the tubing wall. The information obtained from these monitoring
devices can be used to model reservoirs or predict the life or problems in a specific wellbore.
Perforated joint
This is a length of tubing with holes punched into it. If used, it will normally be positioned below
the packer and will offer an alternative entry path for reservoir fluids into the tubing in case the
shoe becomes blocked, for example, by a stuck perforation gun.
Formation isolation valve
This component, placed towards the foot of the completion string, is used to provide two way
isolation from the formation for completion operations without the need for kill weight fluids.
Their use is sporadic as they do not enjoy the best reputation for reliability when it comes to
opening them at the end of the completion process.
Centralizer
In highly deviated wells, this component may be included towards the foot of the completion. It
consists of a large collar, which keeps the completion string centralised within the hole.
Wireline entry guide
This component is often installed at the end of the tubing, or "the shoe". It is intended to make
pulling out wireline tools easier by offering a guiding surface for the toolstring to re-enter the
tubing without getting caught on the side of the shoe.

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COMPLETION

• After exploratory drilling confirms the presence of an oil or natural gas reservoir, the
hydrocarbons are brought to the surface.

• Once the design well depth is reached, the formation is tested and evaluated to determine
whether the well is to be completed for production, or plugged and abandoned.

• This decision is taken based on the information available on reservoir characteristics.

• To complete the well production, casing is installed and cemented, and the drilling rig is
dismantled and moved to the next site.

• A service rig is brought in to perforate the production casing and run production tubing
along with downhole equipments.

• The installation of surface safety equipments takes place and production begins.

Well completion creates a dependable pathway to the surface for the hydrocarbons.

Once the well is drilled, it has to be made ready for the safe and efficient production of oil.

The term ‗completion‘ describes the assembly of Down hole tubulars and other safety
equipments that is required to enable the safe and efficient production of oil or gas from the well
after it has been drilled.

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Well completion activities include:

• Conducting drill stem test

To determine the potential of a producing formation, the operator may order a drill stem
test (DST). The DST crew makes up the test tool on the bottom of the drill stem, then
lowers it to the bottom of the hole. Weight is applied to the tool to expand a hard rubber
sealer called a packer. Opening the tool ports allows the formation pressure to be tested.
This process enables workers to determine whether the well can be produced.

• Setting production casing

Production casing is the final casing in a well. It can be set from the bottom to the top.
Sometimes a production liner is installed. This casing is set the same as other casings,
then cemented in place.

• Running production tubing along with downhole equipments

• A well is usually produced through tubing inserted down the production casing. Oil and
gas is produced more effectively through this smaller-diameter tubing than through the
large-diameter production casing. Joints of tubing are joined together with couplings to
make up a tubing string. Tubing is run into the well similar to casing, but it is smaller in
diameter and is removable.

• Installing surface safety equipments

Though the tubings and downhole equipments are present in the well, production
cannot start without installing surface control equipments. They are required to prevent
uncontrolled oil flow out of the well.

• Starting production flow

Production flow is started by ‗washing in‘ the well and setting the packer. The
pumping in of water or brine to flush out the drilling fluid is called washing in. Usually
this is enough to start the well flowing. If this does not work then the flow might be
started by pumping high-pressure gas into the well after setting the packer

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 Christmas Tree

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The types of completion include:

Natural Completions
Natural completions are those in which little or no stimulation is required for production.
Sandstone and carbonate systems with good permeability and mechanical stability are ideal for
natural completions.
Stimulated Completions
These completions are generally applied to improve the natural drainage patterns of hard, low-
permeability formations. It is used to remove barriers that prevent easy passage of fluids into
the wellbore.
Sand-Control Completions
Sand-control completions support the formation while allowing the flow of fluids. They are
performed in young, unconsolidated or less mechanically competent sandstones.
Subdivision of types of well completion

Open Hole Completions.

Production casing to be set above the zone of interests.

Liner Completions.

A liner is install across the pay zone.

Can be divided into two: Screen Liner and Perforated Liner.

Screen Liner: Casing is set above the producing zone, and an uncemented screen
and liner assembly is installed across the pay zone

Perforated Liner Completion:

Casing is set above the producing zone, and a liner assembly is installed
across the pay zone and cemented in place. The liner is then perforated
selectively for production.

Factors Influencing Well Completion Selection


Natural occurrences of the field, i.e. does it have a big reserve to justify development?

Potential of oil production and the planning of tertiary recovery, i.e. do we need any
artificial lift in the future?

Limitations within the operation and the field, i.e. is the oil field located at a remote area?

EVALUATION, PERFORMANCE OF HORIZONTAL WELLS

Horizontal wells
Horizontal wells can improve productivity, enhance reservoir maintenance, or produce
reservoirs which would be uneconomical with vertical wells. Provided that a horizontal lateral is
in the same strata, intervals in the borehole may not require isolation.

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Because lateral lengths often are more than 2,000-3,000 ft, costs for casing, cementing, and
perforating can be significant in cased holes. Open holes simplify the completion and are
economically attractive because of cost and productivity.
From one perspective, the horizontal lateral can be viewed as a gigantic perforation with the
exception that tools can be run in it. This is appealing from a productivity perspective because
greater perforation penetration is usually related to greater flow capacity in spite of having only a
single perforation.

The horizontal well, from the operational standpoint as the deviated well above 70o to 75o from
the vertical, where conventional wireline tools cannot be used. From reservoir engineering
standpoint, the deviated well beyond 80o produces as a typical horizontal well. The most recent
developed technology provides more advanced and feasible tools to drill horizontal wells in
many areas around the world. Joshi (1988) summarized the classification of horizontal well
drilling methods, based upon their turning radius

There are four basic drilling techniques, based upon the turning radius: ultrashort radius, short
radius, medium radius, and long radius. The turning radius is defined as the required radius to
turn the well direction from vertical to horizontal. The majority of horizontal wells were drilled
using the medium radius drilling technique. The increasing number of horizontal wells drilled
and completed may be considered in fact as good proof for their potential to improve oil
recovery. In the mean time, few horizontal wells were unattractive economically because of one
and/or more of the following reason(s):

1. very low vertical permeability,

2. uncontrolled horizontal direction,
3. severe formation damage,
4. unknown geology and rock distribution of the reservoir, and
5. unexpected low conductivity of naturally vertical fractures.
The advantages of applying horizontal wells instead of vertical ones in both the oil and gas
industries are widely recognized. Permadi (1995) summarized the advantages and reasons
of drilling horizontal wells as follows:

1. to provide more exposure area of wellbore wall to reservoir and thus increase oil productivity

2. to delay coning problems of gas/water, which increases the ultimate recovery

3. to intercept many vertical fractures

4. to minimize the sand production problems

5. to maximize condensate recovery, and

6. to optimize the development of marginal oil fields.

Horizontal wells can be completed as openhole with slotted liners, pre-packed liners, liners
with external casing packers, or with cemented and perforated liners. This sensitivity analysis

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considers only the open hole horizontal wells flowing under steady-state conditions with no skin
effect(s).

The effect of pressure drop along the horizontal well on well productivity is subjected to wide
and different views in the literature. The infinite conductivity wellbore assumption may be
considered adequate for describing flow in horizontal wells, only if the pressure drop along the
horizontal section of the well is negligible in comparison to that in the reservoir. In practice, the
pressure drop from the horizontal well end side to its downstream is essential to preserve oil fluid
flow within the wellbore. Therefore, the pressure drop along the horizontal well is recognized as
one of the unsolved problems in reservoir and production engineering. This represents a real
motivation to investigate the effect of the pressure drop along the horizontal wells on production
rate of the well.

There are many kinds of reservoir where the potential benefits of horizontal drilling are obvious
Thin reservoirs: a vertical well drilled into a thin reservoir will have a very small contact surface
(effectively limited by reservoir thickness) with the oil-producing horizon. A horizontal well in
the same reservoir layer can have a contact surface running the length of the reservoir.

Reservoirs with natural vertical fractures: horizontal wells typically intersect thousands of small
vertical fractures and, if the reservoir contains them, some very large ones. If the well trajectory
has been planned carefully these large vertical fractures can be used to improve productivity,
even when the overall fracture density is low.

We can divide horizontal wells into three general categories, based on their curvature from
vertical to horizontal:

1. Short radius: with the radius R = 30 - 200 ft (DLS = 180 – 30 deg/100ft)

2. Medium radius: with the radius R = 200 - 1000 ft (DLS = 30 – 6 deg/100ft)

3. Long radius: with the radius R = 1000 - 3000 ft (DLS = 5 – 3 deg/100ft)

These categories are starting points for designing the well completion.

DIRECTIONAL DRILLING
Planning a well starts once the targets are known. In the early planning phase, emphasis
is put on optimizing the well trajectory, and typically, several alternative well trajectories are
considered. Picking the final well trajectory involves several main considerations.
The potential drilling problems are a main consideration. For example, a well cannot be planned
with a 6/30 m turn in an interval where there is a known risk of differential sticking. The angle
may need to be kept as low as possible through intervals with unstable formations, such as coal

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stringers. Thorough engineering in the early planning phases pays off as the well trajectories
become more demanding.
Another very important consideration is the maximum surface torque for each alternative
trajectory. The torque applied to the drillstring is limited to the maximum torque output from the
top drive.
To determine the surface torque prior to drilling, extensive torque simulations are conducted.
The drillstring configuration is one of the most important inputs for the torque simulation
because each drillstring configuration can give very significant differences in surface torque.
Once the drillstring configuration is reasonably determined, the hydraulic calculations are carried
out. In high angle and horizontal wells, high pump rates are important in order to avoid hole
cleaning problems. One detrimental effect of poor hole cleaning is an abnormal increase in
torque.
The second important inputs into the torque-and-drag model are the friction factors. The friction
factors are a function of the type of drilling fluid, the type of drill pipe (hardbanding, etc.), and
formation characteristics.
The friction factors can vary significantly from one field to another. Thus, to obtain results with a
high confidence level from the torque and drag simulations, the friction factors have to come
from the same field and preferably from the same platform.

Horizontal Well Deliverability

Under the right conditions, a horizontal well exhibits a much-improved productivity index over
that of a comparable vertical well.

This can result either in a substantial production rate increase at constant pressure drawdown,
or a greatly reduced pressure drawdown at constant production rates.

Reduced pressure drawdown is particularly beneficial in reservoirs subject to gas or water coning
and, more recently, in reservoirs with sand control problems.

3
Note: Where q is expressed in m /d
q = flow rate (STB/D)
kH = horizontal permeability (md)
h = reservoir thickness (ft)
pe = reservoir pressure at outer flow boundary (psi)
pwf = flowing bottomhole pressure (psi)
B = formation volume factor (Bbl/STB)
µ = viscosity (cp)

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L = length of well's horizontal section (ft)
rw = wellbore radius (ft)
Application of Horizonatl wells
Hit targets that cannot be reached by vertical drilling.
Drain a broad area from a single drilling pad.
Increase the length of the ―pay zone‖ within the target rock unit.
Improve the productivity of wells in a fractured reservoir
Seal or relieve pressure in a ―out-of-control‖ well.
Install underground utilities where excavation is not possible

Factor affecting the horizontal well

1. The characteristics and physical properties of the fluid.
2. Friction in pipes.
3. Energy losses in fitting.
4. Pressure drop through equipment.
5. The distance or length the fluid must travel.
6. Diameter change of the pipe.

Factors affects pressure losses in horizontal section same as bent section, only one factor will be
added which is Pressure Losses whenever the flow direction changes. The pressure loss in a
bend can thus be calculated as

PRODUCTIVITY OF HORIZONTAL WELLS

The analysis of horizontal well productivity requires, in principle, the same techniques as are
used for wells with a vertical completion over the reservoir interval. However, the flow in the
horizontal section gives additional complications. The pressure falls from the ‗toe‘ of the well to
the ‗heel‘. Thus the ‗drawdown‘, the difference between the pressure in the well and the
reservoir pressure, varies along the length of the well. The rate of inflow into the well varies
along the well
There are several potential problems that may limit the productivity increase. Skin damage may
be difficult to remove from horizontal wells. Also, an effective low vertical permeability due to
shales, etc., may mean that horizontal well length must be very long to obtain sufficient
productivity improvement.
Moreover, horizontal wells flowing a mixture of liquid and gas can exhibit difficult multi-phase
flow behavior. Since the well is not perfectly horizontal, liquid can accumulate in lower sections
of the well, and cause slugging, or shutting-off of production. In both vertical and horizontal
wells with long completion intervals, the formation properties will vary, resulting in different
inflow performance at different points of the well. In uncased holes, and especially uncased

117
horizontal wells, production logging techniques still need to be developed to detect these
differences.
Effect of Productivity Parameters. The factors which affect pressure drop between reservoir
and the wellbore such as length, permeability, reservoir thickness, drainage area, fluid viscosity
and perforation percentage are also factors affecting productivity index in horizontal wells.

Length: The productivity index (PI) will increase with increasing lateral length. Thus, the longer
well length, the higher the productivity index The length of a horizontal well should be designed
based on the geometry of the drainage area (length, width, formation thickness), the type of
reservoir fluid, and the well structure (new well or reentry sidetrack). The actual production
mechanism and reservoir flow regimes around the horizontal well are considered more
complicated than those for the vertical well, especially if the horizontal section of the well is of a
considerable length
Wellbore radius: In calculating the gas flow rate from a horizontal well, Joshi introduced the
concept of the effective wellbore radius r′w into the gas flow equation.
Permeability (Anisotropy): Horizontal wells are more suitable for reservoirs with high vertical
permeability, Kv as thus will increase horizontal productivity index
Thickness vs. Position (Well Eccentricity): Horizontal wells are more productive in thin
reservoirs than in thick ones. In a thick reservoir, a horizontal well behaves like a vertical well
because of the small exposure of the wellbore to the formation
Drainage Area: Dietz (1965) has shown that all well/reservoir configurations that depend on
drainage shape and well position have a characteristic shape factor. Thus, to account for irregular
drainage shapes or asymmetrical positioning of a well within its drainage area, researchers used a
symmetrical geometric shape to describe the horizontal drainage area to simplify the solution.
Some of the IPR types require that the wellbore be in the center of the reservoir. Other types
specify the location of the wellbore.
Formation damage (Skin): Productivity index of a well is affected by skin, and the higher the
skin the lower the productivity index and vice versa. The global skin S is the result of; Damage
skin factor (SM), Perforation skin factor (Sp), Partial penetration factor (Spp), Inclination skin
factor (Si), and Injection skin factor (Sinj). Thus, it is the sum of the skin factors formely
defined: S Sing Si SPP SP SM

EVALUATION OF ACIDIZATION TREATMENTS (Evaluation of acid treatments)

Treatment evaluation leads to problem identification and to continuously improved treatments.
The prime source of information on which to build an evaluation are the acid treatment report
and the pressure and rate data during injection and falloff. The tasks of execution and evaluation
go hand in hand. Proper execution, quality control, and record keeping are prerequisites to the
task of accurate evaluation. Evaluation of unsatisfactory treatments is essential to recommending
changes in chemicals and/or treating techniques and procedures that will provide the best
treatment for acidizing wells in the future.

118
Matrix acidizing refers to one of two stimulation processes in which acid is injected into the well
penetrating the rock pores at pressures below fracture pressure. Acidizing is used to either
stimulate a well to improve flow or to remove damage. During matrix acidizing the acids
dissolve the sediments and mud solids within the pores that are inhibiting the permeability of the
rock. This process enlarges the natural pores of the reservoir which stimulates the flow of
hydrocarbons. Effective acidizing is guided by practical limits in volumes and types of acid and
procedures so as to achieve an optimum removal of the formation damage around the wellbore.

Two basic acidizing treatments

Acidizing is used to either stimulate a well to greater than ideal matrix reservoir flow or to
remove damage. These are two distinct and different purposes, the field applications and results
of which are often merged or confused. Basically, there are two types of acid treatments that are
related to injection rates and pressures. Injection rates resulting in pressures below fracture
pressure are termed "matrix acidizing," while those above fracture pressure are termed "fracture
acidizing."

Acidizing to remove damage

A matrix treatment restores permeability by removing damage around the wellbore, thus
improving productivity in both sandstone and carbonate wells. Although the acid systems used in
sandstone and carbonate differ, the same practices apply to both. In the absence of damage, the
large volume of acid that is required to improve the formation permeability in the vicinity of the
wellbore may not justify the small incremental increase in production, especially in sandstone. In
carbonate rock, hydrochloric acid enlarges the wellbore or tends to bypass damage by forming
wormholes.

Acidizing to enhance productivity

Matrix acidizing is applied primarily to remove damage caused by drilling, completion, and
workover fluids and solids precipitated from produced water or oil (i.e., scale or paraffin).
Removal of severe plugging in carbonate or sandstone can result in very large increases in well
productivity. On the other hand, if there is no damage, a matrix treatment seldom increases
natural production more than 50%, depending on the size of the treatment and the penetration
depth

Evaluation process
The evaluation process encompasses six major areas on which to focus when assessing job
performance and acid treatment success:

 Injection rate and pressure.

 Final fall-off pressure record.
 Well production analysis (nodal analysis).
 Produced fluid samples.

119
 Post-treatment investigation concerning damage incurred during injection, acid removal of
damage, post-treatment damage (precipitates), and verbal communications.
 Recommendations for continuous improvement.

Measuring productivity after treatment

The most important measure of the treatment is the productivity of the well after treatment.
When the productivity stabilizes at the same production rate as before treatment, the flowing
bottomhole pressure should be estimated from fluid levels or from measured flowing pressures.
Static bottomhole pressure should be measured following any long shut-in periods. A well flow
analysis should show whether the designed productivity was obtained. The pressure charts from
the treatment, including both accurate injection rates and recorded injection pressures, can be
analyzed using transient pressure analysis to determine when or if the wellbore damage was
removed by the treatment.

Injectivity index
An injectivity index can be calculated for the well both before and after the HF-acid stage.

Overflush injection
The final overflush injection pressures and rates should give a fairly accurate measure of the well
productivity before the well is ever returned to production. A useful source of information is the
final pressure falloff after the treatment.

Falloff pressures
If the pressure exists at the wellhead, the falloff pressures should be recorded on site until the
well goes on vacuum. If the well goes on vacuum too soon, fluid levels can be shot with a
sonolog device until the level falls to near the static bottomhole pressure. These final falloff
pressures can be used to estimate the wellbore condition after the acid treatment. If this analysis
shows that the acid treatment removed all wellbore damage and later well production analysis
shows that no post-acid precipitation occurred, the treatment is potentially successful. An
[
example of this type analysis is shown in the example provided by McLeod.

Strategy for acidizing

[3]
Hashem et al. produced an excellent example of a complete strategy for acidizing. Well
analysis and sampling identified the damage mechanisms that were removed by the appropriate
acid systems and additives that were selected using:

 Formation mineralogy
 Extensive laboratory testing with core flood studies
 Acid and additive testing

Well preparation, job supervision, and on-site monitoring played key roles in the success of the
acid treatments. Treatment evaluations were performed to identify problems with some acid

120
treatments, which led to improved additive formulations and improved spent-acid cleanup
procedures. These steps resulted in an 86% success rate in treatment of water-injection wells and
significantly improved water injectivity.

Successful acidizing is assured by proper treatment design, well preparation, and execution,
which includes significant practices:

 Acid cleaning of tubing

 Acid type and concentration designed for the mineralogy and the permeability of the
formation
 Acids, additives, and solvent flush designed for proper acid/reservoir fluid compatibility
 Properly prepared wellbore and effective acid coverage
 Sufficient time provided for acid contact and penetration of all perforations
 Precipitation prevented or flushed away from the wellbore

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