Free Lesson: Oil and Gas Exploration

FREE LECTURE OIL AND GAS EXPLORATION

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This exploration overview includes topics on what exploration is, the importance of reserve replacement, obtaining access to reserves, how seismic is used to improve success, wildcat well evaluation, the appraisal investment decision and a historical perspective on exploration methods. 

So what is meant by exploration in oil and gas?

Management of the technical and commercial activities used to find and develop new hydrocarbon reserves is often simply called exploration. The primary purpose of exploration is to discover new accumulations of oil and gas called reserves.

Today the desired reserve accumulations can be located in remote areas, deep water wells drilled below 10,000 feet or in unconventional oil and gas shale plays. The most important exploration success factor is the reserves to production or R/P ratio measured in years. It is very closely watched by investors and exploration management. It is an indicator of company sustainability and is more often called the reserve replacement ratio or RRR. It is calculated as a percentage of the annual total reserves additions divided by the total production in that year.  Oil and gas operators want to replace more than 100 of their production volume during a year any RRR ratio below 100 percent indicates the oil company is liquidating its reserve base and could ultimately go out of business. Oil and gas exploration is subject to great uncertainty a casino analogy may be appropriate though it is often distasteful to exploration managers repeated trials at a roulette wheel set to favor the house are analogous to the numerous projects in the annual exploration portfolio there are always more prospect opportunities available to exploration than there is capital to develop wildcat and development projects are selected to maximize value consistent with acceptable risk to exploration management this turns out to be much more complicated than the predictable odds at roulette the first step in the exploration process is to secure access to potential mineral rights the agreements differ from country to country but a well cannot be legally drilled until an agreement is in place with the mineral owner in all countries except the u.s the government owns the subsurface mineral resources many federal governments that own mineral rights are national oil companies or nocs three common types of mineral right agreements include a lease in the u.s the lease is a contract between the oil and gas operator and the property owner with rights to the minerals concession agreements in offshore and many international countries operators can be granted exclusive rights to explore in a concession a large area controlled by a government entity here the operators own all production subject only to royalty payments production sharing contracts finally production sharing contracts called pscs can also be signed with the host government the operators finance and carry out all petroleum operations they then receive an amount of discovered oil or gas to recover their costs once the right to drill is obtained exploration staff then select a drill site in a new frontier area for what is termed a wildcat well selection requires a detailed analysis of the subsurface geology using the science of seismology seismology is the term for the study of natural and man-made sound wave vibrations in the earth as a simple example consider the way your voice travels outward and echoes back when you shout towards the face of a cliff or building the same principle applies to seismic sound waves fortunately they echo differently with each underground geological rock formation they encounter today vibrator trucks are used on shore to generate vibrations instead of the explosives used in the past in offshore applications ships tow long lines of air guns that produce powerful sound waves onshore sound waves are captured by geophones and hydrophones are used offshore these devices convert the sound wave vibrations into a visual record of the echoes which correspond to the subsurface geology to increase the chances of finding a potential reservoir exploration must perform seismic surveys over many miles of surface area thought to contain hydrocarbons called a play a seismic program is expensive and time consuming collecting and processing the data can take 12 to 18 months so it is used after a play has shown some promise by use of other exploration analysis tools the two types of seismic used in exploration are 2d seismic is recorded using straight lines of receivers across the surface of the earth in 3d seismic surveys the data imaged is an entire volume of earth not just a vertical cross section 3d seismic provides more reliable information about the field that has been surveyed and is used offshore where vast areas need to be covered an exploratory or wildcat well is the first one drilled in a previously unexplored area to test for commercial presence of hydrocarbons drilling a wildcat well has always been a risky proposition even drilling a well within a known field involves some level of uncertainty about what is below the surface technical advances in 2d accuracy and 3d surveying and interpretation have helped refine the identification of likely hydrocarbon reservoirs as the exploratory well is being drilled rock and fluid properties are constantly analyzed one key evaluation tool used to obtain a continuous record of a formation’s rock properties is open hole wire line logging here a series of downhole tools generates an electric current into the borehole as the current passes through the various rock strata the resistance difference for each layer is recorded and displayed open hole logging results help determine how much oil and natural gas can be commercially recovered from a reservoir logging data can determine whether the wildcat well should be completed and turned into a productive location to learn more about logging and the mechanics of drilling wildcat wells you can review our introduction to drilling episode the term wildcat is not limited to exploration in totally new frontier areas it applies to any exploratory well drilled outside a proven field because exploration success declines as a function of distance from the existing production a well will either have hydrocarbons or it will not the logging result not only tells a lot about the well being drilled but more importantly is what it can tell about the whole area or play being explored a well with no commercial hydrocarbons is called a dry hole and is plugged and abandoned a discovery well is very good news for exploration management the full extent of the field and productivity of the reservoir must now be determined to make sure the economics of field development are positive to establish the reservoir limits more wells must be drilled they are called appraisal step out or delineation wells selecting the step out wells is a period of high economic risk remember the probability of success declines as distance from the discovery well increases additionally the high cost of the production facilities especially offshore platforms must now be brought into the project economics with a full set of economics exploration management must decide when to bring the appraisal phase to an end and either cut losses and abandon the project or proceed with development as quickly as possible to recover the high initial investment early hydrocarbon discoveries were usually traced from natural seeps at the earth’s surface including colonel drake’s first well was located by natural seeps on the banks of oil creek in pennsylvania and an early royal dutch shell discovery came from natural oil pools in sumatra in 1880 hydrocarbon seeps also occur offshore a mexican fisherman named rudocindo cantarelle noted seeps in the gulf of mexico in 1976 they led to the discovery of the giant field that bears his name california is another notoriously leaky system with hundreds of hydrocarbon seeps offshore long beach the success ratio of early wildcatters was only one well in 20 or 30. today wildcat success rates have improved thanks to innovations in 3d seismic the u.s gulf of mexico wildcat success rate now exceeds 45 and some onshore fields have a success rate of 70 percent double what was achieved in the 1990s thanks for watching from our discussion of the key aspects of exploration you should now understand that the primary purpose of exploration is to discover new oil and gas reserves the most important exploration success factor is the reserve replacement ratio the first step in exploration is to secure access to potential mineral rights two types of seismic are used in exploration 2d and 3d a wildcat well is the first one drilled in a previously unexplored area selecting the step out development wells is a period of high economic risk

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