ASPO WORKSHOP UPPSALA

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ASPO WORKSHOPUPPSALA

• Technology and Frontier Areas -
• Can they save the USA?
• Jeremy Gilbert

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Natural Bias

• All of us interpret data differently, according
  to our experience, background and perception
• A geologist is trained to think differently from
  an engineer or an economist

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Basis for my own bias

• Degree in Mathematics
• 20 years of reservoir engineering worldwide with
  BP, then many years of general management
• After working as the companys Chief Petroleum
  Engineer I spent the final years of my career in
  Alaska

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Evidence

• As every policeman knows, witnesses are likely to
  describe the same incident in quite different
  ways
• Geologists are generally optimists
• Their challenge find oil against the evidence
  and despite possible earlier failures
• Engineers are naturally cautious
• They must develop the geologists finds, match
  investment to expected performance

5
New technology as a panacea

• Until a decade or two ago US was source of
  virtually all new production technology
• To determine how technology can influence
  recovery efficiency where better to look than in
  the US itself and at a field whose size has meant
  that funding for new technology has generally
  been available

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Alaska - The Last Frontier

• Not just on auto license plates!
• Few parts of US remain relatively explored.
  Alaska is generally accepted as the only area
  where truly significant volumes of yet-to-find
  oil may exist
• .. but do they?

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The path to Prudhoe

• BP has always been recognized as a worldclass
  explorer, beginning with the first Middle East
  discovery at MiS in 1908
• BP lost core supply source in Iran in 1951 and
  began major exploration in other areas, including
  North America
• In 1950s industry had begun development of oil
  and gas fields in Cook Inlet in SW Alaska

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The last throw of the dice

• BPs geologists had much experience of foothill
  oil near Irans Zagros Mountains
• In Alaska BP tested Iranian-type anticlines in
  foothills of the Brooks Range others followed -
  but the results were disappointing
• Patience was running out, interest moved north to
  new State land on the coastal plain near Colville
  River
• BP and ARCO-Esso acquired most of the available
  leases

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Optimism wins the day just!

• In late 1968 ARCO-Esso discovered oil in what had
  been planned to be their final Prudhoe Bay
• Shortly afterwards, a BP well drilled on much
  less costly downflank leases confirms the
  ARCO-Esso discovery
• A huge lease sale takes place in 1969, raising
  almost 1 billion

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Prudhoe Bay

• In the 1969 lease sale, Arco-Esso made the high
  bids, winning what proved to be the crest of a
  giant structure
• BP, with lower bids, acquired what turned out to
  be much of the flank area
• The structure had a huge gas cap, about 25 tscf,
  and so BP had more than half of the oil
• In 1969 BP became joint operator of the field
  with ARCO

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Operational Extremes

• After its discovery and initial appraisal the
  explorers estimated Prudhoe Bay reserves at 15
  billion stb - but we know that they are always
  optimists!
• Development engineers had to deal with huge
  problems before we could recover even a single
  barrel

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Remote and hostile

• Huge logistical problems of operating in remote
  Arctic location
• How to travel and work on tundra, deal with
  permafrost, live in extreme cold?
• Bringing in equipment by land impossible airlift
  or summer sea-lift only options
• Main problem how to export crude oil?

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Balancing Act

• In normal onshore oilfield, new wells can be
  drilled as needed and put on production
  immediately, facilities can be upgraded at any
  time
• In Alaska, industry had huge upfront expenses
• We had to be cautious and balance the pipeline
  capacity against risk, likely field offtake,
  operating coats and oil price changes

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Make or break?

• Pipeline to Gulf of Alaska planned in 1969 800
  miles of 48 pipe, 600 river crossings, up to
  4700
• Worlds biggest civil engineering project cost
  to be 900 million
• Construction delayed by environmental and land
  ownership problems
• Cost of TAPS escalated to over 9 billion
• Project would have been economic disaster had oil
  price not quadrupled in 1973-4

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Start-up

• The pipeline was completed in 1977
• Production began in April 1977 at 3 mbd
• Based on the 125 wells drilled 9 billion stb was
  a prudent estimate to SEC
• Within 32 months production had reached plateau
  level of 1500 mbd

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Second Phase

• By 1982 field had settled down to routine
  production, with more than sufficient well
  capacity to fill the production system
• Studies showed that changes to initial facilities
  would be required to maintain offtake capacity at
  1.5 mbd
• We began to plan remedial actions mostly as
  envisaged in Initial Development Plan

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ACTION!!!

• Well flowlines expanded well pads manifolded
• Produced-water handling and injection facilities
  expanded
• Low pressure gas separation facilities
• Infill drilling begun to reduce well spacing
• Horizontal wells drilled to reach isolated and
  secondary reservoirs
• Large scale EOR using Miscible Injectant

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The onset of decline

• In 1989 could no longer maintain plateau rate
• Even closer infill drilling, additional EOR
  injection, and flank developments failed to
  reverse decline
• Gas breakthrough to producing wells resulted in
  unexpectedly high gas production
• but huge expansions in gas handling capacity in
  1991 and 1994 did give short-term respite and
  allow production to increase
• Steep offtake decline rate continued but some
  recent respite with cheaper drilling

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A win or a loss?

• Advances technology maintained plateau offtake
  continued longer than anticipated
• Over 10.6 billion stb now produced, so engineers
  initial estimate (9.6 billion) far exceeded
• Current estimate of 13.5 billion stb is short of
  explorerers promises - despite unforseeable
  technology advances
• Some of estimated remaining reserves may prove
  uneconomic

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Prudhoe Bay - Reported Reserves
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And we drilled .
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Predicting the future
1988
1977
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Conclusions

• Reservoir geology found to be more complicated
  and depletion processes more complex than
  expected
• Despite these, the target production plateau
  length was exceeded through application of
  technologies developed or refined at Prudhoe Bay
• Although the engineers reserves estimates were
  found to be conservative the new technologies
  were not able to deliver the geologists
  predictions of recovery

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New Alaskan reserves?

• Alaska appears to be a concentrated habitat with
  most of its oil on the North Slope margins and in
  or around the super-giant Prudhoe Bay field
• Other fields are much smaller than Prudhoe less
  than 5 billion stb reserves total - although a
  few are large by Lower 48 standards
• The North Slope has generally been well evaluated
  (59 exploration wells) but there is still a
  possibility of oil in ANWR

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So, what about ANWR?

• Environmental concerns exaggerated
• Dream of ANWR politically useful
• blame environmentalists/ Democrats
• perception of future reduction in import
  dependance
• Collecting key seismic data and drilling key
  wildcats would have negligible impact
• Chances are it will yield only modest reserves

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ANWR Reserves Studies

• Several published State/Federal agency studies,
  from 1986 to 1998
• Most recent, by USGS, based on all publicly
  available data and improved analysis
• Study suggests mean technically recoverable oil
  of 7.7 b stb
• Sounds impressive at first hearing
• BUT!!!

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USGS Optimists All?
     
 
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ANWR an engineers view

• Must discount technically recoverable volume for
• risk of not encountering the oil 0.75
• oil there but in small pools 0.8
• areal restrictions on drilling, facilities 0.9
• Take 24/bbl for ANS crude, to calculate
  economically recoverable from technical volume
  using USGS data
• Risked reserves 2.7 b stb aggressive plateau
  rate 750 mbd
• Plateau could not before achieved before 2020 by
  then offtake from other Alaskan fields will
  decline almost 700mbd

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The other frontier - Deepwater

• Amazing technological achievements make deepwater
  production feasible
• but challenges development and operating skills
  to maximum
• Costs likely to be many times greater than for
  onshore or shallow water
• Small accidents, set-backs have huge consequences

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Deepwater geological environment

• Geology very different to that of most onshore
  fields and usually very complex
• Turbidites, marine avalanches, form reservoirs
  but these often lenticular/entwined
• Rich source, below delta front, at upper
  boundary of maturity oil often degraded
• Larger fields are generally found first

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Operational Constraints

• Floating production equipment brings huge mooring
  and riser problems
• Platform capacity limits constrain peak offtake
• Pressure maintenance is difficult - as is control
  of injected fluids
• Economics may rule out development of all but
  largest accumulations

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Deepwater reserves

• Demanding economics force adoption of aggressive
  recovery factors for development plans to be
  approved
• Advances in technology likely to be needed to
  achieve these aggressive initially estimated
  reserves
• Hence little potential for reserves growth

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Farewell to reserves growth

• Reserves Growth in giant fields by as much as
  70 (Kuparuk), 40 (Forties) have been common
  following oil-in-place, recovery factor revisions
• In new fields oil-in-place now much better
  defined by early 3-D seismic, improved down-hole
  logging in initial wells
• With modern technology initially expected
  recovery factor already close to technical limit
  set by reservoir physics little potential for
  increase

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Impact of Deepwater

• Three production phases likely
• First already underway
• Second ultradeep water US
• Third Mexico
• Production expected to peak around 2010 at about
  2.5 million b/d, with sharp decline thereafter

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Deepwater Production Profile
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Overall US Production
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Growing Imports
With conservative assumption of flat demand
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Growing US Dependence on Imports

• 1971 peak for US Lower 48 production
• Alaskas production peaked in 1989, current
  fields declines cannot be significantly reduced
• Even optimistic ANWR development will have
  limited impact on US domestic supply
• Deepwater production will peak about 2010 (even
  if rates doubled impact on supply deficit is
  small)
• Hence, imports are bound to rise unless demand
  can be cut dramatically

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Cost of imports
With conservative assumption of constant 30/stb
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Conclusions

• The US has been thoroughly explored, new large
  fields are unlikely
• It has state-of-the-art technology and is using
  it to maximize recovery efficiency, reserves
  growth in existing fields will be insignificant
• Domestic production is inexorably declining
  imports are set to rise, even with flat demand
• The cost will soon become insupportable for a
  country already heavily in debt
• There has to be a solution other than WAR