CAPEX Vs OPEX

Over the lifetime of a project OPEX exceeds the initial capital expenditure (CAPEX). The project is such developed which satisfies-

a)      Quality

b)      Cost

c)       Safety

d)      Environmental issues

Generally when a company starts an  oil and gas project, it has following objectives-

1.       Maximizing economic recovery of the hydrocarbon

2.       Ensuring that agreed quantity and quality of hydrocarbon reaches the customer

3.       Ensure maximum uptime for facilities

4.       Minimizing man power specially offshore

5.       Maximizing automation in order to have better control over operations

6.       Providing safe environment for working

7.       Incorporating environment and social responsibilities.

8.       Knowing the legal, fiscal system of the region.

The company keeping in mind these objectives draws a plan of work which may include outsourcing. The decision of outsourcing is based on following facts-

1.       The service offered by contractor can be availed with less cost and more efficiency

2.       The service required are specialist in nature and is unavailable within the company

3.       Services are required for short duration only rather than permanent staffing.

The environmental laws for the region where the company is operating is very important. For example flaring and venting of gas is allowed in some place but prohibited in others. Venting is much more dangerous as it releases CH4 which is 20 times worse  green house gas than carbon dioxide. Thus, it is prudent to adapt high safety and environment measures in the beginning of the project itself so as to save oneself from future stricter laws.

For maintaining the technical integrity of the plant, the company has to decide on maintenance strategy for the equipment. Its Repair Vs Replacement strategy. This is actually a tradeoff between OPEX  and CAPEX. If the company wants they can spend high on CAPEX and buy machines which require low maintenance or a company can buy a cheap machine and decide to spend high OPEX. Either way the criticality of the equipment is very important. Where the machine is placed in your supply chain is very important. The location of certain machine (bottle necks) is more important than others 

SURFACE FACILITY

Most projects can be sub divided into 4 parts: wells, gathering system, processing plant and export facilities. The consequences of a badly designed process can be for example, reduced throughput of expensive plant modification after production. Production profiles are required for oil, water and gas in order to size the facilities.

Description of wellhead fluids for constructing the facility-

1.       PVT characteristics which describes liquids.

2.       Composition of fluids

3.       Emission behavior

4.       Viscosity and Density.

For various fluids a particular properties are required by the customers. The surface facility have to designed so as to cater these required specifications-

Oil- True Vapour Pressure, Base sediments and water content, temperature, salinity, hydrogen sulphide content

Gas- Water and hydrocarbon dew point, hydrocarbon composition, heating value

Water- Oil and solid content

For oil processing separator are installed to separate gas , water and hydrocarbon from oil.

The separator temperature is set so as to maintain equilibrium between oil and gas.

K=Y/X;     X= mol fraction of each component in vapour phase

Y= Mol fraction of each component in liquid phase.

A water content of less than 1% for sales of crude at refinery is required

For LNG the gas is cooled at -163 C at atmospheric pressure.

WELL DYNAMICS

Once the field has been appraised, a field development plan is drawn. Number of wells to be drilled depends of the field plan. Thus, a proper knowledge of reservoir conditions is important.

Generally radial flow is assumed for liquids in the reservoir. For gases the flow is generally turbulent. The flow is restricted by skin effect. Skin effect is the hindrance in the flow caused by inflow of solids by mud or perforation against liner or casing.

Coning occurs in the vertical plane when water is pulled up towards the well bore. Cusping occurs in horizontal plane when water is pulled up towards the well bore.

The tendency for coning and cusping increases if-

a.       The flowrate in the well increases.

b.      The distance between stabilized OWC and the perforation reduces.

c.       The vertical permeability increases

d.      The density differences the oil and water reduces.

To reduce the tendency the well should be produced at low rate and perforation should be far away from the OWC is possible. Gas reservoir also has gas coning or cusping.

For horizontal well it is very important consider the vertical permeability also. If vertical permeability is less than production will be lower than normal well.       

Artificial Lift

The objective of any artificial lift system is to add energy to the produced fluid. The planning of artificial lift has to be pre planned.

The following types artificial lift are –

1.       Beam Pump

2.       Progressive cavity pump

3.       Electrical submersible pump

4.       Hydraulic submersible pump

5.       Jet pump

6.       Continuous flow gas lift                               

RESERVOIR DYNAMICS-III

Fluid Displacement in the Reservoir

The macroscopic sweep efficiency is the fraction of total reservoir which is swept by water or by gas. The microscopic displacement efficiency is the fraction of the oil which is recovered in the swept of the reservoir.

Recovery factor= macroscopic sweep  X  microscopic displacement

At higher rates the macroscopic efficiency will be reduced thus optimum rate is often imposed to limit by passed oil and increase macroscopic sweep efficiency.

For microscopic efficiency the main thing is Darcy’s law. For clastic oil reservoir a good permeability is 100 mD while poor permeability in 10 mD. For gas reservoir reasonable permeability is 1 mD.

Production profile

Economic criteria are used which profile to use.

For depletion drive, the plateau of the production can only be done by drilling more wells.

Enhanced Oil Recovery

There are 3 types of techniques used for EOR.

  1.  Thermal Technique

  2. Chemical Technique

  3. Miscible Process

Thermal technique such as steam injection, in situ combustion is used where there is a thick oil.

Polymer flooding aims at reducing the amount of by passed oil by increasing the viscosity of the displacing fluid say water thereby improving the mobility ratio. Chemicals like poly saccharides are used for this purpose.

Surfactant flooding is targeted at reducing the amount of residual oil left in the pore spaces by reducing the interfacial tension between oil and water and allowing the oil droplets to break down into small enough droplets to be displaced through pore throats.

Miscible process is aimed at recovering oil which would normally be left behind as residual oil, by using a displacing fluid which actually mixes with oil. Hydrocarbon solvents, CO2, N2 and hydrocarbon gases are used for this purpose

RESERVOIR DYNAMICS-II

Difference between oil and gas field development.

Major difference between oil and gas field development are-  

11.The economics of transporting gas

22.  Market for gas

33. Product specification

44. Efficiency of turning gas into energy.

On a calorific basis approximately 6000scf of gas is equivalent to 1 bbl of oil. The compression of gas costs add to the transportation cost. Transportation of gas is much costlier than oil. For offshore facility there should be at least 0.5 tcf to be economical. If there is already an existing infrastructure than at least 50 bcf gas is required. For this reason a local market is a must for gas production. If there is 5 tcf of recoverable gas than case for building a LN terminal is justified.

Unlike a spot market for oil, for gas there is contract. Unlike oil prices, the gas prices vary from place to place. Thus producer, customer contract is an important thing in gas business. The contract generally has 2 main clauses-

1.       Guarantee minimum quantity of gas for long duration.

2.       Peak production when required.

Unlike oil, the gas has long plateau period of 8-10 years (compared to oil 2-5 years).

Sub surface development of gas reservoir.

Mobility= k/u   (1) it determines which fluid will rush towards well bore.

K=permeability

U= viscosity

Typical viscosity of Gas= 0.01 cp

Oil=0.5 cp

Water=0.3cp

It is for this reason that in a gas well, gas rushes (1) to the well bore with almost zero water cut. Also due to high compressibility of gas it is very uncommon to attempt to support the reservoir pressure by injecting of water and the reservoir is simply depleted with time. In a gas field, the wells are generally located at the crest of the reservoir so that they are far away from rising gas-water contact.

If the mobility greater than 1 then water will preferably move if it is less than 1 then there is stable displacement. The mobility ratio can be altered by changing the viscosity of fluids by EOR.

 The gas which comes out of the well contains water vapor, H2S, nitrogen etc. Water vapor is removed by passing the gas through molecular sieve or passing through glycol. Hydrate inhibition can be obtained by glycol injection.

RESERVOIR DYNAMICS-I

The reservoir development is key to hydrocarbon exploration.

Primary & Secondary recovery

Primary recovery uses the using natural energy stored in the reservoir. Secondary recovery would imply adding some energy to the reservoir by injecting fluids such as water, gas etc so as to impart energy to the reservoir.

1.       Solution gas drive (Depletion drive)

Solution gas drive is the drive which occurs in a reservoir which contains no initial gas cap or underlying active aquifer to support pressure. The driving force is the expansion of oil and connate water plus any compaction drive. Once bubble point is reached the dissolved gas forms a secondary gas cap. This can be encouraged by reducing pressure at producing wells. The producing wells should be located as low dip possible so that gas can accumulate at the crest of the reservoir and assist further recovery.

The facilities are designed for plateau period for an oil field. A plateau period is period when optimum balance between producing oil and avoiding unfavorable displacement in the reservoir is reached.

The production rate is maintained until abandonment rate is reached. Abandonment rate is referred to as when cost of production is greater than the revenues from production. For depletion drive plateau period is short and decline is rapid. Water cut is low in depleting drive as there is little or no support from the aquifer. A typical RF from depleting drive is 5-30%. Secondary recovery techniques have to be adopted in order to boost production.

2.       Gas Cap drive

The initial condition required for gas cap drive is an initial gas cap. The high compressibility of gas provides drive energy for production. Well are initially positioned away from gas cap so that gas can accumulate. Also well are placed not too close to OWC in order to prevent water coning.

A typical RF for gas drive is in range 20-60%. The producing GOR increases as expanding gas cap approaches producing well.

Natural gas cap drive may be supplemented by reinjection of produced gas or any other source into the crest of the reservoir.

3.       Water Drive

Natural water drive occurs when underlying aquifer is large and water is able to flow into oil column. To identify the type of drive in a reservoir remains a major uncertainty during reservoir development. Hence it is necessary to see the response of the well over a period of time such as reservoir pressure, fluid contact and material balance techniques.

Wells are drilled up dip and water is injected low dip in the aquifers. This drive has a long plateau period and increase in water cut over period of time. Water cut may reach 90% in final part of the field life. Process engineers have to accordingly plan surface facility so as to handle large quantity of fluid. The RF is between 30-70%.

There may also be a case where there is combination of drives.

RESERVOIR ESTIMATION

If there is one word that describes the oil and gas business is Uncertainty. Oil and gas business is full of risk. Therefore once exploration starts there is lot of stakes involved especially in early stages of the project. When the project starts one of the major questions is how much oil and gas is present? The answer to this question is a billion dollar answer.

Let us look at some of the estimating techniques-

There are 2 techniques used for estimation a) Deterministic b) Probabilistic. We will discuss only deterministic method.

Estimate= Area X Thickness x N*q*S*Rf/G*B   (1)

The variables are

q=Porosity

S=oil saturation in pore space

B=the formation volume factor of the oil

Rf= recovery factor

Every variable in the equation comes with level of uncertainty. Geologist try to eliminate the uncertainty by rightly guessing the values, this done by on ground results obtained from reservoir  and mathematical modeling.

Ground data from wild cat wells include log data, core data, geochemistry of rocks etc. From these measurement a set of values are obtained and fed into mathematical model such as Monte Carlo, Decision trees etc. These software then give estimates for worst, best and high outcome.

Depending upon the drive mechanism and production strategy the recovery factor is general

For Oil- 25-60%

For Gas- 50-80%

If there is very high level of uncertainty with certain parameter then an appraisal well is drilled to reduce the uncertainty. The purpose of an appraisal well is not to find oil and gas but to reduce uncertainty of parameters in equation (1). An appraisal well is terminated as soon as the desired parameters have been obtained. No further drilling and testing of an appraisal well is done once the desired parameter has been obtained.

The main aim of estimation technique is not to find oil and gas but to estimate probability of finding minimum quantity of hydrocarbon. 

BOOK REVIEW-1

Robert Kiyoski is world famous for his book Rich Dad Poor Dad. Although he has written several other books also, Retire Rich Retire Young is a fabulous read. The take away from the books are wonderful. Therefore, I am tempted to share some of the key points of the book which would help young professional to navigate their career.

Some key points

  1.   Your most expensive advice is the free advice you receive from your financially struggling friends and relatives.

  2.  Try to achieve a life free from paychecks and fear of loosing paycheck.

  3.   Find your calling. Do something which make you happy and others happy.

  4.   Leaders take on challenges others are afraid off. Be a hero, act like one.

 5.   Most people cannot do business because they don’t have people skills. Warren Buffet the only book which has helped him throughout his carrer is “How to make friends and influence people- Dale carnegi”

 6.  The richest people in this world look for expanding their network. The rest of people look for making more money.

  7.   Forbes magazine defines rich as a person who earns more than $1 million per year.

  8.   Do something little daring everyday. This will keep you young.

 9.  Universe believes in law of generosity. “Give and thou shall receive”

 10.  One of the best way to be successful is to have a network of successful people.

  11.    Your economic power is the square of number of people in your network.

  12.       It’s not your Boss’s job to make you rich.

 13.   Seminars are more useful than official degrees. As degrees  are meant to make you a better employee.

  14.      “ Learning is the single most important tool for people, teams and companies that want to get fast and stay fast in the new economy” 

  15.      If you want become rich , try to learn things and do them for free for others.

  16.        Live your life not your resume

  17.       Believe you can become rich.

  18.       Create Assets and business

   19.   People, who take risk, prosper more.

   20.     Retire Rich, Retire young.

COMMON TERMS USED IN E&P INDUSTRY

There few terms associated with reservoir. These terms are often perplexing. Let’s try to decode them today-

a) GOR- Gas Oil Ratio-It is a volumetric ratio of gas produced at STP to that of oil produced at STP.

b) API gravity- Oil gravity is defined by API gravity.

API= 141.5/DENSITY-131.5

API for water is 10. API for heave curde oil is <25

API for a good crude oil is between 35-45

c) Consider following diagram to understand Dew point and bubble point

d) Wet Gas-Wet gas is a gas which is accompanied by larger fraction of hydrocarbon i.e. C2-C6. These higher hydrocarbons sell at premium price. Remember we gas does not mean accompanied by water.

e) Gas Condensate-

Gas condensates are valuable commodity and there is an incentive to extract them while producing gas. Thus reservoir pressure is so maintained in order to keep these condensates above dew point. Once all the condensates have been produced, gas is produced.

f)    Wobbe Index-It is a measurement of the quality of gas. It is defined as-

Energy Density/(Relative density of the gas)^0.5

WI has advantage over calorific value as heating per unit varies with density. All the contracts of gas are done in terms of WI.

g) Solution Gas- The gas dissolved in the oil is called solution gas. The ratio of volume of gas dissolved per volume of oil is GOR.

h) Dip- The earth’s sub surface is not purely horizontal in layers. The angle sub surface layers make with horizontal is called dip.

i)     Permeability-  It is the way in which pores of rocks are connected  to each other. Better the permeability better the oil and gas reservoir since extraction will be easier.

j)     Porosity- It is the carrying capacity of the rock or in other words how much liquid or gas a reservoir can hold. More the porosity  better is the reservoir.

k)  Isochore- a line connecting areas which are formed at the same time.

l)     Isopach- a line connection areas of same thickness.

m)                 PVT analysis- Once the field has been producing, the pressure and temperature changes which drastically change the fluid properties of the reservoir. Thus, a thorough knowledge of reservoir condition id required to effectively produce from the reservoir. So a study of Pressure, Volume and Temperature (PVT) of the reservoir fluids have to be done in order to make field development plan.

Skimming – It is separation of water from oil.

Stripping-Removal of heavy hydrocarbons from oil and gas via separators mainly

Consulting firms in Oil and Gas Industries.

DeGolyer and MacNoughton

One of the most recognized firm in oil gas. It is also arbitrator to famous Relaince Energy Vs Indian Government case.

http://www.demac.com/

 Wood Mackenzie

Wood Mackenzie is another respectable name in Energy. Wood Mackenzie provides 360 degree energy solutions to various organizations.

http://www.woodmac.com/public/home

IHS CERA

Recently merged with CERA (Cambridge Energy Research Associates) is a leading advisor in the energy and power industry to international energy companies, governments, financial institutions, and technology providers. CERA delivers critical knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA's expertise covers all major energy sectors—oil and refined products, natural gas, and electric power—on a global and regional basis.

www.ihs.com

Gaffney and Cline

One of the most trustworthy firm in technical consulting. ONGC’ s Mumbai offshore field has lot of inputs from this firm.

http://www.gaffney-cline.com/

Halibuton Consulting

Haliburton is a big name in service provider industry. Haliburton Consuting

http://www.halliburton.com/en-US/ps/consulting/default.page?node-id=h8cyv98u

Schlumberger Business Consulting

http://www.sbc.slb.com/

Douglas Westwood

Douglas-Westwood, an independent employee-owned company, has been described as “top energy research group” by the Financial Times and a leading provider of energy business strategy, research and commercial due-diligence services on the global energy services sectors. It has offices in Canterbury, England; Aberdeen, Scotland; Singapore; and New York, USA and has completed more than 650 projects and provided products and services to over 400 clients in 70 countries.

www.douglas-westwood.com

Bain & Company

Bain’s corporate strategy projects include portfolio optimization—informed by Bain's proprietary insights on the breakdown of the energy value chain and classic Bain strategy cases for a deregulating sector. Bain's utilities clients include electricity or nuclear power companies, gas companies, large utility conglomerates, water utilities, gas distribution companies, and e-business exchanges.

www.bain.com/bainweb/home.asp

McKinsey & Company

McKinsey serves many of the world's most important oil companies in North America, Europe, Latin America, the Middle East, and Asia. McKinsey’s electric power & natural gas practice serves incumbents and new entrants in this rapidly expanding and liberalized sector. McKinsey helps clients deal with issues related to organization, including restructuring, skill-building, and top team management; operations, including capital investment, cost reductions, performance improvement, and networks and logistics; and strategy, including mission, sales, economics, and procurement.

www.mckinsey.com

Boston Consulting Group (BCG)

BCG's energy and environment practice helps companies navigate the increasingly complex business environment. BCG works with the full range of players in the industry: international energy companies, major integrated oil and utilities companies, global power developers, and emerging energy traders and merchants.

www.bcg.com

Booz and Company

Booz Allen has worked with an array of the world's leading energy companies in every category of the business—upstream oil and gas, downstream refining petrochemicals, trading, distribution, and retail, and gas and power, including electricity and gas distribution. Among the firm's clients are global oil companies, local and regional utilities companies in Europe, the United States, and Latin America, petrochemical manufacturers, financial investors, and policy makers.

www.booz.com

PIRA Energy Group

PIRA Energy Group, founded in 1976, is an international energy consulting firm specializing in global energy market analysis and intelligence. PIRA offers retainer client services, as well as customized consulting, on a broad range of subjects in the international crude oil, petroleum products, natural gas, electricity, coal, biofuels, and emissions markets.

www.pira.com/default.htm

Accenture

Accenture’s energy group has been a part of the industry for many years. Its experience spans the entire value chain, including upstream, downstream, oil service, and pipeline companies. Accenture collaborates with leading energy companies to help them meet competitive challenges and shape solutions that advance their journey to high performance.

www.accenture.com/us-en/industry/energy/Pages/energy-index.aspx

Arthur D. Little

Arthur D. Little has worked with all the world's major oil and gas companies in areas including upstream oil and gas, downstream refining and distribution, gas and power, and transportation. Among the firm's clients are the global energy companies, investors, law firms, and policy makers. ADL employs industry specialists and professionals with firsthand knowledge and experience in the oil and gas industry.

www.adlittle.com/energyutilities.html

A.T. Kearney

A.T. Kearney has 350 consultants specializing in energy and process and utilities industries. A.T. Kearney formulates innovative strategies to address challenges relating to oil and gas, oil sands electricity, water, multi-utilities and technical service providers in every global segment, as well as in local markets.

www.atkearney.com

Charles River Associates (CRA)

CRA provides expert economic and business consulting services on almost every aspect of the electricity industry to a wide range of clients, including industry organizations, investor-owned utilities, generators, power pools, transmission companies, distribution companies, competitive retailers, and companies from other industries, regulators, and governments.

www.crai.com

Capgemini

With more than 12,000 consultants dedicated to energy, utility, and chemical projects across Europe, North America, and Asia Pacific, Capgemini uses industry-specific experience to address business problems. Capgemini serves the business consulting and information technology needs of 15 of the top 15 worldwide utilities and all five of the publicly held oil and gas “super majors.”

www.capgemini.com

Concentric Energy Advisors (CEA)

CEA offers industry-specific advisory services related to hard assets for clients throughout the energy and water industries which include corporate and asset divestitures, corporate and asset purchases, M&A opportunity reviews and transactions, and portfolio optimization reviews and transactions.

www.ceadvisors.com

Deloitte

With more than 2,500 oil and gas professionals worldwide, Deloitte’s oil & gas practice is focused on providing audit and enterprise risk services, tax services, consulting services, and financial advisory services to companies in all segments of the oil and gas industry.

www.deloitte.com

London Economics International (LEI)

LEI is a global economic, financial, and strategic advisory professional services firm specializing in energy, water, and infrastructure. The firm has advised private sector clients, market institutions, and governments on privatization, asset valuation, deregulation, tariff design, market power, and strategy in virtually all deregulated markets worldwide.

www.londoneconomics.com Updated 7/14 3

NAVIGANT Consulting

The Navigant team helps clients to deploy and integrate renewable energy, energy storage, and other emerging technologies; understand the potential of Smart Grid; and to address consumer and regulatory demands. Its professionals also bring significant technical expertise in Disputes & Investigations, Economics, Financial Advisory, and Management Consulting.

www.navigant.com

PFC Energy

PFC Energy is a global consulting firm specializing in the oil and gas industry. PFC works worldwide to provide in-depth analysis and forward-looking scenarios which provide the foundation for strategy development, investment evaluation, and commercial decisions at the global and regional level. Its areas of expertise include market dynamics, geopolitics, economics & country risk, integrated strategies, upstream oil & gas, mid-and-downstream gas, downstream oil, services sector strategies, and complex networks.

www.pfcenergy.com

Poten & Partners

Poten & Partners, a global broker and commercial advisor for the energy and ocean transportation industries, provides unparalleled access and insight into worldwide commodity and shipping markets.

www.poten.com

Rapidan Group

The Rapidan Group, based in the Washington, DC area, is an independent energy market and policy research firm that advises senior asset managers and executive decision-makers on energy market and policy risks and opportunities.

www.rapidangroup.com

Roland Berger Strategy Consultants

Roland Berger Strategy Consultants is a privately-owned global strategy consulting firm with 49 offices in 35 countries. The consultancy has nearly 1,700 employees and about 200 partners. The company's industry expertise includes energy, energy equipment and the oil industry as well as a wide variety of other industries ranging from aerospace to telecoms.

www.rolandberger.com

Synapse Energy Economics

Synapse Energy Economics, specializing in energy, economics, and environment, provides research, testimony, reports, and regulatory support to consumer advocates, environmental organizations, regulatory commissions, and state energy offices.

www.synapse-energy.com

RESERVOIR

At the heart of petroleum exploration is the RESERVOIR of oil and gas. No matter what we do in E&P industry the reservoir is the focal point of the entire decision making. In the coming blogs I will highlight how magnificently the reservoir properties and financial decision making are linked. But today lets focus on reservoir.

Three parameters define the reservoir-

1.   Depositional environment

2.   Structure of reservoir and

3.   Diagenesis

Reservoir rocks with some exceptions are generally sedimentary rocks.

There are 2 main categories of sedimentary rocks

a) Silicicalstic or the clastic- eg sand stones- Fields of North sea and Mehsana

b) Carbonates-eg calcium carbonate – Fields in Saudi Arabia and Bombay offshore

The characteristics of these sedimentary rocks vary according to their depositional environment. This effects their porosity, permeability and saturation capacity etc.

1.   Depositional Environment

Depositional environment can be defined as a area with a typical set of physical chemical and biological process which result is specific type of rocks. Depositional environment has a very strong correlation with production characteristics.

2.   Structure

The earth surface is always in motion. The rocks are continually compressed and stretched, resulting in deformities. Faults and folds are formed in the subsurface can act as good  trap for oil and gas.

In carbonate reservoir generally natural fractures are looked for oil and gas. Fractures are considered pool of oil and gas thus drilling is done in natural fracture as much as possible.

3.   Diagenesis

The term diagenisis describes all chemical and physical process affecting sediment after deposition.

This includes

a) Effect of pH

b) Effect of oxidation

c) Overburden pressure/ compaction

d) Cementation, dissolution and replacement of rock particles.

Diagenesis thus affects the permeability and porosity of the reservoir.