1. Exploration and Production II Petroleum Professor Collins Nwaneri 1

2. Overview- Basic Geology Concepts Plate tectonics results from movement and change in shape of the earth’s crust. They are three basic structure that occur when rocks are deformed: 1. Wraps- occur when the board areas of the crust rise or drop without fracturing. 2. Folds - are rock strata that have crumpled and buckled into wave like structures. - Upwarps or arches are called anticlines - Downwraps or troughs are synclines 2

3. Continued 3. Faults – occurs when rocks near the surface break, or fracture, and the two halves moves in relation to each other. Trap – is an arrangement of rock layers that contains an accumulation of hydrocarbons, and yet prevents the hydrocarbons from rising to the surface. Three main types of traps are structural traps, stratagraphic traps and combination traps. 3

4. Petroleum Exploration Today Surface and Subsurface geological studies are used to find oil and gas. In the past oil seeps was used as a guide. Surface Geographical Studies: such as - Aerial Photographs and Satellite Images Aerial photography was used in the past, but it was expensive and difficult. Remote sensing has replaced aerial photography. It uses infrared or other means to map an area. Airplanes and satellites can carry remote sensing equipment. Lansat – currently maps all the earth landmass changes. it provides visible, thermal, and infrared images of all land masses and coastal areas on the earth. It used to detect the presence clay which is often associated with mineral deposits. 4

5. Continued Radar: used by a type of remote sensing. They bounce high frequency radio waves off land features to a satellite or an airplane for analysis of areas with potential hydrocarbon trapping structures i.e. SLAR – side-looking airborne radar is used in airplanes. Oil and Gas seeps: presence of this on the surface was used in the past to find oilfields. They occur either along fractures along reservoir or spots with formation dip up around to the surface. 5

6. Collecting Data Ways to collect information for exploration: 1. Private Company Libraries- contain large collection of drilling and production data, maps, or well logs. Oil companies usually have this data library. 2. Public Agency Records – Drilling and production data that is collected by agencies that regulate oil and gas production. Usually available to the public. 3. Databases – Information that is collected into a database by public and private organizations. 6

7. Geophysical Surveys A combination of geophysical information and surface mapping can be used to reduce the chances of drilling a dry hole. Types of Surveys: 1. Magnetic and Electromagnetic Surveys: Magnetometer surveys – finds slight variations in the earth’s magnetic field. Used to identify fractures and basement rocks that have minerals which can be a good indication of trapped hydrocarbon. Which rock type often contain minerals that are magnetic? 7

8. Continued Magnetotellurics – a type of electromagnetic surveys that uses the theory that rocks of differing composition have different electrical properties. A measure and analysis of the naturally occurring flow of electricity between rocks or across salt water can be used to reveal subsurface structures that trap hydrocarbon. 8

9. Continued 2. Gravity Surveys – uses a slight variation in the earth’s gravitational field caused by variation in the weight of rocks. Used to differentiate between light rocks and dense rocks. 3. Seismic Surveys – last exploration step before drilling for hydrocarbons. Give more precise geological information below the surface compared to the later survey methods. Why does it work? Types of seismic surveys: 1. 2-D Seismic (Seismology) 9

10. Continued 2. 3D Seismic (repeated surveys) 3. 4D Seismic (3D plus fourth dimension which is time to monitor changes in formations, mostly changes in fluid levels. Seismic waves on land is reflected to geophones. Explosive methods where used to create seismic vibrations using dynamites on land in the past. A newer method is called Vibroseis. 4. Marine Seismic Methods – same method as land except a ship is used. Seismic waves is reflected to hydrophones. 10

11. Reservoir Development Types of tools: 1.Well logs 2.Driller’s logs 3.Wireline logs 4.Sample logs – physical samples of underground rocks. 2 types are Core samples and Cutting samples. which is more useful to the geologist? 11

12. Continued 4. Drill Stem Test – used to test a formation that has just being drilled. (Data on formation pressure and fluid composition) 5. Strat test – used to obtain geological information on a drilled hole. Stratigraphic correlation is a process of comparing geological formations between known area with unknown formations in near-by area by using information collected in driller’s log, sample logs, and electrical logs from the known areas to predict probable new reservoir with likely hydrocarbon. 12

13. Continued Maps are used in the exploration process. Types of Maps are: Base Maps and contour maps- isopach, lithofacies maps. 13

14. Aspect of Leasing An oil company must obtain a legal rights for exploitation before a reservoir can be developed. To secure the rights to explore, drill and produce from country to country is different. In the US there are 4 sources exist for the rights to petroleum: 1. Private property owner 2. State government 14

15. Continued 3. Federal government 4. Some native American tribes Instrument used to grant the lease is called a Lease. Oil and gas lease are valid only if the ownership of the lease is established, and the provisions of the lease is explicit and legally executed. 15

16. Continued Most countries other than the US have their mineral rights owned and controlled by the government. 16

17. Types of Private Ownership Mineral estate is defined as establishing ownership of oil, gas and mineral resources. Absolute ownership is defined as oil and gas that are owned in place, underground. Also called ownership-in-place Non-absolute ownership is defined, as no one owns the hydrocarbon until it is captured. Regardless of the two types of ownership above followed, two-thirds of onshore lands in US are privately owned. 17

18. Continued Although the rights to a mineral, oil and gas can be privately owned, it does not mean that the same person owns the surface. The following are the types of ownership: 1. Fee Simple Landowner – owns the right to exploit what wealth the land might provide. - Landowners can sell the mineral estate or a percentage of it to someone else by using a mineral deed, or sell the surface and retain all or part of the mineral estate. - The difference between a mineral deed and a mineral lease is that a leases will lose (his or her) rights to oil and gas unless production is established within the time allowed by the lease. 18

19. Continued 2. Mineral estate and surface Owners – this right depends on the state where the property is located and the minerals drilled in the sale agreement. - Some states regard the mineral estate as a possessory estate, which means a fee ownership of the minerals in place. - Some states regard the mineral estate as a servitude estate, which means it is subject to a specified use or enjoyment by one party, even though the surface is owned by another. if the minerals in an agreement are oil and gas, the mineral estate is the dominant estate and the surface is the servient estate 19

20. Continued 3. Royalty Interest Holder – owns a share or percentage of the total or gross oil and gas production. Two types: - Participating royalty interest holder: ones all or part of the mineral estate plus exclusive rights of a mineral estate owner. - Nonparticipating royalty interest holder: owns no part of the mineral estate and only receives a share of the profits for production. - Royalty deed means sale of the some fraction of the royalty interest. 20

21. The Lease and the Law A lease is a contract between a mineral estate or fee owner, the lessor and petroleum company or other party called the lessee. The lessor gives exclusive rights to the lessee. The lessee explores, drill and produce and pays a delay rental (money) each year to keep the lease current. Mineral interest is usually shared between the leesor and lesee in a percentage basis. Higher percentage that goes to the lessees is called the working interest. 21

22. Continued Example of laws are: Rule of Capture and Offset drilling rule. - Rule of capture- prevents the landowner from liability for drainage of a common reservoir when there is hydrocarbon migration from a neighbor’s land. - Offset drilling rule – an outgrowth of rule of capture, prevents a neighbor from liability if a landowners hydrocarbon reserve is being drained by the neighbor’s well. Government regulatory laws are needed to control exploratory, drilling and production of reservoirs. 22

23. Preparation for Leasing privately owned lands Once a private owned land has being decided to be leased by an operating company, a landman (lease man or oil scout) is brought in. Landman – a person who negotiates with landowners for land options, oil drilling leases and royalties. Other functions of the landman: 1. Ownership determination 2. Validating the owners capacity to contract 23

24. Provision of the lease Conveyance, term and royalty are contained in standard lease clauses. In addition, a lease contains dates, names and signatures of parties involved, the seal and signatures of a notary public. All this are sated in the provisions essential in a lease. Types of Royalty clauses Gas royalty – traditionally payable in money. Either from the wellhead or sold outside (based on market price at the well) 24

25. Continued Shut in Royalty – for gas wells allows the lessee to maintain the lease in force by paying money to the lessor in lieu of actual production when a well is shut in, or closed off and not producing. Nonparticipating royalty Pooling and unitization clause – Share proportional interest royalties from two or more leases 25

26. Continued Drilling delay rental and related clauses – provides the lessee with 3 options 1) drill a well 2) annual payment to delay drilling within the primary terms 3) terminate the lease by not drilling nor paying annual payment Related clauses are - a dry hole clause – lessee keeps the lease if first hole is dry. continuous improvement clause – designed to keep drilling outside of the primary terms. Assignment clause - transfer of lease interest by the lessor or lessee to another party. Damage clause – a clause that makes the lessee liable fro damages or losses suffered because of drilling or production. Force Majeure clause – allows the lease to continue in force if there are uncontrollable delays during the lease while the lessee is excluded from the delay Warranty and proportionate reduction clauses – warranty clause seems to guarantee clear title and proportionate reduction clause provides a possibility that owner may own less than the described land. 26

27. Execution of the lease This involves: Signing the lease Acknowledging the lease Recording the executed lease Transaction after Leasing Division Orders- Drafted based on the terms of the lease, the title opinion, and any other agreements that affects ownership of the oil and gas. Support Agreements – can be offered in the form of money or an assigned interest in the exchange of drilling a well. 27

28. continued Acreage acquisition agreement – a way to acquire acreage by purchasing the lease Joint operating agreement – two or more co- owners agree to share the exploration and possibly development of a lease Joint ventures lease- similar to Joint operating agreement, but participants in this venture share liability for third party claims Overriding royalty agreements- expense free share of production and paid out of the working interest rather than the royalty share by a lessee. 28

29. Leasing Public lands: State ownership - each state has a board or agency that governs the leasing of its land Federal ownership - the federal government is the landowner of a massive size and most of the land is unavailable for oil and gas production. Leasing federal onshore lands: - Does not convey titles but grants the right to explore, drill and produce - Leasing term is 5 years for competitive leases and 10 years fro non-competitive leases. 29

30. Leasing Federal Offshore Tracts Federal government controls the area from the states inland water to 200 miles or 8,200 feet of water depth. (Check for any update) - Federal government gives a 5 year schedule for leases it expects to sell to prospective bidders. - A typical bid includes a cash bonus and a royalty agreement. 30

31. Drilling Engineering Drilling operations are carried out during all stages of project life cycle and in all type of environments. Expenditure for drilling is a large fraction of the total project’s capital expenditure (20 -60 %) A sequence of that involves drilling operations: An initial completion of an exploratory well will establish the presence of hydrocarbon; Data gathered will be evaluated and documented; the next step will be appraisal of the accumulation requiring more wells; and finally, if the project is moved forward, development wells will have to be engineered.

32. Continued Overview: drilling activities will be covered and the interactions between drilling department and other E&P functions. Well Planning Drilling a well is a major investment, ranging from a few million US$ for onshore well to 100 million US$ plus for a deepwater exploration well. - Well engineering helps to maximize investment value, using the right technology and business process to successfully drill a well.

33. Continued Wells are drilled with one or a combination of the following objectives: 1. to gather information 2. Hydrocarbon production 3. Inject gas or water to maintain reservoir pressure or sweep out oil. 4. To dispose water, drill cuttings or CO 2 (Sequestration) - Well head locations, well design and trajectory are aimed at minimizing the combined costs of well construction and seabed/surface facilities, whilst maximizing cost.

34. Continued Accuracy of the parameters used in the well planning phase and the well design depends on information gathered for the particular field and location. Optimum well design balances risk, uncertainty and cost with overall project value. A well design captures a comprehensive document This is used in a drilling program.

35. Continued Rig Types and Rig Selection The Type of rig which will be selected depend on: Cost and availability Water depth and location (offshore) Mobility/transportation (Onshore) Target zone depth and expected formation pressure Prevailing weather/metocean conditions in the area of operation Drilling crew experience (safety record). Types of Rigs 1.Swamp barges - operate in shallow water (less than 20 ft) 2.Drilling jackets - small steel structure that are used in shallow waters. Two or mores wells can be drilled from a drilling jack-up 3.Jack-up rigs - can operate in water depths between 15 ft to 450 ft. Usually has three or more legs that are lowered into the seabed and then the rig will lift itself. Most common rig type. 4.Semi-submersible - Can operated in water depths up to about 9500 ft, in most severe metocean conditions (Heavy duty semi-submersible). In addition, they can be rated up to 15,000 psi, can handle high reservoir pressure.

36. Continued Normally partial submerged in about 50 ft of water for stability. A large diameter steel pipe (riser) is connected to the seabed and serves as conduit for the drill-string. The blowout preventer (BOP) is also located at the seabed (subsea stack). A combination of anchors and dynamic position (DP) system assist in positioning. 5. Drill-Ship - can be used in deep and very deep water work. Heavy drillship can operate in water depth up to about 9500 ft. 6. Tender-assisted drilling- has supporting functions such has: storage, mud tanks and living quarters located on a tender, usually an anchored barge by a derrick that is used for drilling.

37. Drilling Systems and Equipment Rotary rig is a basic drilling system used for offshore and onshore drilling. They three basic functions carried out during rotary drilling operations are as follows: 1.Torque is transmitted from a power source at the surface through a drill string to the drill bit. 2.Drilling fluid is pumped through the drill-string and up through the annulus. Used to clean the hole, cool the bit and lubricate the drillstring. 3.Subsurface pressure above and within the hydrocarbon strata are controlled by the drilling fluid weight and BOP.

38. Continued Drill bits - Most frequently used drill-bits are roller-cone (rock bit) and polycrystalline diamond bit (PDC bit). - Roller cone: has three rotating bits for grinding (crushing) the rock below. Has jet nozzles. Drilling can last between 5 to 24 hrs or a little depending on formation and bit type. - PDC: last longer. Has jet nozzles. Can use high RPM with it to drill and generally provides a better rate of penetration. - Bit selection depends on the composition and hardness of the formation to be drilled and the planned operating parameters. -Discuss drillstring components – dp, dc, hwdp, bha and how the rotary system works. Compare top drive and kelly rigs what are some of the differences between the top drive and kelly rig, and advantages? Top Dive system - has guide rails that moves up and down inside the derrick. This drilling in 90 ft segments and on newer rigs up to 120 ft (needs two derricks)

39. Continued Automated pipe handling – replacement of manual labor on the rigfloor by a hydraulic system which picks up pipe from the rack, moves it up the rigfloor and then inserts it into the drillstring. Discuss circulation system and mud properties. i.e. oil based mud has the following advantages over water based mud: better lubrication of the drillstring, compatible with clay or salt formations and give higher ROP. Note: a closed-mud system is required if oil based mud or any hazardous fluid is contained in cuttings during drilling operations, instead of them being disposed onto the seabed. Discuss BOP as an important well feature, what it does and how it works. Note: The following are drilling parameters that are monitored on the rig floor: 1. Hookload

40. Continued 2. Torque in drillstring 3. Weight on bit 4. Rotary speed 5. Pump pressure and rate 6. ROP 7. Mud weight in and out of the hole Mention other people on rig the apart from drilling crew.

41. Site Preparation It Involves clearing the location to drill the well. -if no drilling activities has occurred at the place. An environmental impart assessment (EIA) is the first step. This is done to: meet legal requirements, ensure acceptability of drilling activity in the area and quantify possible risks and liabilities. - (EIA) may have to include concerns like; natural site protection and noise control, air emission, effluent and waste disposal, pollution control, visual impart, traffic and emergency response

42. Drilling Techniques Top Hole drilling – involves drilling the base from which to commence drilling. On land, a conductor or stove pipe is piled prior to moving the rig. Offshore, a conductor is piled or a large diameter hole is actually drilled and the conductor is lowered and cemented. Spudding occurs once the drill bit has drilled below the conductor. Surface casing is later ran and cemented. (Discuss bit type/size and drilling conditions) Intermediate and reservoir section- Normally between the top hole and reservoir. (Discuss conditions of this section for drilling this section) Directional Drilling – allows to build, hold and drop hole angles (Discuss types of Directional drilling tools and application)

43. Continued Horizontal drilling- usually have a steady hole angle at the lateral section. Types Long radius, medium radius and short radius. Discuss applications. Multilateral wells – ability to drill two or more wells from a central borehole. Extended reach drilling – has a horizontal displacement of at least twice the vertical depth. More difficult to drill. Discuss applications Slim hole drilling – a well with 90% or more of the length with 7 in or less in diameter. More cost reductions. Discuss why Coiled Tubing drilling – Whilst standard drilling operations use joints of drill pipes. CTD uses tubular made of high grade steel. The diameters varies between 1 ¾” and 3 ½”. It is reeled onto a large diameter drum and not segmented. Discuss advantages and Disadvantages..

44. Casing and Cementing Casing design starts with a conductor, then a surface casing, intermediate casing above the reservoir, a production casing across the reservoir and possibly a production liner over a deeper reservoir section. Discuss why you run casing. The main criteria for casing selection are: 1. Collapse pressure 2. Burst load 3. Tension load 4. Corrosion service 5. Buckling resistance

45. Continued (Discuss primary cementation, secondary cementation, plug back cementation, spacer fluid) (Discuss types of drilling problems): 1. stuck pipe 2. Fishing 3. Lost circulation (Discuss types of cost): 1.Fixed cost 2.Daily cost 3.Overhead Additional-Self reading Assignment Note: Read about he different types of contracts!!!!!