Hydrocarbon exploration

Oil exploration is the search by petroleum geologists for hydrocarbon deposits beneath the Earth's surface. Oil and gas exploration are grouped under the science of petroleum geology.

Exploration methods

Visible surface features such as oil seeps, natural gas seeps, pockmarks (underwater craters caused by escaping gas) provides basic evidence of hydrocarbon generation (be it shallow or deep in the Earth); however, most exploration depends on highly sophisticated technology to detect and determine the extent of these deposits. Areas thought to contain hydrocarbons are initially subjected to a gravity survey or magnetic survey to detect large scale features of the sub-surface geology. Features of interest (known as leads) are subjected to more detailed seismic surveys which works on the principle of the time it takes for reflected sound waves to travel through matter (rock) of varying densities and using the process of Depth conversion to create a profile of the substructure. Finally, when a prospect has been identified evaluated and passes the oil companies selection criteria, an exploration well is drilled to conclusively determine the presence or absence of oil or gas.

Oil exploration is an expensive, high-risk operation. Offshore and remote area exploration is generally only undertaken by very large corporations or national governments, typical Shallow shelf oil wells (e.g. North sea) cost $10 - 30 Million, Deep water wells can cost up to $100 Million plus. Hundreds of smaller companies search for onshore hydrocarbon deposits worldwide, with some wells costing as little as $500,000 USD.

Elements of a petroleum prospect

A petroleum prospect is a feature which geologists believe may contain petroleum. There are five elements which all have to be present for a prospect to contain hydrocarbons. If any of them fail, then we get a dry hole.

• A source rock - When organic-rich rock such as oil shale or coal is subjected to high pressure and temperature over an extended period of time, hydrocarbons form.
• Migration - The Hydrocarbons are expelled from source rock by three density-related mechanisms: the newly-matured hydrocarbons are less dense than their precursors, which causes overpressure; the hydrocarbons are less dense than the ubiquitous water medium, and so migrate upwards due to buoyancy, and the fluids expand as further burial causes increased heating. Most hydrocarbons migrate to the surface as oil seeps, but some will get trapped.
• Trap - The hydrocarbons are buoyant and have to be trapped within a structural (e.g Anticline, fault block) or stratigraphic trap
• Seal Rock - The hydrocarbon trap has to be covered by an impermeable rock known as a seal or cap-rock in order to prevent hydrocarbons escaping
• Reservoir - The hydrocarbons are contained in a reservoir rock. This is a porous sandstone or limestone. The oil collects in the pores within the rock. The reservoir must also be permeable so that the hydrocarbons will flow to surface during production.

Terms used in petroleum evaluation

• Lead - a feature which may contain hydrocarbons
• Prospect - a Lead which has been fully evaluated and is ready to drill
• Chance of Success - An estimate of the chance of all the elements (see above) within a prospect working, described as a probability. High risk prospects have a less than 10% chance of working, medium risk prospects 10-20%, low risk prospects over 20 %. Typically about 40% of wells recently drilled find commercial hydrocarbons.
• Hydrocarbon in Place - amount of hydrocarbon likely to be contained in the prospect. This is calculated using the volumetric equation - GRV x N/G x Porosity x Sh x FVF
  • GRV - Gross Rock volume - amount of rock in the trap above the hydrocarbon water contact
  • N/G - net/gross ratio - percentage of the GRV formed by the reservoir rock ( range is 0 to 1)
  • Porosity - percentage of the net reservoir rock occupied by pores (typically 5-35 %)
  • Sh - hydrocarbon saturation - some of the pore space is filled with water - this must be discounted
  • FVF - formation volume factor - oil shrinks and gas expand when brought to the surface. The FVF converts volumes at reservoir conditions (highpressure and high temperature) to storage and sale conditions
• Recoverable hydrocarbons - amount of hydrocarbon likely to be recovered during production. This is typically 10-50% in an oil field and 50-80% in a gas field.

Licensing

Petroleum resources are typically owned by the government of the host country. The government issues licences to explore, develop and produce its oil and gas resources, which are typically administered by the oil ministry. There are several different types of licence. Typically oil companies operate in joint ventures to spread the risk, one of the companies in the partnership is designated the operator who actually superies the work.

• Tax and Royalty - Companies would pay a royalty on any oil produced, together with a profits tax (which can have expenditure offset against it). In some cases there are also various bonuses and ground rents (licence fees) payable to the government - for example a signature bonus payable at the start of the licence. Licences are awarded in competitive bid rounds on the basis of either the size of the work programme (number of wells, seismic etc) or size of the signature bonus.

• Production Sharing contract (PSA) - A PSA is more complex than a Tax/Royalty system - The companies bid on the percentage of the production that the host government receives (this may be variable with the oil price), There is often also participation by the Government owned National Oil Company (NOC). There are also various bonuses to be paid. Development expenditure is offset against production revenue.

• Service contract - This is when an oil company acts as a contractor for the host government, being paid to produce the hydrocarbons.

Reserves and resources

Resources are hydrocarbons which may or may not be produced in the future. A resource number may be assigned to an undrilled prospect or an unappraised discovery. Appraisal by drilling additional delineation wells or acquiring extra seismic data will confirm the size of the field and lead to project sanction. A this point the relevant government body gives the oil company a production licence which enables the field to be developed. This is also the point at which oil reserves can be formally booked.

Definition of oil reserves

Oil reserves are a primarily a measure of geological risk - of the probability of oil existing and being producible under current economic conditions using current technology. The three categories of reserves generally used are proven, probable, and possible reserves.

• Proven reserves - defined as oil and gas "Reasonably Certain" to be producable using current technology at current prices, with current commercial terms and government concent- also known in the industry as 1P. Some Industry specialists refer to this as P90 - i.e having a 90 % certainty of being produced
• Probable reserves - defined as oil and gas "Reasonaby Probable" of being produced using cuurrent or likely technology at current prices, with current commercial terms and government concent - Some Industry specialists refer to this as P50 - i.e having a 50 % certainty of being produced. - This is also known in the industry as 2P or Proven plus probable
• Possible reserves - i.e "having a chance of being developed under favourable circumstances" - Some industry specialists refer to this as P10 - i.e having a 10 % certainty of being produced. - This is also known in the industry as 3P or Proven plus probable plus possible

Reserve booking

Oil and gas reserves are the main asset of an oil company - booking is the process by which they are added to the Balance sheet. This is done according to a set of rules developed by the Society of Petroleum Engineers (SPE). The Reserves of any company listed on the New York Stock Exchange - which in practice means virtually every commercial company in the world - have to be stated to the U.S. Securities and Exchange Commission. In many cases these reported reserves are audited by external geologists, although this is not a legal requirement. The U.S. Securities and Exchange Commission rejects the probability concept and prohibits companies from mentioning probable and possible reserves in their filings. Thus, official estimates of proven reserves will always be understated compared to what oil companies think actually exists. For practical puposes companies will use proven plus probable estimate (2P), and for long term planning they will be looking primarily at possible reserves

Other countries also have their national hydrocarbon reserves authorities for example the GKZ - State reserves commission of Russia where companies operating in these countries have to report

See also

• Abiogenic petroleum origin - a theory that is not believed in by any commercial oil company in the world
• Energy development
• Future energy development
• Hubbert peak
• Petroleum
• Renewable energy

External links

• Dismissal of the Claims of a Biological Connection for Natural Petroleum.
• Abiogenic Gas Debate 11:2002 (EXPLORER)