UK: Energy and Environment 1 - Thinking small about oil.

UK: Energy and Environment 1 - Thinking small about oil. - The North Sea bonanza is over but the oil companies are ready to exploit smaller finds with new technologies. By Malcolm Brown.

Last Updated: 31 Aug 2010

The North Sea bonanza is over but the oil companies are ready to exploit smaller finds with new technologies. By Malcolm Brown.

The economics of the North Sea have changed dramatically since the first oil strike nearly a quarter of a century ago. In the early 1970s the average size of discovery was about one billion barrels of oil (Forties, for example, contained 2.5 billion barrels of recoverable reserves.) By the mid-'70s the average was down to 500 million and by the mid-'80s 100 million. Today the average North Sea find is around 50 million barrels. The North Sea, in short, is now very much what oilmen call a "mature province".

There is still lots of oil around - Shell, for example, estimates that the UK continental shelf has about 30 billion recoverable barrels of oil in it of which 30% has been produced to date - and production levels are high, but the days of the oil bonanza are over. All the large fields have almost certainly already been found as have the medium-sized ones. There will still be numerous smaller discoveries and there are many past discoveries still to be exploited, but it will not be easy.

Not to put too fine a point on it, if the North Sea oil companies were to continue using traditional development methods few, if any, of their existing unexploited assets or those likely to be found would be commercial propositions. They might be better to take the money set aside for North Sea exploration and production and put it in a building society, or, to be more realistic, place it in one of the high-risk but potentially high return oil provinces like Colombia and Venezuela or the Far East.

They will not, of course, but all the oil companies in the North Sea are now involved in a major drive to adapt to what they call the small field mentality. The essence of the problem is this: oil prices are (and will probably remain at least for the next few years) relatively low, while the costs of producing a barrel of oil in the North Sea are steadily rising. Under those circumstances every new investment decision is finely balanced.

One element which can help tip the balance in favour of further exploitation of the North Sea is technology. The oil companies have spent the last few years developing technologies and techniques appropriate to these tougher times. They will not by themselves make the wells viable, but they will help the process enormously. There have been developments in all parts of the oil recovery process: exploration, field development and production.

One of the most significant advances in exploration is 3D (three-dimensional) seismic surveying. Traditional two-dimensional surveys give a broad picture of rock strata, sufficient to capture major geological features. The seismic shots on which they are based are usually taken at wide intervals (anything from half a kilometre to 20 kilometres, depending on your requirements) and it is then up to the geophysicists to use their expertise to fill in the gaps. The limitations are obvious. But advances in electronics and positioning now allow the two-dimensional lines to be shot very close together, say, 25 metres. That gives computers enough information to build a three-dimensional picture. Initially, 3-D surveys were used to plan the development of fields. Drilling wells is expensive and the drillers need as much information as they can get to help them sink the wells in the best position.

Today the technique has been extended: 3-D surveys are now done as part of the exploration programme itself. According to Roger Vielvoye, international editor of the Oil and Gas Journal, the technique makes good economic sense. "In the North Sea, a 3-D survey costs less than drilling one well and if the more accurate picture of the target prevents a dry hole it has been money well spent."

In fact the technique has proved so valuable that BP is now using it to re-survey fields which are already producing oil. A recent 3-D survey of the Forties field helped reservoir engineers to understand more clearly how oil moved through the reservoir and to locate pockets of oil that had been by-passed in the first 15 years of production. The result should be that BP will get even more oil than it had originally planned from Forties.

When companies start developing fields one of their key objectives is to minimise the cost of retrieving the oil. Traditionally - particularly on land-based finds - oil wells were drilled straight down in a vertical drop and then a production platform placed over the top. One of the drilling engineer's key jobs was to keep the bore-hole vertical. If its path deviated from the plumb line he would order the hole to be plugged back to the point of deviation and rebored.

In the North Sea, however, engineers began to drill deliberately at an angle and perfected so-called "deviated drilling" which allowed them to reach a wide spread of targets (oil pockets) from a single platform. A single field might then comprise three or four platforms each with a score or more of deviated wells, allowing the operator to tap the largest possible area of the field from (and this was crucial) the minimum number of (very expensive) platforms. More recently engineers have developed horizontal drilling techniques. Horizontal drilling, which, in effect, takes deviated drilling to its logical conclusion, means that by the time they reach the oil reservoir they have turned through 90 degrees. They run through the reservoir horizontally. Deviated drilling is often used to reach smaller fields at a distance from the main platform which could not, on commercial grounds, justify an installation of their own. Horizontal drilling not only provides access to smaller pockets of oil but can also increase their yield.

If one were to imagine the various rock strata as a layer cake with, in the middle, a layer of jam (representing the oil bearing stratum), then a vertical well might run through one inch of jam (oil) while the horizontal one, running along the jam layer rather than just straight up and down through it, would be exposed to several inches. Horizontal wells can also pick up several discrete pockets of oil (perhaps separated by geological faults, for instance) provided they are on the same level. Horizontal wells can be two or three times as productive as conventional vertical wells, though of course that has to be balanced against the higher drilling costs.

It is not simply a question of accelerated production. Horizontal wells are used in practice where there are technical difficulties associated with the ingress of water or gas into the "jam layer" which would curtail the life of the well.

Horizontal drilling means reduced capital expenditure, says David Cobb, head of BP Exploration's production technology group. "You can reduce the number of wells you need. Horizontal wells can be used for thin oil columns which with conventional technology are seen as uneconomic. This technology unlocks those reserves and makes the smaller fields significantly more likely to be developed." Last autumn BP Exploration successfully completed a horizontal appraisal well on the Forth Field, 340 kilometres north east of Aberdeen. The use of horizontal wells in the Forth reservoir is expected to halve the number of production wells required to develop the field.

As the oil companies moved into ever more difficult North Sea waters offshore platforms became increasingly sophisticated and expensive to build and required intensive (and expensive) maintenance. Today design engineers are trying to reverse the trend, moving towards much simpler, cheaper structures, preferably as near as possible unmanned. Most of the labour on platforms is for plant operation and maintenance. It is expensive not because of wage costs but because human operatives must be backed up by a lot of safety and support equipment.

In smaller fields, of course, even the most basic of these big fixed structures may not be economically justifiable. In the last few years oil company engineers have devised several ingenious alternatives, like sub-sea production systems. Instead of having a dedicated platform the oil is pumped from wells and manifolds on the seabed itself to platforms on nearby fields. Shell/Esso's Osprey field is a classic example of a state-of-the-art satellite sub-sea development. The field, which produced its first oil in January 1991, lies just north west of the existing Dunlin field, 112 miles north east of the Shetlands. Osprey's subsea production system consists of two manifolds, one for oil production, the other for water injection. Oil is carried from the production manifold to Dunlin which acts as a mother platform for Osprey.

BP has taken the seabed-based production idea one stage further. Its floating oil production system SWOPS (Single Well Oil Production System), which came into service in 1990, consists of a 74,000-tonne ship, the Seillean (Gaelic for "bee") which moves from field to field (like a bee gathering nectar) collecting small amounts of oil from sea-bed well-heads. When the vessel reaches its destination it lowers risers and connecting equipment to the well-head through an opening in its keel called the moonpool. Seillean can hold at least 20 days production before having to steam to a shore terminal to discharge.

A crucial element in the SWOPS system - and increasingly in North Sea work generally - are the so-called ROVs (remotely-operated vehicles). In SWOPS these robot-like machines monitor the entire operation. The ROVs are equipped with underwater cameras, lighting and manipulator arms capable of operating well-head equipment. A decade ago ROVs were a curiosity. Today drilling operations are almost totallly diverless and ROVs are moving into completion and production work.

The sea is hostile and potentially dangerous for human divers but not for machines, and diving, because of the physiological problems involved, is extremely expensive. Divers and their support vessels cost about £50,000 a day. An ROV, which is in no danger of getting the "bends", costs a tenth of that.

The oil companies are beginning to realise that all this equipment, all these new techniques, are not enough on their own to make marginal fields viable. They are coming to understand that if new fields are to be developed in the 1990s and into the 21st century there needs to be a major attitudinal change as well. BP has reviewed its approach to the development of the new, more marginal fields and as well as recommending such things as horizontal drilling and increased use of satellite systems, is calling for radically different relationships with, for example, other operators and contractors. It suggests that future joint ventures with partners must be more co-operative, less confrontational.

Historically, partners in the North Sea have often fought hard for a competitive advantage over the other party (what BP calls a "win/lose" situation), but that is now seen to be inefficient and needs to be replaced by a "win/win" approach where the companies devise their partnership for the common good. As for contractors, BP and others have begun to realise that the old system of monitoring their every operation is ridiculously inefficient.

When he addressed an oil conference in London in November, John Jennings, a group managing director of Royal Dutch/Shell, put it crisply.

"It is essential", he said, "that we find ways of avoiding the constant cycle of boom and bust in which contractors and operators alternately try to take maximum advantage of each other. We must strive to develop more stable, long-term relationships which modulate the peaks and troughs to the advantage of all."

Drilling, said Jennings, was a good example. "In the past Shell companies involved themselves in every aspect of the drilling operation, closely supervising drilling contractors who were mostly paid day-rates. These contractors had little commercial incentive to develop new, more cost effective drilling technologies and methods."

Instead Shell was now trying to use more "turnkey" contracts in which both Shell and the drilling contractor would share the benefits of better performance.

Is it all worth it? BP certainly thinks so. In recent studies, it has run the rule over a number of its unexploited North Sea assets in order to evaluate whether new techniques and new organisational methods could improve their commercial viability. The studies are not fully complete yet, but the company is very confident that the new approach will pay off.

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