Reservoir Engineering and Reserves

Adam Borushek, Principal Reservoir Engineer

RISC Advisory

SPE Seminar: Introduction to E&P

The Geological Society, London
21 November 2017

[email protected]
Disclaimer

The statements and opinions attributable to the presenter and RISC Operations Ltd (RISC) in this presentation are given
in good faith and in the belief that such statements are neither false nor misleading.
In preparing this presentation RISC has considered and relied solely upon information in the public domain. This
information has been considered in the light of RISC’s knowledge and experience of the upstream oil and gas industry
and, in some instances, our perspectives differ from many of our highly valued clients.
RISC has no pecuniary interest or professional fees receivable for the preparation of this presentation, or any other
interest that could reasonably be regarded as affecting our ability to give an unbiased view.
This presentation is the copyright of RISC and may not be reproduced, electronically or in hard copy, without the written
permission of RISC.

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Who we are

RISC is an independent oil and gas advisory firm. We work in partnership with companies to support their interests in the oil and gas
industry, offering a broad and innovative perspective on oil and gas projects around the world.
Possessing the full range of capabilities and many years of practical experience, our project teams work closely together to derive solutions
designed to meet the technical, commercial and strategic requirements specific to each assignment. We work closely with our clients and fully
understand their issues and challenges. Our integrity and drive ensures the right decision is made and our clients receive the right advice.
RISC has over 20 years of experience in oil and gas advisory. We have completed over 2,000 assignments in over 70 countries for more than 500
clients.
We offer a bespoke service that supports our clients across the entire oil and gas lifecycle, allowing them to make decisions with confidence.

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The RISC Advantage
The highest level of technical, commercial and strategic advice across the entire value chain
Exploration and Appraisal Development Production Market

Geoscience and Geology

Petroleum Engineering

Development Planning

Commercial

Acquisitions + Divestments

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RISC clients
Our expertise is relied upon by upstream companies
Majors Global Independents

NOC’s Japan

ASX listed LSE/AIM

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Our clients

RISC has carried out due diligence and advisory assignments on behalf of the following major banks

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What is Reservoir Engineering?

▪ Reservoir engineering is the discipline that assesses and plans

the recovery of oil and gas reservoirs Process
Engineer

▪ We work with the other disciplines to find opportunities to

optimise the value of oil and gas assets
Geologist
Reservoir Production
Geophysicist
Petrophysicist Engineer Engineer
▪ Reservoir engineers need to understand the dynamics of
reservoir rocks, fluids, wells and the surface facilities, all tied
together with economics in mind
Commercial
Economist

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 What is Reservoir Engineering?

Reservoir engineering is the discipline that:

▪ Creates forecasts of oil, gas and water rates
▪ Determines the number of wells required in a field, the well types
and locations

We work with other disciplines to optimise:

▪ The field rates vs capital expenditure
▪ Production capacity vs gas contract rates

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What is Reservoir Engineering?

You can’t see into the reservoir!

We need to measure, make assumptions, and create models to manage and reduce uncertainties in oil and gas recovery.
We continue taking measurements, to check the models against reality, and can re-calibrate the models to improve our
forecasts.
• SIMULATION MODEL • PRODUCTION
• Reservoir FORECAST
• Well • Recovery
• System • Flow Rates

Model Predict

Measure Act
• WELL TEST • DEV+OPS PLAN
• Pressure • Drill
• Rates • Optimise

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What are oil and gas?

▪ Hydrocarbons are found in a range of states such as gas, oil and

tar
 Methane, ethane, etc
▪ Oil and gas are not separate, distinct molecules
 Gas is mostly CH4 but also contains heavier molecules
(condensate)
 Oil is mostly molecules of C7+ but also contains significant %
of CH4 (solution gas)
▪ One reservoir can provide multiple sales products

http://dev.elearn.punjab.gov.pk/home/read_book/14/63
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Reservoir Rocks and Fluids

Understanding rocks is not just for geologists!

Hydrocarbon flow is influenced by large + small scale rock properties, by fluid saturations and pressures.

The physical properties of the oil, gas and water in a reservoir change over time:

▪ Pressure changes mostly occur in the reservoir (depletion) and in wellbores

 Initial pressure varies widely, but can be 5000 psi. This is 350x atmospheric pressure!

▪ Temperature changes mostly occur in wells and production facilities

 Temperatures circa 200 degF. Near boiling point of water!

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Reservoir Rocks and Fluids

Basic reservoir rock properties:

▪ Permeability (Darcies) is a measure of a rock’s ability for fluid to flow
▪ Porosity (%) is the proportion of void space in rock that might contain oil, gas or water

Basic reservoir fluid properties:

▪ Viscosity (centipoise) is a measure of a fluid’s resistance to flow
▪ API Gravity (degrees) is a scale to measure the density of petroleum liquids
▪ Gas Expansion Factor (scf/rcf) measures gas volume at surface, compared to its volume in the reservoir
▪ Condensate-Gas Ratio (bbl/MMscf). Condensate is liquid at surface conditions, but gas in the reservoir

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Reservoir Drive Mechanisms

Drive mechanisms are the energy sources that transport hydrocarbons from the reservoir to the well.
These are slightly different at every field and rely on the oil, gas, aquifer, pressures and the geometry.

Primary Drive
First stage of production. This recovers oil and gas using the natural energy in the reservoir
▪ Water drive (aquifer)
▪ Gas cap expansion drive
▪ Solution gas drive
▪ Gravity drainage
▪ Combination drive

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 Reservoir Drive Mechanisms

A cross-section through a reservoir showing the gas cap, oil, water and one well.

Production
Well

Gas expands and pushes oil downward

Gas cap

Oil
Dissolved gas coming out of oil

Water flows in from the Water Water

aquifer and pushes oil
upward
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Reservoir Drive Mechanisms

The wells’ rates can be improved by pumping (for oil) and using compressors (for gas).

Secondary Drive
Later stage of production. This recovers oil by injecting water or gas into the reservoir
▪ It keeps the reservoir pressure high and can sweep oil toward the wells
▪ An injection well is required, or an old production well can be turned into an injector

Tertiary Drive - Enhanced Oil Recovery (EOR)

Some reservoirs can be enhanced by heating (eg steam injection), chemical injection (viscosity modifiers) or other
techniques.
▪ EOR can recover a further 10%, but may be very expensive to implement
▪ Needs forecasts of production and costs in an economic model (does EOR add value?)

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Recovery Factors

We will never produce ALL of the oil or gas in a field

▪ Microscopic and macroscopic sweep
The ‘Recovery Factor’ is the proportion of the initial volume that is removed
▪ This will depend on the fluid type, drive mechanism, wells, etc

Fluid Drive Mechanism Recovery Factor

Solution gas 5% - 30%

Gas cap 15% - 50%
Oil
Water drive 30% - 60%
Gravity drainage 15% - 85%

Aquifer 35% - 65%

Gas
Gas expansion (volumetric) 70% - 90%

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Oil and Gas E&P Life Cycle

▪ The role of the reservoir engineer starts during the Exploration process

▪ After a discovery, the reservoir engineer is key during Appraisal, Development and Production

Exploration Appraisal Development Production Abandonment

• Seismic • Drilling and Testing • Drilling • Flow Wells • Remove and Restore
• Regional • Investment • Construction • Sell Hydrocarbons
Geoscience Decision • Production • Return on
• Drilling Facilities Investment

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 A Discovery! Then Well Testing

A well test is a controlled flow, often flared (burned), to

gather information for later analysis.

We need answers to questions like:

▪ Does it flow oil, gas or just water?
▪ What flow rates, pressures and temperature?
▪ Is it connected to other wells in the field?
▪ What is the permeability, and other reservoir properties?
▪ How large is the reservoir?

Samples of the fluids are taken for laboratory analysis.

Reservoir Engineers also learn a lot from the changes in rates
http://www.boisbv.com/wp-content/uploads/2016/03/g-Exeter_Flare2331.jpg
and pressures in the well, even when a well is shut in

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After Exploration - Field Appraisal

The aim of Appraisal is to provide an estimate of reserves, to make

the right decision about how to best develop the discovery
The goal is approval to develop the field
May require extra drilling, well testing and data acquisition

Key tools
▪ Reservoir engineering simulation model to combine
geoscience, well tests and the development plan
▪ Economic analysis for optimisation

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After Appraisal - Field Development

Once the field is appraised and the field looks to be

economic, a Field Development Plan (FDP) is created.

Reservoir engineers are closely involved in every

stage of the field’s future:
▪ Number and type of wells
▪ Type of production facilities
▪ Will injection or pumps be required?
▪ Oil, gas and water production profiles
▪ Economics and reserves
▪ What/how/when extra information is to be
gathered, and how this may alter the plans
 Eg aquifer strength
http://www.offshoreenergytoday.com/wp-content/uploads/2012/12/Statoil-Makes-FID-for-7-Bln-
Mariner-Development-UK.jpg

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After the Development Phase - Production

Finally!
After years of technical studies, investment and
work, the company can start oil and gas production
to generate a return on the investment.

The field’s production life

Reservoir engineers now enact and update the FDP
▪ Has each well flowed as expected?
 If not, do the models need recalibration or
does the well need modification?
▪ What can we do to prolong the production life?
▪ What can we do to maximise:
 Production rate?
 Reserves?
 Profit and Value?
http://rsta.royalsocietypublishing.org/content/372/2006/20120448

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Forecasting: Reservoir Simulation

The dynamic reservoir simulation is a reservoir engineer’s model to

integrate all the technical work and plans to create production forecasts
for a field.

▪ The reservoir shape and architecture use the geological model

▪ All existing and planned wells are included
▪ The model is tuned to the historical production, pressures, changes
in the wells and in the production facilities
▪ Modelling allows investigation of ‘what if’ scenarios, instead of using http://www.openinventor.com/en/solutions/oil-gas-and-mining/reservoir-modeling-engineering

just trial and error in the field

 Planning for new wells, secondary and tertiary recovery
▪ Also useful to determine what extra data would help the most

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Unconventional Petroleum Systems

▪ Historically, as technology improved, companies produced hydrocarbons from progressively lower quality rock.
▪ The ‘Unconventional’ resources were though impossible to develop economically
▪ A breakthrough was the combination of horizontal wells and hydraulic fractures
▪ Shale oil in the US took off in 2005-2010 and has changed the oil and gas industry

▪ Oil potential is enormous, but fields are challenging and expensive to develop
▪ Still no commercial UK developments… yet

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 Unconventional Petroleum Systems

Important worldwide
▪ Tight oil and gas: found in low-permeability rock
▪ Shale oil and gas: found in organic-rich rock
▪ Coal Bed Methane (CBM): natural gas found in coal

Plus less common

▪ Extra-Heavy Oil and Bitumen: Oil with API Gravity < 10, very
dense and huge viscosity (10,000 cP). Is either mined, or heated
with steam to flow into wells
▪ Oil shale: mined as rock, then heated to over 500˚C to release
oil from the rock
Resources Triangle (from PRMS Guidelines)
▪ Gas Hydrates: crystals of water and natural gas. Common near
the sea floor but recovery is not commercial

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Oil and Gas Reserves
What are Oil and Gas Reserves?

What are Reserves?

▪ A company’s share of remaining economically recoverable oil and gas to be produced and sold
 See next slides for formal PRMS definition
▪ Reserves are the main Upstream asset of an E&P company
▪ They contribute to a field’s value, the company’s value and therefore share price

Reserves have many purposes:

▪ Corporate reporting
▪ Asset valuation for Acquisitions and Divestments
▪ Investment decisions for financing
▪ Government planning
They are important to governments, economists, bankers and the energy industry.

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The Basics of the PRMS

Petroleum Resources Management System (PRMS)

▪ A shared classification system for oil and gas reserves was adopted in 2007 by several industry bodies (SPE, WPC, SPEE
and AAPG)
▪ Used internationally as a standardised reporting system
▪ In the UK: used in LSE, AIM and for bank financing

This presentation assumes PRMS framework is being used

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E&P Project Life Cycle

The PRMS is “Project–Based”

Exploration Appraisal Development Production Abandonment

Discovery Development Abandon

Decision
Prospective
Resources

Contingent Resources

Reserves
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Reserves

What are RESERVES?

“Those quantities of petroleum anticipated to be commercially recoverable by application of development projects to

known accumulations from a given date forward under defined conditions.
Reserves must further satisfy four criteria: They must be discovered, recoverable, commercial, and remaining (as of a
given date) based on the development project(s) applied.”

▪ Quote from the PRMS (2007)

The uncertainty range in Reserves estimates: 1P, 2P, 3P categories

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Expressing Uncertainty in E&P Estimates

Uncertainty gives the range of recovery for reserves

▪ High Confidence => Proved (1P)
▪ Best Estimate => Proved+Probable (2P)
▪ Low Confidence => Proved+Probable+Possible (3P)
Uncertainty cannot be avoided.
However, it can be managed if it is
recognised and understood.

1P: 35 MMstb
2P: 40 MMstb
3P: 50 MMstb

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Contingent Resources

What are CONTINGENT RESOURCES ?

▪ A discovery without an approved development

 Eg a gas field without a market for gas; a field with high CAPEX making development uneconomic
▪ These might progress to become reserves in future
▪ From reservoirs “not yet considered mature enough for commercial development due to one or more contingencies.”
(PRMS)
▪ Categorised as: 1C, 2C, 3C

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Prospective Resources

What are PROSPECTIVE RESOURCES ?

▪ They are a company’s idea of where they should explore for hydrocarbons
▪ An exploration well will confirm the presence of oil or gas OR indicate a ‘dry hole’
 It becomes Contingent Resources and possibly Reserves in future
▪ BUT there is a risk there may not be a field at all
▪ They are “from undiscovered accumulations” (PRMS)

Categorised as: Low, Best Estimate and High

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PRMS Resource Classification Framework

Reserves. 1P/2P/3P volumes

Fields are producing or are being developed

Contingent. 1C/2C/3C volumes

Needs an investment decision, market, etc

Prospective. Low/Mid/High volumes

Needs an exploration well
Resource Uncertainty in Time

Resources and Reserves are estimates and

evolve with new information over time

▪ The uncertainties reduce as a field

progresses from Prospective to Contingent,
then Reserves and production
▪ There is no uncertainty left on the last day
of production

A reservoir engineer’s role is over when the

field is abandoned.
References and Further Reading

Glossary of Oil and Gas Terms

http://www.esandaengineering.com/images/Esanda%20Illustrated%20Upstream%20Oil%20and%20Gas%20Glossary%20
March%202016.pdf

Technical Papers for the SPE and other organisations

www.onepetro.org
www.spe.org
www.london.spe.org

Petroleum Resources Management System

http://www.spe.org/industry/docs/Petroleum_Resources_Management_System_2007.pdf
PRMS Guidelines
http://www.spe.org/industry/docs/PRMS_Guidelines_Nov2011.pdf

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Reservoir Engineering and Reserves
Adam Borushek, Principal Reservoir Engineer
RISC Advisory

SPE Seminar: Introduction to E&P

The Geological Society, London
21 November 2017

[email protected]
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