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Determination of Oil and Gas Reserves

Petroleum Society Monograph No.1


THE PETROLEUM SOCIETY
OF THE CANADIAN INSTITUTE OF MINING, METALLURGY AND PETROLEUM

Determination of
Oil and Gas Reserves
Petroleum Society Monograph No.1
1994 by The Petroleum Society of the Canadian Institute of Mining, Metallurgy and
Petroleum, Calgary Section.
All rights reserved. First edition published 1994.
Printed in Canada.

10 9 8 7 6 5 4 3 2

Permission is granted for individuals to make single copies for their personal use in
research, study, or teaching and to use figures, tables and short quotes from this
monograph for republication in scientific books and journals. There is no charge for
any of these uses. The publisher requests that the source be cited appropriately.

Canadian Cataloguing in Publication Data

Main entry under title:

Determination of oil and gas reserves.

(Petroleum Society monograph; no. I)


Includes bibliographical references and index.
ISBN 0-9697990-0-4

I. Petroleum reserves. I. Petroleum Society of CIM. II. Series.


TN871.D47 1994 622'.1828 C94-910092-7

Edited by Virginia MacKay.


Cover design by Guy Parsons.
Typesetting and graphic design by lA. (Sandy) Irvine, By Design Services.
Printed and bound in Canada by D.W. Friesen Ltd., Altona, ME.
CONTENTS

Figures xiv
Tables xvii
Foreword xix
Preface xxi
Acknowledgements xxiii
Authors .' xxiv

PART ONE: DEFINITIONS AND GUIDELINES


FOR CLASSIFICATION OF OIL AND GAS RESERVES

1. OVERVIEW OF PART ONE 3


2. DEFINITIONS 4
2.1 Introduction 4
2.2 Resources 4
2.2.1 Discovered Resources or Initial Volumes in Place 5
2.2.2 Undiscovered Resources or Future Initial Volumes in Place 5
2.3 Remaining Reserves 5
2.3.1 Remaining Proved Reserves 5
2.3.2 Probable Reserves 5
2.3.3 Possible Reserves 5
2.3.4 Development and Production Status 6
2.4 Cumulative Production 7
2.4.1 Sales 7
2.4.2 Inventory 7
2.5 Reserves Ownership 7
2.6 Specified Economic Conditions 8
2.7 Reporting of Reserves Estimates 8
2.7.1 Risk-Weighting of Reserves Estimates 8
2.7.2 Aggregation of Reserves Estimates 8
2.7.3 Barrels of Oil Equivalent 9
3. GUIDELINES FOR ESTIMATION OF OIL AND GAS RESERVES 10
3.1 Introduction 10
3.2 Methods ofCaiculating Reserves 10
3.2.1 Deterministic Procedure 10
3.2.2 Probabilistic Procedure II
3.3 Guidelines for Specific Methods 12
3.3.1 Volumetric Method 12
3.3.2 Material Balance Method 17
3.3.3 Decline Curve Analysis 18
3.3.4 Reservoir Simulation Method 22
3.3.5 Reserves from Improved Recovery Projects 22
3.3.6 Related Products 22

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PART TWO: DETERMINATION OF IN-PLACE RESOURCES

4. OVERVIEWOF PART TWO 27


4.1 Introduction 27
4.2 Resource Estimates 27
4.2.1 Volumetric Estimates 27
4.2.2 Material Balance Estimates 30
4.3 Procedures for EstimatingIn-Place Resources 30
4.4 Sources and Reliability of Data 31
4.5 Interrelationship of Parameters 31
4.6 Uses of Resource Estimates 31
4.7 Backgroundand Experience of Evaluators 34
5. ESTIMATION OF VOLUMES OF HYDROCARBONS IN PLACE 35
5.1 Reservoir Area and Volume 35
5.1.1 Introduction 35
5.1.2 Acquisition of Data 35
5.1.3 Data Analysis 36
5.1.4 Mapping 38
5.1.5 Refinementof Volumetric Estimates 43
5.2 Thickness 44
5.2.1 Introduction 44
5.2.2 Defining Net Pay 45
5.2.3 Data Acquisition Programs 46
5.2.4 Data Interpretation 48
5.2.5 Factors Affecting Data Quality 49
5.3 Permeability 53
5.3.1 Introduction 53
5.3.2 Permeabilityfrom Core 53
5.3.3 Relative Permeability Measurement 54
5.4 Porosity 55
5.4.1 Introduction 55
5.4.2 Sources and Acquisition of Data 55
5.4.3 Analysis of Data 58
5.4.4 Factors Affecting Data Quality 63
5.5 Hydrocarbon Saturation 65
5.5.1 Introduction 65
5.5.2 Saturation Determination From Core 65
5.5.3 Saturation Determination From Logs 69
5.5.4 Flow Test Procedures for Gas and Oil Saturation 70
5.5.5 Factors Affecting Data Quality 72
5.6 Testing and Sampling 75
5.6.1 Introduction 75
5.6.2 DrillstemTests 75
5.6.3 Production Tests 75
5.6.4 Sampling 77
5.7 Reservoir Temperature 81
5.7.1 Introduction 81
5.7.2 Data Sources 81
5.7.3 Data Analysis 82
5.7.4 Data Analysis on a Regional Basis 82

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5.7.5 Data Quality 85
5.8 Reservoir Pressure 86
5.8.1 Introduction 86
5.8.2 Data Sources 86
5.8.3 Data Analysis 86
5.9 Gas Formation Volume Factor 91
5.9.1 Introduction 91
5.9.2 Ideal Gas Law 91
5.9.3 Gas Compressibility Factor 91
5.9.4 Sour Gas 92
5.9.5 Derivation of Gas Formation Volume Factor 94
5.10 Oil Formation Volume Factor 96
5.10.1 Introduction '" 96
5.10.2 Data Sources 96
5.10.3 Data Acquisition 96
5.10.4 Data Analysis 96
5.10.5 Data Adjustment 98
5.10.6 Summary '" 100
5.11 Quality and Reliabilityof Data and Results 101
5.11.1 Introduction 101
5.11.2 Permeabilityfrom Cores 101
5.11.3 Porosity from Cores 101
5.11.4 Saturations from Cores 102
5.11.5 Effective Porous Zone and Net Pay from Cores 102
5.11.6 Porosity from Well Logs 103
5.11.7 Water Saturations from Well Logs '" 103
5.11.8 Effective Porous Zone and Net Pay from Well Logs 103
5.11.9 Drillstem Tests 104
5.11.10 Production Tests 104
5.11.11 Reservoir Fluid Samples 104
5.11.12 Reservoir Temperature 104
5.11.13 Reservoir Pressure 104
5.11.14 GasCompressibilityFactor 105
5.11.15 Formation Volume Factor 105
5.11.16 Material Balance 105
5.11.17 Interrelationships 105
6. PROBABILITYANALYSIS FOR ESTIMATES OF HYDROCARBONS IN PLACE 106
6.1 Introduction 106
6.2 Warren Method Theory 107
6.3 Application 108
6.4 Typical Situation: Conventional Gas 110
7. MATERIAL BALANCE DETERMINATION OF HYDROCARBONS IN PLACE 120
7.1 Introduction 120
7.2 Underlying Assumptions 120
7.3 Explanation of Terms 121
7.4 General Material Balance Equation ..................................... 122
7.5 Special Cases of the Material Balance Equation 122
7.5.1 Undersaturated Oil Reservoirs 122
7.5.2 Saturated Oil Reservoirs 123
7.5.3 Gas Reservoirs 123

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7.6 Limitations of Material Balance Methods 123
7.7 Supplemental Calculations 124
7.7.1 Gas Caps and Aquifers 124
7.7.2 Water Influx Measurements 124
7.7.3 Analytical Water Influx Models 124
7.8 Multiple Unknown Material Balance Situations 125
7.9 Computer Solutions 127

PART THREE: ESTIMATION OF RECOVERY FACTORS AND


FORECASTING OF RECOVERABLE HYDROCARBONS

8. OVERVIEW OF PART THREE 131


8.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 131
8.2 Purpose of Depletion Strategy 131
8.3 Techniques for Reserves and Production Forecasting 132
9. NATURAL DEPLETION MECHANISMS FOR OIL RESERVOIRS 133
9.1 Introduction 133
9.1.1 Fluid Expansion 133
9.1.2 Solution Gas Drive 133
9.1.3 WaterDrive 134
9.1.4 Gas Cap Drive , 134
9.1.5 Compaction Drive 134
9.1.6 CombinationDrive 135
9.2 Forecasting of Recoverable Oil 135
9.2.1 Solution Gas Drive 137
9.2.2 Water Drive 137
9.2.3 Gas Cap Drive 140
9.2.4 CombinationDrive 140
9.3 Factors Affecting Oil Recovery 140
9.3.1 Production Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
9.3.2 Oil Quality 141
9.3.3 Reservoir Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 141
9.3.4 Reservoir Geometry 141
9.3.5 Effects of Economic Limit 142
10. DEPLETION MECHANISMS FOR NATURAL GAS RESERVOIRS 145
10.1 Introduction 145
10.2 Characteristics of Natural Gas 145
10.3 Definition of Reservoir Types from Phase Diagrams 146
10.4 Gas Recovery 147
10.5 Gas Reserves 148
10.5.1 Nonassociated Gas Reserves Determination .. , 148
10.5.2 Solution Gas Reserves Determination 150
10.5.3 Associated Gas Reserves Determination 150
10.6 Pipeline Gas Reserves 150
10.7 Reserves of Related Products 151
10.7.1 Natural Gas Liquids 151
10.7.2 Sulphur 151
10.8 Gas Deliverability Forecasting 151
10.9 Well Spacing 152
10.10 Cycling of Gas Condensate Reservoirswith Dry Gas 152

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10.11 Secondary Recovery of Gas 153
10.12 EnhancedGasRecovery 153
II. ENHANCED RECOVERY BY WATERFLOODING 154
11.1 Introduction 154
11.2 Displacement Process 154
11.2.1 Mobility Ratio 154
11.2.2 Interfacial Tension 154
11.2.3 Fractional Flow 155
11.3 Types of Waterfloods 156
11.4 Analysis Methods and When to Apply Them 156
11.4.1 Pool Discovery 157
11.4.2 Delineated Pool: Immature Depletion 157
11.4.3 Post-Injection Startup 158
11.4.4 Post-Watertlood Response 158
11.4.5 Mature Watertlood 158
U.s Volumetric Analysis 158
11.5.1 Overview of Method 158
11.5.2 Parameters and Factors Affecting Analysis 158
11.5.3 Reliability of Results 162
11.6 Decline Performance Analysis 162
11.6.1 Overview of Method 162
11.6.2 Factors Affecting Analysis 162
11.6.3 Reliability of Results 163
11.7 Comparison to Analogous Pools 163
11.7.1 Overview of Method 163
11.7.2 Procedure and Factors Affecting Analysis 163
11.7.3 Reliability of Results 164
11.8 Analytical Performance Prediction 164
11.8.1 Overview of Methods 164
11.8.2 Reliability of Results 164
11.9 Numerical Simulation 166
11.9.1 Overview of Method 166
11.9.2 Parameters and Factors Affecting Analysis 166
11.9.3 Reliability of Results 166
11.10 Waterflooding Variations 167
11.10.1 Naturally Fractured Reservoirs 167
11.10.2 Polymer Flooding 168
11.10.3 Micellar Flooding 168
11.11 Statistical Watertlood Analysis Survey 168
11.11.1 Overview of Database 168
11.11.2 Discussion of Results 168
12. ENHANCED RECOVERY BY HYDROCARBON MISCIBLE FLOODING 171
12.1 Introduction 171
12.2 Types of Hydrocarbon Miscible Floods 171
12.2.1 Vertical Miscible Floods 171
12.2.2 Horizontal Miscible Floods 172
12.3 Methods of Achieving Miscibility 172
12.3.1 First-Contact Miscible Process 172
12.3.2 MUltiple-Contact Miscible Process 172
12.3.3 Vapourizing Multiple-Contact Miscibility 173

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12.4 Experimental Methods to Determine Miscibility 173
12.4.1 P-X Diagram 173
12.4.2 Multi-Contact Ternary Diagram 174
12.4,3 Slim Tube Test 174
12.4.4 Rising Bubble Apparatus 174
12.5 Screening and Feasibility Studies 174
12.5.1 Volumetric Method 175
12.5.2 Break-Through Ratio Method 177
12.5.3 Geological Model 177
12.5.4 Simulation Studies 177
12.5.5 Estimation of Uncertainties 178
12.5.6 Determination of Solvent and Chase Gas Slug Size 178
12.5.7 Field Performance of Miscible Floods 179
12.6 Classification of Miscible Hydrocarbon Reserves 179
12.6.1 Possible Reserves 179
12.6.2 Probable Reserves 180
12.6,3 Proved Reserves 180
13. ENHANCED RECOVERY BY IMMISCIBLE GAS INJECTION 183
13.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 183
13.2 Types of Floods 183
13,3 Performance Prediction 184
13.3.1 External Injection Schemes 185
13,3.2 Dispersed Gas Injection Schemes 185
14. ENHANCED RECOVERY BY THERMAL STIMULATION 187
14.1 Introduction 187
14.2 Cyclic Steam Stimulation 187
14.2.1 Process Variation 187
14.2.2 Field Examples 188
14.2.3 Recovery Mechanisms 188
14.2.4 Design Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 188
14.3 Steam Flooding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 189
14.3.1 Process Variation 189
14,3.2 Design Considerations 189
14.4 Causes of Failure for Cyclic Steam Stimulation and Steam Flood Processes 190
14.5 Forecasting Models 191
14.5.1 Marx and Langenheim Model 191
14.5.2 Myhill and Stegeimeier Model 193
14.5,3. Vogel Model 194
14.5.4 ButierModel 194
14.6 In Situ Combustion Processes 194
14.6.1 Recovery Mechanisms 195
14.6.2 Process Variations 195
14.6.3 Design Considerations 195
14.6.4 Causes of Failure , , 196
14.7 Electromagnetic Heating 196
15. ENHANCED RECOVERY BY CARBON DIOXIDE FLOODING 200
15.1 Introduction , 200
15.2 Process Review , 200
15.3 Recovery Mechanisms 201

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15.4 Design Considerations 201
15.4.1 Phase Behaviour 201
15.4.2 Displacement Efficiency 201
15.4.3 Volumetric Sweep Efficiency 202
15.4.4 Slug Sizing 202
15.5 Reserve Evaluation 202
15.6 Field Applications 203
16. RESERVES ESTIMATION FOR HORIZONTAL WELLS 205
16.1 Introduction 205
16.2 Reserves Determination Techniques 206
16.2.1 Performance Projection 206
16.2.2 Volumetric Method 209
16.2.3 Role of Heterogeneities ; 209
16.2.4 Importance of Channelling in Reserves Performance 209
16.2.5 Recovery Factors 210
16.3 Determination of Reserves 211
16.3.1 Determination of Reserves Parameters 211
16.3.2 Key Elements 211
16.3.3 Steps Involved in Reserves Determinations 211
17. NUMERICAL SIMULATION 214
17.1 Introduction 214
17.2 Types of Reservoir Simulators 214
17.3 Mathematical Formulation 215
17.4 Anatomy of Reservoir Simulation 216
17.5 Data Requirements 216
17.5.1 ReservoirGeometry 216
17.5.2 Rock and Fluid Properties 216
17.5.3 ProductionandWellData 216
17.6 Reservoir Model Grid Design 217
17.7 Reservoir Model Initialization 218
17.8 Model Sensitivity Analysis 218
17.9 History Matching 219
17.10 Forecasting Reservoir Performance 219
17.11 Use and Misuse of Reservoir Simulation 220
17.12 Summary 220
18. DECLINE CURVE METHODS 222
18.1 Introduction 222
18.2 Source and Accuracy of Production Data 222
18.3 Terminology 223
18.4 Single-Well vs. Aggregated-WellMethods 223
18.5 Decline Curve Methods for a Single Well 224
18.5.1 Exponential Decline 225
18.5.2 Hyperbolic Decline 226
18.5.3 Harmonic Decline 229
18.5.4 Dimensionless Solutions and Type-Curve Matching 230
18.6 Decline Curve Methods for a Group of Wells 231
18.6.1 Statistical Method 231
18.6.2 Theoretical Methods 234
18.7 Summary 235

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19. RECOVERY FACTOR STATISTICS , 237
19.1 Introduction 237
19.2 Data Source and Reliability 237
19.3 Conventional Crude Oil 238
19.3.1 Natural or Primary Drive Mechanisms 238
19.3.2 Oil Recovery Factor Distributions 239
19.3.3 Average Recovery Factors 240
19.3.4 Pool Size 240
19.3.5 Fluid Type: Light and Medium vs. Heavy 241
19.3.6 Lithology: Clastics vs. Carbonates " 242
19.3.7 Geological Period 243
19.3.8 Geological Play '" . 243
19.3.9 Recovery vs, Common Reservoir Parameters 247
19.4 Conventional Gas 247
19.5 Using Recovery Factor Statistics 249

PART FOUR: PRICES, ECONOMICS, AND MARKETS

20. OVERVIEW OF PART FOUR 253


21. CASH FLOW ANALySIS 254
21.1 Introduction 254
21.2 Mineral Rights Ownership 254
21.3 Principal Sources and Uses of Cash 255
21.4 Royalties and Mineral Tax 257
21.5 Federal Corporate Income Tax 261
21.6 Financial Statements 263
21.7 Finance and Economic Considerations 264
22. UNCERTAINTY AND RISK IN RESERVES EVALUATION 266
22.1 Introduction 266
22.2 Concepts 266
22.2.1 Definition of Risk and Uncertainty 266
22.2.2 Describing Uncertainty 266
22.2.3 Areas of Uncertainty 266
22.2.4 Causes of Uncertainty 268
22.2.5 Magnitude of Uncertainty 271
22.2.6 Use of Uncertainty 271
22.3 Estimation of Uncertainty 273
22.3.1 Parameters to be Estimated 273
22.3.2 Empirical Classification 273
22.3.3 Quantifying Subjective Estimates 274
22.3.4 Quantitative Estimation 274
22.4 Methods of Analysis 275
22.4.1 Carrying Out a Stochastic Evaluation 275
22.4.2 Decision Matrices 276
22.4.3 Decision Trees 277
22.4.4 Probabilistic Simulation 277
22.5 Evaluation of Undeveloped Lands 278

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23. THE REGULATORY ENVIRONMENT 281
23.1 Introduction 281
23.2 Resource Assessments 281
23.3 Mineral Ownership 282
23.4 Economic Development Policies 282
23.5 Conservation Controls 283
23.5.1 Field Development and Production Conservation 283
23.5.2 Consumer Demand Conservation 283
23.6 Development, Operating, and Environmental Regulations 283
23.7 Domestic Supply Assurance 284
23.8 Fiscal Policies 285
23.9 Business Regulations 285
23.10 International Policies 285
24. CRUDE OIL MARKETS 287
24.1 Introduction 287
24.2 Transportation Network 288
24.3 Major Markets 290
24.4 North American Pricing 291
24.5 Price Risk Management 294
24.5.1 Futures 294
24.5.2 Options 295
24.5.3 Swaps 295
24.6 Outlook and Challenges 295
25. NATURAL GAS MARKETS 297
25.1 Introduction 297
25.2 The Market Environment 297
25.2.1 Review of Pre-Deregulation Era 297
25.2.2 Review of Current Era 298
25.2.3 Preview of Future Era 300
25.3 Market Mechanisms and Market Forces 300
25.3.1 Market Types and Market Mechanisms 300
25.3.2 Market Demand Forces 302
25.3.3 Production Forecasting 304
25.4 The Role of Reserves 304
25.5 Conclusions 305
26. USES OF RESERVES EVALUATIONS 306
26.1 Introduction 306
26.2 Users of Reserves Volumes and Production Forecasts 306
26.2.1 Producers 306
26.2.2 Transporters 306
26.2.3 Governments 306
26.2.4 Gas Marketers 307
26.2.5 Other Users 307
26.3 Developing Values from Reserves Estimates 307
26.3.1 Profitability Indices 307
26.3.2 Incremental Economics 310
26.3.3 Acceleration Projects 310
26.4 Uses of the Values Derived from Reserves Estimates 311
26.4.1 Valuing Oil and Gas Companies 311

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26.4.2 Sale of ResourceProperties 312
26.4.3 Evaluation of UnexploredLands and ExplorationWells 313
26.4.4 Lending and Borrowing 314
26.4.5 Auditing Evaluations 314
26.4.6 Securities Reporting 315
26.4.7 Accounting Requirements 316
26.4.8 EstablishingFinding and Replacement Costs 317
26.4.9 Estimating Barrels of Oil Equivalent 318
26.4.10 EstimatingNet-Back Calculations 320

Biographies ofAuthors 32i


Acronyms 329
Glossary 333
Bibliography 345
Author index 349
Subject index 353

FIGURES
2.1-1 Resources 4
2.1-2 Reserves 6
2.5-1 Reserves Ownership 7
3.3-1 Single Well Oil Pool with Good Geological Control 13
3.3-2 Conventional Gas Pool, Zero Limit of Net Pay Map 14
3.3-3 Conventional Gas Pool, Zero Limit of Net Pay Map
with Individual Well Assignments 15
3.3-4 Conventional Gas Pool, Zero Limit of Net Pay Map
with Area of Proved Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 15
3.3-5 Conventional Gas Pool, Zero Limit of Net Pay Map
with Area of Proved Plus ProbableReserves 16
3.3-6 Material Balance (Gas Reservoir) 18
3.3-7 Material Balance (Scattered Data) 19
3.3-8 Material Balance (ReservoirDrive and Depletion Mechanism) 19
3.3-9 Decline Curve, Proved Reserves ., 20
3.3-10 Decline Curve, Cumulative Gas Production 21
3.3-11 Decline Curve, Cumulative Oil Production 21
5.1-1 Pressure-Depth Plot for Free Water Level Determination 38
5.1-2 Cross Contouring 40
5.1-3 Series of Related Maps (zero edge from seismic,
computer-contoured) (ZYCOR Software) 41
5.1-4 Examples of Mechanical and Interpretive Mapping 42
5.2-1 Reservoir IntervalTerminology 44
5.2-2 Air Permeabilityvs. Porosity 46
5.2-3 Flow Chart for a Core Analysis Program 47
5.2-4 Hydrocarbon Fluid ContactIdentification from Pressure Gradients 49
5.2-5 Sand Unit Shape Diagram 51
5.4-1 Porosity of Cubic-Packed Spheres 55
5.4-2 Typical Core Analysis Report 59
5.4-3 Porosity vs. Horizontal Permeability 60

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5.4-4 Core Analysis Report: Analytical Summary Sheet 60
5.4-5 Porosityfrom Formation Density Log 61
5.4-6 Porosityfrom Sonic Log 61
5.4-7 Neutron PorosityEquivalence Curves 62
5.4-8 Porosityand Lithology Determination from Neutron-Density Log 62
5.4-9 Impact of Clay on Log and Core Measurements 64
5.5-1 Porosityvs. Formation Factor 67
5.5-2 Formation Resistivity Index 68
5.5-3 Air Brine Capillary Pressure Test 70
5.5-4 Log Interpretation Flow Chart 71
5.5-5 Dual Water Model 72
5.5-6 Shaly Sand Interpretation Process 73
5.6-1 DrillstemTest Tool (UnsetPosition) 76
5.6-2 DrillstemTest Tool (Set Position) : ; 76
5.7-1 Representative Homer Plots from Wellsin the Utah-Wyoming
Thrust Belt 83
5.7-2 Relief Map for Southern Alberta 83
5.7-3 ContourPlot of Spreadfor BHTValues in Southern Alberta 83
5.7-4 Examples of Temperature vs. Depth Plots
from Two Areas in Southern Alberta 84
5.8-1 Static Gradient 87
5.8-2 Pressure vs. Time 87
5.8-3 Homer Plot 88
5.8-4 PorosityVolume Map 89
5.9-1 Compressibility Factors for Natural Gases 93
5.10-1 Comparison of Formation Volume Factor
by Differential and Flash Liberation 96
6.3-1 Estimation of Reef Volume 110
6.4-1 Typical Situation: Gas Pool Map III
6.4-2 Conversion of Base Area to Average Pool Area 113
6.4-3 Typical Situation: Gas-in-Place Distribution 116
6.4-4 Typical Situation: Reserve Distribution 118
6.4-5 Typical Situation: Discounted Net Profit Before Investment 119
7.7-1 StraightLine Plot for Oil Zone and Gas Cap Case 126
7.7-2 StraightLine Plot for Oil Zone and Water Influx Case 127
9.1-1 SolutionGas DriveReservoir 133
9.1-2 Comparison of Solution Gas Drive and Water Drive Reservoirs 134
9.1-3 Gas Cap Drive Reservoir 135
9.2-1 Recommended Methods for the Stages of Exploitation 135
9.3-1 Relationship Between Production Rate and Reserves 141
9.3-2 Relationship Between Well Spacing and Abandonment Pressure 143
9.3-3 Optimum Well Spacing 143
9.3-4 Effectsof FacilityConstraints on Economic Limit 143
10.2-1 Classification of Gas Based on Source in Reservoir 145
10.2-2 Occurrence of Oil and Gas 146
10.3-1 Pressure-Temperature Phase Diagram of a Reservoir Fluid 147
10.3-2 Phase Diagram of a Cap Gas and Oil Zone Fluid 147
10.5-1 Plot ofP/Z vs. Cumulative Gas Production 150
10.5-2 Effect of Water Drive on Pressure Decline 150
10.8-1 Back Pressure Plot 152
10.8-2 Gas Deliverability Plot 152

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11.2-1 Effect of Oil Viscosity on Fractional Flow Curve,
Strongly Water-Wet Rock 155
11.2-2 Effect of Oil Viscosity on Fractional Flow Curve,
Strongly Oil-Wet Rock 155
11.3-1 Cross Section for Vertical Waterflood 156
11.3-2 Plan View for Horizontal Waterflood 156
11.3-3 Flood Patterns for Horizontal Flood Schemes 157
11.5-1 Effect of Mobility Ratio on Oil Production for the Five-Spot Pattern 159
12.3-1 Pseudo-Ternary Diagram Indicating First-Contact Miscibility 172
12.3-2 Development of Multiple-Contact Miscibility Condensing Process . . . . . . 173
12.3-3 Development of Multiple-Contact Miscibility Vapourizing Process 173
12.5-1 Reserves Distribution 178
13.2-1 Gas Injection 184
14.5-1 Types of Analytical Gravity Drainage Models 192
14.5-2 Thermal Efficiency of Steam Zone as a Function
of the Dimensionless Time Parameter 193
16.2-1 Schematic of Horizontal and Vertical Well Drainage Areas 208
17.2-1 Schematic Diagram of Matrix-Fracture Connectivity 215
17.3-1 Mass Balance on Reservoir Element 215
17.6-1 2D Areal Model 217
17.6-2 2D Vertical Model 217
17.6-3 2D Radial Model .......................................... 217
17.6-4 3D Model 218
18.3-1 Reservoir Performance Chart 224
18.3-2 Production Performance Chart 224
18.5-1 Exponential Decline Chart 226
18.5-2 Decline Curve Analysis Chart Relating Production Rate to Time 227
18.5-3 Decline Curve Analysis Chart Relating Production Rate
to Cumulative Production 227
18.5-4 Hyperbolic Curve Overlay 228
18.5-5 Production Performance Graphs 229
18.5-6 Composite of Analytical and Empirical Type Curves 230
18.6-1 Production Performance Graph 232
18.6-2 Rate-Cumulative Production Graph 232
18.6-3 Distribution of Well Rates, Pembina Cardium Pool 233
18.6-4 Rate-Ratio-Cumulative Graph, Pembina Cardium POOl 234
18.6-5 Production Performance Graphs, Pembina Cardium Pool 234
19.3-1 Oil Pools 239
19.3-2 Distribution of Primary Oil Recovery Factors 240
19.3-3 Large Mature Oil Pools 241
19.3-4 Light and Medium Oil Pools 241
19.3-5 Heavy Oil Pools 242
19.3-6 Clastic Oil Pools 242
19.3-7 Carbonate Oil Pools 242
19.3-8 Upper Cretaceous Oil Pools 243
19.3-9 Lower Cretaceous Oil Pools 243
19.3-10 Jurassic Oil Pools 244
19.3-11 Triassic Oil Pools 244
19.3-12 Permian Oil Pools 244
19.3-13 Mississippian Oil Pools 244
19.3-14 Upper Devonian Oil Pools 245

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19.3-15 Middle Devonian Oil Pools 245
19.3-16(a) Oil Recovery vs. Porosity 247
19.3-16(b) Porosity Distribution 247
19.3-17(a) Oil Recovery vs. Net Pay 248
19.3-17(b) Net Pay Distribution 248
19.3-18(a) Oil Recovery vs. Water Saturation 248
19.3-18(b) Water Saturation Distribution 248
19.3-19 Gas Pools (Producing) 249
19.3-20 Large Gas Pools (Producing) 249
22.2-1 Risk and Uncertainty 267
22.2-2 Level of Uncertainty in Reserves Estimates
during the Life of a Producing Property 269
22.2-3 The Effect of Error and Bias on a Reserve Estimate 270
22.2-4 Expectation Curves: Comparison of Results 271
22.2-5 Expectation Curve: Reconciliation of Different Views
of Hydrocarbon Volumes and Values 272
24.2-1 Major Alberta Pipeline Systems 288
24.2-2 Major Crude Oil Pipelines and Refining Areas 289
24.4-1 NYMEX WTI Prices at Cushing 293
24.4-2 Alberta Crude Oil Pricing, Chicago Market (July 1992) 293
25.3-1 Commercial and Regulatory Mechanisms for Ex-Alberta Markets 301
25.3-2 Gas Marketing Options 302
25.3-3 Reserves Connection to Markets 303

TABLES
4.2-1 In-Place Volumes of Related Products 30
4.4-1 Sources of Data 32
5.4-1 Comparison of Techniques of Determining Porosity 56
5.5-1 Wettability and Interfacial Tension 69
5.10-1 Pressure Volume Relations 98
5.10-2 Separator Tests of Reservoir Fluid Sample 99
5.10-3 Differential Vapourization 99
6.1-1 In-Place Volumetric Estimation Techniques 107
6.4-1 Gas-in-Place Distribution for Most Likely Area of384 Hectares 114
6.4-2 Gas-in-Place Distribution for Most Likely Area of 576 Hectares 115
6.4-3 Gas-in-Place Distribution for Most Likely Area of 704 Hectares 115
6.4-4 Gas-in-Place Distribution for Most Likely Area of 576 Hectares,
Variable Temperature and Gas Deviation Factor 117
6.4-5 Reserve Distribution for Most Likely Area of 576 Hectares 118
6.4-6 Discounted Net Profit Before Investment Distribution
for Most Likely Area of 576 Hectares 119
7.2-1 ReservoirVoidage Terms 121
7.2-2 Reservoir Expansion Terms 122
9.2-1 Recommended Reserves Forecasting Methods 136
9.2-2 Decline Analysis Plots Used after Water Break-through 139
10.7-1 Recoveries of Related Products 151
11.8-1 Classification of 33 Waterflood Prediction Methods 165
11.11-1 Summary of Recovery Factors: A Sampling
of Western Canadian Waterfloods 169

xvii

7
11.11-2 Reserve Analysis Technique Distribution . . . . . . . . . . . . . . . . . . . . . . . . .. 169
13.3-1 Recommended Performance Prediction Methods 185
18.5-1 DeclineCurve Equations 225
18.6-1 Statistical Parameters for Pembina Cardium Pool 233
19.2-1 Public Data Available for Reserve Studies 237
19.3-1 Primary Oil Recovery by DriveMechanism 238
19.3-2 AverageOil Recoveries 241
19.3-3 Recovery Factors for Upper Devonian Zones 245
19.3-4 Recovery Factors for Geological Plays in WesternCanada 246
21.4-1 Summaryof AlbertaNatural Gas Royalty Changes 258
21.4-2 Summaryof Equations for Basic Royalty 259
21.4-3 Summaryof AlbertaCrude Oil RoyaltyRate Changes 259
21.5-1 Cash Flow and Income Tax Summary 262
24.3-1 Importers of Canadian HeavyCrude 292
26.4-1 Conversion Rates 318

XV1l1
FOREWORD

The estimating and reporting of reserves of oil and gas and related substances are of fundamental
importance to the oil and gas industry. Reserves estimates form the basis for most development and
operational decisions and are of critical importance in financing and other commercial arrangements
that allow oil and gas developments to proceed in an orderly and efficient manner. Reserves
estimates also playa key part in relevant planning and policy decisions by governments and others.
The role of reserves estimates in operational, financial and policy decisions emphasizes the need for
the estimates to be as accurate and current as possible. The use ofconsistent terminology and estima-
tion procedures is also essential. This monograph, Determination ofOil and Gas Reserves, has been
developed to assist in achieving the objectives of accuracy and consistency in estimating reserves.
The idea ofdeveloping such a monographwas conceivedby Dr. Roberto Aguilera who, as Chairman
of the Reserves Monograph Advisory Committee,has co-ordinatedthe preparation of the document.
The project was sponsored by the Calgary Section of the Petroleum Society ofthe Canadian Institute
of Mining, Metallurgy and Petroleum.
The first organizational meeting of the committee took place in the spring of 1990. Since that time,
members of the committee, on their own and with the support of their employers, have contributed
substantial time and expertise to the project and enlisted the help of many industry experts in the
preparation and critique of specific chapters. The objective was to develop a reference that would be
of substantial value to geologists, engineers and other technical persons involved in estimating re-
serves, as well as to others who use such estimatesfor particular purposes. With the publication ofthe
monograph in the spring of 1994, the committee will have achieved that objective.
A total of over fifty people have been involved in the planning, the writing and review of the
chapters, the drafting of figures, and the editing and preparation of the final copy for the printing of
the monograph. All those involved in estimatingoil and gas reserves, or who use such estimates, owe
them a vote of thanks. I am confident that the monograph will become a standard reference for all
practitioners of the science of estimating oil and gas reserves. It will also serve as an excellent train-
ing tool for persons who have only a basic understanding of reserves estimation methods and who
wish to advance their knowledge of the subject.
G. 1. DeSorcy, P.Eng.
Calgary, January 1994

xix

7
PREFACE

The estimation of reserves of oil, gas, and related substances has been a hot topic since the very
beginning of the oil industry. Over the ensuing years, the concept of reserves has meant different
things to different people within this industry, with each evaluator, oil and gas company, financial
agency, securities commission, and government department using its own version of the definitions.
The monograph represents our effort to find definitions and guidelines for the classification of
reserves that will be acceptable to all ofthese users.
When the concept of this monograph was first discussed, we wrestled with the question: "Should we
ask one or two professionals to prepare the whole monograph or should we ask a variety of specialists
to contribute to it?" In the end we concluded that we would not find one or two people with expertise
in all the topics concerned with oil and gas reserves, so we should use a number of knowledgeable
authors. We ended up with forty contributing authors and a group of reviewers who helped to polish
the thirty-seven topics covered in the twenty-six chapters ofthe monograph.
The topics have fallen into four major divisions that we have called "parts" in the monograph. Part
One presents the definitions and guidelines for the classification of oil and gas reserves. These have
been prepared by the Standing Committee on Reserves Definitions of the Petroleum Society of the
Canadian Institute of Mining, Metallurgy and Petroleum.
Part Two discusses the volumetric and material balance methods for estimating volumes of oil and
gas in place, various sources of data, and the interpretation of the data. Part Two also deals with
probabilistic methods for estimating the volumes of oil and gas contained in reservoirs, in addition to
the more common deterministic methods.
Part Three considers the estimation of recovery factors for oil and gas reservoirs, with particular
emphasis on volumes recoverable by enhanced recovery methods. Secondary and tertiary recovery
methods are discussed, as well as primary methods and the use of horizontal wells. Part Three also
addresses decline curve analysis and reservoir modelling by numerical simulation.
Part Four covers the other factors that must be considered in estimating reserves: cash flow analysis,
the assessment of uncertainty, the role of markets, and potential regulatory impacts that must be
recognized by evaluators. Part Four ends with a discussion of the uses that are made of reserves
estimates. This part proved to be very challenging to write as the diverse nature of the applications
of recovery estimates in economic evaluations led to some animated discussions between the
engineering and financial groups. But in the end, I think we put together some information that will
be useful to all the professionals who deal with economic evaluations.
(cont'd)

xxi

z
For simplicity, the nomenclature and units of measurement are defined following each equation. We
have used the metric system (SI), with Imperial units shown as well in some cases.
Following the text, we have included brief biographies of the authors and several lists for the
convenience of readers: Acronyms, Glossary, Bibliography, Author Index, and Subject Index.
It is our sincere hope that this monograph, Determination of Oil and Gas Reserves, will help to
simplify and standardize the science and art of estimating oil and gas reserves throughout the world.
Roberto Aguilera, P. Eng.
Calgary, January 1994

xxii
ACKNOWLEDGEMENTS

Associated with the publication of the monograph was the time-consuming and challenging task of
co-ordinating the material produced by forty authors with forty different backgrounds and forty dif-
ferent writing styles. The Reserves Monograph Advisory Committee did a superb job ofco-ordinating
the four parts of the monograph. As Chairman, I wish to thank the members of the committee for the
many hours they devoted to planning the work, meeting with the authors, and reviewing the drafts.
The following are the members of the committee with their company affiliations. We are grateful to
the employers for supporting the members in this endeavour.
N. Guy Berndtsson Energy Resources Conservation Board
Keith D. Brown Royal Bank of Canada
CAS. (Charlie) Bulmer Sproule Associates Limited
R.V. (Bob) Etcheverry CN Exploration Inc.
John Hewitt Martin Petroleum and Associates
R. V. (Bob) Lang Energy Consultant
W.V. (Bill) Mandolidis Saskatchewan Oil and Gas Corp.
Michael E. McCormack Fractical Solutions Inc.
r. Glenn Robinson Sproule Associates Limited
Roberto Aguilera, Chairman Servipetrol Ltd.
The work on the monograph involved authors and reviewers with backgrounds in government
regulations, banks, stock brokers, securities commissions, consultants, the University of Calgary,
and major, mid- and small-sized exploration and production companies. On the following pages are
listed the names and company affiliations of the authors of the various chapters and sections of the
monograph. These are the people who supplied the "meat" of the document through many volunteer
hours of labour-writing, revising, and consulting with others-on the material they were
responsible for.
In addition, we would like to thank the Petroleum Society ofCIM, Canadian Well Logging Society,
Society of Petroleum Engineers, Society of Professional Well Log Analysts, American Association
of Petroleum Geologists, and Alberta Energy Resources Conservation Board, as well as Western
Atlas International Inc., Schlumberger, Gulf Publishing Co., PanCanadian Petroleum Ltd., Chevron
Canada Resources, and PennWell Publishing Co. for permission to use material from their
publications.
We also express our gratitude to all of the various authors and organizations that have published
material on reserves estimation and thereby added to the body of knowledge on this subject.
Virginia MacKay, P.Eng., the professional editor for this monograph, undertook the daunting task of
editing the material written by the forty different authors and assembling it all into one coherent
document. She was assisted very conscientiously by lA. (Sandy) Irvine, P.Geol., who entered the
text and figures on the computer. Together they prepared the camera-ready copy for the printer. Mike
McCormack checked the nomenclature throughout the monograph and also contributed to the compi-
lation ofthe Subject Index. Our sincere thanks to Virginia, Sandy, Mike, and all the authors, reviewers
and co-ordinators for their dedication to the quality of the monograph.
Roberto Aguilera, P. Eng.
Calgary, January 1994

XXlll

7
AUTHORS

Part One
Standing Committee on Reserves Definitions
GJ. (Gerry) DeSorcy Chairman
Energy Consultant
George A. Warne Secretary
Energy Consultant
R. V. (Bob) Lang Co-ordinator
Energy Consultant
J. Glenn Robinson Co-ordinator
Sproule Associates Limited
Barry R. Ashton
Ashton Jenkins and Associates Ltd.
Graham R. Campbell
National Energy Board
David R. Collyer
Shell Canada Limited
John Drury
Consultant (Ontario Securities Commission)
W.O. (Bill) Robertson
Price Waterhouse
David W. Tutt
Bank of Montreal

Note: All committee members contributed to the writing of Part One.

xxiv
AUTHORS (cant'd)

Part Two
N. Guy Berndtsson Co-ordinator
Energy Resources Conservation Board
CAS. (Charlie) Bulmer Co-ordinator
Sproule Associates Limited
Brent Austin Co-Author of Sections 5.2,
PanCanadian Petroleum Limited 5.3,5.4,5.5
Robin G. Bertram Co-Author of Section 5.6 and
Talisman Energy Inc. Author of Sections 5.8, 5.9
Mike J. Brusset Co-Author of Section 5.6 and
Brusset Consultants Ltd. Author of Section 5.11
Merlin B. (Mel) Field Author of Chapter 7
Consultant
J.D. (Joe) Giegerich Author of Sections 5.7, 5.10
Chevron Canada Resources
DJ. (Dave) Hemphill Author of Section 5.1
Shell Canada Limited
Craig F. Lamb Co-Author of Sections 5.2,
Lonach Consulting Ltd. 5.3, 5.4, 5.5
Raymond A. Mireault Author of Chapter 6
Gulf Canada Resources Limited

xxv

R
AUTHORS (cont'd)

Part Three
R.V. (Bob) Etcheverry Co-ordinator and
CN Exploration Inc. Author of Sections 8.1, 8.2
John M. Hewitt Co-ordinator and
Martin Petroleum & Associates Author of Section 8.3
Soheil Asgarpour Author of Chapter 12
Gulf Canada Resources Limited
Anthony D. Au Author of Chapter 17
Servipetrol Ltd.
Keith M. Braaten Co-Author of Chapter II
Coles Gilbert Associates Ltd.
RonM. Fish Author of Chapter 13
Imperial Oil Limited, Resources Division
Mam Chand Gupta Author of Chapter 10
GM International Oil and Gas Consulting Corp
William E. Kerr Co-Author of Chapter 15
Joss Energy
Gobi Kular Co-Author of Chapter 14
Advanced Petroleum Technologies
Dana B. Laustsen Co-Author of Chapter II
Coles Gilbert Associates Ltd.
Margaret Nielsen Co-Author of Chapter 9
Petro-Canada
David C. Poon Co-Author of Chapter 14
Consultant, D.C. Poon Consulting Inc.
Ross A. Purvis Author of Chapter 18
Energy Resources Conservation Board
Darlene A. Sheldon Co-Author of Chapter 9
Petro-Canada
Phillip M. Sigmund Co-Author of Chapter 15
BRTR Petroleum Consultants Ltd.
Ashok K. Singhal Author of Chapter 16
Petroleum Recovery Institute
Andy Warren Author of Chapter 19
Energy Resources Conservation Board

XXVI
AUTHORS (cont'd)

Part Four

Keith D. Brown Co-ordinator and


Royal Bank of Canada Authorof Chapters20, 21
Janusz Bielecki Authorof Chapter 24
National Energy Board
Noel A. Cleland Author of Chapter 26
Sproule Associates Limited
David C. Elliott Author of Chapter 22
Geosgil Consulting
Harold R. Keushnig Authorof Chapter 23
Energy Resources Conservation Board
Tim J. Reimer Author of Chapter 25
Pan-Alberta Gas Ltd.

xxvii
PART ONE
DEFINITIONS AND GUIDELINES

FOR CLASSIFICATION

OF OIL AND GAS RESERVES

7
Chapter 1

OVERVIEW OF PART ONE

There are almost as many definitions for reserves of oil The Standing Committee believes that the recommended
and gas and related substances as there are evaluators, definitions and guidelines are suitable for use with re-
oil and gas companies, financial agencies, securities spect to all types of oil and gas and related substances,
commissions, and government departments. Each including offshore reserves and oil sands. Although
uses its own version of the definitions for its own those segments of the industry have used somewhat
purposes. In addition, because of today's unstable different terms and definitions, the principles reflected
economic conditions in the oil and gas industry, the in the definitions recommended here are applicable. The
lower quality of the reservoirs being discovered, and fundamental principle is that those quantities that are
the new recovery methods being developed, it is be- known to exist and to be economically recoverable are
coming increasingly difficult to estimate the reserves reserves. The total quantities, whether or not they have
that will be produced. All ofthese factors have made it been discovered, are resources. Reserves and resources
imperative to develop a universal set of definitions for are further categorized depending on the level of
reserves that will meet the needs of all users. certainty that they will be recovered.
Part One of the monograph contains the definitions of It is the view of the Standing Committee that current
key terms, the system of reserves classification, and reserves estimation methods and categories, in general,
guidelines to illustrate the application ofthe definitions match the recommended definitions and guidelines.
and the classification system. The committee, therefore, does not expect that major
The task of writing the definitions was undertaken by changes to reserves estimates would result from adop-
the Standing Committee on Reserves Definitions ofthe tion of the definitions, although it recognizes that for
Petroleum Society of the Canadian Institute of Mining, some specific reserves estimates (generally for small
Metallurgy and Petroleum, and Part One of the mono- pools) changes could be significant. The committee
graph has been published as a separate document hopes that, over time, reserves evaluators will increas-
comprising the committee's 1993 report. The commit- ingly conform to the recommendations presented in this
tee includes representatives of oil and gas companies, monograph and thus contribute to the overall quality
geological and petroleum engineering consulting firms, and consistency of reserves estimates.
Canadian industry associations, financial and account- The Standing Committee received assistance from many
ing organizations, regulatory agencies, and government. individuals and organizations in the form of comments
The definitions ofkey terms and reserves classifications as it formulated the definitions and guidelines. The
presented in Chapter 2 are similar to those currently in committee will continue to communicate with inter-
use by the oil and gas industry, particularly in North ested parties to ensure that its intent with respect to the
America. They have been reviewed by users in the in- recommended definitions is fully understood. The
dustry and representatives from regulatory agencies, committee welcomes comments on its recommendations
government departments, industry associations, and as well as any other aspects of reserves definitions and
technical and professional organizations. their application. Since comments are being sought from
those that use the recommendations, it is reasonable to
Chapter 3 presents the guidelines that illustrate the
expect that the definitions may change with time. If they
application of the definitions and the classification
do, the revisions will be available from the Petroleum
system. These are intended to complement the de-
Society.
tailed guidelines on reserves estimation methods and
procedures that follow in subsequent chapters of the
monograph.

?
Chapter 2

DEFINITIONS

2.1 INTRODUCTION sub-classifications. Reserves ownership is also discussed


The terminology recommended for the classification of in this chapter.
estimated quantities ofoil and gas and related substances,
at a particular time, is presented in Figures 2.1-1 and 2.2 RESOURCES
2.1-2. Each term is defined in this chapter. Figure 2.1-1 Resources are the total quantities of oil and gas and
and its related definitions set the framework for Figure related substances that are estimated, at a particular time,
2.1-2 and its related definitions. to be contained in, or that have been produced from,
The major classifications identified in this chapter are known accumulations, plus those estimated quantities
resources, remaining reserves, and cumulative pro- in accumulations yet to be discovered.
duction, each of which can be further divided into

Figure 2.1-1 Resources

4
-I
DEFINITIONS

2.2.1 Discovered Resources or Initial Future Initial Reserves


Volumes in Place
Future initial reserves are those quantities of oil and
Discovered resources, which may also be referred to as gas and related substances that are estimated, at a par-
initial volumes in place (Figure 2.1-1), are those quan- ticular time, to be recoverable from accumulations yet
tities of oil and gas and related substances that are to be discovered by known technology under specified
estimated, at a particular time, to be initially contained economic conditions that are generally accepted as
in known accumulations that have been penetrated by a being a reasonable outlook for the future.
wellbore. They comprise those quantities that are re-
coverable from known accumulations and those that will Future Unrecoverable Volumes
remain in known accumulations, based on known tech- Future unrecoverable volumes are those quantities of
nology under specified economic conditions that are oil and gas and related substances that are estimated, at
generally accepted as being a reasonable outlook for a particular time, to remain in accumulations yet to be
the future. discovered because they are not recoverable by known
Initial Reserves technology under specified economic conditions that are
generally accepted as being a reasonable outlook for
Initial reserves are those quantities of oil and gas and the future.
related substances that are estimated, at a particular time,
to be recoverable from known accumulations. They in- 2.3 REMAINING RESERVES
clude cumulative production plus those quantities that Remaining reserves (Figure 2.1-2) are estimated
are estimated to be recoverable in the future by known quantities of oil and natural gas and related substances
technology under specified economic conditions that are anticipated to be recoverable from known accumula-
generally accepted as being a reasonable outlook for tions, from a given date forward, by known technology
the future. (Figure 2.1-2 shows how initial reserves are under specified economic conditions that are generally
classified.) accepted as being a reasonable outlook for the future.
Unrecoverable Volumes 2.3.1 Remaining Proved Reserves
Unrecoverable volumes (Figure 2.1-1) are those Remainingproved reserves are those remaining reserves
quantities of oil and gas and related substances that are that can be estimated with a high degree of certainty,
estimated, at a particular time, to remain in known ac- which for purposes ofreserves classification means that
cumulations because they are not recoverable by known there is generally an 80 percent or greater probability
technology under specified economic conditions that are that at least the estimated quantity will be recovered.
generally accepted as being a reasonable outlook for These reserves may be divided into proved developed
the future. and proved undeveloped to identify the status of devel-
Unrecoverable volumes may be further divided opment. The proved developed may be further divided
into currently uneconomic volumes, which are those into producing and nonproducing categories.
quantities that are currently estimated to be technically 2.3.2 Probable Reserves
recoverable, but that are not economically recoverable
Probable reserves are those remaining reserves that are
under the specified economic conditions, and residual
less certain to be recovered than proved reserves, which
unrecoverable volumes, which are those quantities that
for purposes of reserves classification means that gen-
are unrecoverable by known technologies.
erally there is a 40 to 80 percent probability that the
2.2.2 Undiscovered Resources or Future estimated quantity will be recovered. Both the estimated
Initial Volumes in Place quantity and the risk-weighted portion reflecting the
Undiscovered resources, which may also be referred respective probability should be reported. These reserves
to as future initial volumes in place (Figure 2.1-1), are can be divided into probable developed and probable
those in-place quantities of oil and gas and related sub- undeveloped to identify the status of development.
stances that are estimated, at a particular time, to exist 2.3.3 Possible Reserves
in accumulations yet to be discovered.
Possible reserves are those remaining reserves that are
less certain to be recovered than probable reserves, which
for purposes of reserves classification means that

7
DETERMINATION OFOIL AND GAS RESERVES

generally there is a 10 to 40 percent probability that open at the time of the estimate. These reserves may be
the estimated quantity will be recovered. Both the esti- currently producing or, if shut in, they must have
mated quantity and the risk-weighted portion reflecting previously been on production, and the date ofresump-
the probability should be reported. These reserves can tion of production must be known with reasonable
be divided into possible developed and possible certainty.
undeveloped to identify the status of development.
Developed Nonproducing Reserves
2.3.4 Development and Production Developed nonproducing reserves are those reserves that
Status either have not been on production, or have previously
Each of the three reserves classifications, remaining been on production, but are shut in, and the date of
proved, probable and possible, may be divided into de- resumption of production is unknown.
veloped and undeveloped categories (Figure 2.1-2). The
developed category for proved reserves is often divided Undeveloped Reserves
into producing and nonproducing. Undeveloped reserves are those reserves expected to be
recovered from known accumulations where a signifi-
Developed Reserves
cant expenditure (i.e., when compared to the cost of
Developed reserves are those reserves that are expected drilling a well) is required to render them capable of
to be recovered from existing wells and installed facili- production.
ties or, if facilities have not been installed, that would
In multi-well pools, it may be appropriate to allocate
involve a low expenditure to put the reserves on pro-
the total reserves for the pool between the developed
duction (i.e., when compared to the cost of drilling a
and undeveloped categories or to subdivide the devel-
well).
oped reserves for the pool between developed producing
Developed Producing Reserves and developed nonproducing. This allocation should be
based on the evaluator's assessment as to the reserves
Developed producing reserves are those reserves that
that will be recovered from specific wells, the facilities
are expected to be recovered from completion intervals

Figure 2.1-2 Reserves

6
DEFINITIONS

and completion intervals in the pool, and their 2.5 RESERVES OWNERSHIP
respective development and production status.
The terminology that is recommended for reporting the
2.4 CUMULATIVE PRODUCTION ownership of quantities of oil and gas and related sub-
stances is presented in Figure 2.5-1. The terms are
Cumulative production (Figure 2.1-2) comprises those
defined as follows:
marketable quantities of oil and gas and related sub-
stances that have been recovered to date from known Gross remaining reserves are the total remaining
accumulations. reserves associated with the property in which an owner
has an interest.
2.4.1 Sales Company* gross remaining reserves are the company's
Sales are produced quantities of oil and gas and related lessor royalty, overriding royalty and working interest
substances that have been sold to date. share ofthe gross remaining reserves, before deduction
of any Crown, freehold, and overriding royalties
2.4.2 Inventory
payable to others.
Inventory consists of quantities of oil and gas and
Company* net remaining reserves are the company's
related substances that have been produced and are
lessor royalty, overriding royalty, and working interest
available for future use.

Other Owner
Interest Reserves


Lessor Royalty Interests
Payable
Overriding Royalty Interests
Payable

Figure 2.5-1 Reserves Ownership

* The word "Company"may be replaced by moresuitable adjectives to better depictthe ownership of reserves, e.g., ABC Oil
and Gas, 9367 LimitedPartnership, John Doe, etc.

7
DETERMINATION OFOIL AND GAS RESERVES

share of the gross remaining reserves, less all Crown, for each variable.' If a deterministic procedure is being
freehold, and overriding royalties payable to others. used and a probabilistic determination is not available,
the following equality is recommended to approximate
2.6 SPECIFIED ECONOMIC the expected reserves:
CONDITIONS
In order for oil and gas and related substances to be expected = (proved ) + (p x probable) + (p x Possible)
classified as reserves, they must be economic to recover reserves reserves b reserves S reserves

at specified economic conditions. The estimator should


where Pb =probability of recovering the
use, as the specified economic conditions, a price fore-
probable reserves (80-40%)
cast and other economic parameters that are generally
accepted as being a reasonable outlook for the future. P, = probability of recovering the
The revenue, appropriately discounted, must be suff- possible reserves (40- I0%)
icient to cover the future capital and operating costs that For individual pools, the amount for the expected or
would be required to produce, process, and transport risk-weighted reserves provides the evaluator's best
the products to the marketplace. A more detailed dis- judgement as to the quantity that will be recovered from
cussion of discounting future cash flow is presented the pool. The probability used to adjust the estimated
in Chapter 21, Cash Flow Analysis, and in Chapter 26, quantity for a specific pool should be that considered
Uses ofReservesEvaluations. by the evaluator to be appropriate for the particular cir-
Ifrequired by securities commissions or other agencies, cumstance, taking into account the available geological,
current prices and costs may also be used. In either case, geophysical and engineering data. It is likely, however,
the economic conditions used in the evaluations should that the quantity actually recovered from a specific pool
be clearly stated. Occasionally, the estimator also may will be more or less than the risk-weighted estimate. If
wish to determine the impact of higher or lower price the number ofpools for which estimates ofreserves are
forecasts on estimates of reserves as compared to the being prepared is sufficiently large, then the sum of the
most reasonable forecast. These cases (current, higher expected reserves should be the evaluator's best judge-
or lower prices) should not be reported as the most rea- ment as to the total quantity that will be recovered from
sonable reserves estimates, but should be identified as all the pools. According to the ranges specified in these
sensitivity cases with the assumptions clearly stated. definitions, the risk-weighting should result in an aver-
They illustrate the impact of different specified age risk-weighting of 60 percent for probable reserves
economic conditions on estimates of reserves. (the mid-point ofthe 80 to 40 percent probability range)
and 25 percent for possible reserves (the mid-point of
2.7 REPORTING OF RESERVES the 40 to 10 percent probability range).
ESTIMATES When the value of the risk-weighted reserves is being
2.7.1 Risk-Weighting of Reserves determined, the unrisked reserves must be used in the
Estimates economic analysis. Risk for both the reserves and val-
ues should only be applied after the economic forecasts
Remaining proved reserves, as defined in Section 2.3.1,
have been completed using total costs to develop the
are those reserves for which there is an 80 percent or
unrisked reserves.
greater probability that at least the estimated quantity
will be recovered. In instances where additional reserves 2.7.2 Aggregation of Reserves
are estimated in the probable and possible categories, Estimates
both the estimated quantity and the adjusted (risk-
Traditionally, when deterministic approaches are being
weighted) portion should be reported, particularly when used, the aggregation of a series of reserves estimates
the estimates are being aggregated. will have been made using the arithmetic method. How-
Proper statistical procedures may be used to derive the ever, with the increase in the use of statistical methods
expected or risk-weighted reserves from the data. In the in reserves determination, the arithmetic method of
deterministic procedure, the best estimate of each aggregation may not always be appropriate. Although
parameter is used in the calculation of reserves. The
probabilistic procedure quantifies the uncertainty in the
resource estimate by using the evaluator's opinion to
Theseprocedures are described in more detailin
describe the range of values that could possibly occur
Section 4.3.

8
DEFINITIONS

use of a statistical method of aggregation may be better is generally done by converting reserves that are not oil
for reserves estimates, the method of aggregation may to barrels of oil equivalent (BOE). The conversion can
be dictated by regulators, auditors or management. Thus, be made using either an energy equivalence or a rela-
when aggregating a series of reserves estimates, the tive value procedure, depending upon the purpose of
evaluator should state whether the method of aggrega- the conversion.
tion is arithmetic or statistical. If a statistical method is The energy equivalence is only relevant at the burner
used, the evaluator should state how it is done. tip and, since the value in the marketplace is different
If the proved reserves, which represent an 80 percent for various types of reserves and the costs to move the
confidence level, are summed arithmetically, the total various types from wellhead to the end-user vary con-
reserves will represent a confidence level that is much siderably, the value of the reserves at the wellhead (or
higher than would be achieved if the proved reserves in the ground) is only somewhat indirectly related to
were totalled using a probabilistic approach of all the energy content. Consequently, for making value-based
entities and an 80 percent confidence level. Conversely, . comparisons, the conversion should be based on the rela-
the proved plus probable reserves and the proved plus tive values of the gas and related substances compared
probable plus possible reserves will be overstated when to the values of oil reserves at the field level. The con-
summed arithmetically using a deterministic as com- versions to BOE are usually made to barrels of "light"
pared to a probabilistic procedure. oil equivalent. Since medium and heavy oil have values
On the other hand, the sum of the expected reserves, as much lower than light oil, it may be desirable that the
defined in the preceding sections, should be the same as medium and heavy oil reserves be converted to BOE
the deterministic (using arithmetic methods) and the of light oil as well as converting the gas and related
probabilistic procedures. This relationship is extremely product reserves, to better indicate their real value.
important in summing reserves, and therefore it is rec- Some companies may prefer to convert their reserves
ommended that risk-weighted reserves be used in the using gas as the common unit. The procedure would be
aggregation of reserves. In any event, the evaluator similar, except that the converted reserves would be
should state whether the method of aggregation is quoted as thousand cubic feet of gas equivalent.
arithmetic or probabilistic. It is important, when reserves are reported in BOE
or gas equivalent, that the method used and the respec-
2.7.3 Barrels of Oil Equivalent
tive conversion rates be disclosed. A more detailed
From time to time, it may be desirable to report reserves description ofthe procedure is presented in Chapter 26,
ofoil, gas and related substances in common units. This Uses ofReserves Evaluations.

9
Chapter 3

GUIDELINES FOR ESTIMATION


OF OIL AND GAS RESERVES

3.1 INTRODUCTION The use of probabilities to assist in the categorization


The quantification and classification of estimates of ofreserves does not eliminate subjectivity from the pro-
reserves are, by nature, rather subjective processes. cess. It remains incumbent on the evaluator to ensure
Estimates of reserves are developed under conditions that the basis for the estimate of reserves and the cat-
of uncertainty, and their reliability and classification are egory to which the estimate is assigned are clearly
directly related to the quality of the data available, as reported. The guidelines and examples given are
well as to the competence and integrity of the individual intended to assist in this regard. The reserves classifica-
responsible for preparing the estimates. The purpose tions and associated probability ranges are applicable
of this chapter is to elaborate on the classification of to estimates of reserves derived using either determin-
estimates ofreserves derived using the two primary res- istic or probabilistic (stochastic) calculation procedures.
erves determination procedures: deterministic and
3.2 METHODS OF CALCULATING
probabilistic.
RESERVES
The categories of proved, probable, and possible have
for some time provided a basis for differentiating esti- 3.2.1 Deterministic Procedure
mates of reserves to reflect the probability of recovery The deterministic procedure is the most commonly used
considered appropriate by the estimator. Stated in an- method ofreserves estimation in Canada. Ifthe true val-
other way, the assignment ofthe estimate ofreserves to ues of all parameters used in any calculation were
the three categories has provided a qualitative measure known, a true or deterministic value could be calculated.
of the probability that a particular estimate of reserves However, due to the uncertainties in the geological,
will, in fact, be realized. However, for some time there engineering and economic data, for the purposes of re-
has been discussion as to whether a more rigorous app- serves estimation using the deterministic procedure, the
roach should be adopted to describe the degree of "best estimate" ofeach parameter is used in the calcula-
probability associated with the specific reserves catego- tion of reserves for each specific case. As a result, the
ries. Some observers view the use ofterms such as "high probability distribution of the input parameters is gen-
degree of certainty" to describe reserves classification erally not formally considered in the classification of
categories as too subjective, and believe a definitive sta- reserves calculated using this method.
tistical probability of recovery would give users more Estimates ofreserves calculated using the deterministic
confidence in utilizing- the estimates of reserves pro- procedure should be assigned to the proved, probable,
vided for each of the categories. For this reason, and possible categories based on the probabilities in-
consideration has been given to a means to further quan- herent in the estimates. The assignment ofthe estimates
tify the degree of probability associated with each of of reserves to the respective classification categories
the categories. should be consistent with the prescribed ranges ofprob-
The probability ranges adopted by the Standing ability, taking into account factors such as the stage in
Committee on Reserves Definitions for the definitions the producing life ofthe reservoir, the amount and qual-
ofproved, probable, and possible reserves are intended ity of geological and engineering data available, the
to more explicitly quantify the probability of recovery availability of suitable analogous reservoirs and,
associated with each of the reserves categories, both on perhaps most importantly, the evaluator'sjudgement as
an absolute and on a relative basis. The ranges provide to the uncertainty inherent in the estimate.
an assessment that is more quantitative in nature than
some prior definitions.

10
GUIDELINES FOR ESTIMATIONOF OIL AND GAS RESERVES

The assignment of reserves estimates to the respective This method uses the statistical analysis of data.
categories using the deterministic procedure normally Relative frequency curves established for each variable
uses one of two approaches. describe the range of possible values for each, as well
In the first, the evaluator develops a "best estimate" of as the probabilities that these values will occur. After
reserves for each of the categories, using consistent frequency distribution curves have been established for
parameters. Using this methodology, the evaluator each variable to be used in a reserves classification, the
effectively establishes a range of estimates of reserves, Monte Carlo (described in Section 22.4.4) or a similar
with the proved estimate based on parameters for which method is used to estimate a value for reserves. A single
a high probability can be attributed, and additional sample of each variable is taken randomly from each
estimates of probable and possible reserves based on probability distribution and used to calculate a single
parameters for which there is a lesser probability of oc- value of the dependent variable. This procedure is
currence. The effect of this is to progressively increase repeated a large number of times to ultimately create a
the estimated quantity as it is moved from the proved to frequency distribution curve that describes the range of
probable to possible categories, with the overall range estimates of reserves and the probabilities of achieving
of estimates dependent upon the uncertainty inherent in particular estimates.
the specific parameters upon which the estimates are Once the measures of central tendency (the mean
based. or arithmetic average, the mode or "most likely" value,
In the second approach, a single estimate of reserves is and the median or "middle" value) and the dispersion
derived for the pool and then allocated to the respective (range, standard deviation, and percentiles), have been
reserve categories based on an assessment of the por- determined using this technique, estimates of reserves
tions of the estimate that would satisfy the probability may be assigned to each of the proved, probable, and
ranges for each of the reserves categories. In making possible categories.
this determination, the evaluator must make a subjec- The assignment of the estimates of reserves to the
tivejudgement as to the uncertainty inherent in the single respective categories should be consistent with the
estimate and, therefore, the extent to which it can be probabilities outlined in the reserves definitions, proved
allocated to the proved rather than the probable or reserves being those with an 80 percent or greater prob-
possible category. ability, and probable and possible reserves having lower
As already noted, where probable or possible reserves probabilities. The relative cumulative frequency distri-
have been estimated in addition to proved reserves, they bution curves may be used as the basis for the assignment
should be adjusted (risk-weighted) and added to the of estimated quantities to the reserves categories. Again,
proved reserves to result in the expected reserves. the evaluator must clearly describe the supporting
rationale for the categorization ofestimates ofreserves.
In summary, using the deterministic procedure, estimates
of reserves are calculated and assigned to the proved, Like the estimates derived using the deterministic
probable, and possible categories using primarily sub- procedure, the probable and possible reserves should
jective criteria, the overall basis being that the assigned be adjusted (risk-weighted). Since the probabilities have
quantities satisfy the probabilities established for each been established through the probabilistic process, they
of the categories. It is incumbent on the evaluators to should be used to adjust the respective estimates.
provide the supporting rationale for the categorization It should be noted that the probability associated with
of the reserves estimates. the estimate of reserves for a pool should increase as
the pool is developed and produced over a period of
3.2.2 Probabilistic Procedure time. As the overall probability of recovery increases,
The probabilistic or stochastic procedure is less the estimate of the proportion of reserves considered to
commonly used in Canada. It is more suitable for be proved is likely to increase, with a diminishing pro-
circumstances where the uncertainty is high, such as for portion in the probable and possible categories. The
reservoirs in the early stages of development, frontier objective of the evaluator should be to minimize the
areas, or areas where new technology is being applied. extent to which it is necessary to reduce estimates of
As the level of uncertainty increases, it is generally proved reserves over the life of a pool for reasons other
agreed that the probabilistic procedure becomes more than production, although there may be circumstances
relevant and the deterministic less reliable. Rapidly (i.e., a significant price decline) where such reductions
expanding computer applications also facilitate the use are necessary.
of the probabilistic procedure.

11

,
DETERMINATION OFOIL AND GAS RESERVES

3.3 GUIDELINES FOR SPECIFIC Single-Well Pools


METHODS For single-well pools, the area must be consistent
The guidelines and examples that follow are designed with the reserves category, recognizing the geological
to provide guidance for evaluators on the calculation of and engineering information with respect to the single
proved, probable and possible reserves, using the wellbore and the geological and other information
following methods for determining reserves: available for single-well pools in similar formations.
Volumetric In the case of an isolated gas well with little or no
Material balance geological control, it is a frequent practice to assign re-
Decline curve analysis serves to one section,* a frequently used regulatory
spacing for gas wells. However, one section should only
Reservoir simulation
be .assigned as proved reserves if a review of similar
This section also deals with the calculation of reserves wells in the same or a similar formation has satisfied
of natural gas liquids (NGLs) and sulphur. the evaluator that such an area can be assigned 'with
It must be emphasized that the guidelines touch on some a probability of 80 percent or more. If the review of
key factors related to reserves estimation, but are not similar wells shows that a smaller area, such as one half-
all-inclusive. In the final analysis, the calculation and section or even one eighth-section, can be expected to
categorization of reserves depend upon the judgement have a high degree of probability, this reduced area
ofthe evaluator as to the probability of recovery of the should be used for proved reserves. On the other hand,
reserves of oil and gas. in situations such as a blanker sandstone, the review of
It is intended that the guidelines will lead to more similar wells may justify the assignment of more than
uniform practices of reserves calculation in each cat- one section if it can be demonstrated with high prob-
egory, and thus to reserves estimates that will be more ability that the well will drain reserves associated with
comparable and consistent throughout the industry, the the larger area.
financial community, and the government agencies that In the event that an evaluator is reasonably confident
use them. that gas would be recovered from an area, say one sec-
tion, but not with a high enough probability for the
3.3.1 Volumetric Method reserves to totally qualify as proved, then some lesser
The volumetric method is the most commonly used area for which there is a high probability, say one half-
approach to estimating reserves in the early stages of section, should be assigned as the proved area. The
production from an oil or gas field. As more data remaining half-section ofthe normal spacing unit might
become available, the estimate may be refined, some- then be assigned to the probable or possible category,
times through the use of other reserves estimation depending on the degree ofprobability that such reserves
methods. Often the volumetric estimates are useful for would be recovered.
comparison with other methods. For single oil wells, the area assigned would generally
The volumetric method is used by employing the be less than for gas wells because the flow characteris-
standard reserves equation with the appropriate choice tics for oil result in smaller drainage areas. A typical
of parameters. For various parameters in the equation, practice is to assign proved reserves to areas ranging
the guidelines provide suggestions for choosing the ap- from one quarter-section for light crude oils to one
propriate value, according to the category of reserves sixteenth-section or less for heavy crude oils.
being calculated. Such assignments should be made only when a review
Pool Area of similar wells demonstrates that such reserves can be
expected with a probability of 80 percent or more. The
The parameter that often has the greatest variability process used to assign areas to single oil wells should
in the reserves equation is the area chosen to represent otherwise be similar to that for gas wells, with an as-
the areal extent of the pool. Thus, the choice of the signment that reflects the probability that the area
value for the area plays a particularly important role in can be drained at the level required for each reserves
computing reserves in each category. classification.

*One section = 259 hectares, 640 acres,or 1 square mile.

12
GUIDELINES FOR ESTIMATION OF OIL AND GAS RESERVES

In certain cases such as sheet sandstones, even though depending on information on pressure, drillstem test
only one well has penetrated gas or oil, information may results, and seismic data.
be available, as a result of knowledge about nearby
abandonments and the regional geology, that justifies Multi-Well Pools
the preparation of an isopach map. This situation is In multi-well pools, the area between wells should
illustrated for an oil pool in Figure 3.3-1, which shows be considered to contain proved reserves if the areas
the zero pay limit. If the probability of a one quarter- assigned on a single-well basis overlap or are separated
section pool is very high, based on a study of similar by a very small area, or if material balance calculations
pools in the area, then the one quarter-section contain- or production data and pressure response clearly dem-
ing the well could be assigned as proved reserves. The onstrate that the wells are in the same pool. There will,
remaining three quarter-section parcels offsetting the however, be many situations where such conclusive in-
well, and within the zero limits ofthe isopach map, could formation is not available and the evaluators must use
also be assigned reserves as additional proved or prob- their judgement, based on geological and other data,
able or possible depending on the degree of probability regarding the areal extent and the assignment of
that the oil will be recovered. These reserves, however, additional reserves to adjacent areas.
should be in the undeveloped category. For wells that are in separate pools, the preceding
The assigrunent of reserves for single gas wells with methodology for assigning reserves for single-wellpools
considerable geological control can be handled in a should be followed. If more than one well can be in-
manner similar to that detailed for the oil well in Figure cluded in a pool, the type of procedure described in the
3.3-1, except that the estimated drainage area for gas following example might be used.
will usually be larger, depending on the available
geological and other data. An area larger than the Example
assigned area determined as described may be used Figure 3.3-2 shows the zero pay limits for a multi-well
conventional gas pool. It is important to emphasize that

-<>- L-- ",-<>-


WELL LEGEND
I 0 0
\ o Location
------------ -~---~-~-~--
-<>- Abandoned

*
011
0

\ -, ) Gas

-<>-
t-...
-- [7
1 mi
1 km

Figure 3.3-1 Single Well Oil Pool with Good Geological Control

13

z
DETERMINATION OF OIL AND GASRESERVES

RANGE

36 31

1/
V -. \
36

~
0-
~
/ J:
en
z
s:0
/ I f- WELL LEGEND
~
/ 0 Location

1 6
/ 1 -<r Abandoned

36 31 1/ 36

~
Oil
Gas
\

-?- 1\ ~
~
L-4
D
<,
One Section

Figure 3.3-2 Conventional Gas Pool, Zero Limit of Net Pay Map

this example illustrates a procedure that is useful for the proved limits as an indication of the proved plus
conventional oil and gas pools. The areas assigned probable limits (Figure 3.3-5). As with the proved
relate to the particular natural gas reservoir and would reserves, any corridor less than one mile between the
differ in other geological settings. proved plus probable limits would also be assigned to
Knowledge respecting the geological formation is such the probable category (Figure 3.3-5). The procedure
that the evaluator is prepared to make a proved area would be continued for possible reserves ifany area were
assignment offour sections for a single well. The map left within the zero pay limits.
is constructed using all pertinent data, such as the net For oil, a similar approach for assigning areas in multi-
pays encountered in the three gas wells, and informa- well pools can be used, but the area assignments would
tion on dry holes that indicates the limits of the pool. usually be smaller.
Perhaps seismic information and pressure data, along
with experience in the area, suggest that the two wells
Presence of Hydrocarbons
in the west are in communication with the one in the In order to estimate any reserves, the presence of
northeast hydrocarbons must have been confirmed by pro-
The first step is to block in a 2 by 2 section area around duction data or by a demonstrated ability to flow based
the productive well and within the zero net pay isopach on the results of drillstem tests. If production and test
limit, as shown in Figure 3.3-3. These areas would be data are not available, reserves may be estimated based
assigned proved reserves. Proved reserves would also on information from cores, or provided that the reser-
be assigned to corridors of one mile or less in width voir is analogous (from the standpoint ofgeological and
between the proved areas around each well and any petrophysical characteristics) to producing or tested res-
intervening corridors between the proved areas (Figure ervoirs in the same area. Reserves should be assigned
3.3-4). After limits had been established for the proved only to reservoirs that have been penetrated by a
reserves, a border one mile wide would be drawn around wellbore; otherwise, quantities should be categorized as
a resource.

14
GUIDELINES FOR ESTIMATION OFOILAND GASRESERVES

RANGE

36 31
V- r-. 36

/' \
7 // /
0-

/
/ V~~
v //- V/
J:
en
Z
:s:0
WELL LEGEND

/ / 'r>. / l- 0 Location

I ~~V / -?- Abandoned

.v / / 'V 6
V
1

~
Oil

/ Gas

\ '/ / / /6 31 V 36
IZZ2I Proved

~ \ ~/ ~ V ~
Vvv
/
----- D One Section

Figure 3,3-3 Conventional Gas Pool, Zero Limit of Net Pay Map with Individual Well Assignments

RANGE

36 31
V- r-, 36

;7V
\
// /
0-

/ :/~ ~ J:
en
Z WELL LEGEND
/ / V/- / / :s:
/ '/ //V V ~ 0 Location

~/ ~ ~/ / -?- Abandoned

~/ //V r/ 1

~
011

/. / / /
6
/ Gas

\
/ // /
V //V V
6 31 V 36
IZZ2I Proved

\~ ~
/ ~ 'V
~
~
'< VV /
-- D One Section

Figure 3,3-4 Conventional Gas Pool, Zero Limit of Net Pay Map with Area of Proved Reserves

15

?
DETERMINAnON OF OIL ANDGASRESERVES

RANGE

36

a.
:c
en WELL LEGEND
z
s:0
t- 0 Location

-<?- Abandoned

Oil

*
Gas

36
IZZa Proved

Probable

D One Section

Figure 3.3-5 Conventional Gas Pool, Zero Limit of Net Pay Map
with Area of Proved Plus Probable Reserves

Reservoir Parameters Averaging these parameters over multi-well pools is also


Values ofpay thickness, porosity, and fluid saturations, important in estimating and categorizing reserves. If
when combined with area, permit a calculation of the reliable estimates for many wellbores exist for any or
volume of oil or gas contained in a reservoir. These all of the parameters, they should be applied over the
parameters are estimated from analyses of cores or intervening area between wells and the edge ofthe res-
petrophysical well logs. ervoir by contouring or other appropriate averaging
methods. The calculation of the average, particularly if
In many situations, core analysis is not available, and
it is by contouring, should have regard for the geology
well logs indicate the presence of oil or gas, but do not
and for any other factors that might influence the shape
allow reliable estimates ofporosity or fluid saturations.
of the reservoir.
Where the geological formation is known to be produc-
tive in the region, a pay thickness based on the logs for Where insufficient individual well data respecting any
the well and the values ofporosity and fluid saturations of these parameters are available to allow for contour-
taken from nearby wells in similar formations (values ing, averaging should be done in a manner consistent
that may be expected to have a high probability), may with the probability necessary to support the particular
be used to calculate proved reserves. In such cases, where category of reserves being estimated.
these parameters can only be estimated with a lower Certain other reservoir parameters are needed to
probability ofoccurrence, probable or possible reserves estimate reserves, particularly for purposes of convert-
might be calculated. ing the volumes of oil or gas contained in a reservoir
In the estimation of reserves, the values used for to volumes that will be recovered and marketed. These
pay thickness, porosity and fluid saturations must include reservoir pressure and temperature and
always be consistent. This requires proper use ofcutoff hydrocarbon fluid composition. The choice of such
values, well log calibration, and proper petrophysical parameters does not usually dictate the categorizing
calculation methods. ofreserves estimates as proved, probable, or possible.

16
GUIDELINES FOR ESTIMATION OF OIL AND GAS RESERVES

However, particularly for proved reserves, the are available. When economic producibility limits
parameters must be based on reliable data or be are coupled with the material balance, reserves are
determined through valid comparison to similar reser- determined. In its simplest form, the material balance
voirs in a manner that reflects the appropriate level of equation may be written as
probability.
initial volume = volume remaining + volume
Recovery Factor removed

Estimates of recovery factor are based on analysis of Since oil, gas and water are present in petroleum
production data from the pool in question, by analogy reservoirs, the material balance equation may be writ-
with producing pools in an analogous reservoir unit, or ten for the total fluids or for anyone ofthe fluids present.
by engineering analysis, without analogy or production For gas reservoirs, the frequently used plot ofreservoir
data. The estimator should keep in mind that recovery pressure, adjusted for the gas compressibility (P/Z), vs.
factors may be influenced by other factors, such as cumulative production is a material balance method.
well spacing, the anticipated compression, the drive Four groups of data are required for a material balance:
mechanism, and reservoir and fluid properties. Fluid production
For proved reserves, the recovery factor may be deter- Reservoir pressure and temperature
mined from a detailed reservoir study, or by comparison Fluid analysis
with detailed studies of analogous reservoirs where the
Core analysis and petrophysical logs
recovery factor can be estimated with a high degree of
probability. In addition to these data, it is highly desirable to know
the type of reservoir mechanism that is operative in
For probable and possible reserves, the value used for
order to expedite estimation ofthe volume of the initial
the recovery factor may be similar to that used for the
hydrocarbons in the reservoir. As with other methods,
calculation ofproved reserves, the different categoriza-
the better the quality of the data, the higher the degree
tion ofreserves being accounted for in other parameters.
of confidence in the results.
However, a larger recovery factor may be justified on
The evaluator, in categorizing reserves, must consider
the basis ofgeological data that indicates improved res-
the probability that the reserves in question will be re-
ervoir parameters such as porosity and permeability in
covered. The volume in place estimated by the material
certain portions of the field. Where a range of recovery
balance method might have a high enough probability
factors is known from analogous reservoirs with simi-
to be considered as proved in the following situations:
lar characteristics, values corresponding to the middle
to upper end of the range may be used for probable and - Where significant data are available, particularly
possible reserves estimates. fluid production and reservoir pressure data, and the
reservoir drive is known
In some cases the recovery factor for proved reserves
has been estimated on the basis of an 80 percent or - Where production and reservoir data are limited,
greater probability, and yet the characteristics of the but the reservoir is analogous to reservoirs in the
formation indicate that better recovery might occur. In immediate vicinity and same geologic horizon
other cases the recovery factor for proved reserves has - Where such data are of sufficient quantity and
been estimated lower due to an anticipated recovery quality to have established the reservoir drive
problem (i.e., water influx in a gas reservoir), but there mechanism
is only a chance that the problem will occur. In these - Where production and reservoir data are limited, but
situations the evaluator might use a higher recovery the estimate is supported by a calculation of the
factor and assign the incremental reserves to the prob- hydrocarbons in place by the volumetric method
able or possible categories, depending upon the degree For gas reservoirs, where there is a strong linear
of probability of their recovery. relationship between P/Z and cumulative production
3.3.2 Material Balance Method (Figure 3.3-6), the probability ofrecovery is likely high
enough to assign the quantity indicated as proved
The material balance method is employed to estimate
reserves. However, no additional reserves should be ass-
the volume ofhydrocarbons in place in a reservoir when
igned beyond the proved reserves, since no significantly
appropriate geologic, production and laboratory data
different interpretation ofthe data would be reasonable.

17

h _
DETERMINATION OFOILANDGASRESERVES

Average
Oat. Pressure Z PIZ Cum. Prod. I: :
30000 (kPa) (kPa) (10 8m')
ii~
72102 21540 0.875 24621 0.0 I:i

r-."
86107 20078 0.871 23063 96.0
87/08 18705 0.869 21532 209.0 I::
86107
89/02
14623
13258
0.874
0.879
16740
15086
582.0
724.0
IiiIX
20000
<, 10742 0.894 12018 920.0
f~
89/09

~
90/0B 7357 0.922 79n 1 210.0
PIZ

r-,
i."i i'i.
(kPa)

10000
<,

o
1-----1----- I- - - -E=r~.'!'~C-r~!. --r-. ~ --
-----
~
o 250 500 750 1 000 1 250 1 500 1750 2000
8 a
Cumulative Production (10m)
PROVED
8 ,
OGIP=1800x 10 m
6m3
ReserveS=1600xl0

Figure 3.3-6 Material Balance (Gas Reservoir)

There are a number of other situations where reserves data in terms of the type of pressure measurement
estimates from material balance or some portion of the (bottom-hole, drillstem test), and the type of recorder
estimate might have an associated probability level that (mechanical or electronic). With respect to Figure
results in their being considered probable or possible 3.3-8, the evaluator should develop an understanding
reserves: ofthe reservoir drive and depletion mechanism in order
- Where significant production data are available, but to accurately classify proved and probable or possible
the reservoir drive mechanism is uncertain or the reserves. The apparent bending of the material balance
magnitude of the reservoir drive is uncertain plot may be interpreted as gas migration from edge or
tight areas of the reservoir, or pressure support from an
- Where production and reservoir data are limited and
underlying aquifer. Use ofa reservoir simulation model
there are no analogous reservoirs in the immediate
might assist in this analysis.
vicinity
- Where production and reservoir data are limited 3.3.3 Decline Curve Analysis
and the estimate is not supported by volumetric The analysis of a production decline curve provides
determinations estimates of three important items of information:
For a gas reservoir, where the P/Z data do not give Remaining oil and gas reserves to be recovered
a definitive linear correlation, asin Figures 3.3-7 and Future expected production rate
3.3-8, the resulting reserves that should be classified as
Remaining productive life of the well or reservoir
proved are those that represent the quantity that can be
estimated to be recoverable with an 80 percent In addition, an explanation of any anomalies that
probability. Proved plus probable reserves might reflect appear on the graph is useful. The analysis is only valid
a larger volume than the data indicate may be recov- provided the well will not be altered (i.e., fractured or
ered. In Figure 3.3-7, the scatter of points should acidized) and the reservoir drainage is constant.
encourage the evaluator to analyze the quality of the

18
GUIDELINES FOR ESTIMATION OFOIL AND GASRESERVES

Average
40000 -,----,----,----.---rI Date Pressure Z P/Z Cum. Prod.
(kPa) (kPa) (10'm')
INIT. 30991 0.987 31391 0.0
76/06 31109 0.988 31479 13.4
a 81/06 21380 0.922 23182 72.7
84/09 20277 0.919 22075 103.4
86/09 16602 0.913 18179 122.9
86/09 19001 0.915 20762 122.9
87/05 18519 0.915 20237 128.6
P/z 89/07 18471 0.913 18036 144,8
(kPa)

10000 +----+---+----j----"'f.,;;:-=:O""d----l-----l
Economic Limit

o+---+---+----I----I-_ _~.L......:::>.I-..J--"'-I
o 50 100 150 200 250 300 350

Cumulative Production (10'm')


PROVED PROVED + PROBABLE
6m3 6m3
OGIP=300xl0 OGIP=350xl0
6m3 6m3
Reserves = 270 x 10 Reserves = 315 x 10

Figure 3.3-7 Material Balance (Scattered Datal

Average
Date Pressure Z PIZ Cum. Prod.
30000 (kPa) (kPa) (lo'm')
85/11 21067 0.924 22800 0.0
75/08 16858 0.899 18761 102.9
76/10 14844 0.902 16451 138.4
76/11 15306 0.901 16989 138.4
77/08 13631 0.906 15044 162.3
20000 78/09 12604 0.910 13852 190.5
.... 80/07 13411 0.920 14 SIT 237.1

~
PIZ
.... 86/05 8936 0.929 9618 340.6
87/08 8556 0.932 9184 358.4
(kPa)

10000
~ 88/06 8494 0.932
...
9115 368.2

'<,

- ~CEClOli9!~.!!-
~~
---- ----- -----
o
:"'-..l ::::---
o 100 200 300 400 500 600 700

Cumulative Production (10'm') PROVED


,,
OGIP=620xl0 m
PROVED + PROBABLE
OGIP=675xl0 m
6 ,

6m3 6m3
Reserves=550x 10 Reserves = 590 x 10

Figure 3.3-8 Material Balance (Reservoir Drive and Depletion Mechanism)

19
DETERMINATION OFOil AND GAS RESERVES

As with all other methods, the categorizing of reserves In a case where well-established trends are not evident,
by decline curve analysis is dependent upon the judge- proved reserves should be restricted to the minimum
ment ofthe estimator. Important considerations include quantity that the evaluator believes will be recovered
the amount and quality of data, the variability of the with an 80 percent probability. Figure 3.3-10 shows
profile, and an understanding of past and future such an example. Proved reserves are estimated by
production policy and the depletion mechanism. projecting the steepest portion ofthe production decline
Because ofthe empirical extrapolation, a decline curve data. In this case, the incremental volume of oil that
can usually have a wide range of interpretations. The may be recovered if the lower rate of production
range depends upon the production history of the prop- decline prevails might be classified by the evaluator as
erty. For example, if there is limited prior production probable or possible.
history, a wider range of interpretations is possible than This situation could also apply when the type ofdecline
for a well or property in the stripper stage of produc- pattern is not obvious. Figure 3.3-11 illustrates a case
tion. It is valuable to understand the production recovery where either an exponential or a harmonic decline could
. mechanism of the formation (or the same formations in be used to extrapolate the data. In this example, reserves
the area) and the various characteristics of the well (net determined from the exponential curve might be
pay, permeability, and zone of completion). Also, each assigned to the proved category, since there is a high
specific interpretation is a function of the experience, probability that at least this volume will be recovered.
integrity and objectivity of the individual doing the The harmonic curve reserves might be classified as prob-
evaluation. able or possible, depending on the probability of
Determining reserves from historical graphs of recovery, as judged by the evaluator. In this example
production data that exhibit strong consistent decline there is a large difference between the estimates using
characteristics should be straightforward. When a high the different interpretations, and this suggests consider-
degree of probability exists, as in Figure 3.3-9, proved able uncertainty. Thus portions ofthe quantity in excess
reserves only would be assigned. of the proved reserves could be classified as probable
and possible.

20

PROVEO
3m3
~
Reserves = 33 x 10
15
....."
~

-..
~
E

co
n.
II:
c
0 10
.LA .
'Y~
;:
U
::J

~v\
."
2
e,
(5 5
''\.."

~
f----------- _ E'<.O!!~,,!!"-Ll"!!!.. _ ----------- ~----
o
o 10 20 30 40
3
Cumulative Oil Production (10 m3)

Figure 3.3-9 Decline Curve, Proved Reserves

20
GUIDELINES FOR ESTIMATION OFOILANDGAS RESERVES

20

PROVED
6m:3
Reserves = 155 x 10
15 - I t - - - - , - - - - - + - I - - - - - - H

--
M PROVED + PROBABLE + POSSIBLE
Q
6m3
Reserves = 176 x 10

*
II:
c
o
:s
::J
10

'D
e
Q.
5-++----+-1-----
i5

Economic Limit
o+--------+------\--------f-l-"'"---..L.::::>...-J
o 50 100 150 200
3
Cumulative Oil Production (10 m )

Figure 3.3-10 Decline Curve, Cumulative Gas Production

16

PROVED
3m3
Reserves = 17 x 10
~
12
M
:E PROVED + PROBABLE + POSSIBLE
. Reserves = 25 x 10
3m3

Q)
~

'c"
II:

.,
0 8

~
U
::J
'D
1\
0
~
Q.
-,
i5 4
.~ .. """- ~Harmonic

Exponential/f~
o
ECOnOm!C Limit
t
.T ~ -
o 5 10 15 20 25 30
3
Cumulative Oil Production (10 m3)

Figure 3.3-11 Decline Curve, Cumulative Oil Production

21
DETERMINATION OF OIL AND GASRESERVES

3.3.4 Reservoir Simulation Method judgement of the evaluator and on information such as
A reservoir simulator is a tool that is used to simulate observed performance, the results of pilot projects, the
the processes that take place in producing a reservoir. performance of projects in analogous pools, and engi-
Simulation is often done to optimize recovery by an- neering studies. To illustrate, reserves attributable to
alyzing various reservoir development plans, methods improved recovery projects may be considered as proved
of production, and the complexity of the reservoir reserves provided certain conditions are met. Such situ-
itself. Although reservoir simulation methods are com- ations occur when the production response from a project
plex, they include a combination of the physical corresponds to the results predicted by engineering
principles and analytical techniques of one or more of analysis or where the improved recovery project has
the other methods of reserves estimation. been in operation for a considerable period and the analy-
sis of a decline curve can be used with confidence, or
The criteria for categorizing reserves would include the
where a history-matched simulation is available. If the
amount and quality ofproduction and pressure data, the
production response has fallen short of original predic-
validity of the model and its demonstrated reliability
tions, the observed production data should be used for
with comparable reserves, and the ability to history
calculating and categorizing reserves. Proved reserves
match. To illustrate, if sufficient amounts of good geo-
may be attributed to other areas of the pool where an
logical and performance data are available to allow for
improved recovery project has not yet been applied,
a reasonable history match, and if the estimator is using
provided that it is highly probable that a project will
an appropriate simulation model that has been used
proceed, and that the geological and other reservoir char-
successfully in reservoirs similar to the one being stud-
acteristics are equivalent or superior to those for areas
ied, projections ofrecovery under primary mechanisms
where an improved recovery project is in operation.
and the specified economic conditions might be con-
sidered proved reserves. Ifthe situation being modelled If a successful scheme has been implemented in a
is an improved recovery mechanism, these criteria and similar pool that has analogous reservoir characteris-
the guidelines given in Section 3.3.5 for categorizing tics, proved reserves due to improved recovery may be
improved recovery reserves generally apply. This means assigned, provided the evaluator is convinced that the
that for existing and operating improved recovery analogy is sound and that there is a high probability that
projects where an appropriate simulation model is be- a project will proceed and be successful.
ing used, adequate data exist, and the response to the Probable or possible reserves can be assigned in other
data is consistent with the simulation results; or where cases where the improved recovery method has been
future projects can be expected with a high probability applied successfully to analogous reservoirs, but where
in reservoirs ofthe type where the model has been shown there is a lower probability that a project will go ahead
to give reliable results, the simulated recovery can be and be successful. Proved, probable or possible reserves
considered as proved reserves. may be attributable to a planned workover treatment,
At least a portion of the simulated recovery should be improvement to equipment, or other procedures, de-
categorized as probable or possible or not considered pending on the evaluator's judgement respecting the
as reserves, depending on the evaluator's views on probability of success.
the probability that the additional oil or gas will be 3.3.6 Related Products
recovered in the following situations:
Natural gas liquids (NGLs) are the liquid hydrocarbon
- Where the model has not been shown to give reliable components recovered from natural gas. If they are re-
results for the same type ofimproved recovery project coverable, they must be calculated and reported as
in a similar reservoir reserves of either natural gas or natural gas liquids,
Where insufficient data are available to properly but not both.
use the model The first test of recoverability ofNGLs is whether they
- Where the installation of an improved recovery will be produced as part of the stream of raw natural
project cannot be predicted with a high probability gas. If the fluid properties and reservoir pressures are
such that the composition ofthe produced raw gas stream
3.3.5 Reserves from Improved Recovery
will significantly change with time due to retrograde or
Projects
other phenomena, this must be reflected in the calcu-
The calculating and categorizing of reserves from lated reserves. Components of natural gas that wiil
improved recovery projects should be based on the

22
GUIDELINES FOR ESTIMATION OF OIL AND GAS RESERVES

liquefy in the reservoir and not be recoverable must not and therefore neither the natural gas nor the NGLs could
be included in reserves of either NGLs or natural gas. be categorized as remaining proved reserves.
If cycling or other special means of producing the Where the removal of NGLs from the raw gas is
reservoir is planned in order to reduce the liquid losses not required but is being planned, the removal of
that might otherwise occur, the NGLs that would be so the liquids must be economically feasible or else the
recovered can be categorized only as proved reserves NGLs cannot be categorized as proved reserves. If the
where their recovery can be estimated with a high prob- removal ofthe liquids is not economically feasible, they
ability. This would require sufficient reservoir and fluid would be included as part of remaining proved reserves
data to make an accurate detailed projection ofproduc- of natural gas.
tion and, also, the special means of production would If raw gas containing NGLs that will be marketable
have to be actually in operation or expected with a high natural gas after processing is categorized as either
degree of probability. probable or possible reserves, the NGLs must be
Where the prevention of losses in the reservoir is less categorized in the same manner.
certain, such NGLs should be categorized as probable With respect to sulphur reserves, essentially all of the
or possible or not considered a reserve, depending on hydrogen sulphide and other sulphur compounds must
the probability of their recovery. be removed from the raw natural gas and converted to
For most reservoirs, the composition of the produced elemental sulphur to meet environmental and other stan-
gas will not significantly change with time. For these dards. The necessary technology exists, and the key
reservoirs, the only test of recoverability of NGLs re- question is whether the recovery of the sulphur is eco-
lates to whether they will be recovered as liquids or nomically feasible at the specified economic conditions.
remain in the natural gas. This is also a second test for If it is not, the natural gas would not be economically
those reservoirs previously mentioned where the NGL recoverable as marketable gas and thus could not be
content of the produced gas will change with time. categorized as reserves.
The first criterion in terms of their classification as If the sulphur in question is economically recoverable
reserves is that NGLs can only be categorized as proved but is contained in natural gas categorized as probable
ifthe raw gas from which they are to be removed will, or possible reserves, the sulphur must be categorized
after processing, result in marketable gas that is cat- in the same manner.
egorized as remaining proved reserves. In some reservoirs, usually where the gas has a very
Some portions of some hydrocarbon components, high HzS content, the pressure, temperature and fluid
particularly ethane and propane, may not have to be re- properties are such that some ofthe sulphur will liquefy
moved from raw gas to make the gas marketable. Since or solidify in the reservoir and will not be producible
the technology for removal of essentially 100 percent without special production measures. Where such con-
of all NGLs is well-proven, the only test of their recov- ditions are known to exist or can be expected, the sulphur
erability from a proved natural gas reserve relates to that would liquefy and remain in the reservoir cannot
whether the liquids would be recoverable at the speci- be categorized as proved reserves unless special pro-
fied economic conditions under which the estimates of duction measures for dealing with the problem have been
proved reserves are being made. demonstrated to work successfully. They would have
Where the removal of NGLs from the raw gas is to be feasible at the specified economic conditions, and
necessary in order to make the gas marketable, the re- either have been implemented or have a high probabil-
moval of the liquids must be economically feasible or ity of being implemented. Where these criteria are not
the natural gas would not be economically recoverable met, at least a portion of the sulphur should be catego-
as marketable gas at the specified economic conditions, rized as probable or possible or not considered as a
reserve, depending on the overall probability of its
recovery.

23
r

PART TWO
DETERMINATION OF

IN-PLACE RESOURCES

n
!
_
- I
..
Chapter 4

OVERVIEW OF PART TWO

4.1 INTRODUCTION the depositional environment of the reservoir beds, the


history of any structural deformation of those beds, the
Part Two deals with the estimation of hydrocarbons in
trapping mechanism for hydrocarbon accumulation, and
place, the economically recoverable portions of which
the positions ofthe various fluid interfaces.
are classified as reserves.
Mapping the extent and configuration of the hydro-
The estimation of initial in-place resources involves
carbon accumulation requires the evaluator to have an
contributions from several disciplines, primarily geol-
understanding ofthe geological concepts of sedimenta-
ogy, geophysics, petrophysics, and engineering, but
tion and the structural attitudes ofthe reservoir rock that
contributions in varying degrees may also be required
control the limits and define the geometry of the de-
from specialists in chemistry, physics, economics, and
posit. Well samples and cores, well logs, seismic and
other geological-engineering disciplines.
well test data, and pressure information are all used to
It is important that the size, or at least the range in size, interpret the extent of the oil or gas pool. Visualization
of a potential resource be determined using consistent of the accumulation in three dimensions is necessary to
approaches and considering the interrelationships ofthe portray a realistic mapped interpretation.
parameters used to make the estimate. The size of the
resource forms the basis for the determination of how Rock and Fluid Properties
much oil, gas, and related products may ultimately be The properties of the reservoir rock and the particular
produced for society's use, and for the formulation of hydrocarbon are also important factors in the volumet-
operation plans and the necessary business decisions. ric estimate of the resource. Although the volumes of
Volumes ofthese discovered resources may be estimated hydrocarbons are calculated at subsurface depths, they
by either a volumetric or a material balance method of are converted to standard surface conditions oftemper-
calculation. These methods are described in Section 4.2. ature and pressure for measurement and recording.
Section 4.3 describes the deterministic and probabilis- The standard surface conditions in a particular loca-
tic procedures for estimating in-place resources. Sections tion become the "base" temperature and pressure.
4.4 through 4.7 briefly discuss sources and reliability The following properties are. important in volumetric
of data, the interrelationship ofparameters, the ways in procedures:
which resource estimates are used, and the background
1. Porosity, $, which is the measure of the void space
and experience of evaluators.
(fraction of rock volume)
4.2 RESOURCE ESTIMATES 2. Permeability, k, which is the measure of the fluid
transmissivity in millidarcies (mD)
4.2.1 Volumetric Estimates
3. Fluid saturation, Sw'which is the portion ofthe pore
Reservoir Volume space that is occupied by oil, So, gas, Sg, and inter-
The first step in a volumetric calculation ofhydrocarbon stitial water (fraction)
resources is an estimation of the volume of subsurface 4. Capillary pressure, Pc' which is the force per unit
rock that contains oil and gas. The volume is derived area resulting from the interaction ofthe fluids with
from the thickness of the reservoir rock containing the the medium in which they exist in kilopascals (kPa)
hydrocarbons and the areal extent of the accumulation. or pounds per square inch (psia)
The important geological considerations in establish- 5. Electrical conductivity of fluid-saturated rocks
ing a realistic estimate of reservoir volume include

27

b
DETERMINATION OFOIL AND GAS RESERVES

6. Formation volume factor, Bo, which is used to Oil


convert subsurface volumes of oil to surface con-
The calculation of oil in place is based on the following
ditions (the conversion is a consideration ofa phase
equation:
change resulting in the liberation of gas (solution
gas) from the oil and the compressibility of
I
reservoir oil) N=VRx<p x -x(I-So) (I)
7. Gas compressibility factor, Z, which adjusts for the
Bo
compressibility characteristics in mixes of natural where N = oil in place (ml)
gas in the conversion of ideal gas volumes to actual VR = rock volume (m') = 104 x A x h
volumes A = drainage area in hectaries (ha)
(I ha = 104 m2)
Cutoff Values
h = average net pay thickness (m)
Reservoir rock and fluid properties are used to help <p = porosity (fraction of rock volume)
determine the thickness of the reservoir rock that con- Bo = formation volume factor
tributes oil or gas production based on testing or actual (res. m 3/stm3)
production. Relationships between porosity, horizontal Sw = water saturation (fraction)
permeability, and water saturation can be developed
In Imperial units, the equation is as follows:
from core and capillary pressure data to determine
cutoff values below which any known economic re-
covery method will be ineffective, based on present I
N=VRx7758x<px -x(I-So) (2)
technology. Bo
The limiting factor in oil and gas production is the where N= oil in place (bbl)
permeability, a measure of the flow characteristics of (1 acre-foot = 7758 stb)
the reservoir fluids through the rock pores. The per- VR = rock volume (acre feet) = A x h
meability to each of the three fluids-oil, gas and A = drainage area (acres)
water-varies in relation to the content of each of the h = average net pay thickness (ft)
other fluids in the reservoir. The contribution to pro- <p porosity (fraction of rock volume)
duction is best measured by the relative permeability of Bo = formation volume factor
the rock-a flow characteristic of a fluid in the pres- (res. bbl/stb)
ence ofanother fluid or fluids. For example, the relative
Sw = water saturation (fraction)
permeability of the reservoir rock to oil or gas may be
almost nil in the presence of a high saturation of inter- Natural Gas
stitial water, which would render the hydrocarbons
The in-place volume of natural gas is adjusted for
immobile. The magnitude of the in-place resource has
temperature and pressure in order to measure volumes
this limitation from a thickness perspective, being lim-
at standard surface conditions. The compressibility fac-
ited to the reservoir rock from which it is possible to
tor adjusts for the compressibility characteristics for
recover the hydrocarbons.
different mixtures of natural gas components in chang-
Hydrocarbons in Place ing from reservoir to surface conditions to account for
the variance from the Ideal Gas Law.
The volumetric calculation of hydrocarbons in place
consists of the following steps: Natural gas resources may be classified as follows:
I. Determine the volume of rock containing hydro- Solution gas
carbons from thickness and area considerations or Associated gas (gas cap)
from an isopach map of net pay. Nonassociated gas
2. Determine the average effective porosity. Solution gas is the gas liberated from oil produced from
3. Determine the volume percentage containing a reservoir. The rate of production of solution gas de-
hydrocarbons (from fluid saturations). pends on the rate of oil production, the relative flow
4. Correct for the volume of hydrocarbons measured characteristics of the reservoir fluids, and the state of
at the surface. depletion of the reservoir.

28
r

OVERVIEW OFPART TWO

For calculation of initial solution gas in place, Gs ' the VR = rock volume (acre feet) = A x h
folIowing equation is used: A drainage area (acres)
(1 acre = 43,560 square feet)
G, = N XR,i (3) h = average net pay thickness (ft)
where G, = solution gas in place (m") ljl = porosity (fraction of pore volume)
N = oil in place (m') T so = standard base temperature (ORankine)
R,i = gas in solution at Pi (m3/m3) (460 + OF)
Pi = original reservoir pressure (kPa) Pso = standard base pressure (psia)
In Imperial units, the solution gas in place is as follows: T f = formation temperature (ORankine)
(460 + OF)
G, = NXR,i (4) Pi = original reservoir pressure (psia)
where G, = solution gas in place (scf) Zi = gas compressibility factor at Pi and T f
N = oil in place (stb) The base pressure used varies with the location of the
R,i = gas in solution at Pi (scf/stb) resource, but is related to the pressure ofone atmosphere
Pi = original reservoir pressure (psia) at some elevation above sea level (e.g., in Alberta, 14.65
psia and in British Columbia, 15.25 psia). The base
Associated gas is the gas associated with an oil
temperature is normally 15.6C (60F).
reservoir as a gas cap. Most, if not all, of the energy in
the gas cap is required for maximum oil recovery, so The determination of the compressibility of the gas
associated gas reserves usually remain shut in until most involves the use of a gas analysis to provide a factor for
of the oil reserves have been produced. a particular mix of natural gas.
Nonassociated gas is gas that is not associated with The equations set out in this section give in-place
an oil reservoir. Production is limited only by market volumes of raw gas expressed at standard surface
availability and contract terms. conditions. Before the gas is delivered to the point of
sale, there are losses at the surface due to processing
For the calculation ofnonassociated and gas cap in-place shrinkage, fuel consumption, and metering errors. These
volumes, the folIowing equation is used: losses must be deducted from the raw gas volumes to
arrive at the pipeline gas resources.
T P
G = VR x ljl x (l-Sw) x " x -'- (5) In sweet, dry gas fields, the shrinkage is related only to
P"xT, Z; fuel consumption and line losses. For wet or sour gases,
where G= raw gas in place (m') the shrinkage may also be a result of recoveries of re-
lated products and an allowance for plant fuel. The
VR = rock volume (rn') = 104 XA x h
shrinkage may be estimated from a representative gas
A drainage area (ha)
analysis to obtain the content of the related products,
(I ha = 104 m 2)
and an estimate of the recoveries of each product.
h average net pay thickness (m)
Actual shrinkage for a producing field may be obtained
ljl porosity (fraction of pore volume)
from the ratio ofthe saleable pipeline gas to the raw gas
Sw = water saturation delivered to the plant.
T sc = standard base temperature (OK)
(273 + 0c) Related Products
Psc = standard base pressure (kPa) Natural gas liquids may be calculated from the volume
T f = formation temperature (OK) percentage of the product based on a representative gas
(273 + 0c) analysis and the gas-in-place volume. The volumes in
Pi = original reservoir pressure (kPa) place ofnatural gas products expressed in standard vol-
Z, = gas compressibility factor at Pi and T f umes per volume of raw gas are shown in Table 4.2-1.
Sulphur, which may be calculated from the weight
In Imperial units, the equation is as follows: percentage, is also shown in Table 4.2-1.
T P The recovery factor assigned to the in-place volumes
G = VR x 43,560 x ljl x (l-Sw) x " x-'- (6) depends on the method and efficiency of recovery.
P"xT, Z;
Actual gas plant statistics are a source of recovery
where G = raw gas in place (scf) factors for related products from a producing gas field.

29
DETERMINATION OFOILANDGASRESERVES

Table 4.2-1 In-Place Volumes of Related Products uncertainty associated with any estimate of volumes of
hydrocarbons in place is handled differently in the two
Liquid Volume per Volume of Raw Gas
procedures used for the calculation: the deterministic
Vol % Product and the probabilistic.
Product multiplied by
The deterministic procedure is the one most commonly
SI' Imperial' used. The best estimate of each parameter is used in the
(m31l06m3 ) (bbVI06 cf) calculation ofreserves. The accuracy ofthe estimates is
Propane 36.88 6.54 only as good as the quality and source of measurement
n-Butane 42.22 7.48 of each parameter used in the calculation and will re-
i-Butane 43.80 7.77 flect the experience of the professionals in selecting the
n-Pentane 48.53 8.60 best estimate for the parameters. After recovery factors
i-Pentane 49.02 8.69 have been applied to the in-place estimates, the reserves
n-Hexane 55.10 9.77 are classified as "proved," "probable," and "possible"
n-Heptane 61.80 10.96 to reflect the degree of uncertainty, in the view of the
n-Octane 68.59 12.16 evaluator, associated with each category. Degree of
n-Nonane 75.42 13.38 uncertainty is discussed in detail in Part One.
n-Decane 82.26 14.59 The probabilistic procedure quantifies the uncertainty
in the resource estimate by using the evaluator's opin-
SUlphur Weight per Volume of Raw Gas
ion to describe the range of values that could possibly
Vol % SUlphur occur for each variable, and producing relative frequency
Product multiplied by curves to describe the probability of the values occur-
(tonnesIl06m3 ) (It/I0 6cf) ring within that range. A combined relative frequency
Sulphur 13.60 0.377 curve is then generated to describe the possible range
for the in-place resources and the associated probability
of occurrence of each of the volumes within that range.
4.2.2 Material Balance Estimates A variety of methods exist to generate the reserves
Calculation of in-place volumes of hydrocarbons by volumes, the most common being the Monte Carlo com-
material balance requires equating the incremental puter simulation, which uses a computer to iteratively
expansion ofthe reservoir fluids upon pressure drop to calculate enough in-place values from the variable pa-
the reservoir voidage caused by the withdrawal of rameter ranges to construct the in-place frequency
oil, gas and water, corrected for any fluid influx or distribution.
injection. The process requires an accurate history of
With rapidly expanding computer applications, the
reservoir performance, including volumes ofoil, gas and
probabilistic procedure is gaining popularity in portray-
water produced or injected, and pressure changes. Five
ing the uncertainties associated with a range ofestimates.
to ten percent ofthe oil or gas must have been produced
However, there are alternative procedures to generate
before a reasonably accurate calculation can be made.
the in-place resource frequency distribution. The alter-
4.3 PROCEDURES FOR ESTIMATING native presented in Chapter 6 is a "short-cut" that can
INPLACE RESOURCES be performed on a hand-held calculator. It must be
stressed that, as in the deterministic, the reliability of
The calculation of an in-place resource volume of
the results using any probabilistic procedure is depen-
hydrocarbons does not yield an exact answer. The
dent upon the quality of the data and the experience of
accuracy of each parameter used in the calculation
the evaluator in selecting the range of values for each
depends on the validity ofits source and the accuracy of
its measurement. When all the individual factors in an variable. If properly derived. the probabilistic estimates
estimate are combined, the degree of variance can lead of resources in place and recoverable reserves should
compare closely with the proved. probable, and possible
to substantial differences in the answers obtained. The
volumes obtained using the deterministic procedure.
In order to understand the uncertainty associated with
all reserves estimates, the evaluator must have a good
Standard conditions of pressureand temperature are appreciation of probability theory and statistical
101.325 kPa, 15.6Cfor 81; 14.65 psia, 60F for methods. This knowledge is critical when applying
Imperial units.

30
OVERVIEW OFPARTTWO

classifications such as proved, probable, and possible Recovery factor may be dealt with independently when
to the values of resources or reserves. Uncertainty in adequate values for parameters such as drainage area,
reserve estimates is covered in more detail in Chapters net pay thickness, and pore volume can be assessed.
3,6, and 22. When the information available allows only an estimate
of gross productive interval (gross pay), or when the
4.4 SOURCES AND RELIABILITY area assigned may represent spacing or total pool area
OF DATA rather than effective drainage area, the recovery factor
Reliability of data is covered in various sections commonly incorporates the allowance for portions of
of Chapter 5 in the discussions of the individual the reservoir that may not contribute to the production
parameters used in the calculation of in-place volumes, in a given well. Allowance for this undrained volume
and in detail in Section 5.11, Quality and Reliability of would probably be better accounted for by adjusting the
Data and Results. The source of data and the accuracy parameters of thickness and area.
of measurement are the two key elements in selecting Competitive operation is another consideration that may
parameters with some confidence. There can be several affect the recovery assigned to an individual well.
different sources of data from which a given parameter Hydrocarbons in the subsurface do not recognize bound-
can be selected. Evaluators are usually faced with some aries of area ownership. Where reservoir continuity
conflicting values from which they must select either allows the movement of hydrocarbons across owner-
their best estimate or a realistic range of values for each ship boundaries, factors such as the date that production
parameter. The experience ofthe evaluator in assessing commenced and the rate of production have a greater
the validity ofthe data derived from each source is criti- influence on recoveries from individual wells than the
cal in explaining the difference and establishing the best in-place resource underlying the individual company-
value to be used in the calculations. owned tract. In such circumstances, a share of pool
Table 4.4-1 summarizes the sources for each of the reserves based on past production and current produc-
variable parameters used directly in volumetric esti- tion rates provides an acceptable method ofestablishing
mates. The source ofeach factor is shown, with a priority recovery for individual wells.
of source given for derivation ofthe specific parameter. Extrapolation of well-established production decline
The priority is valid only if the testing methods and curves is the most accurate means ofcalculating reserves
measurements are considered to be adequate. Resource and establishing recovery factors to be used with
estimates are valid only with the available data and volumetric estimates ofin-place volumes. Decline curve
at the time they were prepared. Constant revision is estimates, which are dealt with in detail in Chapter 18,
necessary as other sources of data become available. may also lead to re-evaluation of other volumetric
4.5 INTERRELATIONSHIP OF parameters. Decline curve methods may be used only
PARAMETERS when there is sufficient production data to define the
rate of decline, and when the capacity of a well to pro-
The various parameters used in the volume calculation
duce is actually declining. At times, apparent decline in
are interrelated and, despite their sources, must be
production may be due to mechanical limitations.
compatible to one another. For example--as mentioned
Extrapolation of past performance into the future
in the discussion ofcutoff values-porosity, permeabil-
assumes that the forces acting in the reservoir in the past
ity, and water saturation are related through the geometry
will continue to act in the same fashion in the future.
of the pore spaces in the reservoir rock. Pressure and
temperature are both dependent upon the depth ofburial 4.6 USES OF RESOURCE ESTIMATES
ofthe reservoir rock. The parameters selected must make Resource-in-place estimates are the starting point for
sense when viewed together. volumetric estimates of reserves. Regular reserve
The subject of recovery of hydrocarbons is covered estimates provide most exploration and production
in Part Three, which discusses the derivation of the companies with a yardstick of their performance. When
recovery factor chosen to convert the in-place resources current inventory is compared to production rates,
to reserves. Since the selection of recovery factor may an indication of the life ofthe current resource is avail-
be affected by other reservoir parameters that are dis- able at any time. Companies also report their reserve
cussed in Part Two, a few comments are in order here. inventories to conservation authorities, securities
commissions, and shareholders.

31

m _
DETERMINATION OFOILANDGASRESERVES

Government agencies require reserve reporting to used for purposes such as land sale acquisitions, explor-
prepare resource inventories of the province or country atory drilling operations, development prospects,
for the purpose of determining requirements for pipe- participation in third-party ventures, and implementa-
line construction and establishing a rationale for tion of enhanced recovery schemes.
approving spacing changes, setting allowables, and Uses ofestimates ofin-place resources and reserves and
approving secondary recovery schemes. evaluations based on these estimates are many and var-
Evaluations of reserves of oil and gas are used for ied; the amount ofdetail required is dependent upon the
acquisition and disposition of these assets, borrowing accuracy required for the particular purpose.
requirements for banking purposes, and illustrating in- The uses of resource estimates are covered in more
vestment returns to investors and joint venture partners. detail in Chapter 26.
Individual property evaluations (reserves analyses) are

Table 4.4-1 Sources of Data

Units
Parameter Symbol SI Imperial Order Source of Data Requirements

Area A hectares acres Isopach map net pay Sufficient well control, geophysical
control, and identification of depo-
sitional pattern and type of trapping
2
3
Assigned area
Spacing units } Establishing relation to drainage
and adequately applying average
thickness

Thickness h metres feet Core analyses Representative recovery


net pay Applying proper cutoffs
2 Porosity log deter- Establishing proper core-log
mination based on log relationship
core relationship Correlation for hole conditions
3
4
Log combinations
Porosity log } Proper identification of
lithology or rock matrix

}
S Other wireline log Assessment of gross pay
only may be possible
6 Geologist's log

}
Porosity decimal fraction Core analyses Assessing weighted average
porosity of net pay
2 Log analysis based on
Varied with lithology or matrix
log core relationship
3 Log combination Lithology identification and
4 Single porosity log } use of empirical relationships

S Derived from another


well in the same pool or
another pool in the
same zone
} Acceptable comparison

(cont'd)

32
r OVERVIEW OFPART TWO

Table 4.4-1 (cont'dl

Units
Parameter Symbol SI Imperial Order Source of Data Requirements

Water Sw decimal fraction Oil base core Noncontamination of sample


saturation
2 Capillary pressure test Representative samples for testing
3 Log analyses based on Adequacy of determination of
core correlation formation water resistivity, R", from
water sample or logs
4 Log analysis using Adequacy of determination of R"
combination logs from water sample or logs
S Resistivity vs. Variation of porosity affecting
estimated porosity resistivity
6 Cores and/or logs from Validity of comparison
samepool orname zone
7 From correlation with Establishment of correlation
porosity or permeability
Formation Bo m 3/sm3 bbl/stb 1 Oil analysis Acceptability of sample
volume factor
2 Comparison to similar Similar reservoir conditions
gravity crude
3 Correlation curves Validity of correlation
Gas Z dimensionless Gas analysis reservoir Acceptability of data
compressibility and pressure
factor
2 Comparison to reservoir Validity of comparison
at similar depth with
similar gas
Formation Pr kPa psia Bottom-hole pressure Adequate pressure buildup
pressure bomb gauge
2 From other wells in pool Representative of subject well
3 From other pools at same Acceptability of pressure-depth
depth relationship
4 Estimated from depth vs. Adequacy of correlation
pressure correlations
Formation Tf C OF Bottom-hole temperature Mechanical operation of
temperature measurement - bomb equipment
2 Logs Temperature of mud reflecting
formation temperature
3 From other wells in pool Adequacy of data
4 Other pools at same depth Validity of particular depth
correlation
S Depth vs. temp correlation Validity of particular depth
correlation

33
DETERMINATION OFOILANDGAS RESERVES

4.7 BACKGROUND AND EXPERIENCE of that answer-is a test in deductive reasoning. The
OF EVALUATORS process may be considered partly an art and partly a
An evaluator, in estimating oil and gas resources, must science.
play the role of a modem-day Sherlock Holmes. The The depth of experience of the evaluators plays a large
investigative process-sifting through conflicting role in the acceptability oftheir answers. Drawing from
evidence, checking the validity of data, selecting the many disciplines-geology, geophysics, engineering,
best parameters, putting together the conclusions in petrophysics, and statistics--evaluators require the full
terms of an answer, and testing the reasonableness background of knowledge in order to arrive at the best
answer possible given the available data.

34
r
Chapter 5

ESTIMATION OF VOLUMES
OF HYDROCARBONS IN PLACE

5.1 RESERVOIR AREA AND VOLUME Core for lithology, environmental analysis and
5.1.1 Introduction measurement of parameters
The two methods for estimation of original in-place Log response and evaluation
volume of hydrocarbons are volumetric mapping and Pressure and pressure transients
material balance. During the initial delineation and Fluid composition
development of a field, volumetric mapping is the key Fluid contacts
to estimation, possibly aided in the very early stages by
Test data and more extended production data
analogous field data. As depletion proceeds and adequate
production history becomes available, material balance 5.1.2 Acquisition of Data
may represent a practical second method and may
The scope of reservoir study and data acquisition
eventually become the most accurate procedure. Reas-
starting at field discovery and extending over the life of
onable confirmation between the two methods can
the pool must meet the technical objectives, but must
provide assurance that appropriate data and assumptions
also realistically reflect the cost and potential benefits.
have been used for each estimate.
The information collected should meet both short- and
Certain reservoir factors tend to reduce the applicabil- long-term requirements. Ifimportant data is not collected
ity of material balance and reinforce the importance of when it is available even though it is not yet needed,
volumetric mapping throughout the life of the field: there are likely to be serious regrets later when the in-
Moderate to strong water drive formation is no longer available or can only be obtained
Low average permeability at prohibitive costs.
Complex internal architecture and poor lateral or The very basic data items such as logs and samples
vertical continuity for formation tops are acquired rather routinely. Some
of the other items are discussed in the following
Any of these factors may make it difficult to obtain a
subsections.
representative average pool pressure in response to
production. Seismic Data
The capability of mapping the "container size" as the Seismic can be a useful tool for mapping, depending
basis for volumetric estimation is primarily determined on the geological setting and reservoir objectives.
by the interrelationship of the geological complexities Traditional seismic has been used to provide the transit
and the amount, quality, and type of data. Well control, time from reflection horizons to define depth and form
and the spacing of wells compared with the size of the of subsurface structures.
accumulation are usually the most important consider-
Seismic technology has advanced tremendously in the
ations. Where applicable, the quality, amount, and
last several decades. Digital recording leading to com-
positioning of seismic data may also be very important.
mon depth point seismic and the growing computer
Information on the following is also important to capabilities for data processing, have been keys to this
volumetric mapping: advance. However, in many instances the depth response
Formation tops from logs and sample data is still all that can be extracted from seismic. In a good
Cuttings samples number of geological settings where seismic quality per-
mits, "stratigraphic seismic" may also be important.
With this method, the amplitude response ofthe recorded

35
-
DETERMINATION OFOILAND GASRESERVES

signal may provide data relative to lithology, porosity Analogous Fields


and-when the seismic signalis particularlyclear-fluid
Another aspect to be kept in mind is that others may
content of the reservoir horizons.
have drilled or be drilling in analogous field settings
The "new kid" on the seismic block is 3-D seismic, relative to the field of specific interest. Utilizing
which has quickly gained major importance in many this data as it becomes available may help maximize
geological settings, particularly as a development tool usefulness of limited data sets.
with great potential for assisting in reserves mapping.
The basic response and data provided by 3-D seismic Extended Flow Tests
are no different than those obtained from conventional Horror stories are told of significant investment in
seismic. The difference is in the configuration of a 3-D facilities and equipment for a well that declined pre-
survey, which is set up to provide a closely spaced grid cipitously when put on production. If analogous field
ofdata points. This grid allows a more continuous three- data indicates a significant risk, an extended flow test
dimensional definition of structuraland other geological might provide insurance against such an occurrence. As
variations. the size of the project increases, the risk exposure in-
If seismic data is applicable to a reservoir, it probably creases proportionally. The running of extended flow
will have been gathered early in the exploration phase. tests must be weighed against certain considerations:
Ongoing interactive review incorporating new wells The level of apparent risk
must continue well into the development process. It also
The cost of the test
may be appropriate to shoot additional seismic to help
resolve problem areas or incorporate new technical ad- Whether it is practical, given the properties of the
vances. The potential benefits from 3-D seismic, for reservoir, to run the test long enough to resolve
instance, should be carefully considered, usually the possible lower size limits
sooner the better. Another aspect to consider in incor- Environmental and conservation concerns
porating seismic data is that processing capability Another option is to put a pool on production with
is continual1y improving. When field reviews are minimum investment to allow extended production data
undertaken, reprocessing may offer data improvement to be gathered. If warranted, further development
without the added cost and possible timing delays of optimization can then be undertaken at minimal risk.
new shooting.
5.1.3 Data Analysis
Original Pressure Data
Data accumulates rapidly during the delineation and
Undisturbed original pressure data can only be obtained early development phase of field development. The
before significant production is taken. Unless the reser- volume of data and pace of activity can often lead to a
voir is very small, normal production testing will not be tendency to handle one well at a time and lose some
a problem in this regard. Good initial pressures in gas, perspective on the big picture. Periodic field-wide re-
oil and water columns allow construction of pressure- views of all geological data and related engineering
depth plots for fluid contact definition. A geographic material provide the best chance for optimal solutions.
spread of original water phase pressures will assist in Also, careful management of data accumulation and
determining whether hydrodynamics are important in study scheduling will ensure that holes in data sets
the region. are minimized and that the cost-benefit ratio of data
acquisition is efficient.
Pressure Transient Analysis
In recent years high-resolution pressure recorders have Depositional Environments
provided another possible source of information relat- The recognition of depositional environments and their
ing to reservoir limits. This process relies on the relationship to reservoir development is basic to petro-
interpretation of very subtle pressure changes. Careful leum geology. The study of recent deposits as "a key to
design of the procedure in consultation with experts is the past" is a common theme of sedimentary geological
necessary, as well as care in the acquisition ofdata. One training. Outcrops and producing fields provide a record
of the difficulties, as with any kind ofreservoir simula- of ancient depositional environments and resulting res-
tion, is that the results are not unique and must be ervoir patterns. The extensive literature available on
corroborated with other information. these subjects should be searched for analogous field
data in any major field study.

36

s
ESTIMATION OFVOLUMES OFHYDROCARBONS INPLACE

Adequate core coverage is required to define environ- traps, may be used for reference. Analogous field data
mental concepts in the subsurface. Proper core spacing is also very important when considering trapping.
and intervals depend on the complexity of the patterns The exploration concepts that led to a discovery would
of reservoir development. Data gathering must be have included an interpretation of hydrocarbon source
appropriately resolved in the early stages of delineation and trapping. This interpretation should be reviewed and
and field development. Nearby analogous fields may refined or revised, if necessary, at an early stage. Most
add to tbe database. basins or play areas tend to have a limited suite of trap
Once depositional environments are resolved from core, types of economic importance. Trapping should be un-
it may be possible to expand the study into noncored derstood within the limits of available data before
wells by calibration to log response. However, there is detailed reserves mapping proceeds.
always more risk of error when using logs rather than
core for environmental interpretation. Reservoir Continuity
Larger scale structural and stratigraphic features are of
Primary Porosity and Diagenesis
first-order importance in determining the limits ofa res-
Primary porosity is retained in sedimentary rocks ervoir and the volume of gas or oil in place. Limits may
through deposition, initial burial, and lithification. This be defined by faults, folds, facies changes, diagenetic
type of porosity and the patterns of its occurrence are boundaries, or erosional surfaces.
easily related to depositional environment. Most sand- It is often unclear in the early stages of exploration and
stones and some carbonates are dominated by primary development whether an accumulation of oil or gas is
porosity. in a single pool ora series of pools in close proximity.
Subsequent to the formation of primary porosity, The keys to resolution ofthis question may be provided
sedimentary rock is often subjected to increasing or vary- by pressure; pressure-depth plots; gas, oil and water
ing temperature, pressure, depth of burial, and ground compositional data; and indications from fluid contacts.
water regimes. As a result, minerals may be dissolved The degree of internal continuity and homogeneity
or precipitated. Also, the reservoir rock may be within a pool is an important geological feature relative
fractured. The processes creating tbese changes in the to recovery efficiency. Detailed cross sections or fence
rock fabric and properties are called diagenesis. The dia- diagrams are usually necessary to resolve the details of
genetic overprint and the resulting porosity and internal reservoir architecture.
permeability changes mayor may not be closely related
to original depositional features and patterns. Diagenetic Fluid Interfaces
porosity development may, in fact, be controlled by Fluid interfaces important in reserves determination
something entirely different such as fault and fracture include the following:
sets or erosional surfaces. Diagenesis and its controls
Gas-oil
and results must be considered in reservoir mapping,
particularly in carbonate rocks. Oil-water
Gas-water
Type of Trap
Pressure-depth plots provide the best technical resolu-
Petroleum deposits may accumulate in three basic types tion oftbese interfaces when good quality pressure and
of traps: fluid density (gradient) data is available above and be-
Structural Traps, which are formed by rock layers that low the contact. This method defines a contact even in
have been folded or faulted undrilled or untested intervals (Figure 5.1-1).
Stratigraphic Traps, which are formed by depositional, In medium- and coarse-grained reservoirs of high
diagenetic or erosional processes porosity and permeability, the transition from hydro-
Hydrodynamic Traps, which are created by moving carbons to water will be sharp and easily defined by
formation water, buoyancy, and density interaction with well logs. Flow testing will also be conclusive to defi-
a hydrocarbon accumulation nition of contacts in this type of reservoir if wells and
test intervals are properly located.
These traps may occur alone or in combinations of
differing dominance. Mapping patterns and style depend Capillary effects in the small-diameter pore systems in
very much on the types oftrap. Petroleum geology texts, fine-grained rocks result in long hydrocarbon-water
which usually contain extensive detailed material on transition zones and considerable difficulty in

37
DETERMINATION OF OIL AND GASRESERVES

1700 5.1.4 Mapping

~ t- Gas Gradie~t
4.4 kPaim
Resolution ofthe "container size and shape" by a map
of the hydrocarbon-filled reservoir is the single most
important step in volumetric reserves estimation. Since
1800
the reservoir is a three-dimensional form, vertical

1\
-;;;-
'"
..
s: 1900
\ illustrations such as cross sections, fence diagrams,
or isometric drawings may also be required to under-

~
15.
Ql
\ stand pool geometry. Examples of forms requiring
c vertical diagrams include complex faulting, major
'~"
o
'E 2000 unconformities and salt dome intrusives. Once the
vertical geometry is better displayed and understood,
Ql
\\ 2028 TVD(m ss)
::> \(ree Water Level more accurate maps may be drawn.
>::
2100 Maps for Volumetric Estimation

I~
Water Gradient / The interplay of structure, fluid contacts, and porous
10'18 kPaim reservoir variations requires at least the combination of
2200 a structure map and an area or volume map. In many
34 36 38 40 cases, construction of a series of maps prepared in a
Pressure (mPa) logical sequence may be the best technical approach.
This could include some or all of the following:
Figure 5.1-1 Pressure-Depth Plot for Free Water Structure Maps, which may be:
Level Determination
Top formation or top porosity, showing location of
resolving the water level. For example, in the Turner faults and fluid contacts
Valley Formation gas reservoirs in the Alberta foothills, Base formation or porosity with limits as above
the change from fully water-saturated zones to irreduc- Fault plane structures
ible water saturations may occur over an elevation
Ifboth top and base porosity structure maps are drawn,
exceeding 100 metres. In this extreme case, accurately then a gross pay isopach map can be derived by cross-
defining water levels is difficult using only log or test contouring.
data.
Isopach Maps, which are maps of thickness variations
Gas-oil contacts may also be difficult to resolve. of gross or net pay showing reservoir limits controlled
Pressure-depth plots offer a technical solution when
by structural form, fluid contacts, depositional features,
quality data are available. Flow testing, including
diagenesis, erosional features, or combinations of these
wireline repeat formation tester (RFT) data, may be
controls. The isopachs of gross and net pay thickness
helpful. The neutron and density log combination can
variations are simple geometric depictions of the reser-
be definitive where the contact is located within a drilled
voir form that can be assessed for "geological
continuous porous section. reasonableness" with some confidence.
On rare occasions, reservoir character and seismic Porosity-Thickness (<I>h)* Maps, which may be drawn
quality may be sufficient to define fluid contacts by "flat directly or constructed by drawing maps on the
events" on seismic sections.
individual parameters and cross-contouring. Porosity-
Hydrodynamic trapping will result in tilted oil-water thickness mapping is particularly important where
contacts with a tilt proportional to oil-water fluid den- porosity in the reservoir is variable and average poros-
sity differences and flow velocity. Tilted contacts may ity would not approximate the reservoir void space in
not be evident where a very local area is under study, all areas.
but they become evident on a larger scale. Accuratereso-
lution of this type of contact may be extremely
significant to reserves definition. Gas accumulations
may also occur in hydrodynamic settings, but the den- Porosity is represented by thesymbol "1\>" inthismonograph
sity difference of water and gas is such that measurable and in the petroleum industry generally. The thickness of
tilts on gas-water contacts are unlikely. the reservoir is represented by the symbol "h."

38
ESTIMATION OF VOLUMES OF HYDROCARBONS INPLACE

Hydrocarbon Pore Volume (HPV) Maps, which may can remain uncertain well into the field development
be drawn directly or by cross-contouring ljlh with I-S w phase. Closely spaced drilling may provide the
values." HPV mapping is particularly important when only method for resolution of reservoir limits in this
water saturations are variable within the reservoir. circumstance.
Where a series of maps is drawn showing interrelated The Choice of Map Types
values, cross-contouring is required to ensure that the
maps are compatible. If cross-contouring is being done The final map to choose as a basis for volumetric
by hand, maps on two separate variables are overlaid calculation is a matter oftechnical judgement: a simple
and, at each point where contours ofthe two maps cross, productive area map, an isopach map depicting rock
a related variable is calculated by the appropriate arith- volume, a pore thickness (ljlh) map, or a hydrocarbon-
metic manipulation ofthe individual values. Figure 5.1-2 pore volume (HPV) map. The choice should be based
shows the derivation of a porosity-thickness (ljlh) map on careful appraisal of the degree of complexity that
on porosity and net pay thickness. The manual process can be fairly represented with the da!a available. Simple
is tedious, but current computer mapping software can maps such as productive area or gross pay isopach maps
handle it readily. represent physical forms that can be readily assessed
for realism. Maps that combine parameters are not as
The use of cross-contouring to combine parameters in a
easy to relate in detail to physical forms even though
technically rigorous process is warranted when indi-
they often tend to be dominated by a single variable
vidual parameters have consistent patterns that can be
such as gross pay thickness.
drawn with reasonable accuracy and with greater assur-
ance than the combined value. For example, a ljlh map Interpretive geological mapping offers the potential of
can be constructed by preparing a map of porosity varia- providing the best representation of the reservoir if ad-
tions and an isopach map ofnet pay, and then combining equate data is available and the practitioner is thorough.
them by cross-contouring. The less rigorous alternative One general rule worth considering even with interpre-
is to calculate and plot ljlh values at each well location tive mapping is that the simplest interpretation that fits
and construct the map directly from the combined vari- the data and the geological concepts is often the best.
able. If individual data such as ljl does have a defined Even with a thorough and technically sound interpreta-
trend, it may tend to be lost in this methodology. tion, if there is freedom to vary the reservoir size
significantly, interpretation can introduce the risk of
Reservoir Limits and Wedge Zones significant error. Careful assessment is required to
Structure maps based on seismic depth data and define when this leads from the booking of "proven" to
available well control are often the first maps constructed "probable" reserves.
on an oil or gas pool. Limits defined by structure and In summary, mapping concepts may be reduced to a
known fluid contacts may then be located. In dipping few simple concepts to consider:
reservoirs, the area of fluid interfaces, for example, the I. Assessing specific data available, analogous fields,
oil-water interface, produces a wedge area where the and geological concepts in order to understand and
geometry must be carefully handled. This wedge area visualize the feature to be mapped
is geographically defined when the structure is mapped
2. Separately mapping each significant data item that
on both the top and the base of porosity.
shows a definable pattern of variation
Dipping faults may also create wedge areas, and solu-
3. Combining maps by cross-contouring where appro-
tion of this geometry may require drawing a structure
priate (Figure 5.1-3 illustrates a series of maps)
map on the fault plane. When faults are steep, the wedge
area may become very small and may be reasonably Mechanically Contoured Maps
represented by a median line.
Where a large amount of data is available at reasonable
In stratigraphic traps, reservoir limits may not be spacing, an alternative method of reserves mapping is
defined by structure maps, evident gradational thinning, to use evenly spaced (mechanical) contours. This
or other simple techniques. Seismic amplitude response amounts to linear interpolation between actual well data
might be helpful in some cases, but stratigraphic limits points. The method may require some interpretation to
assign reservoir boundaries, but once this is done the
freedom to vary the result becomes limited. For this
Water saturation is represented by the symbol "Sw"
reason it is often used in unit or joint venture projects
throughout the monograph.

39
DETERMINATION OFOIL AND GAS RESERVES

I
/
I
/
/
/
/
/
/
/
o /
,,<:)
, <:).
/ ,
/ /
/ /
/ /
/ /
/ /
/
/ /
/ /
/ / /
/ /
/ _ O.Oe / /
/ /
/ /
/ I
/ I
/ I
/ I
I
'b I /
I
I /

\
I
I <:)'0
<:).
I
I ;'
/
I /
/

(a) Net Pay Isopach, h (m) (b) Average Porosity, $ (fraction)

(0) (0)
/
/
/
/
hX$=$h /

(1.0) 0 (1.0)
/ o
\/? (0) (0)

7~ / (a)
(2.0)
...
'0 (0)

X (1.6)
'"i::>
/ (.6) X (.6)
'b I
I I

I
I
,/
I
'"i::>
I
I

(2.4)
<:)'0
C). \
(2.4)
/
/ (1.2)
/

(c) Overlay h Contour and $ Contours


(calculate $h at intersections) (d) Contour Map of $h (m)

Figure 5.1-2 Cross Contouring

40
ESTIMATION OFVOLUMES OFHYDROCARBONS INPLACE

Gas-water contact Gas-water contact


(2603) intersects (2603) intersects
base reservoir top reservoir

I 1 mile I I 1 mile I

(a) Structure on Base Porosity (rn ss) (b) Structure on Top Porosity (m ss)

0.8

3.0
Note:
Gross thickness map was developed by
computer cross-contouring structure
maps.

I 1 mile I

(c) Gross Porous Thickness (m)

Figure 5.1-3 Series of Related Maps (zero edge from seismic, computer-contoured) (ZYCOR
Software)

41

n
DETERMINATION OF OIL AND GAS RESERVES

where variations in interpretations can lead to dis- capability to adequately represent complex forms
agreement and impasse. The mechanical method of depends very much on the quantity and spacing of the
contouring minimizes extension of high contour values data being mapped. Since computer mapping uses
into undrilled areas and, in contrast to an interpretive mathematically defined best-fit surfaces, the result
map, may provide conservative reserves volumes. is noninterpretive and tends to be somewhat mechani-
The strength of mechanical contouring is that if done cal. Combining computer mapping on individual values,
properly it honors the available hard data with minimal editing for geological concepts, and cross-contouring
interpretation. Its weakness is that unless the patterns the map series can produce a map that is geologically
are very simple it does a very poor job of representing sound.
the geological patterns and reservoir variations. It should A major benefit of computer mapping is the ability to
be recognized as only a simple approximation for joint use cross-contouring techniques and to calculate vol-
venture and reserves assignment. It is not a geological umes. Even where hand-drawn interpretive maps are
map. An example of an interpretive and mechanically required to capture the geological concepts, it may be
contoured map of the same data is shown in Figure appropriate to digitize maps into computer format to
5.1-4. use these computational capabilities.

Computer Mapping Another benefit (curse?) of computer mapping is that it


is possible to test a range of different assumptions and
Advanced software is available for computer mapping analytical approaches. This can be very useful ifproba-
ofreservoir parameters with a number of contouring op- bilistic reserves estimates are being prepared. Preparing
tions. The computer is very good at handling simple a range of map interpretations can be an onerous task
surfaces such as structure maps, but may have problems without computer technology.
with complex surfaces and fault discontinuities. The

/I
Yankee

1 mile 1 mile

(a) Offshore bar cut by meandering shale filled channel. (b) Samedata as used in (a) but contoured ignoring
Environmental concepts may be assisted by log, core, environmental concepts. Apparenttrap integrity and
seismicdata, or nearby analogous fields. volumes are quite different from (a).
Source: AfterWeinmelster, 1989.

Figure 5.1-4 Examples of Mechanical and Interpretive Mapping

42
ESTIMATION OF VOLUMES OF HYDROCARBONS IN PLACE

5.1.5 Refinement of Volumetric References


Estimates Weinmeister, M. 1989. "Calculating Recoverable Gas
With time and addition of data in any of the areas in Place from Volumetric Data." Shale Shaker,
discussed, it is reasonable to expect that the uncertainty May-Jun. 1989.
of volumetric estimates can be narrowed. The best
answers are obtained when the maturity ofthe field pro-
vides an extensive database, all reasonable sources are
incorporated in the solutions and-where discrepancies
between sources arise-preconceptions are challenged
and either confirmed or revised. On occasion, new tech-
nology such as 3-D seismic, wellbore image logs,
or other similar advances may supply better answers.
Using all of the data sources may require crossing
technical discipline boundaries; thus working in
multidiscipline teams is a growing trend in many
companies.

43

R
DETERMiNATJONOF OIL AND GAS RESERVES

5.2 THICKNESS At this stage geoscientists will map "gross reservoir"


and "net reservoir." Later, after the bulk reservoir el-
5.2.1 Introduction ements have been adequately defined and mapped,
Next to the areal extent of the reservoir under study, the economic considerations will come to the forefront as
thickness value referred to in engineering terms as "net the reservoir engineer asks the geologist to produce a
pay" is the most variable component of the oil-in-place map showing only the outlines of the hydrocarbon
equation. It is frequently the most poorly defined and accumulation.
misunderstood term in discussions of reserves. The terms "gross pay" and "net pay" are used to
The confusion stems mainly from the differences in describe reservoir thickness. Gross pay, referring to the
focus of the two contributing disciplines: geology and total hydrocarbon-bearing zone, frequently includes
reservoir engineering. The geologist is concerned first intervening nonproductive intervals that may be present
with mapping the discrete reservoir elements in ques- in the reservoir (Figure 5.2-1). Net pay refers to the sum
tion irrespective of any real or commercial segregation of the productive sections of the reservoir and is deter-
dictated by gas-oil or oil-water interfaces. mined by the application of cutoffs, which are the
specified lower limits of core or log data (porosity,

OPHI 0.0
0.6000 0.0

.-..."""-CNL Porosity
FOe Porosity

, -
-e..-_ _

---
,
--
,,
\
\

\
c;:"
-
..... ---- , ,
:::

-.----ill
\

CAL - caliper DS - bitsize GR - gamma ray (APi) NPHI - neutron porosity


CNL - compensated neutron log DPHI - densityporosity ILd - deepinduction resistivity SFL - sphericallyfocused
CSU - cyber service unit FDG - compensated formation urn- medium induction resistivity laterotoq
density SP - spontaneous potential

Source: Schlumberger of Canada, 1985.

Figure 5.2-1 Reservoir Interval Terminology

44
ESTIMATIONOF VOLUMES OFHYDROCARBONS IN PLACE

permeability, and fluid saturations) below which a because they represent the first available evidence of
formation will be unable to achieve or sustain economic the productive potential of a well.
production. Cutoffs are determined by using existing Beyond the obvious quantitative porosity estimates
production information from the subject or similar for- afforded by neutron, density, and sonic tools, there are
mations, and by constructing correlations between the spontaneouspotential (SP), caliper, gamma ray (GR),
production, porosity, permeability, and water saturation and microresistivity devices such as the microlog. These
and the recoverable reserves requirements. provide further qualitative evidence that a zone is
While porosity and water saturation calculations (which capable of fluid production.
are discussed in subsequent sections) are subject to In heterogeneous reservoirs with thin beds of widely
certain inherent errors, none are large enough to change varying quality, some logs may not properly define net
the results by several orders of magnitude. The same is pay due to their tendency to average or smooth porosity
not true for net pay. over larger intervals. This problem is most acute in
Net pay is also important in determining the total amount previously explored areas with a high number of older
of hydrocarbons in a reservoir so that the total amount logs.
of energy in that reservoir can be calculated. Net pay in
this context can be much higher than the value used in Core
the oil-in-place equation because here it can include Full-diameter or wireline-retrieved small-diameter cores
intervals located in transition zones and even below pro- offer a further level of definition beyond that accorded
ducing oil-water contacts. by logs alone. Permeability measurements may be
Another major criterion in determining net pay is the matched to porosity to confirm or enhance the selection
potential oil available for future secondary or tertiary of the lower level of producibility. It is useful to note
recovery programs. In such programs displaceable net that the absolute value of permeability for a given res-
pay may not equate to net pay in a pressure depletion ervoir and reservoir fluid dictates what the equivalent
process, particularly in the case ofa very heterogeneous porosity cutoff will be, and not the reverse.
reservoir.
Porosity-Permeability Cutoffs
Net pay may also be used during the unitization
The empirical selection ofporosity cutoffs to determine
process either as a stand-alone figure in net pay maps or
net hydrocarbon pay is best accomplished for normal
as a guide for development drilling programs. Clearly,
oil and gas reservoirs by using core permeability-
the purposes for which net pay calculations will be used
porosity cross-plots. Using minimum air permeability
will dictate how they should be determined.
values of 1.0 mD (for medium to high gravity oils),
5.2.2 Defining Net Pay 0.5 mD (for wet gas), and 0.1 mD (for dry gas) will
yield approximate effective porosity cutoff levels for
Logs commercial hydrocarbon production into wellbores.
Wireline logs of all types have been incorporated into These cutoffs are empirical (i.e., based on testing and
the process of defining net pay. Porosity tools, by their actual production) and are a function of many param-
very nature, offer the most universally consistent net eters such as fluid viscosity (mobility), rock grain size
pay criteria. Where single porosity tools are utilized to and pore size (pore geometry), rock cementation and
characterize reservoir porosity, the analyst will typically infill, wettability, and capillary pressure properties.
determine the tool reading corresponding to the appro- Porosity cutoffs usually increase with decreasing pore
priate lower limit of porosity and draw a vertical line and grain size as illustrated in Figure 5.2-2. This plot
down the log. All reservoir exceeding this lower limit was generated from a large database of actual core data
may be integrated to arrive at a value for net pay. acquired from dozens ofclastic and carbonate reservoirs
Where multiple porosity tools have been run and a more scattered across the western Canadian sedimentary
sophisticated solution approach has been employed, basin.
cutoff values, typically in the 2 to 4 percent range for Exceptions to the cutoffs listed are gas accumulations
most carbonates and 7 to 10 percent for many sand- in the microdarcy range 0.1 mD) and heavy oil in
stones, will be applied to the computed data. In this way unconsolidated sands. Although sophisticated, large
logs are employed as the primary filter for net pay fracture treatments have been employed on wells in
the microdarcy range; however, such low-rate gas

45
DETERMINATION OF OIL AND GASRESERVES

1000 when applied to net pay computations, but it is often


essential in the evaluation process to estimate even semi-
:;;: quantitatively the effective permeability of the reservoir.
100 ~
::;
i;::
.s The open-hole drill stem test option affords the best
0-
g

0
~
-e
c
'"
e
overall assessment of net pay criteria because, under
ideal circumstances, large volumes ofthe reservoir fluid
e 0
~ 10
:;; {j
~
~ can be recovered and studied in addition to the exten-
sive drawdown and buildup pressure data that is
'"
~


LL
~
E
~ obtained.
~
()
Q. 1.0 r
c
~
0
'in 5.2.3 Data Acquisition Programs
~'"
()

0.1 .= Logs
The earliest methods for using logs to select net pay
intervals involved the use ofSP or OR logs. Using curve
inflection criteria for determining the top and the base
o 10 20 30
ofeach reservoir unit remains a valid method ifthe strati-
CGL::: conglomerate
Core Porosity ('Yo)
Source: PanCanadtan Petroleum Lid. graphic unit is a simple clean sandstone-shale sequence
with very porous and permeable sandstones present.
Figure 5.2-2 Air Permeability vs. Porosity However, the blanket assumption that all porous and
permeable reservoir units are capable of production is
production is considered to be uneconomic at the present dangerous. Bitumen can be present in different forms: a
time. The porosity cutoff for commercial primary pro- tar mat or solid pyrobitumen. Disseminated shale, py-
duction of heavy oil from wellbores is estimated to be rite particles, bitumen, or other blocking or cementing
approximately 27 percent. Air permeability cutoffs materials can seriously impair the capacity of a reser-
should not be used for heavy oil sands because the voir to produce hydrocarbons and thereby disqualify it
measurement of air permeability in disturbed and ex- as net pay.
tracted heavy oil sand is quite meaningless. At this When conditions such as these are known to exist or
porosity level, the sand is becoming poorly cemented where the reservoir approaches the lower limits of the
and mobile, permitting the heavy viscous oil to move producing porosity-permeability regime, more sophis-
sufficiently for economic production. These oils have ticated logging methods must be considered. Here, all
the capacity to carry loose sand grains, as well as small the porosity measuring devices may be employed de-
amounts of connate water or gas bubbles. This flow pending on availability, cost constraints and hole
mechanism is far different from that ofconventional oil conditions. In clastic sequences, the neutron-density-
and gas reservoirs. caliper combination in conjunction with the microlog
and a standard induction resistivity device will resolve
Flow Tests
most net pay situations satisfactorily.
The ultimate test of the ability of a reservoir to give up In mixed lithology carbonate reservoirs, where gas
fluids is the actual flow test. During the drilling process may be present, additional care must be exercised, par-
and just prior to the decision to run casing in a well, an ticularly in the choice of the proper resistivity device.
operator has two options available: Where matrix porosity is low and water saturation is at
I. Open-hole/closed-chamber drillstem test (DST) or near irreducible conditions, resistivities can easily
2. Wireline formation test (WLT) exceed 2000 ohm-metres. The choice ofa laterolog over
Judicious use of these tests can enhance the reservoir an induction device may be advisable if resistivity is to
analyst's ability to discriminate between pay and non- be used as a net pay discriminator.
pay zones. Approximate values of in situ permeability An additional environmental consideration involves
can be calculated from WLT data, the object being to thin bed resolution. Thin beds are defined not only as
sample a cross section of the elements of a reservoir vertical variations in lithology, but also may include
unit and project the permeability data to cover the en- any closely spaced changing petrophysical parameter
tire reservoir. WLT techniques are at best "quick-look" that makes evaluation difficult. Rapid fluctuations in

46
ESTIMATION OF VOLUMES OF HYDROCARBONS INPLACE

porosity type, rock texture or pore type may combine to wetlability, relative permeability, and sensitivity to
preclude proper evaluation with standard logging meth- completion fluids and methods. In order to determine
ods. Where thin hydrocarbon-bearing laminae are the appropriate analyses required, the core retrieval and
thought to be present, the addition of a mud-gas log to analysis program must be designed so that all coring
the open-hole logging program is advisable. objectives may be achieved.

Core A flow chart depicting the process of designing and


implementing a core analysis program in net pay deter-
Core data are used to supplement and calibrate log data mination is shown in Figure 5.2-3. Ofcritical importance
when net pay is being determined. In addition to poros- is identification of the reservoir properties that must be
ity and permeability, other properties may be measured measured in the laboratory to aid in the determination
in the laboratory to determine whether the interval of of net pay. Once the coring objectives have been
interest possesses the properties required for inclusion defined, the operator must design the retrieval and analy-
in net pay. These supporting properties include water sis programs in conjunction with the relevant service
saturation, electrical properties, capillary pressure,

I Establishment of Coring Objectives I


I
rDesign of Core Retrieval Program I
I
Core Retrieval and Preservation
j
I Core Gamma I
j
Core Description and Sampiing
For Basic Core Analysis
I
Basic Core Analysis
Porosity
Permeability
Fluid saturation
j
I I
I Sampling For Reservoir I Sampling ForSupplementary I
Quality Analysis Core Analysis
I I
Petrologicai Studies Sample Screening
x-ray methods
I
and Reservoir
QuaiityAssessment I
Supplementary Tests
Electrical properties
Clay swelling
FInes mobilization
Wetlability
Capillary pressure
Relative permeability
I
j
I Data Synthesis I
I
Net Pay Calculations I

Figure 5.2-3 Flow Chart for a Core Analysis Program

47

rtn-. _
DETERMINATION OFOIL ANDGASRESERVES

companies. Factors such as core barrel type, drilling porosity, post-depositional processes in sands such as
fluid and core preservation methods may be important. compaction and cementation can shift the porosity-
Once the core has been retrieved, it is shipped to the permeability trend line. For example, increasing poros-
laboratory for appropriate analyses. ity associated with constant permeability might indicate
the presence of more numerous and smaller pores.
Well Testing
The concept of mean hydraulic radius is gaining
A wide variety oftesting services and equipment is avail- acceptance as a better method to distinguish reservoir or
able to accomplish the objectives of the reservoir hydraulic units (Amaefule et al., 1988). Mean hydraulic
engineer in a safe and efficient manner. If the limita- radius distinguishes pore morphological changes that
tions ofvarious systems are understood, factors such as porosity and permeability alone cannot characterize.
excessive downhole pressure and temperature, rough
borehole conditions, and the presence of highly toxic Water Saturation
hydrogen sulphide can be dealt with in advance to Water saturation is the next most frequently employed
arrive at an optimum testing strategy. Service company parameter used by reservoir engineers to describe the
experience has shown that the presence of those three quality ofthe reservoir unit being investigated. Clearly,
factors in the Foothills region of western Canada seri- lower water saturations are indicative of better hydro-
ously limits the application of open-hole testing. Such carbon production potential. Water saturation, or any
limits apply to a lesser degree to the remainder of the fluid saturation for that matter, may be affected by a
basin except where the presence of H2S is suspected. multitude of rock properties (composition, grain size or
An effective program must start with a clear idea of the shape, packing, sorting and cementation); therefore, use
priorities given to the following objectives: ofa single saturation cutoff could have serious implica-
1. Reserve definition for either primary or secondary tions in rapidly changing rock types.
horizons Fluid Contacts and Transition Zones
2. Stimulation treatment design criteria for follow-up
The identification of the various fluid contacts, the
completion attempts
location of the transition zone, and the determination
3. Gathering of reference data to allow drilling and of other petrophysical, geological, and production
completion engineers to plan future wells for maxi- characteristics are essential for accurate assessment of
mum efficiency by reducing reservoir damage what constitutes net pay in the wellbore. This data
created by the drilling or completion process may then be used to estimate reserves, hydrocarbon
5.2.4 Data Interpretation column heights, productivity, water cut, and production
economics.
Net pay has been defined as reservoir rock that meets
various quantitative cutoffs such as porosity, effective Fluid contacts may be identified using core analysis
permeability, and water saturation. The parameters used (capillary pressure), logs, or pressure data. In a reser-
to distinguish net pay are usually well-defined for the voir that is thick enough, a plot of formation pressure
formation and pool or area from a history ofproduction vs. elevation can yield both formation fluid type and
characteristics for the area. For a specific well to be kept interface location. Several pressure readings in gas, oil
for production, it normally must have a net pay thick- and water zones are required. Plotting and connecting
ness sufficient to contain enough hydrocarbon reserves points of common slope identifies the fluid types.
to pay for the well completion plus an acceptable profit. Extrapolation ofthe lines to points ofintersection yields
Wells with less net pay than this should be abandoned hydrocarbon-fluid contacts as illustrated in Figure
ifthey are not required for other purposes such as water 5.2-4.
injector or disposal wells. The analysis of these plots to determine vertical
pressure continuity in a single well or horizontal conti-
Porosity nuity from well to well is not straightforward because
Porosity is the most popular reservoir quality indicator, permeability barriers can also be present.
and this is unfortunate because the same enviromnental Where determinable, the most useful values are the free-
and depositional factors that influence porosity water level (the water level if no rock material were
also influence permeability. Although increases in present), the 100 percent water level (the level to which
permeability are frequently associated with increasing water rises due to the presence of the rock material and

48
T ESTIMATION OFVOLUMES OFHYDROCARBONS INPLACE

.
.c
~ 15.
Q)
Cl

- -
-
- - -
- - - -
- - - ::: ::: -
- - - - -
- - -
- - - - - - - - - - - - -
- - -
- - - - - -
- - - - - - - - -
- - - - - - -
- - - - - - - -
- - - - - - ------------

~ Gas~~- ~

<;
Oil
\
- - - -
Water
-
\ \
-
- - -
- - - -
- - - - - -
-
-
- - - -
-
- - - -
- \
- - - - -
- - - - - - - - - - -
- - - - - -
- - - - - - - - - - - - - -
- - - - -
- - <> / /

O~
/ -----.- A--
- -
-:;/ / / / /
/ / / / / .r- Pressure
Source: Computalog Gearhart Ltd., 1990.
/ / /

Figure 5.2-4 Hydrocarbon Fluid Contact Identification from Pressure Gradients

the resultant rock-water capillary forces), the bottom of every logging tool. Except in extremely hostile (hot and
the transition zone (the same as the lOa percent water corrosive) environments (as encountered in deep sour
level), and the top of the transition zone. Across the gas reservoirs in the Alberta foothills), these two fac-
transition zone, water saturations will vary from 100 tors are normally manageable and ofminor importance.
percent at the bottom (lOa percent water level) to irre- Other factors that can, and often do, contribute to criti-
ducible water saturation at the top ofthe transition zone. cal errors are rugosity (roundness or smoothness) ofthe
Due to the varying relative permeabilities across the tran- borehole and the depth of invasion of the drilling or
sition zone as saturations change, the hydrocarbon and coring fluids employed.
water cuts will change from bottom to top, A "no flow" Most logging service companies employ sophisticated
situation is also possible. algorithms to correct their porosity tools for hole irregu-
larities, and use electrical devices to minimize the effects
5.2.5 Factors Affecting Data Quality
of drilling fluid contamination. However, the reservoir
Adverse Borehole Environments analyst must use caution when these corrections have
been employed near "the edge ofthe envelope." In cases
The reliability ofthe various net pay parameters, water
ofextreme borehole rugosity, for example, density logs
saturation, porosity, and net pay, when calculated from
become totally unreliable for porosity. Unless other tools
open hole logs or measured in full diameter cores, is
that are less affected by rugosity (i.e., the neutron and
directly related to the knowledge and understanding
sonic logs) are available, the use of nearby well control
of the borehole environment from which this data
data might be moreadvisablethan porosity data that
was drawn. A number of factors can influence this
seems "a bit high."
reliability level. The principal factor is the physical con-
dition ofthe borehole at the time oflogging. Bottom-hole Similarly, a quick scan of the log header on the primary
temperature and pressure can affect the functioning of resistivity device for evidence of either anomalously

49

e
=

DETERMINATION OF OIL ANDGASRESERVES

high mud weights or fluid loss characteristics is always core intervals. Occasionally they are also useful in
a worthwhile precaution. Either ofthese conditions may helping to reconstruct the correct depth sequences of
lead to excessive overbalancing and consequent flush- misoriented core.
ing of the reservoir which, in tum, can create thick Normally a core gamma logger is operated as a "total
mudcake buildup and lead to erroneous calculations of instrument," measuring all radiation in a certain, wide
water saturation. range of wavelengths. However, spectral components
Determination of net pay thickness is usually not due primarily to potassium, uranium and thorium
susceptible to direct measurement errors except where emissions may also be measured. Methods for using the
directional or slant drilling techniques have been spectral components to determine clay types, cation
employed. exchange capacities, clay volumes, and even to
Penetration ofany reservoir at anything less than a right evaluate source rock have been or are being developed.
angle to bedding will give erroneously high thickness To properly assess the problem of representation, it is
indications. Routine examination of the geological first necessary to measure the core and determine the
framework for the area, coupled with due diligence in amount ofrecovery vs. the length ofthe interval drilled.
the area of borehole trajectory, should remove this as a Ifthere is missing core, the lost core interval is custom-
concern in most instances. arily placed at the bottom ofthe interval. Often this does
not represent the true picture. The actual missing inter-
Core Representation val can be determined by a detailed comparison of the
When core data is being used to assess the net pay core gamma log to the downhole gamma log.
interval, it is important to realize that the core may, in
fact, not represent the true reservoir interval. The rea- Formation Heterogeneity
son for this is that often the entire zone is not cored or Most logging devices respond to particular properties
core may be lost, and therefore, there may be pay that of a formation that are related to the depositional and
must also be considered above or below the retrieved post-depositional history of the rocks. The search for a
interval. Proper sampling is essential if the resulting better understanding of porosity and permeability dis-
basic core analysis data is to be representative of the tributions in reservoir rocks has inevitably led to the
reservoir. Friable unconsolidated sandstones, fractured conclusion that geological environments may be recog-
reservoirs and reservoirs with alternating competent and nized from log shapes in correlatable zones. The first
incompetent layers often are not fully recovered during clues to the presence of nearby reservoir boundaries or
coring operations. Small (em scale) to large (m scale) heterogeneities may be derived rapidly and cheaply even
intervals may be ground up or washed out, leaving only when very little physical sample material (cuttings or
the competent zones and some rubble. Unfortunately, it cores) is available from wells. However, as the multi-
is the competent zones that are often tight and, there- tude of examples in Figure 5.2-5 illustrates, care must
fore, the core may represent only the poor part of the be exercised because log shapes are much more charac-
reservoir. teristic than diagnostic. Log shapes also tend to be more
The sampling should be based upon the lithological predictable and reliable in clastics than in carbonates.
distribution, porosity and permeability variations within Various logs are useful to calibrate geologic data.
the lithological units and the distribution of hydrocar- Spontaneous potential logs have long been used to
bons. The samples should be representative of the infer not only the presence, but the depositional envi-
interval from which they are chosen, with three to four ronment of sand bodies and thereby provide an indirect
samples being selected per metre. Where possible, sam- estimate ofareal extent. The gamma ray log will in most
pling intervals and sizes should be uniform in order cases reflect lithology better than the spontaneous
to minimize statistical errors. In certain intervals, potential log, particularly where high hydrocarbon satu-
plug samples may be taken rather than full diameter ration exists. Acoustic logs can give clues to the presence
samples, but the latter type of sampling should be used of unconformities and faulting and may be an early
in heterogeneous reservoirs such as those that are waming that more than one reservoir unit is present.
fractured, conglomeratic, or vuggy. Resistivity logs are often helpful in qualitatively assess-
Core gamma logs are used in the core analysis ing vertical grain size variations. The recent introduction
laboratory to aid in correlation of core depths with log of formation imaging technology, which presents
depths and to determine the precise location of missing either an acoustic or an electrical image of the rock

50


ESTIMATION OF VOLUMES OF HYDROCARBONS IN PLACE

GENETIC SAND UNITS


Cut and Fill Offlap Fillln Cut and Onlap
I i i
Alluvial Alluvial-Deltaic Distributary Delta-Marine Barrier Transgression
Point Bar Point Bar Channel Fill Fringe Bar on
Unconformity

[ CC L[
Slightly
Serrate
Smooth
Bell
Smooth
Cylinder
Slightly
Serrate
Smooth
Cylinder
~ Serrate
Funnel
\
Serrate
Funnel
~II~
Thin
and
Bell Bell Resistive
Thick 20-150ft. 10-150ft. 10 - 300ft. 10-100ft. 20-75ft. 5-20ft.
Form Linear; m~ Linear Linear Blanket Linear Blanket
be very wi e
Trend Parallelto Parallel to Parallel to Parallelto
depositional depositional deroSitiona, slope, shoreline
slope slope bu variable

AMPLIFIED SAND UNITS


Cut and Fill Offlap Fill-In Fill-In
i
Point Bar Buildup Delta-Marine Barrier Bar Submarine Canyon Buildup of
Alluvial Plain or Fringe Buildup BUildup Graded Beds
Valley Buildup

(Smooth Bell
Slightly Serrate
Bell
~ Multiple
Serrate
Funnel
c: Multiple
Smooth
Funnel
Smooth Cylinder
Slightly Serrate
Cylinder
Smooth Cylinder
Slightly Serrate
Cylinder
Thick 5 M 1000 ft. 50 - 300 ft. 50-tOOOft. 50 - 500 ft. 30 - 300 ft.
Form Linear to Blanket Linear, butmay Fan Linearto blanket
blanket be very wide
Trend Parallel to Parallel to Normalto Parallelto axis
depositlonal shoreline shoreline; normal of basin
slope orparallel toaxis
ofbasin
HYBRID SAND UNITS
Systematic
I
Progradation of Alluvial Serrate Trahsgression
Over Delta-Marine Fringe Over Della

Serrate Funnel
WithThin
Resistive Streak
Blanket

Smooth BellOn
Serrate Funnel
Blanket
Source: After Shell Development Company, 1970.

Figure 5.2-5 Sand Unit Shape Diagram

51

3
DETERMINATION OFOIL AND GAS RESERVES

surrounding the borehole, shows great promise in between the various tools and how these differences
assisting both the geologist and the reservoir analyst. relate to geological variations will result in the analyst
Image data is particularly helpful in defining the areal being better able to understand and evaluate the
extent of the pay zone before pressure transient data reservoir.
becomes available. In summary, the patient analyst has
many tools available in the search for clues to the char- References
acter of reservoir heterogeneity. Every avenue must be Amaefule, J.O., Kersey, D.G., Marschall, D.M.,
explored at this early stage to reduce the uncertainty Powell, J.D., Valencia, L.E., and Keelan, D.K.
regarding the most critical parameter in the volumetric 1988. "Reservoir Description: A Practical
equation: drainage area. Synergistic Engineering and Geological
Tool Resolution Approach Based on Analysis of Core Data."
Paper presented at SPE, Houston, TX, Oct. 1988,
Many types of logging tools are utilized in the SPE 18167.
determination of reservoir parameters and net pay. The
Computalog Gearhart Ltd. 1990. "The Selective
vertical resolution of each tool is dependent upon the
Formation Tester." Calgary, AB.
requirements ofthe particular measurement. The deeper
measuring tools, designed to overcome or minimize the Schlumberger of Canada. 1985. Open Hole Log
effect of the flushed zone, are limited in their vertical Interpretation. Course notes, Calgary, AB.
resolution. Conversely, tools that are designed for Shell Development Company. 1970. Reservoir
shallow measurements often have superior vertical reso- Geology ofSand Bodies. Houston, TX.
lution. Knowledge of the limitations and differences

52
ESTIMATION OF VOLUMES OFHYDROCARBONS INPLACE

5.3 PERMEABILITY through, and a pressure drop across, a sample of known


length and cross-sectional area, for a fluid of known
5.3.1 Introduction
viscosity. This data is then analyzed by means of
Permeability does not appear in the volumetric 0'Arcy's Law. In theory, the nature of the fluid should
equation, but it is difficult to have any meaningful dis- not be important; however, in practice, the nature ofthe
cussion about the concept of volumetrics without fluid is very important if the rock and fluid interact.
addressing this key attribute of all commercial hydro-
The measurement methods for permeability (American
carbon reservoirs. Permeability is a measure of how
Petroleum Institute, 1952), which are currently under
easily a single fluid (gas or liquid) will flow through the
review, may be divided into classes based on the sample
connected pore spaces when a pressure gradient is ap-
type (plug or full diameter core), the fluid used (gas or
plied. The permeability, k, of a reservoir rock is related
liquid), and the technique (steady or unsteady state con-
to the volumetric flow rate, Q, through the rock by means
ditions). The sample type controls the amount and
of'D'Arcy's Law:
quality of information that can be obtained. For a plug,
only a unidirectional permeability can be measured,
k LlP
Q=-A- (I) while for a full diameter sample, the vertical permeabil-
11 LlL ity plus the permeability in any horizontal direction can
be determined. Although gas permeabilities are the
where Q = volumetric flow rate (mLls) simplest ones to obtain, they suffer from two major
k = air permeability (mO) laboratory problems that are only occasionally encoun-
11 = fluid viscosity (cp) tered in the field: slippage flow (Klinkenberg effect)
A = cross-sectional area (cm-) and inertial (Forcheimer) effects. These problems, al-
t>P = pressure differential (atmospheres/em) though theoretically possible, are rarely observed when
t>L = unit length (em) liquid permeabilities are being measured. Steady and
This permeability is more properly termed specific (or unsteady state techniques may be used for both types of
absolute) permeability: the permeability of a reservoir samples and both types of fluids.
to a fluid when the fluid fills 100 percent of the pore The gas permeability ofwhole core samples is typically
space. determined and reported in three directions: one verti-
Specific permeability is not usually directly applicable cal and two horizontal. The two horizontal directions
to petroleum reservoirs. Essentially all reservoirs, are at 90 to each other, but otherwise are not usually
whether they produce oil or gas, contain at least two oriented in any particular direction. However, ifthe core
components: hydrocarbon and water. Calculations was oriented when it was originally cut, the horizontal
relating to reservoir conditions require effective perme- permeabilities can be related to actual directions in the
ability: the permeability to the fluid of interest at reservoir.
the conditions of interest. Effective permeability may Liquid permeability may be measured using the
replace specific permeability in Equation (I) when the principles ofgas permeability, but the fluid used is brine
conditions are specified under which the permeability or oil instead of gas. Except for possible fluid-rock
applies. The main "condition" in this regard is the fluid interactions, unsteady state liquid permeability measure-
saturation. For this reason, there is yet another perme- ments on plugs do not encounter any major problems
ability measure termed relative permeability: the that would affect reservoir applications.
effective permeability at the fluid saturation of interest Test procedures are available to evaluate fluid-rock
divided by the specific permeability. Relative perme- interactions. These tests involve measuring the perme-
ability is mainly a function of fluid saturation, but also ability of a rock as a function of time (investigation of
depends to varying degrees on other parameters such clay swelling) or as a function of flow rate (investiga-
as saturation history, temperature, pore pressure, tion of"fines" migration). The degree to which the clays,
overburden pressure, and interfacial tension. Permeabil- (most commonly smectite) in a sample have adsorbed
ity is interpreted from well test data or logs, or is directly water can significantly change the size of pore throats,
measured on core samples in the laboratory. and hence the value of permeability. Even when clays
5.3.2 Permeability from Core do not swell, they may contribute to fines migration.
Mineral debris may become detached from the pore
All laboratory methods for determining permeability rely
walls and entrained in the moving fluids above a
on a measurement or an interpretation of a flow rate

53
--
DETERMINATION OFOILANDGAS RESERVES

certain critical velocity. These particles are then carried There are currently no industry standard methods for
along with the flow until they come to pore throats determining relative permeability, and much research
through which they cannot pass. The particles lodge in is ongoing, but there are two basic methods of obtain-
the pore throats, accumulate, block the throats, and ing relative permeability data: steady state and unsteady
thereby decrease the permeability. state. For the steady state method and a two-fluid sys-
Fines migration and clay swelling behaviours are tem, the two phases are injected at a certain volumetric
encountered during liquid permeability testing. In gas ratio until both the pressure drop across the core and the
permeability tests, neither phenomenon is normally composition of the effluent stabilize. The saturations of
observed. However, if clays have been dehydrated dur- the two fluids in the core are then determined. If this
ing the cleaning of hydrocarbons from the pore system, experiment is conducted at various volumetric flow ra-
significant changes in gas permeability may result as tios, a relative permeability vs. saturation curve may be
the test progresses. derived. This method of testing is generally too time-
consuming and expensive. to be practical for many
The advantages of the steady-state plug liquid
commercial reservoir engineering purposes.
permeameter (the apparatus used for permeability
measurement) are that the data interpretation is straight- The unsteady state method is based on interpreting an
forward and liquid permeabilities are more applicable immiscible displacement process. For a two-phase sys-
to reservoir calculations than gas permeabilities. How- tem, a core either in the native state (preserved) or
ever, the apparatus is complicated and relatively restored to the saturation conditions that exist in the res-
expensive and, consequently, the procedure is more ervoir is flooded with one of the phases. Typically the
difficult than in the case of the gas permeameter. flood phase is water or gas since in the reservoir one or
Measurements of liquid permeabilities on whole-core the other ofthese phases usually displaces oil. The flood
samples are less common because of even higher costs. process to obtain relative permeability data is interpreted
by means of a theoretical model or else by computer
5.3.3 Relative Permeability simulation.
Measurement It is sometimes claimed that the steady state and
Although the concept of relative permeability is very unsteady state methods yield the same values of rela-
simple, the measurement and interpretation of relative tive permeabilities. Although undoubtedly true under
permeability vs. saturation curves are not. There is evi- some circumstances, this statement is not generally true.
dence that relative permeability is a function of many For most cases, relative permeability is known to be a
more parameters than fluid saturation. Temperature, function of saturation history. Because the history of
flow velocity, saturation history, wettability changes and the core is completely different in the two cases, it is
the mechanical and chemical behaviour of the matrix reasonable to expect a difference in the resultant rela-
material may play roles in changing the functional de- tive permeabilities. The unsteady state test would seem
pendence ofrelative permeability on saturation. The best to be the more physically realistic in the context of the
defined of these secondary dependencies is the varia- usual reservoir processes, because all such processes
tion of relative permeability with saturation history; involve one phase displacing another.
relative permeability curves show hysteresis between
drainage processes (wetting phase decreasing) and References
imbibition processes (wetting phase increasing). American Petroleum Institute. 1952. "Recommended
Practice for Determining Permeability of Porous
Media." API RP 27 (3rd ed.), Dallas, TX.

54


ESTIMATION OFVOLUMES OFHYDROCARBONS INPLACE

5.4 POROSITY into whatever places they will fit and as the constituent
spheres become irregular or nonrounded. The porosity
5.4.1 Introduction ofrocks, therefore, decreases as the variation in particle
Porosity is the fraction ofthe reservoir bulk volume that size and shape increases. The porosity of competent
is filled with fluid or nonmineral matter-in other words, rocks is also reduced as the amount of cementing mater-
the "storage capacity" of the rock. ial in the matrix increases, since the cementing material
While various methods for determining porosity by core tends to bridge the contacting surfaces of mineral
and log analysis are described in Section 5.2.2, an un- particles and line the pore surfaces.
derstanding ofthe many ways pores may be distributed In addition to "primary" porosity created by the inter-
in reservoir rocks is necessary to fully appreciate the granular spaces in most clastic rocks and some uniformly
concept of porosity. Figure 5 A-I illustrates what is called deposited carbonates such as oolites, "secondary"
"cubic packing" of spheres and is one example of the porosity can result from vugs and fractures that are gen-
packing of spherical sand grains. erally created after deposition. Vugs are those pore
spaces that are larger than would be expected from the
normal fitting together of the grains that compose the
rock framework. They may originate in many ways,
and the type of vug implies some features of its geom-
etry and interconnection. Vugs may vary from tubes or
planes that traverse the matrix to vesicles isolated from
each other. Fractures and fracture porosity result from
earth movements that create joints and faults through
which fluids may move. Although fractures may
only contribute up to I or 2 percent porosity to a res-
ervoir, they will have a significant effect on reservoir
permeability.
Hydrocarbons have been produced commercially from
rocks with porosities as high as 50 percent. Fractured
carbonates, such as those in the Foothills belt of west-
ern Canada, are prolific, although matrix porosity may
be as low as 1.5percent. Some nonproductive rocks also
have high porosities. Clays and shales and certain chalky
carbonates may have fractional fluid volumes or
microporosity greater than 40 percent; yet these rocks
are seldom productive. Porosity, therefore, cannot be
considered the sole criterion for the determination of
reservoir productivity.
5.4.2 Sources and Acquisition of Data
Core Analysis
Porosity, .p =
l
L' - (Lid)' (ltd' /6 0.4764 (1) Core analysis has been called the cornerstone upon
L'
which formation evaluation rests, as it provides the only
Figure 5.4-1 Porosity of Cubic-Packed Spheres directly quantifiable measurement of fundamental
reservoir parameters. Measurements are made on full
Even though porosity is independent of the size of the
diameter and plug samples obtained from conventional
spheres, the porosity of a uniform sphere system can
coring devices, and on plug samples obtained by rotary
vary from over 25 percent to nearly 48 percent depend-
or conventional sidewall coring tools.
ing upon the packing geometry. Ifpart ofthe pore space
of the model is filled with mineral particles of smaller The appropriate procedures are described in the
size than the spheres, porosity is decreased. The poros- Recommended Practice for Core Analysis Procedure
ity continues to decline as ever smaller particles are put (American Petroleum Institute, 1960). An overview of
the most commonly used methods follows.

55

m _
DETERMINATION OF OIL AND GASRESERVES

Porosity measurements are made after a sample has been I. Clean liquids from the rock samples.
selected and cut to form a right cylinder, and the hydro- 2. Measure the mass of each cleaned sample (dry
carbons have been removed. The method of cleaning mass).
and subsequent drying can have an effect on the mea-
3. Determine the volume of each sample (bulk
surements. Samples are normally cleaned in a vapour
volume).
phase unit or in a Dean Stark apparatus using toluene
as a solvent. For tight, competent samples, a pressure 4. Measure the volume of the open space in each
core cleaner may be used. The samples are then dried in sample (pore volume) or the volume of the solid in
an oven to remove the residual toluene. If the samples each sample (grain volume).
contain significant amounts ofclays, the samples should The remaining properties may be calculated from the
be humidity (45 percent) dried or dried in a low tem- measured values of dry mass and any two of the three
perature oven to minimize dehydration. Excessive volumes (bulk, pore or grain).
dehydration results in porosity values that are too high. Methods for determining porosity are oftwo basic types:
A group of properties, including pore volume, those that yield porosity directly, and those that yield
porosity, bulk volume, bulk density, grain volume, and values for grain volume, pore volume or bulk volume
grain density, are generally determined in the labora- independently. Several analytical methods may be em-
tory by means of a single test procedure. Typically, the ployed in the laboratory, as shown in Table 5.4-1. The
steps in this procedure are as follows: following are the most commonly recommended ofthese
methods:

Table 5.4-' Comparison of Techniques of Determining Porosity

Measured Method Calculated Accuracy Need for Need Sample Sensitivity Sensitivity
Property Precision Measurement of for Size to Surface to
Noneffective Cleaning Vugs Calibration
Pore Space

Porosity Summation Poor Fair No No Moderate No High


of Fluids O.69% 1.0%

Direct Good Good - Yes Any - Low


Grain O.OI cc O.OI cc
Volume Gas Good Good - Yes Any - High
Expansion O.02 cc O.02 cc

Steeping Good Good No Yes Any Yes Low


O.OI4 cc O.05 cc
Pore
Volume Gas Good Good No Yes Any No High
Expansion O.OI7 cc O.05 cc

Steeping Good Good - Yes Any Yes Low


O.014 cc O.05 cc
Mercury Good Good - Yes Any Yes Low
Bulk Archimedes O.OI4 cc O.05 cc
Volume Bulk
Volume
Caliper Good Fair - No Any No Low
O.015 cc O.OI5 cc
Source: Geotechnical Resources Ltd., 1991.

56
ESTIMATION OFVOLUMES OFHYDROCARBONS INPLACE

Gas Expansion Method. This is used for determining Except in the presence of gas, the difference between
grain volume; it is also known as helium porosimetry apparent density, Pa, read by the tool and true bulk
and the Boyle's Law method. density, Ph' is trivial.
Mercury Archimedes Method. This method, used to Acoustic logging tools employ one or more transmitters
determine bulk volumes, is based on the fact that a that emit a sound pulse and receivers that record the
nonwetting fluid will not spontaneously invade a sample. pulse as it passes them. The acoustic log represents a
Caliper Method. This method is used to determine bulk recording ofthe time required for a compressional wave
volume by measuring the length and diameter of a right to traverse one metre of formation. This interval transit
cylinder sample. time is the reciprocal of the velocity of the wave.
Summation-of-Fluids Method. This method is used Interval transit time, <it, is dependent on lithology and
for quick determination of the porosity of uncleaned porosity, <1>, as illustrated by Equation (4):
sa~ples.

Log Analysis (4)

Porosity is also obtained from a variety of downhole


measuring devices where tool response is a function of
where <it = interval transit time (us/m)
<itma = transit time in the matrix (us/rn)
the formation porosity, the fluid in the pore space, and
the matrix properties. When the fluid and matrix end
<itr = transit time in the fluid (us/m)
points are known or can be determined accurately, tool Neutron logs respond primarily to the amount of
response can often be reliably related to porosity. hydrogen in the formation. In clean formations with
All three logging devices (acoustic, density, neutron) pores filled by water or oil, the neutron log indicates
respond to the characteristics of the reservoir immedi- the amount of liquid-filled porosity present. Rock has
ately adjacent to the borehole. The depth ofinvestigation essentially negligible hydrogen content and therefore
is shallow (only a few inches on average) and usually does not contribute to the porosity response.
completely within the flushed zone created by invasion In the operation of the neutron log, high-energy fast
of drilling mud filtrate from the wellbore. neutrons are emitted continuously from a radioactive
At present, the density log is the primary porosity log source in the sonde or tool. These neutrons collide with
for most reservoir engineering applications. In opera- formation nuclei in a billiard ball fashion and at each
tion, a radioactive source applied to the borehole wall collision lose some energy. Within a few microseconds,
emits medium energy gamma rays into the rock. As these the neutrons have been slowed down from initial ener-
gamma rays collide with the electrons in the formation, gies of several million electron volts (eV) to thermal
they lose energy, but continue to travel and are counted velocities around 2.5 eV and proceed to diffuse ran-
as an indication of formation density. Density tool re- domly until captured by the nuclei of atoms such as
sponse depends on the electron density which, in tum, chlorine, hydrogen or silicon.
depends on the density of the rock matrix, the forma- The capturing nucleus then becomes intensely excited,
tion porosity and the density, of the fluids filling the emitting a high energy gamma ray of capture. Depend-
pores. For a clean formation of known matrix density, ing on the type oftool, either the capture gamma rays or
formation bulk density, Ph' is given by Equation (2): the neutrons themselves are counted by a detector in
the sonde. The counting rate at the detector is inversely
(2) proportional to the hydrogen concentration. Therefore,
low count rates infer high porosity and vice versa, and
where Ph = formation bulk density (g/cm") this relationship will generally hold true except where
Pr = fluid density (g/cm") gas is present in the region of investigation of the tool.
<I> = porosity (fraction)
Pma= matrix density (g/cm") Industry Databases
Porosity, <1>, is therefore given by Equation (3): Except in rank wildcat environments, the reservoir
analyst should be aware that an important source of
<I> = Pm, - Pb reliable data exists in those wells that have already been
(3) logged or cored in the vicinity ofthe study well or area.
Pm, - P,
Many governments, as part of the management of

57

$
-
DETERMINAnON OF OIL AND GASRESERVES

nonrenewable resources, require that data recovered 2.54 g/cm'' produces porosity values ranging from
during the drilling and completion of a well be submit- 6.6 percent for sandstone to 17.5 percent for a dolomite
ted to the managing agency. In Alberta, for example, all matrix.
activity is reported to the Energy Resources Conserva- Because sound travels more slowly in a fluid-filled pore
tion Board (ERCB), which maintains a core and cuttings than in solid rock, for each rock type a unique relation-
storage and examination facility as well as copies of all ship exists that relates the measured transit time to
data derived from the wells (logs, core analyses, special porosity. The industry has adopted the Wylie Time-
core analyses, well tests, and production histories). The Average Equation as the standard for computing poros-
ERCB also maintains a comprehensive database com- ity from acoustic logs in clean consolidated formations
posed of all key reserves criteria for the oil and gas pools with uniformly distributed small pores. Figure 5.4-6
in the province. demonstrates this porosity vs, transit time relationship.
5.4.3 Analysis of Data For example, a value of216.5 us/m (66 ils/ft) produces
three different values for porosity depending on the
Statistical Techniques for Core Data nature of the matrix mineral.
Porosity values for each sampled interval, along with Neutron log porosity readings are computed and
related permeability and fluid saturation data are tabu- recorded directly on the log. These logs record porosity
lated in a core analysis report (Figure 5.4-2). in linear units for a particular lithology. An internal pro-
Typically, the reservoir analyst will group core data gram automatically provides corrections for the varying
measurements into beds or layers that closely approxi- effects of mud weight, salinity, temperature and hole
mate the stratification evident on the open-hole logs. size variations. Once the appropriate lithology has been
The interpretation ofthis data is aided by cross-plots of determined, porosity can be read directly from the
horizontal permeability vs. porosity (Figure 5.4-3). By service company chart as illustrated in Figure 5.4-7.
comparing core porosities to individual log response, Cross-plotting techniques have evolved because use of
the reservoir analyst can more accurately calibrate the a single tool to determine porosity is valid only where
open hole logs over the uncored portion of the interval the lithology is known to consist of a single mineral
of interest. that is clean and water-filled. In nature, very complex
Great care must be exercised in the use of core porosity mineral assemblages are the norm. Here, even the na-
data because many factors can affect the representative- ture ofthe pore structure itself can affect tool response.
ness of this data. In reviewing core analysis reports, the Under these circumstances, data from two or more
reservoir analyst should ensure that a summary sheet porosity devices is needed to resolve the response to
describing all core retrieval and analysis procedures is differing matrix minerals to the presence of gas or light
included (Figure 5.4-4). this information provides the oils, and to the pore geometry. By far the most univer-
best basis for assessing the quality of core data. sally accepted and utilized ofthese is the neutron-density
cross-plot.
Porosity from Logs Today it is almost standard practice to run the neutron
Anyone or, more frequently, a combination of all three and density logs in tandem or combination and present
conventional porosity devices are typically run when a porosity from both logs on a compatible porosity scale.
well has reached total depth or when a protective inter- This overlay presentation provides the experienced
mediate casing string is to be set prior to drilling deeper. petrophysical analyst with an additional qualitative in-
The science and art of interpreting these logs for terpretation of the nature of the porosity and the host
lithology and can aid in the detection of gas-bearing
porosity and fluid saturation is embodied in the term
petrophysics. Petrophysics seeks to express the physi- zones in the wellbore.
cal and chemical properties of rocks as they pertain to In Figure 5.4-8, a reading of 21 percent limestone
the evaluation of hydrocarbon-bearing layers. Each log porosity from the neutron log is cross-plotted against a
has its own unique application. 15 percent limestone porosity from the density log, de-
fining a point, P, lying between the limestone and
Figure 5.4-5 illustrates the method used for computing
dolomite curves. If the lithology is known to be a mix-
porosity from a density log for a clean formation
ture ofthese two minerals, it is appropriate to proportion
of known matrix density, Pm.' containing a fluid
the distance on a line connecting equal porosity values
of average density, Pr. The lithology dependence ofthis
on both curves and assume that it represents the
tool is evident in the fact that a log reading of

58

=
"TI m
<0' en
<: CORE ANALYSIS REPORT --<
~ ~

'"
'"
:.,.
Sample Depth Thick- Sample Sample Permeability Porosity Saturation Grain Remarks* --<
5
, Number ness Depth Length kmax k". Oil H,O Density z
k"".
'" (m) (m) (m) (m) (mD) (mD) (mD) (%) (%) (%) (kg/m' ) 0
"T1
--i <
-c BELLY RIVER FORMAnON 0
r-
"C
(j' CORE # I 1023.00 m - 1041.00 m RECOVERY/CUT: 17.85 m/ 18.00 m c
Ol
s:m
1023.00-1025.41 2.41 sh en
o 1025.41-1025.60 0.19 1025.43 0.13 82.94 78.49 8.59 20.8 12.6 11.9 0
0
~
I 2683 FD "T1
1025.60-1025.80 0.20 1025.67 0.12 9.53 8.57 1.89 13.3 10.4 35.8 2668 FD :I:
'=:J"

2
3 1025.80-1026.42 0.62 1026.14 0.13 5.12 4.82 3.16 18.0 14.2 35.4 2675 FD
-<
0
:0
Ol
4 1026.42-1027.32 0.90 1026.60 0.14 0.12 0.11 <0.01 10.6 TR 68.4 2677 FD 0
-<
IJ)
n

:0
IJ) OJ
::3J 0
Z
'"0
"C
en
Z
....
~
-e
r-

10 1029.38-1029.63 0.25 1029.52 0.13 57.52 56.57 45.97 19.7 11.6 31.4 2643 FD ()
m
11 1029.63-1030.07 0.44 1029.71 0.14 88.48 84.96 64 .29 19.9 8.4 24.8 2640 FD
12 1030.07-1030.47 0.40 1030.12 0.13 24.47 23.38 17.80 23.4 9.3 25.2 2646 FD
13 1030.47-1030.75 0.28 1030.55 0.12 25.68 25.23 7.63 19.4 11.9 35.0 2647 FD
14 1030.75-1031.18 0.43 1030.80 0.15 84.63 74.86 3.04 16.3 8.2 39.6 2650 FD
1031.18-1031.39 0
1031.39-1031. 7
103 1.73~ 1032.00
1032.00-1032.28
Hl32.28-1032.60
20 1032.60-1032.81 0.21 1032.67 0.12 12.50 12.16 3.78 19.6 13.9 33.0 2661 FD
21 1032.81-1033.64 0.83 1033.21 0.14 0.38 0.32 0.Q3 18.1 TR 20.3 2682 FD
22 1033.64-1034.66 1.02 1034.32 0.15 0.55 0.53 0.22 18.4 TR 30.9 2682 FD
1034.66-1035.61 0.95 calc ss
23 1035.61-1035.80 0.19 1035. 66 0.09 3.44 3.38 1.30 20.2 TR 46.6 2668 FD

calc ss
MISSING

Source: PanCanadian Petroleum Ltd., PCP Ferrybank 6-23-43-28W4. Date: Nov. 17, 1987, File: 87-GC-422.
* FD = full diameter, P = plugged sample, sh ~ shale, calc ss ~ calcareous sandstone.
** Plug permeability-sample not suitable for full diameter measurement.
v.
-c
DETERMINATION OF OIL ANDGASRESERVES

Formation: Belly River Equation: log (kh) = -2.7496 + 0.2128 <il


Depth: 1025.41 m to 1037.12 m Correlation Coefficient: 0.5998
1000
~
/
/
/
/
I- /
...+,./
~

c
100
i=
~
.+. . +~
/
.. I- +;1"
>- +
=
:.,a 10
/
'" +
t / T
...
'E"
/

~ I- /
/
...+
...
'"
a. I- /
/
...
iii
~
~
/
c /

~
0 /
N /
.;: /
0 I-
J:
.1
/
/
...
/
/

~ /
/

I- /
/
, ,
.01
o 6 12 18 24 30
Porosity (%j

Source: PanCanadian Petroleum Ltd., PCP Ferrybank 6-23-43-28W4.

Figure 5.4-3 Porosity vs. Horizontal Permeability

Core Intervals Recovery/Cut Formation No. of Boxes


1023.00-1041.00 m 17.85/18.00 m Belly River 16
Coringequipment Diamond
Coringdiameter 101 mm
Core fluid Water-base mud
CLEANING
Solvent Toluene
Extraction equipment Vapour phase
Extraction time 22 days
Dryingequipment Convection oven
Drying time 24 hours
Dryingtemperature 150'C
ANALYSIS
Pore volume measured by Boyle's Law heliumporosimeter
Grain volume measured by Boyle's Law heliumporosimeter
Bulk volume measured by Mercury/caliper
Fluid saturation measured by Retort
Source: PanCanadian Petroleum Ltd., PCP Ferrybank 6-23-43-28W4.
Notes: Plugs are I inchdiameterunlessotherwise noted.

Figure 5.4-4 Core Analysis Report: Analytical Summary Sheet

60
40

$ = Pm.' P.
Pm.' P,
30

~ Dolomite
~
-e-
.i- 20
'w 17.5%
e
e Limestone Pma = 2.71 g/cm
3
10.0%
10 ~-----------
3
Sandstone Pm. =2.65 g/cm
3
P, =1.0g/cm
O+-L---'C-.L--'--,-- .- -,- --,
2.9 2.7 2.5 2.3 2.1 1.9
3
Bulk Density, Pb (g/cm )

Figure 5.4-5 Porosity from Formation Density Log

50

$=
40

Dolomite .6.tma = 143 }.ts/m ---,,r/


rf 30 Limestone ./ltma = 156 jls/m
.".
;6
.~

~ 20
15.4%
~----------------------
~--------------------
13.0%
-
10 Sandstone Alma = 182 us/rn
I>t, =161511s/m
7.7%

O.J----L~-..L-_,_~-----~------~
100 200 300 400
IntervalTransit Time, I>t (lls/m)

Figure 5.4-6 Porosity from Sonic Log

61
DETERMINATION OF OIL AND GAS RESERVES

40

30 Sandstone

12.6%
-----------------------
10.0% Dolomite
10

O+-----'~:::..---_+---_r---___,----
o 10 20 30 40
Neutron Index (Apparent Limestone Porosity)

Figure 5.4-7 Neutron Porosity Equivalence Curves

volumetric proportion of the two minerals. Therefore,


40
the interval represented at P would be composed of 40
percent dolomite and 60 percent limestone and have a Limestone 30
porosity of 18 percent. 30
25
While knowledge of the matrix constituents is always Sandstone ~
important, an error in choosing or assuming the matrix 20
pair does not have a great impact on the porosity deter- ~ 20
mined except in very low porosity carbonates. This
C 25

feature ofthe neutron-density cross-plot, combined with


its inherent gas identification properties, makes it the
"
<::
o
00 10
Q)

most popular technique. E


2- o
.... 0 10
Correlation of Log and Core Porosity
Many reservoir analysts prefer to use core analyses in 5 ' " Dolomite
reservoir studies, particularly where equity determina- -10
tion is a key issue. While computer-processed suites of
log data may represent the only continuous source of f~AnhYdrite
computed reservoir parameters, it has long been recog- -20 + - - - - , - - - , - - - - - ; r - - - - - , - - - ;
nized that log-derived values are not absolute numbers. o 10 20 30 40
In core-log matching exercises, the objective is to stan- <I> CNL (Limestone) (%)
dardize the output results in such a way that differences CNL = compensated neutron log
in results from well to well represent relative changes
in reservoir quality. Therefore, it is common prac- Figure 5.4-8 Porosity and Lithology
tice to use the core data as the reference point and Determination from
fit log analysis data to it. A paper by Hamilton and Neutron-Density Log
Stewart (1983) outlines a step-by-step procedure for
conducting this type of analysis.

62
ESTIMATIONOF VOLUMES OFHYDROCARBONS IN PLACE

5.4.4 Factors Affecting Data Quality contribute to reductions of porosity with increasing
depth.
Preservation of In Situ Conditions
There is strong evidence of a continuous reduction in
The quality ofthe results obtained from core analysis is porosity with increasing pressure differential applied
directly related to the quality ofthe core when it reaches between the interior and exterior of a sample. The ana-
the laboratory. Therefore, in cutting and retrieving the lyst should be aware that in situ porosity will be lower
core, precautions must be taken to preserve, as much as than that measured under atmospheric conditions in the
possible, the conditions that exist downhole in the res- laboratory. Pore volume compressibility tests may be
ervoir. The cutting and retrieval ofcore to surface results conducted to determine the appropriate reduction
in the removal of overburden pressure, the introduction factor for the reservoir under study, and this type of
of dril1ingfines, and some modification ofthe clays, al1 measurement is now virtual1y routine.
of which can affect porosity measurements.
Reservoir Heterogeneity
Shale Content
The results of sampling with wireline logging tools or
The most important problem that has eluded solution core samples can be misrepresentative of the reservoir.
since it was recognized by early logging over 50 years The actual volume of reservoir sampled even with well
ago is that of shaly sands. logs is insignificant in comparison to the unsampled
The presence of shale or clay minerals in the interstices reservoir volume and is never statistical1y random.
of sedimentary rocks affects log analysis by moving the Certain geologic environments such as marine sands can
resistivity of the porous and permeable zones toward be predictable over distances in the order ofkilometres,
the normal shale resistivity on the log. Shales also im- while carbonate reservoirs may vary significantly over
pact porosity measuring devices. With densities between distances in the order of centimetres. The effects ofres-
2.4 and 2.7 g/cm-, shales can show up on density logs ervoir heterogeneity on the quality ofthe data being used
as having nil to moderate porosity. On acoustic and neu- to characterize the reservoir can be minimized only by
tron logs, shales may appear to have moderate to high careful geological investigation.
porosity. In extreme cases the effects on resistivity and With respect to reservoir heterogeneity, three main
porosity logs can cancel out in the computation of wa- criteria should be considered: sample homogeneity, the
ter saturation. However, ifthey do not cancel, the analyst presence of fractures, and sample size. As a basic rule
may misinterpret or overlook prospective pay zones. The of thumb, the larger the sample, the better it will rep-
amount of shale must therefore be determined to permit resent the range of microscopic variations in the rock.
its contribution to be subtracted from the measured Most reservoir rocks, even those that visually appear to
parameters. be homogeneous, exhibit variations in permeability over
The impact of clays on the results of core analysis is relatively smal1 distances. In highly fractured reservoirs,
equal1y difficult to resolve. The main obstacle encoun- there are real1y two permeabilities of interest: matrix
tered is in distinguishing pore water from nonliquid clay and fracture permeability. To determine the matrix com-
mineral water. In addition to retaining the clay lattice ponent in such reservoirs, plug samples are used because
water, the core analyst must be careful to preserve the al1 fractures must be excluded from the samples. In this
last few molecular layers of adsorbed water on the clay case, the general rule "the bigger the sample, the better
minerals. the sample" does not apply. Fracture permeability should
Figure 5.4-9 illustrates the complexity that the presence be measured on whole core samples. To get representa-
of clay minerals can introduce to the process of tive values, however, the samples should be restressed
porosity determination from either cores or logs. to overburden conditions. The procedures utilized
for fractured reservoirs are also applicable to vuggy
Rock Compressibility carbonate reservoirs.
In the assessment of data quality and reliability, it Measurement Precision and Tool Resolution
must be remembered that most laboratory porosity
determinations are based on information obtained at sur- Anyone who has ever attempted to use wel1 logs and
face conditions. Rocks are elastic media and can be core analysis data to accurately characterize a reservoir
compressed and decompressed when subjected to the knows that even with the wide range of tools available
stress and release of overburden pressure. Mineral one rarely gets the same answer from each tool.
elasticity, grain movement and, final1y, grain failure al1

63

r+
DETERMINATION OFOILANDGAS RESERVES

---VC1ay
'I' <I> Effective

I
Petrophysical Qualities <I> Total

<I> Free Fluid


Clay
,, Bound
Water Free Water
Dry : Clay
Clay :, Water
,

~~<I>cor.
(After Overburden Correction)

f--- <I> NML

<I> Density

Log Measurements
1----------- <t> Neutron

V Clay = volumeof clay


<t> Sonic
NML = nuclear magnetic log

Source: Schlumberger, 1988.

Figure 5.4-9 Impact of Clay on Log and Core Measurements

The sources of errors in logs and core analyses are both References
random and systematic and are introduced by the American Petroleum Institute. 1960. "Recommended
implicit limitations imposed on the measuring device Practice for Core Analysis Procedure." API RP
by design considerations. Statistical variation in radio- 40, Dallas, TX.
activity measurements is an example ofa random error;
Geotechnical Resources Ltd. 1991. "Porosity." In The
improper or degrading calibration in a logging tool
Science and Technology of Core Analysis (2nd
or pressure recorder is an example of a systematic or
ed.). Course notes, Calgary, AB.
constant error.
Hamilton, J.M., and Stewart, J.M. 1983. "Thin Bed
By far the most serious source of error is introduced by
Resolution and Other Problems in Matching Log
the unavoidable complexity ofthe reservoir rock. What
and Core Data." SPWLA 24th Annual Logging
is referred to here is any closely spaced variation in petro-
Symposium, Calgary, AB.
physical parameters. When petroleum engineers are
confronted with thinly bedded strata, they must be even Schlumberger. 1988. "Measuring Porosity, Saturation
more aware of the vertical resolution limitations of the and Permeability from Cores: An Appreciation of
measuring device. the Difficulties." The Technical Review," Vol. 36,
No.4, Oct. 1988.

"Material from The Technical Review is printed with the


permission of The Oilfield Review.

64

7
ESTIMATION OF VOLUMES OF HYDROCARBONS INPLACE

5.5 HYDROCARBON SATURATION the mass of oil originally in the sample is calculated by
difference.
5.5.1 Introduction
The sponge corresponding to each sample is similarly
The saturation of a given fluid is defined as the fraction
analyzed in order to obtain the total fluid content of the
of the pore volume occupied by that fluid. This defini-
core.
tion, while simple, provides no insight as to how or
where the fluids are held within the porous network of Oil-Base Coring for Connate Water Saturation
the rock; it merely states that some fraction of the pore
With oil-base core, the core is drilled with lease crude
network contains the given fluid.
or an appropriately designed fluid as a lubricant. The
5.5.2 Saturation Determination From crude will only displace oil and, therefore, it is possible
Core to accurately determine connate water saturations. The
The saturations of hydrocarbons (both liquid and recovered core is kept immersed in this fluid until it is
ready for analysis in the laboratory.
gaseous) and water in petroleum reservoirs are two of
the most important properties of interest to the reser- The recovery of an oil-base core and the successful
voir analyst. However, because these fluids are generally measurement of an average connate water saturation,
mobile, they are not always recovered during conven- Swo' requires balancing the need for accurate water satur-
tional coring operations. Therefore, by the time the core ation data with the realities of conducting a potentially
is analyzed in the laboratory, the fluid saturations do hazardous coring operation with minimal risk and rea-
not necessarily represent those that exist in the reser- sonable expense. Careful consideration must be given
voir. For this reason, fluid saturations measured by core to the selection of the proper coring fluid to preserve
analysis are generally treated as qualitative numbers the native wettability in the core. (Wettability is defined
rather than precise values. With proper precautions, such in Section 5.5.5.)
as drilling with lease crude and using pressurized or To determine a reliable connate water saturation, the
sponge coring techniques, saturation measurements may optimum placement of the core location is, as far as is
be made more accurately. However, these techniques feasible, above the local oil-water contact. Detailed
add considerable expense to the core retrieval. It should knowledge ofreservoir pressure permits maximum over-
be noted that the inaccuracy ofthe measurements is not balance reduction to minimize the stripping of connate
due to the laboratory techniques, but to the difficulty in water during the coring process.
obtaining proper samples. When all elements of the operation are carefully
For accurate estimates ofsaturations in a reservoir, both controlled, laboratory analysis (Dean Stark) on full-
core and geophysical well log data must be used; fur- diameter core samples for connate water saturation com-
thermore, the log data must be interpreted accurately. pares favourably with other methods such as single well
This means that calibration constants for electrical prop- tracer testing and open-hole log evaluation.
erties should be measured on core samples. When proper The economic attraction of such an operation is easily
care is taken, reliable saturation values can be obtained appreciated, considering that reductions in recognized
from logs. water saturation may approach or even exceed 50 per-
More accurate saturation data may be obtained by cent and may result in increases ofas much as 20 percent
using sponge core or oil-base core techniques. With the in the perceived original oil in place. Changes of this
sponge core technique, core is recovered by means of magnitude can impact not only estimated reserves, but
an aluminum inner core barrel that has a sponge lining. also field development plans and production through
Fluids escaping from the core are absorbed by the increased maximum rate limitations.
sponge. Samples are cut from the core and analyzed for
fluid content using the Dean Stark technique. In this Saturation Measurement
process the sample is weighed and placed in the Dean Three general families of techniques are available for
Stark apparatus, and the extraction solvent is boiled and the measurement ofsaturations in rocks: chemical, which
condensed repeatedly. The water-solvent vapour mix- includes retort and distillation methods; electrical, which
ture rises and condenses, with the water collecting in a includes both laboratory and geophysical log methods;
graduated collection tube. Solvent cleans oil out of the and nonintrusive, which includes X-ray and nuclear
sample. The volume of water is measured directly and magnetic resonance. The chemical techniques are

65
DETERMINATION OF Oil AND GASRESERVES

currently the universal choice for routine core analysis ljl = porosity (fraction)
operations, and electrical, for wellbore measurements. m = cementation exponent
The nonintrusive techniques are gaining acceptance S; = water saturation (fraction)
as on- line saturation methods for displacement and n = saturation exponent
enhanced oil recovery studies, but are not generally used As a consequence ofArchie's work, the exponents m=2
to determine routine oil and water saturations and will and n=2, and the coefficient a= I are generally used in
not be discussed further. formation evaluation; "a" is a constant, also used in
Equation (3). However actual values of "a," "rn,' and
Chemical Methods
"n" can be determined in the laboratory for any specific
The procedure for determining fluid saturations by the reservoir,
retort method is based on taking two companion samples. At this time, a recommended procedure does not exist
One is weighed, thoroughly cleaned, and then its for formation factor measurement. Although most
porosity determined (porosity sample); the other is laboratories use custom-built apparatus, all have the
crushed, placed in a retort oven, and heated for analysis same basic principles of operation.
of its oil and water contents. In the distillation method,
The sample is capped with mandrels and placed
the sample is placed in a Dean Stark apparatus with tolu-
inside a pressure containment cell fitted with electri-
ene. As the toluene is heated and condensed, fluids are
cally insulated end caps. The chamber is pressurized
removed from the rock, and the water is captured and
and the sample is then saturated with brine.
measured. Oil values are determined by calculation.
Ifthe tests are to be performed at reservoir temperature,
Generally, the sum ofthe water and oil saturations does
the pressure containment cell is placed in an oven. The
not total one, but is a fraction of the porosity because a
resistivity of the sample is measured and the formation
gas saturation has developed with the depressuring of
factor, F, is calculated using the following equation:
the core sample.
Electrical Methods
(2)
Because brine is electrically conducting, it seems
reasonable to expect the electrical conductivity, or its
inverse, the electrical resistivity, to vary with brine satu- where R, = resistivity of water- saturated formation
ration. This expectation is the basis of the electrical (ohm-m)
method of saturation determination. The ultimate objective offormation factor measurement
During the 1930s, a large number ofworkers performed is to determine the values of "a" and "m" that charac-
tests to determine the relationship between the resistiv- terize a reservoir. For this reason, a suite of samples
ity of rock samples and the brine content. In general, it should be chosen having a range ofporosities that spans
was found that correlations existed, but it was not until the range found in the reservoir. A prerequisite to
the comprehensive work ofArchie (1942) was published obtaining representative values of "a" and "m" is a
that these correlations were placed in their modem con- very careful sample selection procedure.
text. Archie's work was based on GulfCoast sandstones Formation factors and porosities (preferably measured
in the porosity range of 10 to 40 percent, saturated with under stressed conditions) are determined for this suite
brines of salinity between 10 000 mg/L and lOa 000 of samples. The values for all samples tested are then
mg/L of NaCI. The work covered both fully saturated plotted on log- log paper as illustrated in Figure 5.51
and partially saturated samples, and presented the and fitted with an equation of the form:
classical empirical equation still employed today by
log F = log a - m log ljl (3)
petrophysicists and formation evaluation experts:
The determination of the "n" exponent in the Archie
aR" (I) equation (Equation I), is considerably more complicated
R, = ljlms: than formation factor measurement because it necessi-
tates measurement of not only a resistivity, but also a
where R, = true formation resistivity (ohm-m) saturation at each data point. Samples are commonly
a = constant desaturated by one of two methods: centrifuging, or
R,. = formation water resistivity (ohm-m) using a porous diaphragm.

66
ESTIMATION OF VOLUMES OF HYDROCARBONS IN PLACE

50
,
~, ,
-.
'. <,
", <,
'. .
Hard
30 <, 1
y, F = -$'
20 "

~~
<,
<,
~ '.
<,
,
>!i.
g.... ". <,
-: ,
-e- .... :-:. "-
~ 10
Ul
eo SOf!(HUm/ c..,(S"-'"
a.. ". . '" ~ - 1 87 + 0.019
m-.
F = 0.62
$,.1. ".~ $
5
,
~
". <,
'.

F = 0.81
/ . ...., -,
". <,

$' '.
<,
<,
<,
-,
2
<,
<,
<,
<,
<,
<,

1 3
"
10 10' 10
Source: Schlumberger, 1972. Formation Factor, F

Figure 5.5-' Porosity vs. Formation Factor

Once a set of saturation-resistivity data has been where the tubes represent pore throats interconnecting
obtained, the saturation exponent is found by plotting individual pores. For a hydrocarbon accumulation to
this data in log - log format as illustrated in Figure occur, the pore spaces must be continuously interconn-
5.5-2 and fitting the data with an equation of the form: ected and the capillary pressure of a water-filled pore
must be exceeded by the pressure of the encroaching
log I = -n log Sw (4) hydrocarbons. This threshold pressure, also referred to
where I = formation resistivity index as the displacement pressure, determines whether or not
hydrocarbons can accumulate in a pore on the micro-
Capillary Pressure Studies
scopic scale or in a particular geologic structure on the
It is usually accepted that hydrocarbons displace water macro scale. In the case of a cap rock or reservoir seal,
in a reservoir rock during the normal process of accu- it determines the maximum height a hydrocarbon
mulation. Because sedimentary rock is usually deposited column can reach before the seal is breached.
in a water environment, the pore network must have The density differences between the hydrocarbon and
been originally full of water. To gain a better under- water phases results in a force called buoyancy effect,
standing ofpresent fluid distributions, it is necessary to which is the principal motive force causing oil or gas to
understand how hydrocarbons displace water to form migrate upwards through water-saturated rocks in the
the hydrocarbon accumulation in the first place. subsurface.
The pore geometry of sedimentary rocks is frequently
described in terms of the "bundle-of-tubes" concept,

67
DETERMINATION OFOIL ANDGASRESERVES

Company: PanCanadian Petroleum Ltd. Formation: Basal Belly River


Well: PCP Ferrybank 2-23-43-28 Field: Ferrybank
Location: LSD 2-23-43-28W4M Province: Alberta

I \
I ! I
\
R, 1.00
-=--
Ro S~68
1\
\
\
\
10 -. \
\

\-
\
~

~
~ ,\.
~
~
~

10" 1.0
Source: PanCanadian Petroleum ltd. Brine Saturation (fraction)

Figure 5.5-2 Formation Resistivity Index

Opposing this upward force, however, is the capillary the analyst to combine data from many samples to more
pressure of the reservoir which depends on three appropriately model the reservoir under study. Several
factors: methods are available to average capillary pressure
1. Radius of the pore throats of the rock curves. A frequently used method is one developed by
Heseldin (1973) in which he uses a displaced rectangu-
2. Interfacial tension of the two fluids
lar hyperbolic function to relate porosity to bulk volume
3. Wettability of the rock hydrocarbon for varying levels ofpressure and, in tum,
Capillary pressure data is generally obtained from small relates capillary pressure to water saturation for various
core samples which represent a tiny fraction of the res- levels of porosity. This method has been used success-
ervoir. In the laboratory, an air-mercury fluid system is fully in Alberta in the Waterton, Jumping Pound and
often used to represent the reservoir system. Air-brine Virginia Hills fields.
and oil-brine systems are also used. It is essential for

68
T
ESTIMATION OF VOLUMES OFHYDROCARBONS INPLACE

Another method used is one developed by Leverett


(1941). This method employs a correlating function _ (cr cos 0)'/H.
commonly called the "J function," which was originally PCa/ Hg - PC w/0 (6)
(o cos 0)'/w
proposed as a means to convert all capillary pressure
data to a universal curve. However, experience has where PC olllg = air-mercury pressure (kPa)
shown that significant differences in the correlation
PCw10 = water-oil pressure (kPa)
of the J function with water saturation occur from
formation to formation. 3. Calculate PC olllg for any height above the free water
level for the selected rock type.
The prime use ofcapillary pressure curves is to confirm
water saturations in difficult evaluation environments.
Other uses include determination of rock characteris- (cr cos 0)'/H.
Pc,,". = 0.433h (SG w - SG,) (7)
tics such as average pore throat size, pore throat size (o cos 0),/w
distribution and permeability; calculation of depth of
4. From the air-mercury capillary pressure curves
free water level or oil-water contact; and determination
(Figure 5.5-3), read the percentage bulk volume
of the extent of the transition zone. The manipulation
occupied by Hg at that level for the selected rock
ofcapillary pressure curves is fraught with many uncer-
type and convert it to Sw' or read Sw (wetting phase
tainties, and only an experienced reservoir engineer
saturation) directly.
or petrophysicist should attempt such an exercise.
Accurate knowledge ofthe specific gravities ofthe res- For reservoir systems with fluid characteristics similar
ervoir fluids, interfacial tension between fluids and rock, to the laboratory systems, conversion factors are
and rock wettability is required for translating capillary not required. However, if the characteristics differ,
pressure data into equivalent oil-water or gas-water data. adjustments similar to these steps must be taken.
Table 5.5-1 lists commonly used values for wettability, 5.5.3 Saturation Determination From
0, of a water-wet system and interfacial tension, o, in Logs
dynes/em.
All water saturation calculations in theoretically shale-
Table 5.5-1 Wettability and Interfacial Tension free formations assume a homogeneous intergranular
pore system. These determinations are made from re-
System 0 Cos 0 cr a Cos 0 sistivity logs and are based on some form of Archie's
Air-water-solid 0 0
I 72 water saturation equation. As with the computation of
72
Air-mercury-solid 1400 -0.766 480 porosity from the various geophysical logging combi-
-370
Oil-water-solid 00 I 35 nations, the determination of fluid saturation from
35
various resistivity and porosity logs has generated many
When all data has been assembled, the process for unique approaches.
interpreting water saturation in an oil-water system from Nearly all these techniques are derived from the
air-mercury capillary pressure curves is a four-step classical Archie equation, and the results are wholly de-
process: pendent on the accuracy of the basic input parameters:
I. Determine the capillary pressure - height relation- R", F and R,. The analyst usually selects the deep resis-
ship in the reservoir. tivity reading from either the induction or the laterolog
device and after correcting it for environmental, bore-
Pc w/ , = 0.433h (SGw - SG,) (5) hole, bed thickness and invasion effects, adopts it
as true resistivity, R,. Porosity derived from the sonic,
where PC w10 = capillary pressure of the water-
the neutron-density, or some combination of log
oil system (kPa)
and core coverage will be matched with the appropriate
h = height (m)
lithologically dependent porosity-formation factor
SG = specific gravity, relative to water
relationship. Finally, R" will be determined either from
2. Convert the reservoir water-oil pressure system into log calculations, test recovery, or a sample of produced
the laboratory air-mercury pressure system using water from a nearby water-bearing zone in the same
the appropriate rock-fluid values and fluid specific geological formation. In shale-contaminated reservoirs
gravities. and in low porosity complex carbonate rocks, Sw can
only be accurately calculated by employing the most

69

it
-
DETERMINATION OFOIL ANDGASRESERVES

Company: PanCanadian Petroleum Limited Formation: Basal Belly River


Well: PCP Ferrybank 2-23-43-28 Field: Ferrybank
Location: LSD 2-23-43-28W4M Province: Alberta
14 105

Air-Mercury Capillary Air-Mercury Capillary


12 Pressure Curve I- Pressure Curve
10'

10
<?
o,
""x <? 103
8 a.
'"0 ~
:::::.. ~
:::J
~
~'"
:::J
6
'"'"OJ a, 10'
a.
~

\
4

10
I~ r-...
2

o
.2 o
\
.4
r-;
.6 .8 1
1
1 1~ 1~
\ 1~
Wetting Phase Saturation (fraction of pore volume) Bulk Volume Occupied Hg (volume fraction)
Source: PanCanadian Petroleum Ltd.

Figure 5.5-3 Air Brine Capillary Pressure Test

advanced computational routines that in themselves rely 5.5.4 Flow Test Procedures for Gas and
heavily on data support from special core analysis stud- Oil Saturation
ies. The casual analyst is well-advised to seek expert Well test analysis has always held great interest and
advice in these areas because improper selection of in- attraction for drilling and reservoir engineers because it
put parameters could lead to solutions that grossly offers the potential to assess not only the true saturation
misrepresent true reservoir conditions. condition ofthe formation, but also formation transmis-
Figure 5.5-4 represents a flow diagram of a typical sibility. As advances were made in mathematical
petrophysical evaluation based on saturations deter- modelling theory, early field data that was frequently
mined from electrical resistivity relationships. ambiguous became more amenable to resolution. With
The resultant water saturation is the fraction ofthe pore the advent of very sophisticated electronic pressure
volume of the reservoir that is water-filled. That por- gauges, high speed computers and advances in the field
tion not filled with water is assumed to be filled with ofmathematics, a new frontier has opened. Addition of
hydrocarbons. the pressure-time derivative to log-log type curves now
permits the identification of multiple reservoir bound-
aries and heterogeneities such as fractures and layered
formations.

70
,
ESTIMATION OF VOLUMES OFHYDROCARBONS IN PLACE

Rock Formation
Type Fluid Tests
~-------------------------+
k
---------------------+ Permeability
Cores.
1-0-- Sidewall Samples.
Drill Cuttings
---------~
I
I
I
Drilling I
+--- Time
------------+1I Quantitative
I
I
I
I
I ----- Quantitative Under
Natural I Special Circumstances
---- Radiation
I
I
I
I
I
I
I
Induced I
Radiation I
I--

Acoustical
<I>
Porosity -
Velocity
-
---- Spontaneous
Potential Rw
I-- Formation
Water -
Resistivity R.
Produced Water-bearing
Water Formation
Resistivity

Electrical
------------------------+
Resistivity Rt
True
Formation Sw
Resistivity r-- Water
Saturation

Source: After Shell Development Company, 1969,

Figure 5.5-4 Log Interpretation Flow Chart

71

It
DETERMINATION OFOIL AND GAS RESERVES

In designing any test, reservoir engineers integrate as In 1968, continuous measurements of rock CEC in situ
much open-hole logging and geological information as were not possible and, for practical purposes, a Dual
possible. Some of the flow regimes that can be recog- Water Model was proposed as a solution.
nized during a pressure test include infinite acting, In this approach, clay is modelled as consisting of two
pseudo-steady state, and steady state. It is important that parts: bound water and clay minerals, with the clay min-
the test be designed to recognize and capture data from erals assumed to be electrically inert. The Dual Water
all flow regimes. Critical formation properties like per- Model as applied to shaly formations is illustrated in
meability and skin factor can be determined only from Figure 5.5-5.
the infinite acting flow period. Reservoir size and shape
can be deduced from the pseudo-steady state phase, and
Solids Fluids
the steady state phase can give clues to that most-sought-
after parameter: drainage volume. Pressure transient tests
Bound Free Hydro-
can be conducted either in the open hole or in perfor- Matrix Silt Dry Clay
Water Water carbons
. ated casing. The open-hole drillstem test (DST) employs
a valve, packer, and pressure gauge. A more sophisti- Effective
Matrix Shaie
Porosity
cated production logging tool string run in a cased hole
can measure temperature, pressure, fluid density, and Total Porosity
Source: Schiumberger, 1987.
flow rate in addition to gamma ray activity and bore-
hole diameter. In both cases, the goal is the same: to
assess the fluid content and transmissibility of the res- Figure 5.5-5 Dual Water Model
ervoir as well as the extent of the producing formation
away from the wellbore. The analyst determines R. and R.b and inputs them to
any ofa number ofgeneral computer interpretation pro-
5.5.5 Factors Affecting Data Quality
grams for clastic sequences, such as the schematic of a
Presence of Shale or Clay typical process illustrated in Figure 5.5-6. To evaluate a
shaly formation, four parameters must be determined:
Shale- or clay-free environments are rare occurrences
water conductivity, C; (or R.), conductivity of bound
in nature. Shale is, in fact, one of the most common
water, C wb (or R.b)' total porosity, li>, and bound Water
constituents of sedimentary rocks.
saturation, Swb' In practice, a cross-plot of neutron and
Aside from the negative effect on porosity and perme- density logs generates acceptable values of li>,. Any of a
ability, as previously discussed, the unique electrical variety of shale-sensitive measurements, usually the
properties ofthese complex mineral assemblages greatly gamma ray, can be the source of Swb'
influence the determination of fluid saturation.
Most analysts resort to one oftwo techniques to resolve
Presence of Bitumen
water saturation in a shaly sandstone environment. The Bitumen, in either the fluid or solid (pyrobitumen) phase,
Waxman-Smits relationship (Smits and Waxman, 1968) is observed in significant quantities in many reservoirs
attempted to relate the resistivity contribution ofthe shale in western Canada, particularly in the Devonian carbon-
to the cation exchange capacity (CEC) of the shale: ates that account for nearly 70 percent of all oil and 20
percent ofall gas produced. When present, pyrobitumen
. ,
Is; BQ,Sw
-=--+-- (8)
is a major source of uncertainty because of its effects
R, F*R w F* on porosity, permeability, wettability and chemical
adsorption, properties that can have a major impact on
where F* = formation resistivity factor for shaly hydrocarbon recovery processes. On the other hand,
sand bitumen in the liquid phase can be a reserve in itself, as
B = equivalent conductance of clay ex- for example, the 50 x 10' m 3 of resources assigned to
change cations (sodium as a function the Devonian Grosmont Formation ofnorthern Alberta
of C; at 25C (mho ern- meq") and Saskatchewan.
Q, = concentration of clay-exchangeable When a reservoir engineer encounters a reservoir with
cations per unit pore volume (meq either bitumen or pyrobitumen, careful study and analy-
ml,") sis are necessary to adequately gauge the impact that its
presence could have on production and production

72
ESTIMATION OF VOLUMES OF HYDROCARBONS INPLACE

j
I Correlate logs I
j
I Mark permeable beds (SP, ML) I
I
Break beds into zones SP = spontaneous potential
Induction Lateroloo
ML = microlog
<; R'h = resistivity shale
/ P'h = bulk density, shale
Conductive" 2' I Zones" 2' Llt'h = sonic travel time, shale
Resistive " 5' Igr = gamma ray index
I
In shale zones, determine average values for
I $N
Ro
= neutron porosity, shale
= wet resistivityof undisturbed
zone
R'h P,h Llt'h eneutron., Z = shaliness index
I $. = effective porosity
Determine shale volume usingshale scalar Rw = formation water resistivity
Chart 1 and Chart 2 v; = volume, shale
I
Rt = true resistivity
I Start zone analysis
j
I
Read conductivity (or resistivity) and Igr for zone I
I I j
Density One of: density, Cross-plot
neutron, acoustic two logs
P'h = 2,65
Correctfor shaliness
Yes No Llt Chart 3
I P Chart 4
neutron Chart 5

1$ from Chart 41
j
Solve shaly sand equation to get R 0.' Z
(need $., Rw' Vsh' R'h)
i
Solve for Sw
(need Roo, a, Z)
I
Last zone
Yes No

\
The End

Data Required Charts Required


Resistivity-induction, dual induction, laterolog 1. Shale scalar
Gamma ray 2. Relationship for gamma ray vs. percent clay (V'h)
Porosity log(s) - density neutron, acoustic 3,4,5. Acoustic, density, neutron response
Water resistivity

Figure 5.5-6 Shaly Sand Interpretation Process

73

't
-
DETERMINATION OF OIL AND GASRESERVES

strategies. Reservoir rocks with organic-based Wettability


pyrobitumen frequently exhibit strong tendencies to oil
Wettability is defined as the tendency of one fluid to
wetness, resulting not only in abnormally low calcu-
spread on or adhere to a solid surface in the presence of
lated connate water saturation, but also in high effective
other immiscible fluids. Wettability is a major factor
water permeability. And more important to those con-
controlling the location, flow and distribution of fluids
cerned with reserves and estimating ultimate recovery,
in the reservoir. The wettability of originally water-wet
these reservoirs frequently suffer "premature" water
reservoir rock can be altered by the adsorption ofpolar
break-through on waterflood recovery schemes.
compounds or the deposition of organic material. The
Reservoir Heterogeneity wettability of the reservoir can affect the estimation of
in-place hydrocarbon volumes as well as estimates of
As noted in the discussion on the use of capillary hydrocarbon recovery.
pressure curves, each plug represents the characteris-
tics of only the rock type present in that tiny sample. It The estimation of hydrocarbons in place is affected
is imperative, therefore, that the reservoir engineer have because the understanding of fluid saturations, re-
some appreciation ofthe variability that can be encoun- sistivity measurements, capillary pressures, relative
tered within the total reservoir under study. Each discrete permeability and residual saturations is changed when
layer is itself susceptible to subtle changes, both verti- the system varies from being strongly water-wet to
cally and horizontally, that may escape the eye of even strongly oil-wet.
the most careful investigator or lie beyond the depth of Recovery estimates can also be significantly affected
investigation of any borehole logging devices. because the initial and residual saturations, relative
While logs and cores provide data that is useful in permeability, primary, secondary and tertiary recovery
calculating water or hydrocarbon saturation, logs processes are different for the oil-wet and water-wet
represent a moving observation point. This running cases.
average, when compared to the stationary observation References
data point derived from core data, can result in a lack of
Archie, G.E. 1942. "The Electrical Resistivity Log as
conformity between samples of differing geometrical
an Aid in Determining Some Reservoir
character. It is important, therefore, that common sense
Characteristics." Trans., AIME, No. 146,
be employed when comparing saturation data derived
pp.54-62.
from differing measurements and differing rock vol-
umes. Good correlation between widely diverse Heseldin, G.M. 1973. "A Method of Averaging
measurements might indicate the presence of a homo- Capillary Pressure Curves." Canadian Well
geneous reservoir and permit the analyst to employ fairly Logging Society, Vol. 6, No. I, Dec. 1973, pp.
large-scale approximations ofthe reservoir. Conversely, 33-46.
poor correlation could signal the presence of extreme Leverett, M.C. 1941. "Capillary Behaviour in Porous
heterogeneity in the larger reservoir sense. Solids." Trans., AIME, Vol. 2, T.P. 1223, pp.152-
169.
Schlumberger. 1972. Log Interpretation Charts.
Houston, TX.
- - - . 1987. Log Interpretation Principles!
Applications. Houston, TX.
Shell Development Company. 1969. Petrophysical
Engineering. Course notes, Houston, TX.
Smits, L.J.M., and Waxman, M.H. 1968. "Electrical
Conductivities in Oil-Bearing Shaly Sands."
Trans., AIME, Vol. 243, pp. 107-122.

74
ESTIMATIONOF VOLUMES OF HYDROCARBONS IN PLACE

5.6 TESTING AND SAMPLING stabilized conditions. The valve in the tool may be
opened and closed as often as required once the packers
5.6.1 Introduction have been set. A typical DST would include a 5-minute
The flow capability of a well is generally found by preflow, a 30-minute shut-in, a main flow of 60
measurement of actual production. Two general types minutes, and a final shut-in of 90 minutes.
of flow tests, the drillstem test and the production test,
The flow rate during a DST is usually measured when
are often used to measure production rates and obtain
reservoir fluid appears at the surface. Gas and liquid
flow pressures. In addition to collecting this data, flow
rates are easily measured by the service company pro-
tests provide good opportunities to gather samples of
viding the DST equipment. Flow rates may be estimated
produced fluids for further analysis. This section will
in cases where reservoir fluid does not reach the surface
discuss flow tests, as well as the reasons and procedures
by observing the amount ofliquid recovered in the drill
for collecting fluid samples.
string after the test is complete because any fluid that
5.6.2 Drillstem Tests travelled past the valve in the DST tool during the test
would be trapped in the drill stem after the valve was
The drillstem test (DST) is often the first opportunity to
closed for the final buildup. Many experienced rig su-
observe the flow characteristics and record the pressure
pervisors are able to accurately determine the amount
of a reservoir. A DST meets three objectives when
of fluid recovered in the drill stem while retrieving the
conducted properly:
DST tool. Average flow rates are estimated by dividing
1. To obtain a stabilized initial reservoir pressure the flow times into the volume of liquid recovered.
2. To obtain an indication of stabilized flow rates Pressures are recorded by gauges inserted in the DST
3. To obtain samples of reservoir fluids tool. Drillstem test tools allow the placement of gauges
The majority of wells today are drilled using the rotary in a variety of locations so pressures can be measured
drilling technique, which consists of rotating a bit that above the DST valve, outside the tool, and below the
is fastened to a drill string made up of pieces ofthreaded tool. The most important measurements are those re-
pipe called the drill stem, and drill collars. The drill col- corded inside the tool itself. Analysis ofthese pressures
lars are heavy pieces ofdrill stem and allow a downward indicates the hydrostatic head of the mud column and
force to be applied to the bit. The bit is rotated by the drawdown and buildup' pressures. Pressure gauges are
drill string which, in turn, is rotated at the surface by the discussed in more detail in Section 5.8.
drilling rig. Using this rotary drilling technique, the drill Closed-chamber DSTs are run in much the same
hole is deepened until the prospective zone is reached. manner as regular DSTs, but the fluids are not allowed
A DST is conducted by replacing the drill bit with a to flow to the surface. A pressure gauge at the surface
drillstem test tool, attaching it to the bottom ofthe drill records the increase in pressure as fluids enter the drill
string and lowering it into the hole. The tool consists of string. A detailed analysis of the pressures obtained at
one or two sets of isolating packers, a valve for allow- surface, the pressure measurements recorded downhole,
ing reservoir fluid to flow, and locations where pressure and the liquid recoveries will yield production rates.
recorders may be placed. A packer is an expandable
5.6.3 Production Tests
rubber element that is squeezed up against the hole.
When the packers are expanded, or set, the zone of in- Production tests are performed on completed wells; the
terest is isolated from the fluids trapped between the tests provide the engineer with insight into the produc-
hole and the pipe (also known as the annulus). Figures tion potential of the reservoir. Production tests may be
5.6-1 and 5.6-2 illustrate a typical DST tool in unset conducted immediately after the well has been com-
and set position. It is important to ensure that the pleted or after the well has produced for several years.
packers are set in a zone that will allow a tight seal. This is an important consideration as reservoir charac-
teristics do change through the life of the reservoir.
Once the packers have been set at the proper depth, the Parameters such as pressure and flow potential all change
valve inside the tool is opened, allowing reservoir flu- as fluid is withdrawn from the pool.
ids to flow up the drill string to the surface. Produced
The equipment necessary for a production test can
liquids (oil, condensate, water) are sent to tanks, and
vary from well to well. The basic requirements are press-
gases are generally sent to a flare pit or flare stack.
ure recorders to continuously measure flowing and
After a set period oftime, the downhole valve is closed,
buildup pressures, and surface equipment that is able
and the reservoir pressure is allowed to increase to

75

b
DETERMINATION OF OIL AND GASRESERVES

Figure 5.6-1 Drillstem Test Tool (Unset Position) Figure 5.6-2 Drillstem Test Tool (Set Position)

76

r
ESTIMATION OFVOLUMES OFHYDROCARBONS INPLACE

to accurately measure the flow rates of the well. conventional, modified isochronal, or single point. All
Generally, pressure recorders are placed downhole close three yield information about the AOF potential of a
to the producing formation. Pressure recorders are avail- gas zone. Drawdown tests are conducted to determine
able in various pressure ranges. It is unwise to expose reservoir characteristics such as damage, permeability
the recorder to more than 75 percent of its maximum and flow potential. Pressure buildup tests yield much
range. Flow rates are best measured on single phases, the same information as drawdown tests with the
so test separators are used. A two-phase separator sepa- addition of stabilized reservoir pressure.
rates gases from liquids, while a three-phase separator
Another aspect ofproduction test design deals with the
separates gas, oil, and water. Surface equipment must
duration of flow rates and any corresponding buildup
be sized correctly to ensure that it will not be a bottle-
times. Generally, flow rates should be of sufficient time
neck for the producing stream.
to allow the flow rate to reach stable conditions. As this
In the design, implementation, and analysis of a time period is usually dependent upon the parameters
production test, several factors must be considered: the the test is designed to determine, field experience and
purpose ofthe test and the data that is required, the res- rules of thumb are generally used. Typically, buildup
ervoir and fluid characteristics, the type of test, the test times must be at least twice as long as the preceding
equipment necessary, and any operating difficulties. flow rates. Exceptions to these rules occur in some AOF
The purpose of a production test often depends upon a tests, where the flow time and buildup time are set and
number of considerations, the first of which is the life are independent of whether the reservoir has reached
of the well. The data needed from a well that has just stabilized conditions. The question of the actual flow
been completed may be different from the information rate is usually dependent upon previous production data.
needed for a well that has been on production for sev- It is recommended that the well be flowed at the antici-
eral years. The determination of information such as pated delivery pressure, or if the delivery pressure is
delivery rate, reservoir damage, drainage area and not known, at 50 to 70 percent of the well's AOF.
boundaries, stabilized flow conditions, and the need for
5.6.4 Sampling
formation stimulation treatment must all be factored into
the purpose ofthe test. Many tests are conducted to ex- Collection ofrepresentative samples of reservoir fluids
amine the success offormation treatments, or to recover is necessary for many reservoir engineering applications.
representative reservoir fluid samples. Gas, oil and condensate samples are needed for
compositional analysis and PVT (pressure-volume-
Knowledge of the characteristics of the reservoir and
temperature) analysis. Water samples yield information
the fluid is important for the design ofa production test.
relating to the water salinity and solids content. Special
Many tests yield inadequate data because of avoidable
care must be taken when sampling, so that samples col-
problems. Reservoir damage may occur due to high flow
lected are representative of the fluids found in the
rates, or the well may freeze offdue to hydrates. Knowl-
reservoir. The inability to gather good samples may
edge of reservoir and fluid characteristics will lead to
compromise many calculations and studies performed
the collection of data that is as accurate as possible.
at a later date. Two methods are commonly used in ob-
There are many different types ofproduction tests, each taining reservoir fluid samples: subsurface sampling
of which will yield important data. Each type may be and surface recombination sampling.
run alone or in combination with other tests. The
In subsurface sampling, a sample chamber is run to the
following are common types oftests:
bottom of a flowing well on wire line. The sample is
Interference collected at bottom-hole pressure and then isolated
Absolute open flow (AOF) of gas wells through the closing of the inlet valves. The well is kept
Constant and variable rate flowing during the process to avoid fluid segregation
(and thus an unrepresentative sample). The seemingly
Pressure buildup
simple process of obtaining representative samples is
A well is generally "cleaned up" after a zone has been easily hampered by the presence ofmore than one phase
completed or worked over. This allows completion in the wellbore. If the reservoir is initially undersatu-
fluids to be withdrawn from the reservoir to prevent fur- rated above the bubble-point pressure, an accurate
ther formation damage. A segregation test helps to sample is easily obtained. However, if the reservoir is
determine if one zone is in pressure communication initially at the bubble point, it is difficult to assess
with another. AOF tests can be one of three types:

77
q

DETERMINATION OFOIL AND GASRESERVES

whether the oil and gas are being collected in the saturation pressure, the samples are taken while the wen
correct volumetric proportions. Wen conditioning can is shut in. Well conditioning procedures are given
alleviate this problem. The principal drawback of sub- in API Recommended Practice No. 44 (American
surface sampling is that only small volumes of wen fluids Petroleum Institute, 1966).
are sampled. Furthermore, it is necessary to take sev- In the course of sampling, care must be taken to ensure
eral downhole samples so that saturation pressure can that the sample containers are properly purged to
be compared at the same temperature. prevent air contamination.
In surface recombination sampling, separate volumes
of oil and gas are taken at separator conditions and re- Gas Samples
combined to give a composite fluid sample. Sampling By regulation in Canada and as good operating
points should be chosen in order to provide homoge- practice, gas samples are obtained whenever a drillstem
neous, preferably single-phase, sample mixtures. Surface or production test results in flows of gas. Usually, the
sampling allows the collection of fluid samples at the samples are obtained at the surface from the outlet of a
operating conditions of the surface production facili- separator at relatively low pressures (200 to 700 kPa
ties. Samples are usually collected by fining a cylindrical range). Steel sample containers are used in the case of
container with valves at both ends. Due to the location sweet gas. Where hydrogen sulphide (HzS) is present in
of the sampling point, a much larger sample may be the gas, it is important to use special containers because
obtained. Because the samples are taken over several steel containers will absorb small concentrations ofHzS
hours of flow, this method gives a fairly accurate pro- and thus prevent its detection during laboratory analy-
ducing gas-oil ratio (GOR). As in subsurface sampling, sis of the sample. If these are undetected, the results
the well must be conditioned to ensure stability during could be small concentrations ofHzS, improper design
sampling. If done correctly, both sampling techniques of gas processing facilities, and high costs to effect
should yield identical samples. changes. Determinations for HzS are often made at the
Prior to any sampling of fluids, whether at surface or wellsite to ensure that any small amounts of HzS are
bottom-hole, it is important to consider whether the fluid detected. In fact, when there is any doubt, Tutweiler or
to be collected represents the reservoir fluid. When fluid Gas-Tech measurements should always be made at the
is withdrawn from the reservoir, the pressure changes wellsite.
caused by the withdrawal sometimes cause liquid and Gas samples are sometimes obtained in conjunction with
vapour to separate. If a collected sample contains a dis- PVT sampling at bottom-hole conditions and transferred
proportionate part of either of the two phases, the to special high-pressure containers for transportation and
subsequent fluid analyses will give erroneous results. analysis at appropriate laboratories. Conventional anal-
To prevent this problem, it is recommended that the wen yses usually identify the mole percentages of various
be conditioned to remove from the sample point any hydrocarbon components as well as carbon dioxide,
fluid that may compromise the sample. hydrogen sulphide, helium, and nitrogen. The spec-
Conditioning is generally accomplished by flowing the ific gravity and heating content of the gas are also
wen at low drawdown rates so that any altered fluid is determined.
displaced by true reservoir fluid. Well conditioning re- Gas analyses are used in reserves determinations to
duces the amount of free gas present at the wellbore by calculate the compressibility factor of the gas mixture
essentially pushing it back into solution. The first stage and to estimate the volumes of sales gas, recoveries of
of a conditioning program involves producing the well natural gas liquids, and processing shrinkages.
at a low stabilized rate at constant temperature and gas- In Canada, gas analyses can generally be obtained quite
oil ratio. This reduces the free gas saturation below the readily through public sources and, in particular, through
critical gas saturation for gas flow in the formation. This the conservation and regulatory authorities of each
first stage may take as little as a few hours or as long as province.
several days. Any remaining gas is forced back into
solution through pressure buildup (the wen is shut in). Water Samples
The shut-in period is dependent upon the transmissibil- Formation water samples can be obtained from the
ity of the formation and can last up to 72 hours. If the recoveries of drillstem, wireline, and production tests,
wen was initially undersaturated, it is flowed at a low and during routine production operations. Care must
rate during the sampling. If the well was initially at be taken to use only analyses of samples that are

78

...
ESTIMATION OF VOLUMES OF HYDROCARBONS INPLACE

uncontaminated by drilling mud filtrate and the various PVT Samples


chemicals used during production and treating. In
For a better understanding of the physical properties of
many cases, determining whether the sample is repre-
a reservoir fluid, a PVT study should be performed early
sentative of the formation is based on rather subjective
in the life of the reservoir to obtain truly representative
judgement.
samples ofthe reservoir fluid. Generally, it is better that
Analyses of oil field water samples usually identify the PVT studies be performed on subsurface samples.
major constituents and total solids in milligrams per
litre or parts per million. Total solids can range from Tests
a few hundred to over 200 000 parts per million in After a representative sample has been obtained, the
Canadian oil field formation waters. Specific gravity following five tests are normally performed to assess
and resistivity are also measured. the fluid behaviour and properties:
Water analyses are generally used to identify the source Pressure-Volume Test. A pressure-volume (PV) test
of the water or to obtain the resistivity of the water in involves the constant composition expansion of the fluid
order to calculate interstitial water saturations from sample at reservoir temperature. The sample is initially
porosity information and electrical well logs. undersaturated (reservoir pressure is greater than bubble-
Analytical results are often presented graphically to point pressure). As the pressure is reduced towards the
enable visual comparisons or "fingerprinting" of wa- bubble-point pressure, the oil compressibility is identi-
ters to be made. The Stiffdiagram (Stiff, 1951) is widely fied. The actual bubble-point pressure is also measured.
used for this purpose. Below the bubble point, the two-phase volume is
Useful compilations offormation water resistivities are measured as a function of pressure.
available for the majority of productive reservoirs in Differential Liberation or Vapourization Test. In a
the western Canada sedimentary basin and other parts differential liberation test, the sample is subjected to an
of Canada. One such compilation is published by the incremental pressure reduction from the bubble point
Canadian Well Logging Society (1987). The published to zero. As the solution gas evolves, it is removed from
formation water resistivities represent the best informa- the system. As a result, the composition of the fluid
tion available at the time of publication, but care must sample is always changing. This test identifies the rela-
be taken to use the data most appropriate to the specific tive density of gas, the gas deviation factor, the gas
application. formation volume factor, the relative oil volume factor,
and the gas-oil ratio (the gas remaining in solution at a
Oil Samples given depletion pressure as compared to the volume of
residual oil at stock tank conditions). During this
Conventional Surface Samples
process, the oil density at each pressure increment
Crude oil samples are obtained and analyzed for a is determined by mass balance. A quality control
variety of characteristics that are ofimportance in res- check compares the calculated oil density at the deple-
ervoir work, production operations, wellsite treating, tion pressure (through mass balance) to the measured
pipelining, and refining. This brief discussion is re- oil density at this point.
stricted to crude oil samples as they apply to reservoir Viscosity. Viscosity is measured at reservoir tempera-
engineering. A distinction will be made between con- ture at a series ofpressures above and below the bubble
ventional crude oil samples obtained at the surface and point.
crude oil samples obtained at reservoir conditions in
Flash Liberation or Separator Tests. In a flash
order to measure PVT characteristics in the native state.
liberation test, the sample is again subjected to a press-
Conventional surface crude oil samples are generally ure reduction from bubble point to zero. The oil and
obtained from crude oil storage tanks, at the wellhead, liberated gas, however, are kept in equilibrium through-
and from drillstem test recoveries. The American out the expansion. This test identifies the formation
Petroleum Institute has published guidelines that should volume factor and the solution gas-oil ratio at separator
be followed in obtaining reliable oil samples conditions. One or more flash liberation tests should be
(American Petroleum Institute, 1966). done to determine the behaviour of the reservoir fluid
as it passes up the tubing, through the separator(s), and
into the stock tank.

79
DETERMINATION OFOILAND GASRESERVES

Compositional Analysis. Most reservoir fluid In an undersaturated oil reservoir,depletionbegins as a


parameters can be estimated fromcompositional analy- flash processand eventuallybecomes a combinationof
sis. In general, the more fluid parameters sought, the flash and differential liberation processes. Because of
more detailedthe analysis must be. A typical composi- this, care mustbe taken to ensure that the correct data is
tional analysis includes a separation of components being used in engineering calculation. Flash data must
through C10 as a minimum. More sophisticated equa- be adjusted using differential liberation volumes to re-
tionsof statemayrequire analysis through C30orhigher. flect the variouspressureregimesinthe reservoirduring
It is important to note that due to the nature of the depletion.
expansion, the flashand differential liberation processes References
yield different vapour-liquid splits. The degree of
difference depends mainly on the composition of the American Petroleum Institute. 1966. "Sampling
initialsystem. In general, in low volatilityoils in which Petroleum Reservoir Fluids." API RP 44,
the solution gas consists mainly of methane and ethane, Washington, DC.
the resulting oil volumes for either form of expansion Canadian Well Logging Society. C,J. Struyk (ed.).
are essentially the same.For highervolatility oils,which 1987. Formation Water Resistivities ofCanada.
contain a relatively high proportion of intermediates, Sep. 1987, Calgary, AB.
the resulting oil volumes can be significantly different. Stiff, H.A., Jr. 1951. "The Interpretation of Chemical
Water Analysis by Means of Patterns." JPT., Vol.
192,pp. 15-17.

80
ESTIMATION OF VOLUMES OFHYDROCARBONS INPLACE

5.7 RESERVOIR TEMPERATURE after the casing is cemented could be affected by the
heat released in the setting reaction of the cement.
5.7.1 Introduction
The most representative BHT data is probably obtained
Reservoir temperature is of prime importance in the following the completion of the well after it has been
determination of in-place volumes and recovery factors shut in long enough for temperature equilibrium to be
for gas and oil. In estimating gas reserves, a knowledge established between the wellbore and the formation. An
of temperature is necessary to calculate the gas com- ideal time to measure BHT is during a static bottom-
pressibility factor and gas formation volume factor. T.o hole pressure survey, or pressure buildup following a
estimate oil reserves, knowledge of the temperature IS flow test, or during the process ofbottom-hole sampling
critical if laboratory PVT data is to be measured under following the completion ofthe well. In some instances,
reservoir conditions. Temperature also affects other it is a good practice to run a temperature-depth profile
parameters such as oil viscosity and miscibility, and on each producing well using a continuous recording
thereby impacts reservoir engineering estimates of OIl thermometer.
recovery.
In the early stages of development and production of a
Often values ofreservoir temperature are estimated from field or reservoir, measured temperature data may be
data in the literature or from readings obtained during too sparse to provide a reliable estimate ofinitial condi-
logging or testing operations. Such data may be accept- tions. In this case, regional correlations may be helpful.
able under initial conditions, but should always be The following list provides correlations for estimating
confirmed or adjusted using more reliable data as it be- formation temperature for several regions in North
comes available. The most reliable source of temperature America [T, = formation temperature in C (OP);
data is a bottom-hole temperature (BHT) measurement D = depth in m (ft)]:
taken with a continuous recording subsurface tempera-
ture gauge under stabilized bottom-hole conditions. Alberta (average) Tf = 1.7 + 0.0366D
Other methods, such as using maximum reading ther- (T, = 35.0 + 0.0201D)
mometers during testing or logging operations, are Alberta Bashaw T, = 0.0 + 0.0341D
considered less reliable. (carbonale complex) (T f = 32.0 + 0.0187D)
Although temperature is usually a function of depth, a Alberta Rimbey-Meadowbrook T, = 9.4 + 0.0304D
number of other factors affect temperature as well. (carbonate complex) (T, = 49.0 + 0.0167D)
Isotherms at depth may not always follow surface AlbertaWindfall-SwanHills T, =
0.0 + 0.0352D
topography. (carbonatecomplex) (T, = 32.0 + 0.0193D)
This section describes various techniques used for Louisiana Gulf Coast Tf = 23.3 + 0.0228D
measuring or estimating BHT and points out the short- (hydropressure zone) (T, = 74.0 + 0.0125D)
comings in some ofthe values obtained.
North Texas T, = 15.6+ 0.0306D
5.7.2 Data Sources (T, = 60.0 +0.01675D)
Temperature measurements are made in conjunction OklahomaAnadarko Basin T f = 18.9+ 0.0202D
with a number of operations conducted on a well. Many (T, = 66.0+ O.OlllD)
of these measurements will have varying degrees of Oklahomadeep Anadarko Basin Tf = 18.9+ 0.0255D
accuracy. Measurements taken while the well is being (below 21,000 ft) (T, = 66.0+ 0.014D)
drilled will likely be influenced by the cooling effect of
In general, formation temperature in the hydropressure
the circulated drilling mud and will be only approxi-
zone may also be estimated from thermal gradient maps
mate. During open hole logging, errors may occur in
published by the United States Geological Survey ~nd
BHT measurements unless sufficient time is allowed
the American Association of Petroleum Geologists
for the wellbore to reach temperature equilibrium with
(Cronquist, 1990), using the equation:
the formation. Measurements taken during flow tests
could be detrimentally affected by the cooling effect T,= Tsa + goD (I)
created by gas expansion when fluids enter the wellbore
where T, = formation temperature, C COP)
or flow through any mechanical restriction in the
wellbore such as a bottom-hole choke, mandrel or flow Tsa = average surface temperature, C (OP)
nipple. Temperatures recorded on logs run immediately geothermal gradient, C/m (Op/ft)
= depth, m (ft)

81

7
DETERMINATION OFOIL AND GAS RESERVES
--,,
Reservoir temperatures obtained using these correlations temperature. To estimate true formation temperature
should be considered preliminary, and they are not a from raw BHT data, a correction must be applied.
substitute for actual measurements. The corrections may be made using a Horner plot
In Alberta, temperatures measured at a mean depth method. This method owes its name to the fact that
for each oil and gas pool are shown in the annual it is identical to the equation developed by Homer to
reserves report published by the Energy Resources predict reservoir pressure recovery. In this method,
Conservation Board (1991).
BHT = T_ + A In [(t + tcire)/t] (2)
Reservoir temperature is considered to be constant over
the life ofa reservoir, and most reservoir processes, with where T_ = undisturbed formation temperature
the exception of in situ combustion and steam or water A the negative slope of the Horner
injection, are considered to be isothermal. Waterflood- straight line (an unknown constant)
ing can cause significant cooling. In some of the West t shut-in time
Pembina Nisku reefs in Albertawhere pools were con- teire -- circulation time
verted to hydrocarbon miscible flooding after many Thus if two or more BHTs-measured at the same depth
years on waterflood, reverse temperature gradients were in the same well, but at different times-are known, the
still noted years after the pools had been converted. equilibrium temperature may be estimated.
5.7.3 Data Analysis The Horner method was used by Deming and Chapman
(1988) to analyze BHT data gathered from microfilm
It is pertinent to give some thought to the means of
copies of log headers on file at the Utah Oil and Gas
arriving at a value for reservoir temperature. The term
Commission. Figure 5.7-1 shows 18 Horner plots for
bottom-hole temperature or sand-face temperature is
BHT data from oil and gas fields in the Utah-Wyoming
applied to the temperature opposite the producing hori-
thrust belt. Although the quality of these data is com-
zon. The logical place to record a single representative
paratively high, some scatter about the Horner line is
measurement would be at the centre of the producing
inevitable.These plots show that successivelogging runs
interval or at the pool datum depth. Frequently, mea-
generally yield a series of temperatures that are consis-
suring tools cannot be run to the desired depth, and tent with the Horner model of conductive heat transfer
therefore the temperature must be extrapolated. For this
into the borehole during shut-in.
reason, an accurate determination of the temperature
gradient should be established at the run depth. This 5.7.4 Data Analysis on a Regional Basis
can be done most conveniently while running a press- Recently published technical data provides good insight
ure bomb to measure the static bottom-hole pressure. It on variations in BHT in western Canada (Lam and Jones,
is likely that temperature would be extrapolated to the 1984; Lam et aI., 1985). One of the key areas ofinterest
same datum as pressure. has been southern Alberta where a high density of wells
If it were desired to estimate BHT from open-hole well provides an opportunity to measure and explain
logs, some adjustment to the recorded temperatures temperature variations from one region to another.
might be necessary (Deming and Chapman, 1988). Figure 5.7-2 shows the main topographic features of
Following the cessation of drilling, the usual practice is southern Alberta with respect to the eastern limit ofthe
to condition the borehole by circulating drilling mud disturbed belt. As might be expected, variations in the
throughout the hole for a period of time known as the temperature gradient from the calculated mean value
circulation time. Because the temperature of the drill- (referred to as "spread") are more frequent in the vicin-
ing mud is usually lower than the undisturbed formation ity of the disturbed belt. Figure 5.7-3 shows these
temperature at the bottom of the well, temperature in spreads. The spread values vary from a low of 2C in
the wallrock drops during mud circulation. When cir- the plains area of southern Alberta to 10 - 13C in
culation of drilling fluid is stopped, the well is "shut areas near the edge of the disturbed belt. These "spread
in," and the temperature in the borehole rises. It is dur- anomalies" occur between Hinton and Edson, to the
ing this period of time, usually 4 to 30 hours after the southeast of Hinton and Edson, and south of Calgary.
end of circulation, that the well is logged and the BHT One notable feature on this map is the coincidence of
measured at a shut-in time, which is the time elapsed the high-spread area south of Calgary and a fault zone
since circulation ceased. Thus the BHT measured is as indicated on an ERCB Paleozoic surface map. In
higher than the temperature of the circulating mud, addition, relatively high spread values occur in the
but lower than the true equilibrium or formation Medicine Hat area to the east (as indicated by light

82

s
ESTIMATION OF VOLUMES OF HYDROCARBONS IN PLACE

Shut-in Time, t (h) Shut-in Time, t (h)


50 30 20 15 10 5 50 30 20 15 10 5
140 140

130 130
Wells
120 AR34-02 120
G 5657m
G
~ 110 ~ 110 Wells
Q)
~ CC 846 AI ~
::> ::> 458 F2
li! 100
5011 m
li! 100 4700m
Q) Q)
0. ARE 28 - 06 0. ARE36-14
E 4595m E 4540m
90 90
~ ARE 20 - 16 ~ 45801
Q)
4145 m
Q) ARE 28 - 01
"0 "0 80 4011 m 4221 m
::c 80
, AR34-02
::c
E
a
3544m E
a
ARE 28 - 01
2996m
70 70
'6 '6CO AR 4-1
CO AR 3-2 2332m
60 2737m ARE 30 -14 60
3305m CC846 BI
AR 10-1 2186 m
50 2367m 50 AR 34 - 2
1933m
ARE30-14
IRD #1
40 1462 m 40 1688m
.1 .2 .3 .4 .5 .6 .1 .2 .3 .4 .5 .6

(a)
In - C
+-
t
tel")
(b)
C
In -+ t-
t
e;" )

Source: After Deming andChapman, 1988.

Figure 5.7-1 Representative Horner Plots from Wells in the Utah-Wyoming Thrust Belt

'M~-~'- Lake

Elevation Above
Sea Level
(tt)
12000 I Faull From

1
6000 ERCSPaleozoic
\ surface map
.,....... 3000
...........
... 4000
2000 'C

1Il~~
1000
o
. 6
Source: AfterLam at al., 1985.
c::J
oI
Figure 5.7-2 Relief Map for Southern Alberta
Source: After Lamat at., 1985.

Figure 5.7-3 Contour Plot of Spread for BHT


Values in Southern Alberta

83
DETERMINATION OF OIL AND GAS RESERVES

shading in Figure 5.7-3), but these are surrounded by upward and downward water movementsin the sharply
~L'nerally low spread values. dipping permeable formations cause the isotherms to
It has been observed that isothermal surfaces do not dip sharply, giving largespreadvalues as indicated. Such
alwuys tallow topographic surfaces for a number of rea- water movement is thought to occur in the western
S,HIS: a rapidlyvaryingtopographic surface and smooth Alberta basin. In the east, where the water movement is
is,'lhemlal surfaces at depth, or distortion to the iso- mainly lateral, the isotherms lie parallel to the surface
thermal surfaces due to a number of influences such as and the spread values are smaller.
taults, water movement, or subsurface temperature or Another reason for an increase in spread values may be
L,,'ndueti,ity anomalies. Water movement along faults the effect ofthermal conductivitycontrasts between ad-
and fractures increases spread values when water is jacent dipping beds. For example, the clastic and shaly
heated at depth andtravelstowardthe surfacealong fault formationsabovethe Palaeozoicsurfaceare oflow ther-
planes. Thiscan cause large horizontal temperature dif- mal conductivity,whereas the calcareous and evaporitic
ti:renees at the same depth level and, consequently, a formations below the Palaeozoic surface are more con-
large spread in the temperature values. ductive. In steeplydippingbeds,suchchangesin thermal
\\' atcr movement through permeable strata is another conductivity may distort the isotherms so that tempera-
tactor that can strongly influence the temperature ture vs. depth plots over a 3 x 3 = 9 TWP/RGE area will
,,'giIlle. Hydrodynamics appears to play an important exhibit large spread values. This is illustrated in Figure
1\'1<' in the distribution of subsurface heat and so influ- 5.7-4 in which two 9 TWP/RGE areas of west-central
enccs the temperature distribution. Gravity-imposed Alberta are compared (Lam and Jones, 1984).Although
,l,lwnward water movement occurs in the upper strata these areas are in the same general region, they exhibit
as",ciatN with surface recharge while, in other areas, a totally different temperature gradient and spread.
l',-nneable beds allow upward water movement. These

Temperature ('C) Temperature (OC)


50 100 150 50 100 150
o-c-'-~-'----'--'-L->--'~-'----L--<"-'---'--+-o

Grad. = 24.2 QC/km Grad. = 31.7C/km


(13.3'FI103ft)
1-
,
... (17.4'F/l 03ft)

,
, ..
,,
" , ..
, ,
...
2-
- \.
\~
~,

\\
\
,),
2
.. . '
",. tit
, '~ , "
,, ',,- . to :::.
,, ,, %
. ....'-
m
,, " c

... ...
'~
4
... ...
.... ....
,- ... . , 5

scar-care Error ofEstimate


.. .. ,

Standard Error of Estimate


4.2'C S.4e

100 200 300 32


100 200 300
Temperature (OF) Temperature (OF)
,3:..~~: ~~ earnand Jones, 1984.

=;sure 5.7-~ Examples of Temperature vs. Depth Plots from Two Areas in Southern Alberta
1 ESTIMATION OF VOLUMES OF HYDROCARBONS INPLACE

5.7.5 Data Quality


During the drilling and completion ofa well, there are a
number of opportunities to obtain BHT data. It is im-
References
Cronquist, C. 1990. Reserves Estimation, Petroleum
Engineering Manual. IHRDC Publishers, Boston,
portant to plan ahead so that the best quality data is MA, PE 508, pp. 53-56.
obtained at the most opportune time and at minimal cost. Deming, D., and Chapman, D.S. 1988. "Heat Flow in
IfBHT data is required while drilling a well, a drillstem the Utah-Wyoming Thrust Belt from Analysis of
test may provide the most representative data. Tempera- Bottom-hole Temperature Data Measured in Oil
ture derivations from logs run in the open-hole wellbore and Gas Wells," Jour. ofGeophys. Res., Vol. 93,
have been observed to be consistently lower than the Nov. 1988, pp. 13,667 - 13,672.
BHT measured from drillstem tests despite the use of Energy Resources Conservation Board. 1991.
the Horner plot method to extrapolate the temperature Alberta's Reserves ofCrude Oil, Oil Sands, Gas,
buildup (Hermanrud et aI., 1990). Natural Gas Liquids, and Sulphur. Calgary, AB.
The preferred method of obtaining representative BHT Hermanrud, C., Cao, S., and Lerche, I. 1990.
data is to obtain measurements following the well "Estimates of Virgin Rock Temperature Derived
completion and an appropriate shut-in period. An ideal from BHT Measurements: Bias and Error."
opportunity to obtain BHT data is in conjunction with a Geophysics, Vol. 55, Jul. 1990, pp. 924-931.
static bottom-hole pressure measurement, or a pressure
Hermanrud, C., Lerch, I., and Meisingset, KK 1991.
buildup following an oil or gas deliverability test. Even
"Determination of Virgin Rock Temperature from
under these circumstances, two factors could influence
Drillstem Tests." JPT, Vol. 43, Issue 9, Sep.
the accuracy of a temperature measurement: a large
1991, pp. 1126-1131.
drawdown during the flow period, and the depth at which
the temperature is recorded. To improve the quality of Lam, H.L., and Jones, F.W. 1984."A Statistical
data, the wellbore drawdown should be moderate, and Analysis of Bottom-hole Temperature Data in the
the temperature sensor should be within the producing Hinton Area of West-Central Alberta."
interval (Hermanrud et. aI., 1991). Tectonophysics, Vol. 103, pp. 273-281.
It is important to note that temperature gradients often Lam, H.L., Jones, F.W., and Majorowicz, J.A. 1985.
vary from one region to another and, even within the "A Statistical Analysis of Bottom-hole
same area, may deviate significantly from the mean av- Temperature Data in Southern Alberta."
erage due to the proximity ofcertain geological features Geophysics, Vol. 50, Apr. 1985, pp. 677-684.
in the area. Prudence is required to recognize these de-
viations and not dismiss them as errors in measurement.
Caution is recommended when taking a BHT measure-
ment in shallow wells on hot summer days using a
maximum reading thermometer. The maximum read-
ing could be the surface temperature and not the BHT.
In conclusion, BHT data is available from a number of
sources and the quality of this data is often not ques-
tioned. Such acceptance stems from the fact that small
variations in BHT when converted to absolute tempera-
ture result in a very small percentage error in the overall
reserve estimate. On the other hand, to minimize this
error and improve the overall quality of the reserve es-
timate, one should take advantage of the drilling and
completion process to obtain data that best represents
the true BHT conditions.

85

Ib-. _
DETERMINATION OF OIL AND GASRESERVES

5.8 RESERVOIR PRESSURE is recovered even if one recorder should fail. Running
tandem recorders also permits comparison between the
5.8.1 Introduction two to verify the accuracy of the measurements.
Throughout the productive life of a reservoir, a
Pressure measurements are usually obtained by
record of its pressure is necessary in order to make a
lowering these recorders or "bombs" down the wellbore.
number of necessary calculations. Initial pressures ob-
As discussed in Section 5.6.2, the first indication of the
tained after the discovery of a pool are needed for the
pressure of a formation may come from a drillstem test
calculation of volumetric reserves, particularly for gas
(DST), which is usually conducted before production
reservoirs. Reservoir pressure is needed to determine
casing is run into the wellbore (but cased-hole DSTs
gas compressibility and formation volume factors for
are not uncommon). DSTs are also run immediately
oil and natural gas, and to undertake PVT analysis.
upon penetration of a prospective formation in order to
Material balance calculations for both oil and gas sys- examine its potential before drilling fluids damage the
tems require initial reservoir pressures and subsequent .zone.
pressure history after production has commenced.
After drilling operations are finished and the well has
Fluids flow when a pressure difference is created been completed for production, pressure measurements
between two points. When hydrocarbons are removed
are usually obtained by lowering pressure recorders
from a reservoir, a pressure drop is created in the
down the wellbore on a wire line. In some instances,
wellbore. This causes the pressure within the formation the pressure recorders are left downhole for extended
to drop. When a flow of fluid is stopped or "shut in,"
periods of time. In other circumstances recorders mea-
the pressure will equilibrate until it reaches stable
sure the reservoir pressure for only a few minutes. The
reservoir conditions. The time required to reach a stabil-
latter type of pressure measurement is referred to as
ized pressure varies from reservoir to reservoir. Analysis
a static gradient. This measures wellbore pressures at
of the pressure stabilization or "buildup" will reveal
different depths, and these pressures are plotted against
information about the permeability of the formation, the the measurement depth. The resultant plot is used
distance to reservoir boundaries, and any damage to the to identify density changes in the wellbore fluids.
formation. If stable conditions are not reached, the press-
Pressure gradients at reservoir depth are also estimated.
ure buildup data may be extrapolated to estimate the Production tests are commonly conducted when press-
reservoir pressure. ure recorders are left downhole. When left for a period
5.8.2 Data Sources of time, pressures are recorded vs. time. Figure 5.8-1 is
an example of data from a static gradient, and Figure
Two types of pressure recorders are available to
5.8-2, from a flow and buildup test.
measure reservoir pressures: mechanical and electronic
gauges. The mechanical gauge consists of a coiled Formation pressures may also be measured before the
bourdon tube pressure element, which spirals outward well is completed by running open-hole wireline tools.
as pressure is increased inside it. A stylus on the end of These tools push a probe into the formation and record
the tube scribes a thinly coated metal chart, which is the formation pressure.
slowly rotated by a clock in the recorder. The distance Bottom-hole pressures are also estimated by measuring
the stylus moves is proportional to the pressure inside surface pressures and adding the calculated pressure due
the bourdon tube. to the hydrostatic head of fluid in the wellbore. In cases
Electronic gauges use strain, capacitance transducer, where gas and liquid are both present in the wellbore,
and quartz gauges as pressure-sensing devices. These acoustic level indicators are employed to determine the
recorders offer the option of programmable sampling fluid level. The respective hydrostatic heads ofthe flu-
times, and are generally more accurate than mechanical ids are then calculated and added to the surface pressure
recorders. to estimate the bottom-hole pressure.
All pressure gauges must be calibrated to ensure that 5.8.3 Data Analysis
correct pressures are being recorded. Generally, regula- A major problem in recording pressure data is
tory agencies are responsible for setting guidelines for determining whether the reservoir pressure is actually
gauge calibration. It is important that gauges used for stabilized. There are three widely accepted methods of
pressure surveys be calibrated regularly. obtaining a stabilized bottom-hole pressure. The first
It is common practice to use at least two recorders involves the gathering and extrapolation of pressure
during pressure surveys to ensure that representative data

86
.
ESTIMATION OFVOLUMES OFHYDROCARBONS INPLACE

0
produced fluid prior to being shut in, and the variable ,
Depth Pressure dt, is the elapsed time since the well was shut in.
(m) (kPa)
200
~ 0 11784 Plotting the data on semi-log paper theoretically reveals
300 12129 a straight line when the infinite acting radial flow
400 600 12474
900 12819 period is reached. Extrapolation ofthis data to the semi-
600 1200 13164
1500 13509 log value of I yields the theoretical static reservoir
1800 14862
800 pressure. The semi-log value of I corresponds to a
~
2100 17532

1000
2150 17977 shut-in time of infinity.
2200 18422
2250 18867
g 1200 2300 19757 Example 1
2388 20095
=
1i. 1400 This example shows how to extrapolate buildup
Q ~----- Slope = 1.15 kPaim pressure to obtain a static reservoir pressure.
1600
-.\ Pressure recorders were lowered into a new oil well.
1800
\~ Fluid contact @ 1670 mK8
The well was flow-tested for 140 hours at a constant
2000 rate and then shut in to allow the reservoir pressure to
Slope = 8.9 kPaim/ build. The data shown in the following table was
2200
obtained from pressure recorders.
2400

2600
Pressure Recorder Data
10000 14000 18000 22000
Pressure (kPa) Time Pressure Comments
(h) (kPa)
Figure 5.8-1 Static Gradient 0 20175 begin flow
1 9830 continue
2 8750 "
4 7290 "
26,.------------------,
24
8 5570 "
22 24 5050 "
as 20
ll.
60 5030 "
... 18 4670
(t'jX 16
90 "
140 4665 stop flow
C14 140.11 5577 continue
~ 12
~ 10 140.25 5924 "
=8
d: 6
140.50 6435 "
4
140.75 6743 "
2 141.2 7656 "
o +-~_~-_-~-~~-_--I 142.25 9 163 "
o 100 200 300 400
144 11077
Time (h)
"
148 13338 "
152 14273 "
Figure 5.8-2 Pressure vs. Time 156 14878 "
160 15345 "
buildup data. The second utilizes a static pressure 170 16146 "
measurement, where the shut-in time to reach stabiliza- 180 16681 "
tion is determined from previous buildup tests. The third 190 17 074 "
method is also a static pressure measurement, but the 210 17623 "
shut-in time of the well is arbitrarily set. 230 17996 "
350 18989 end of test
The method most commonly used to extrapolate
pressure data was first discussed by Horner (1951). The
procedure involves the plotting of pressure data during As previously stated, the time function [(HLlt)/Llt) must
buildup vs. a time function [(Hdt)/dt) on a semi-log be calculated. The time, t, is 140 hours, and since
plot. The time, t, is the time during which the well Llt is the elapsed time since the well was shut in, 140
must be subtracted from all the times once the buildup

87
b _
DETERMINATION OFOILAND GASRESERVES
--
portion ofthe test begins. The resultant data is shown in However, if the reservoir is not at stable conditions, or
the following table: ifdepletion is thought to have occurred, a buildup analy-
Horner Time Data sis is very useful in the determination ofstable reservoir
pressures.
Time (t+4.t)/M Pressure Once pressure data for a reservoir has been collected
(h) (kPa) from two or more wells, the data should be corrected to
0 - 4665 a common datum depth. Many hydrocarbon reservoirs
0.11 1273.7 5577 vary in elevation from one end to the other. In these
0.25 561.0 5924 situations, a common pool elevation or datum is gener-
0.50 281.0 6435 ally established. When pressure data is recovered from
0.75 187.7 6743 wells that have different elevations, the pressure data
1.20 117.7 7656 must be corrected to this datum depth. The pressure gra-
2.25 63.2 9 163 dient is multiplied by the difference in elevations, and
4 36.0 II 077 the result is added to or subtracted from the uncorrected
8 18.5 13338 data. This procedure will correct all pressures collected
12 12.7 14273 for a given reservoir to a common datum depth.
16 9.75 14878
20 8.00 15345 Example 2
30 5.67 16146
40 This example illustrates how to determine the datum
4.50 16681
50 pressure for two wells.
3.80 17074
70 3.00 17623 Pool Datum is at 1467m subsea
90 2.56 17996 Well: 01-02-003-04 W5M 09-02-003-04 W5M
210 1.67 18989 Formation: Triassic Triassic
KB elevation: 930m 983 m
When the data has been plotted on semi-log paper, a Top of formation: 2397.0 mKB 2460.0 mKB
trend can be seen toward the end of the buildup (Figure 930.0m 983.0 m
5.8-3). When the trend is extrapolated, the intersection -2397.0 m -2460.0 m
of the line with a time value of I (which means infinite Formationtop: -I 467.0 mss -1477.0 mss
t.t) indicates the theoretical pressure the reservoir will Date: October 3, 1991 October 3, 1991
reach. The extrapolated pressure was estimated to be Recorder
20 175 kPa. run depth: 2388.0mKB 2453.0mKB
(-1458.0 mss) (-I 470.0mss)
26 Pressure at
24
run depth: 20095 kPa 20197 kPa
"' ~~ ~
Extrapolated pressure of20 175kPa
Pressure gradient
~ 18 (obtained from
x 16
static gradient) 8.9 kPa/m 8.8 kPa/m
"0 14
::. 12 Pressure at -1458.0 mss -1470.0 mss
~ a
~ 10 D
pool datum: -I 467.0 mss -1467.0 mss
III 8 . D
~ 6 a a a 9.0m -3.0m
~ a
4
2
9.0m -3.0m
o -I---~-_ _~_ _~ -I x 8.9 kPa/m x 8.8 kPa/m
2
1 10 10 103 104 80.1 kPa -26.4 kPa
[(1 + 61)/61]
20095.0 kPa 20197.0kPa
+80.1 kPa -26.4 kPa
Figure 5.8-3 Horner Plot
20 175.1 kPa 20170.6 kPa
In this example, the first pressure point recorded matches
the calculated pressure found by the Homer analysis. In
cases where the initial reservoir pressure is at static
conditions, a buildup analysis is not necessary. KB = The elevation of the drilling platform at the kelly
bushing.

88

s
ESTIMATION OFVOLUMES OFHYDROCARBONS INPLACE

Datum pressures for the two wells are 20 175 kPa and Ai = area of common pressure
20 171 kPa at 1467 m below sea level. 1\ = total reservoir area
Once a datum pressure has been determined for all wells Vi = volume ofcommon pressure
surveyed in a pool, it may be determined that the pres- V, = total reservoir volume
sures still vary from point to point. What must be found
now is the average reservoir pressure; three methods Example 3
are commonly used. The first is an arithmetic average. This example illustrates how to estimate the average
The second is an area-weighted average, where areas of reservoir pressure using the arithmetic, area-weighted
the reservoir that have similar pressures are grouped and volume-weighted methods.
together. The area-weighted average is the sum of the The porosity volume map in Figure 5.8-4 was found to
products of areas times pressures divided by the total have the volumes for the four constant pressure areas as
area. The third method is the volume-weighted aver- shown in the following table:
age. This method may utilize the rock volume, pore
volume or hydrocarbon pore volume. The following Calculation of Average Reservoir Pressure
equations summarize the three methods: Pressure Area Volume
Arithmetic average P = l:(P) / n (I) (kPa) (ha) (ha.m)
Area-weighted average P = l:(P i X AJ / A, (2) 20000 115 1404
Volume-weighted average P = l:(Pi X VJ / V, (3) 20050 179 4425
where P = average reservoir pressure 20100 155 I 930
Pi pressure point 20150 90 435
n = total number of points

20050 kPa
20000 kPa 20100 kPa
20080 kPa
20150 kPa


:20 120kPa

20040 kPa: 20060 kPa


:~20m
20000 kPa 20170 kPa

20130 kPa
.:

15 m

20175 kPa
20 140kPa:

20 090 kPa~.:-:-- ' - - - - - 5 m

20110 kPa

o I ha(lOOmx 100m) --- om

Area of 20 000 kPa pressure liS ha Volume of20 000 kPa pressure 1404 ham
Area of20 050 kPa pressure 179 ha Volume of 20 050 kPa pressure 4425 ha-m
Area of 20 100 kPa pressure ISS ha Volume of 20 100 kPa pressure 1930 ha-m
Area of20 150 kPa pressure 90ha Volume of 20 ISO kPa pressure 435 ham
Total area of pool 539 ha Total volume of pool 8194 ha-m

Figure 5.8-4 Porosity Volume Map

89

7
DETERMINATION OF OILAND GASRESERVES

Arithmetic Average Volume-Weighted Average


~(P,) = 20 000 + 20 040 + 20 060 + 20 080 ~(Pj x V) = (20000 x 1404) + (20 050 x 4425)
+ 20 090 + 20 110 + 20 120 + 20 130 + (20100 x 1930) + (20 ISO x 435)
+ 20 140 + 20 170 + 20 175 = 164359500kPaxhaxm
= 221 115 kPa V, = 8194haxm=81.94x 106m3
n = 11
p = ~(Pj x Vj)N,
P = ~(PYn = 221 115 kPa /11 = 164359500 kPa x ha x m / 8194 ha x m
= 20101 kPa = 20058 kPa
Area-Weighted Average It should be noted that in this case the arithmetic and
~(Pj x Ai) = (20000 x liS) + (20 050 x 179) area-weighted averages result in higher pressures than
+ (20 100 x ISS) + (20 ISO x 90) the most rigorous volume-weighted average.
= 10 817 950 kl'a x ha References
A, = 539 ha Homer, D.R. 1951. "Pressure Build-up in Wells."
p = ~(Pj x Ai)/A, Proc., 3rd World Petroleum Congress, E. 1. Brill,
= 10817 950 kPa x ha / 539 ha Leiden, Netherlands, Vol. II, p. 503.
= 20070 kPa

90

s
ESTIMATION OFVOLUMES OFHYDROCARBONS INPLACE

5.9 GAS FORMATION VOLUME PXV=nxRxT (2)


FACTOR
where P = pressure of gas in container
5.9.1 Introduction V = volume of gas in container
In order to determine the gas formation volume factor, n = moles of gas in container
Bg , which relates the volume of gas in the reservoir to R = gas constant
the volume at the surface at standard conditions of'tem- T = temperature 0 f gas in container
perature and pressure, it is necessary to fully understand 5.9.3 Gas Compressibility Factor
gas behaviour. This is explained in the four subsections The Ideal Gas Law may be used to calculate the
that follow. Often the terrns in the B g determination properties ofgases at moderate temperatures and press-
(Equation 15 in Section 5.9.5) are used directly in the ures; however, the law does not hold true at high
equation for calculating in-place gas volumes, but it is temperatures and pressures. To correct for the devia-
useful to have Bg as one term for hand calculations and tion, a term called the "gas compressibility factor"
simple material balance work. or "gas deviation factor," Z, must be included iri the
5.9.2 Ideal Gas Law equation.

Three properties affect the amount of gas in a reservoir: PXV=ZxnxRxT (3 )


pressure, P, temperature, T, and volume, V. The 19th
The gas compressibility factor is designed to correct the
century chemists, Boyle and Charles, found that for a
volume of a theoretical ideal gas to the volume occu-
given amount of gas (see Example 1) the following
pied by a real gas. This factor can be determined in the
relationship holds true:
laboratory by measuring the actual volumes of a given
P, X V, P, xV, amount ofgas at prescribed pressures and temperatures
= (I) and comparing these to the ideal volumes calculated by
T, T, the Ideal Gas Law. It should be noted that the compress-
where the subscript I signifies the first set of condi- ibility factor will change with temperature, pressure and
tions, and the subscript 2, the second set of conditions. gas composition.
Equation (l) assumes that the amount of gas in the In cases where the gas compressibility factor is not
system does not change, and that the gas behaves as an obtained from detailed laboratory work, it can be closely
ideal gas. estimated by first calculating two pseudo-critical prop-
erties that are used to determine the compressibility
Example 1
factor of a natural gas: pseudo-critical pressure and
A balloon has a volume of0.1 m 3 at 1000 kPa and 300K. pseudo-critical temperature. Both of these can be cal-
If the contents of the balloon are heated to a tempera- culated if the composition of the gas is known. Gas
ture of450 oK, either the pressure or the volume (or both) compositions are usually determined by gas chroma-
must change. In this case, it is assumed that both change, tography on gas samples; each component is expressed
so that the pressure is now 1200 kPa and the volume is as a mole fraction of the total.
0.125 m3 The pressures, volumes and temperatures at To calculate the pseudo-critical properties of a natural
both conditions would be related as follows: gas, the critical pressure and critical temperature of
all the components are needed. These values are avail-
1000 kPa x 0.1 m' 1200 kPa x 0.125 m' able in numerous publications, such as the Engineering
300'K 450'K Data Book (Gas Processors Suppliers Association,
1980). The pseudo-critical pressure of a gas is defined
In order to calculate the amount of gas in a closed as the sum of the products ofthe mole fraction of each
chamber of fixed volume, two more constants must be component times the critical pressure of that compo-
defined: the first is the moles of gas, which is essen- nent. The pseudo-critical temperature is the sum of the
tially the number of molecules of gas; the second is the products of the mole fraction of each component times
gas constant. The resultant equation is known as the Ideal the critical temperature of that component. The equa-
Gas Law and expressed as follows: tions for calculating the pseudo-critical properties are
as follows:

91

b
DETERMINATION OFOIL AND GAS RESERVES

P, = L(Xj x P;) (4) Gas Analysis


T, = L(Xj x T;) (5) Mole Critical Critical
Component Fraction Press. Temp.
where P, = pseudo-critical pressure
(kPa) (OK)
T, = pseudo-critical temperature
x j = mole fraction of component i Helium (He) 0.0012 227.53 5.23
P j = critical pressure of component i Nitrogen (N2) 0.0469 3399.00 126.10
T j = critical temperature of component i Methane (C1) 0.9322 4604.00 190.55
Ethane (C2) 0.0129 4880.00 305.43
Thomas et al. (1970) found that the pseudo-critical
properties may also be estimated using the specific grav- Propane (C3) 0.0045 4249.00 369.82
ity of the gas. The specific gravity, SG, is the ratio of iso-Butane (iC4) 0.0007 3648.00 408.13
the gas density to the density of air. n-Butane (nC4) 0.0009 3797.00 425.16
iso-Pentane(iC5) 0.0003 3381.00 460.39
P, = 4892.547 - (404.846 x SG) (kPa) (6)
n-Pentane (nC5) 0.0002 3369.00 469.60
T, = 94.717 + (170.747 x SG) (OK) (7) Hexane (C6) 0.0002 3012.00 507.40
Once the pseudo-critical properties are found for a Total 1.0000
given gas, the pressure and temperature of the gas
in the reservoir are needed to calculate the pseudo- Pc = L(xixPi) 4541.87kPa
reduced properties of the mixture. The pseudo-reduced T, = L(xi x Ti) 190.16K
pressure is the ratio ofthe actual pressure to the pseudo- P, = 6790 I 4541.87 1.49
critical pressure. The pseudo-reduced temperature is the
T, = 296 I 190.16 1.56
ratio of the actual temperature to the pseudo-critical
temperature. Z = 0.88 ( from Standing and Katz chart )
In compatison, if only the specific gravity were known,
P, = PIP, (8)
P, and T, would be estimated as follows:
T, = TIT, (9)
Specific gravity = 0.587
where P, = pseudo-reduced pressure P, = 4892.547 - (404.846 x 0.587) = 4654.902 kPa
P = pressure of natural gas system
T, = 94.717 + (170.747 x 0.587) = 194.945K
T, = pseudo-reduced temperature
P, = 6790 I 4654.902 = 1.46
T = temperature of natural gas system
T, = 296/194.945 = 1.52
Once the reduced properties ofthe natural gas at a given
pressure and temperature have been calculated, the gas Z = 0.87 ( from Standing and Katz chart)
compressibility factor can be determined by the use ofa
5.9.4 Sour Gas
gas compressibility factor chart (Figure 5.9-1) published
by Standing and Katz (In Standing, 1977). The gas com- Calculating Z using the method described works well
pressibility factor may also be determined by the use of for sweet gases-natural gases that do not contain
a computer algorithm (Dranchuk et al., 1977). carbon dioxide (C02 ) or hydrogen sulphide (H 2S).
Natural gases that do contain carbon dioxide and hy-
Example 2 drogen sulphide are called sour gases. Estimation ofthe
This example illustrates how to estimate compressibility gas compressibility factor of sour gases was found to
factor of natural gas from a southern Alberta gas well. be incorrect when using the chart published by Stand-
ing and Katz, and several methods have been developed
Well location: 02-03-004-05 W6M
to estimate the correct compressibility factor for sour
Formation: Bow Island
gases. Wichert and Aziz (1972) compared two of these
Initial formation pressure: 6790 kPa
methods to one that uses the Standing and Katz chart. It
Formation temperature: 296 K (23C)
was found that the chart could be used if the pseudo-
critical temperature and pseudo-critical pressure were
adjusted. An adjustment factor, e, was developed
by Wichert and Aziz to correct the pseudo-critical

92
ESTIMATION OFVOLUMES OFHYDROCARBONS INPLACE

Pseudo-reduced Pressure
a 1 2 3 4 5 6 7 8
1.1 1.1
Pseudo-reduced
Temperature
3,0
2,8
1.0 2.6 1.0
2.4 1.05
2,2 1.2
2.0
0.95
1.9
0.9 1.8

1,7

1,6

0.8 1.7
1,5

1.45

1.4
0.7 1.6
1.35
N N

-'"
..:
o
a

LL
0.6 1.25
1.3

,~
.. 1.5
..:
a
ti
'"
LL
>. >.
~
:c 1.2
,~
""
:c
'00 ,~ '00
en ~~
(fJ
<ll 0.5 1.4 <ll
\~
~ ~

0. 0.
E '/.~ E
a - a
U U

0.4 1.3

0.3 1.2

0.25
2.8
1.1 1.1
2.4 2. 6 2.'
2.2 Compressibility of
Natural Gas
'/.~ \.9
Jan. 1, 1941
1.0 1.0
1,1

0.9 0.9
7 8 9 10 11 12 13 14 15
Pseudo-reduced Pressure
Source: Standing, 1977.

Figure 5.9-1 Compressibility Factors for Natural Gases

93


DETERMINATION OF OIL AND GASRESERVES

properties. The factor may be determined graphically P, = :E(xi X P) = 6056.39 kPa


or by using the following equation:
T, = :E(xi X T) = 273.18 OK
e = 120 x (AO. 9 - A1. 6) + 15 X (B.5 - B4 ) (10) e = 120 x (0.37629 - 0.37621.6) +
where A = combined mole fraction of COz and 15 X (0.3003.5 - 0.3003 4)
HzS = 32.77
B = mole fraction of HzS
T,' = 273.18 - 5/9 (32.77) = 254.98 OK
The pseudo-critical temperature and pseudo-critical
pressure are estimated in the normal manner and then
6056.39 X 254.98
adjusted as follows:
Po' = 273.18 + 0.3003 (1-0.3003) X 5/9 (32.77)
(11) = 5574.83 kPa

P, = 34300/5574.83 = 6.15
r, x Te'
P' = (12) T, = 359/254.98 = 1.41
c T, + B x (1-B) x (5e/9) Z = 0.87 ( from Standing and Katz chart)
where T c' = adjusted pseudo-critical temperature In comparison, if the critical properties had not been
P,' = adjusted pseudo-critical pressure adjusted, the compressibility factor would have been
estimated to be 0.77, a difference of 11.5 percent. Use
Example 3
of the incorrect compressibility factor in estimating
The adjustments described are detailed in this example reserves would result in large errors.
of a sour natural gas well from the Foothills area of
Alberta. It should be noted that the compressibility factor
Well location: estimated is only correct at the pressure and tempera-
03-02-004-05 W6~
Formation: ture used in calculating the pseudo-reduced pressure and
Rundle
Initial formation pressure: pseudo-reduced temperature. When the compress-
34300 kPa
Formation temperature: ibility factor of a gas is required for material balance
359 OK (86C)
calculations, each pressure point requires that a corre-
Gas Analysis sponding compressibility factor be estimated.
Mole Critical Critical 5.9.5 Derivation of Gas Formation
Component Fraction Press. Temp. Volume Factor
(kPa) (OK) Gas formation volume factor, Bg relates the volume
Nitrogen (N,) 0.0104 3399.00 126.10 of gas in the reservoir to the volume on the surface at
Sulphide (HzS) 0.3003 9005.00 373.50 standard conditions of temperature and pressure and is
Carbon dioxide often used to simplify hand calculations ofgas reserves.
(CO z) 0.0759 7382.33 For the purpose of estimating reserves, B g is generally
304.19
Methane (Cl) 0.5277 expressed as the amount of space occupied at standard
4604.00 190.55
conditions by a unit volume of gas under reservoir con-
Ethane (C2) 0.0358 4880.00 305.43
ditions. The dimensions ofBg are unit volume at standard
Propane (C3) 0.0079 4249.00 369.82 conditions per unit volume at reservoir conditions, and
iso-Butane(iC4) 0.0018 3648.00 408.13 therefore, Bg is dimensionless.
n-Butane (nC4) 0.0041 3797.00 425.16
Derivation of Bg begins with the following equation
iso-Pentane(iC5) 0.0020 3381.00 460.39 for nonideal gases:
n-Pentane (nC5) 0.0022 3369.00 469.60
Hexcane (C6) 0.0059 3012.00 507.40 P,x V, P; x V;
Heptane + (C7+) 0.0260 2486.00 (13)
568.76 Z,T, Z;T;
Total 1.0000
where P" V" Z, and T s are all measured at standard
surface conditions, and Pi' Vi' Z, and T, are all
measured at initial reservoir conditions. Transposing

94

r
ESTIMATION OF VOLUMES OFHYDROCARBONS IN PLACE

tenus, Bg (as defined in this section) is derived as References


follows: Dranchuk, P.M., Purvis, RA., and Robinson, D.E.
1977. "Computer Calculation of Natural Gas
v vo Iume 0 f gas under Compressibility Factors using the Standing and
B = - ' = standard surface conditions Katz Correlations." Institute of Petroleum
g Vi per unit volume ofreservoir space Technology, IP-74-008, Vol. I.
Gas Processors Suppliers Association. 1980.
Engineering Data Book, Tulsa, OK.
(14)
Standing, M.B. 1977. "Volumetric and Phase
Behavior of Oil Field Hydrocarbon Systems."
Assuming that Vi is one unit volume ofreservoir space, SPE of AIME, Dallas, TX.
and that the gas compressibility factor, Z" at standard Thomas, H.K., Hankinson, RW., and Phillips, K.A.
surface conditions is unity, B g can be reduced to: 1970. "Determination of Acoustic Velocities of
Natural Gas." JPT, Vol. 22, pp. 889-895.
Wichert, E., and Aziz, K. 1972. "Calculate Z's for
(15) Sour Gases." Hydrocarbon Processing, May
1972.
B g may now be substituted into the equation for
calculating in-place volumes of nonassociated and gas
cap gas.

95
DETERMINATION OF OILANDGASRESERVES

5.10 OIL FORMATION VOLUME


FACTOR
2.10

2.00
B
od b(2.074)
_
'j
1:'0...)t..__ Differential liberation
~I.I.-1.1._ I
4 4 _ _.11.
5.10.1 Introduction
The formation volumefactor (FVF) for oil is defined as fi
1.90
I
the volume in cubic metres (barrels) that one stock tank
~

~
1.80

Bo1b ( 1 . 7 2 3 ) - / -
I
Flash Liberation
cubic metre (barrel) occupies in the formation at the l5 1.70

prevailing reservoir temperature and pressure. A stock


tankcubicmetre (barrel) is defined as the volume occu-
~ 1.60
Q)
/' ) I
5 /A :l
pied by one cubic metre (barrel) of crude oil at standard
pressure and temperature, which are 101.325 kPa and
~ 1.50

..
~ t 40 /
/ :g
~
A ;-
15C (14.65 psi and 60F) respectively. Crude oil in 1.30 ~
the ground always contains varying amounts of dis- !
a.
1.20 e
solved gas (solution gas). Because both the temperature
and the solution gas increase the volume of stock tank
oil in the formation, the FVF will always be greater than
1.10
1'"
1.00 - - - - - - , r - - - r - - , - - - - , - - . - - - - - ,
one. The symbol B, is used in equations to refer to the 1000 20003000 4000 5000 6000
Pressure (psig)
formation volume factor. Source: Chevron CanadaResources.

The reciprocal of the FVF is called the shrinkage


factor. Just as the formation volume factor is multiplied Figure 5.101 Comparison of Formation
by the stock tank volume to find the reservoir volume, Volume Factor by Differential and
the shrinkage factor is multiplied by the reservoir vol- Flash Liberation
ume to find the stock tank volume. Although both terms
are in use, most petroleum engineers use formation 5.10.3 Data Acquisition
volume factor. Before representative samples of the reservoir fluid are
collected, it is important that the well be properly con-
5.10.2 Data Sources
ditioned. A complete well conditioning and sampling
A laboratoryanalysis of fluid properties is the best source procedure is described in Chapter 5.6.
ofdata to estimate the FVF. It is preferable that the labo-
In most reservoirs, the variations in reservoir fluid
ratory analysis be made on a sample obtained during
properties among samples taken from different parts of
the completion ofthe discovery well, and that the sample
the reservoir are not large, and lie within the margin of
represent as nearly as possible the original reservoir
error inherent in the techniques of fluid sampling and
fluid. This will ensure that the original FVF is accu-
analysis. On the other hand, some reservoirs, particu-
rately determined with respect to the bubble point and a
larly those with large closures, have large variations in
decline in the bottom-hole pressure.
fluid properties, which may be explained by a combi-
Figure 5.101 shows the oil FVF in a typical high. nation of the temperature gradients, gravitational
gravity undersaturated oil reservoir when the reservoir segregation, and lack of equilibrium between the oil
pressure declines from the initial pressure to stock tank and the solution gas. Methods for handling reservoir
condition as determined from a laboratory analysis (the calculations where there are significant variations in the
symbols shown in this figure are defined in Example 2, fluid properties have been documented in the literature
Section 5.10.5.) (Cook et al., 1955; McCord, 1953).
The oil FVF can also be estimated from empirical
methods and correlations available from the technical 5.10.4 Data Analysis
literature (Amyx, 1960). A correlation prepared by Katz The composition of the stock tank oil will be quite
(1942) from data on mid-continent crudes requires the different from the composition ofthe original reservoir
reservoir temperature, and the pressure, gas-oil ratio, fluid. Most of the methane and ethane will have been
and API gravity ofthe crude. A second empirical correl- released from solution, and sizeable fractions of the
ation developed by Standing (1947) for California propanes, butanes and pentanes will have vapourized
fluids requires the total gas-oil ratio, the gravity of the as the oil moves from the reservoir to the stock tank
stock tank oil and produced gas, and the reservoir and the pressure is reduced. The change in liquid
temperature. composition is not a single nor a well-defined process,

96
1 ESTIMATION OF VOLUMES OF HYDROCARBONS IN PLACE

but is a series of flash and differential liberation own liberated gas but with additional gas produced
processes. from either the oil zone or a gas cap. In contrast the
The difference between these two processes is that in laboratory flash liberation is isothermal, and only the
the flash liberation process, all of the gas remains in gas liberated from the sample is in contact with the
contact with the liquid, while in the differential pro- liquid.
cess, some ofthe gas is released (removed from contact When the volume of dissolved gas in the crude oil
with the liquid phase). For this to be so, the volume of is low (indicating low volatility), there are only slight
the system in the flash process must increase as the pres- differences between the flash and differential liberation
sure declines. Thus the flash process is one of constant data. Under these circumstances the residual barrel by
composition and changing volume, and the differential the differential process may be identified with the stock
process is one of constant volume and changing tank barrel, and differential liberation data may be used
composition. directly in the oil-in-place equation. Experience indi-
In the case of reservoir fluids which are at their bubble cates that low volatility conditions may exist where the
point when the pressure declines as a result of produc- following are present: the stock tank gravity is below
tion, the gas liberated from the oil does not flow to the 30 API; the solution gas-oil ratio is less than 70 m 3/m3
well, but accumulates until a critical gas saturation is (400 scf/stb); and the reservoir temperature is below
reached. This critical saturation will be reached sooner 54C (130F). These are, of course, only approximate
in the vicinity of the well where the pressure is lower limits.
than at more distant points, particularly for wells pro- When the volatility of the crude is high, as in the
ducing under large pressure drawdowns. With gas example shown in Figure 5.10-1, more consideration
saturations greater than critical near the well, the gas should be given to the predominant gas liberation mecha-
will move more rapidly than the oil (differential libera- nism occurring in the reservoir, in the wellbore, and in
tion), whereas in the remainder of the reservoir the surface separation facilities. The FVF used may more
liberated gas will remain in contact with the oil (flash closely approach that of a flash liberation (Craft and
liberation). The volume ofthe reservoir surrounding the Hawkins, 1959).
producing wellbore, where the gas is highly mobile, is In a simple analysis, where only one FVF vs. pressure
usually only a small part ofthe total drainage area. Thus, relationship is used, industry practice tends toward us-
where there is a more moderate pressure decline below ing an estimated flash liberation relationship. It may be
the bubble point in the larger part of the reservoir, the argued that the flash process in the wellbore is the final
flash liberation is more representative. equilibrium that the oil and gas phases must adjust to.
On the other hand, when the gas saturation exceeds the Also, the pressure drop from bottom-hole pressure to
critical value in most of the drainage area, the gas will separator pressure often amounts to a large fraction of
flow much faster than the oil. This situation would be the total pressure decline from formation pressure. In a
characterized by producing gas-oil ratios considerably common industry compromise, the differential libera-
in excess of the initial solution gas-oil ratio. With the tion FVF curve is shifted by the ratio between the flash
removal of gas from contact with the oil, differential and differential liberation FVFs at the bubble-point
liberation more closely represents the reservoir behav- pressure (refer to Example 2 in Section 5.10.5).
iour. Consequently, differential liberation data should In reality, however, each producing system is different
be applied to the reservoir fluid when the reservoir pres- and each should be examined closely to determine where
sure has dropped considerably below the bubble-point the major pressure drops are occurring. In some cases,
pressure and the critical gas saturation has been exceeded further testing and facility modelling may be warranted
in most of the reservoir. in order to maximize liquid production. Figure 5.10-1
Flow through tubing and a choke is a declining- shows the FVF calculated by both the flash and differ-
pressure flash liberation in which the gas remains in ential processes for a more volatile crude oil having a
equilibrium contact with the oil throughout the process. gravity of 46.6 API. The difference between these two
There are, however, important differences between curves is significant. This example helps to illustrate
tubing flash and laboratory flash liberation. Tubing the variability of FVFs, and the importance of under-
flash liberation is accompanied by declining temper- standing the impact of each liberation process in the
atures and, where the gas-oil ratio exceeds the initial producing system.
dissolved ratio, the oil is in contact not only with its

97

.iII? _
...
DETERMINAnON OF OIL AND GAS RESERVES

5.10.5 Data Adjustment for oil compressibility. This is done by adjusting the
In the calculation of a flash FVF, it is often necessary to measured volume at saturation pressure using the
adjust the data from a laboratory fluid analysis to more following equation:
appropriately represent the true producing conditions. adjusted B, = B ofbx VIV s t (I)
Normally, flash separation data in a laboratory analysis where adjusted B, = flash formation volume factor
is referenced to reservoir fluid volumes at the sat- for pressures above saturation
uration pressure (bubble point). The following two pressure
examples show how the data from a reservoir fluid study
is used to calculate the flash FVF for producing reser-
= formation volume factor from
flash at saturation pressure
voir conditions. The data is provided in Tables 5.10-1,
5.10-2 and 5.10-3. VIV s. , = relative volume from pressure
volume relations at pressure
'Table 5.10-1 Pressure Volume Relations above saturation pressure
For example, if the reservoir pressure is 27 600 kPa
Pressure Relative Volume * (4000 psig),
(psig) VNt then VIV sat = 0.9750 (Table 5.10-1)
6000 0.9398 B ofb = 1.723 (Table 5.10-2)
5500 0.9473
and adjusted B, = 1.723 (0.9750) = 1.680
5000 0.9556
4500 0.9648 Example 2: At Pressures Below Bubble Point
4000 0.9750
3500 0.9867 Because oil shrinkage occurs due to gas liberation at
3300 0.9921 pressures below the saturation pressure, flash FVFs that
3200 0.9949 are referenced to a volume at saturation pressure must
3100 0.9979 be corrected to reflect this shrinkage. The adjustment is
3029 1.0000 made using the following equation:
3010 1.0027 BOlli
2993 1.0051 adjusted n, = Bod
,
B cdb
(2)
2982 1.0067
2948 1.0117 where adjusted B, = flash formation volume factor
2773 1.0408 for pressure below saturation
2571 1.0805 pressure
2333 1.1404 = relative oil volume from differ-
2098 1.2206 ential liberation at pressure
1849 1.3309 below saturation pressure
1622 1.4717 = formation volume factor from
1390 1.6732 flash at saturation pressure
1298 1.7740
= relative oil volume from differ-
Source: PVT Analysis by Core Laboratories - ential liberation at saturation
Canada Ltd., on Chevron Pembina 1-9-50-12 W5M. pressure
Chevron Canada Resources, File 7013-795. For example, if reservoir pressure is 14500 kPa (2100
"Relative volume is in barrels at the indicated psig),
pressure and temperature per barrel of saturated oil. then Bod = 1.767 (Table 5.10-3)
B ofb = 1.723 (Table 5.10-2)
Example 1: At Pressures Above Bubble Point B odb = 2.074 (Table 5.10-3)
Flash FVFs are normally referenced to a volume at . 1.723
and ad[usted B o = 1.767 x - - = 1.468
saturation pressure. At pressures above the saturation 2.074
pressure, the flash FVF must be corrected to account

98

5
ESTIMATIONOF VOLUMES OFHYDROCARBONS IN PLACE

Table 5.10-2 Separator Tests of Reservoir Fluid Sample

Separator Separator Gas-Oil Gas-Oil Stock Tank Formation Separator Specific


Pressnre Temperature Ratio! Ratlo! Gravity Volume Volume Gravity of
(psig) (OF) (OAPI60F) FactorJ Factor" Flashed Gas

reservoir
to 320 74 795 891 - - 1.121 0.725
to 0 74 288 290 46.6 1.723 1.007 1.226

Source: PVT Analysis by Core Laboratories - Canada Ltd., on Chevron Pembina 1-9-50-12 W5M. Chevron Canada
Resources, File 7013-795.
'Cubic feet of gas @ 60F and 14.65 psia per barrel of oil @ indicated pressure and temperature.
2Cubic feet of gas @ 60F and 14.65 psia per barrel of stock tank oil @ 60F.
3Barrels of saturated oil @ 3029 psig and 228F per barrel of stock tank oil @ 60F.
"Barrels of oil @ indicated pressure and temperature per barrel of stock tank oil @ 60F.

Table 5.10-3 Differential Vapourization

Pressure Relative Oil Relative Total Solution Gas-Oil Gas Formation Gas Expansion
(psig) Volume! Volume- Ratio! Volume Factor" FactorS

3029 2.074 2.074 1634


2700 1.947 2.184 1406 0.00568 170.65
2403 1.852 2.326 1231 0.00660 151.52
2100 1.767 2.533 1071 0.00764 130.89
1801 1.695 2.818 934 0.00901 110.99
1502 1.627 3.249 805 0.01098 91.07
1202 1.565 3.905 685 0.01384 72.25
900 1.504 5.080 568 0.01884 53.08
598 1.442 7.481 452 0.02882 34.70
300 1.363 14.802 318 0.05791 17.27
0 1.088 - 0 1.32043 0.757

Source: PVT Analysis by Core Laboratories - Canada Ltd., on Chevron Pembina 1-9-50-12 W5M. Chevron Canada
Resources, File 7013-795.
I Barrels of oil at indicated pressure and temperature per barrel of residual oil at 60F (Bg),

2Barrels of oil plus liberated gas at indicated pressure and temperature per barrel of residual oil at 60F (BJ.
3Cubic feet of gas at 14.65 psia and 60F per barrel of residual oil at 60F CR,).
4Cubic feet of gas at indicated pressure and temperature per cubic foot at 14.65 psia and 60F (B g) .
sCubic feet of gas at 14.65 psia and 60F per cubic foot at indicated pressure and temperature: \lgas FVF (\lB g) .

99
DETERMINATION OFOILAND GASRESERVES

5.10.6 Summary References


Production from the reservoir rock to the stock tank Amyx, J.W., Bass, D.M., and Whiting, R.L. 1960.
usually involves a combination of flash and differential Petroleum Reservoir Engineering. McGraw-Hill,
liberation processes. In determining a value for the oil New York, NY, pp. 429-435.
formation volume factor, the overall flow process of Cook, A.B., Spencer, G.B., Bobrowski, F.P., and
the oil stream should be analyzed to determine where Chin, T. 1955. "A New Method of Determining
the major pressure drops occur and what weighting Variations in Physical Properties of Oil in a
should be given to the flash and differential FVFs. If Reservoir, with Application to the Scurry Reef
the volatility of the crude oil is high, there may be a Field, Scurry County, Texas." US Bureau of
significant difference between the values of the FVF Mines Report, Feb. 1955.
determined by the flash and differential processes
Craft, B.C., and Hawkins, M.F. 1959. Applied
(Figure 5.10-1). In such cases, the true FVF may more
Petroleum Reservoir Engineering. Prentice-Hall,
closely approach the flash liberation process. If the
Inc., Englewood Cliffs, NJ, pp. 86-181.
volatility ofthe crude oil is low, only slight differences
between the flash and differential data are likely, and Katz,D.L. 1942. "Prediction of the Shrinkage of
use of the differential liberation data may be feasible. Crude Oils." Drilling and Production Practice,
Future changes in producing procedures should also American Petroleum Institute, Vol. 137.
be considered in making any assessment of the oil McCord,D.R. 1953. "Performance Predictions
formation volume factor. Incorporating Gravity Drainage and Gas Cap
Pressure Maintenance - LL-370 Area, Bolivar
Coastal Field." Trans. AIME, Vol. 198, No. 232.
Standing, M.B. 1947. "A Pressure-Volume-
Temperature Correlation for Mixtures of
California Oils and Gasses." Drilling and
Production Practice, American Petroleum
Institute, Vol. 275.

100
ESTIMATION OFVOLUMES OF HYDROCARBONS INPLACE

5.11 QUALITY AND RELIABILITY OF 3. Core plugs represent extremely small samples of
DATA AND RESULTS the reservoir rock and may provide higher or lower
permeabilities than might be obtained if it were
5.11.1 INTRODUCTION possible to use much larger samples, particularly in
The quality and reliability of reservoir data reflect heterogeneous reservoirs or reservoirs characterized
directly on the results obtained in preparing reserves by vuggy porosity. In such cases, permeabilities de-
estimates. As indicated in preceding sections, the con- rived from well production characteristics and
ditions under which basic data are obtained and the pressure measurements may be more representative
laboratory methods used to generate additional data are of in situ reservoir conditions.
both important elements that must be taken into consid- As a general rule, the larger the sample, the better the
eration. Elementary reasoning and common sense are reservoir representation.
also important elements in the process of preparing
As previously mentioned, however, if the core was
reserves estimates.
oriented when it was originally cut, the k.nax and k"o
In the determination of reservoir rock properties and permeabilities have greater importance and can be
fluid saturations, it is common practice to rely on core related to actual directions in the reservoir.
data as the reference point and to fit log analysis data to
In cases where clays contained in sandstone core samples
it. Consequently, the core data must reflect to the great-
have been dehydrated during the cleaning procedure,
est degree possible the in situ conditions ofthe reservoir.
Because of cost considerations, it is usually not poss- erroneously high values may be measured for both k.nax
ible to obtain cores under preferred conditions, such as and ~o permeabilities.
specifically prepared oil base muds, lease crudes, and Glaze may be created by core bit action, particularly on
oriented, pressurized, or sponge coring techniques. Thus, limestone cores, and may obscure variations in core
in most circumstances, conventional cores comprise the characteristics during visual inspection and result in
best data available. unrepresentative sampling and in permeabilities that are
much too low. Sandblasting is commonly used to re-
5.11.2 Permeability from Cores move the glaze during sample preparation. Logs should
Permeability is a particularly important measurement be consulted during the sample selection procedure.
obtained from cores because it provides an indication
of whether hydrocarbons may be effectively produced
5.11.3 Porosity from Cores
from intervals of interest. The reliability of the perme- Porosity measurements made on core samples are less
ability measurements can be influenced by the coring subject to error than permeability measurements. How-
procedure (induced fractures or scale formation), weath- ever, incomplete cleaning during laboratory plug
ering and storage effects, plug sample selection, preparation may result in erroneously low porosity mea-
preparation in the laboratory, and the measurement surements. The laboratory techniques used to measure
techniques applied. Conventional core analyses are per- core porosities may affect the accuracy of the results.
formed without the application ofsimulated overburden Table 5.4-I in Section 5.4.2 provides a comparison of
pressure, and horizontal permeabilities are measured in techniques.
two directions at 90 to each other. The highest mea- Since most laboratory porosity measurements are
sured permeability is designated as "k.n,," and the other obtained at surface conditions, the porosities are gener-
as "~o'" A practical approach in most situations is to ally higher than in the reservoir, particularly in poorly
assume that the ~o measurements more closely repre- consolidated sandstones, unless compressibility tests
sent the in situ reservoir permeability than the k.nax are conducted to provide reduction factors to allow
readings for the following reasons: for overburden pressures.
I. Small fractures induced during the coring proce- It is worth repeating that the quality of the results
dure may result in an excessively high k m ax' obtained from core analyses is directly related to the
particularly in limestones and dolomites. quality and condition of the core when it reaches the
2. Lack of overburden pressure usually results in laboratory. Therefore, in cutting and retrieving the core,
high k.nax and ~o readings, particularly in poorly precautions must be taken to preserve, as much as pos-
consolidated sandstones. sible, the conditions that exist downhole in the reservoir.
Cutting and retrieval of core to surface results in re-
moval of overburden pressure, introduction of drilling

101

2
DETERMINATION OF OIL AND GASRESERVES

fines, and modification of clays, all of which can affect about pore structure that can be related to connate water
porosity measurements. saturations. The results should be used with caution since
the studies are generally performed on weathered core
5.11.4 Saturations from Cores that has been cleaned and resaturated with other fluids.
Because ofthe coring and retrieval procedures used for The results may differ considerably from those obtained
conventional cores, most laboratory saturation measure- from work on oil core using the Dean Stark extraction
ments obtained are unreliable. At best, the oil saturations technique.
obtained may provide a preliminary indication of what The wettability of reservoir rock is another important
residual oil saturations might be after waterflooding. The consideration that is often difficult to assess and may
water saturation measurements are usually meaningless. be altered by coring procedures, surface handling, and
On the other hand, saturations measured on properly laboratory techniques. Generally speaking, the major-
preserved core obtained under well-controlled field and ity of reservoir rock encountered in the western Canada
reservoir conditions can give reliable results. . sedimentary basin is considered to be preferentially
Oil-base cores normally provide reservoir samples that water-wet. However, the term "wettability" is the sub-
should provide accurate measurements of connate ject of much debate and is somewhat misleading in that
water saturations. The coring fluid is usually lease crude it implies that it is a property ofthe reservoir rock that
or a specially prepared drilling mud that contains weight- determines whether it is water-wet or oil-wet. Some
ing material and only very small amounts of water in parties hold that wettability of a reservoir rock depends
emulsion form. The following steps are necessary to on which fluid saturated the rock first. Others contend
ensure that uncontaminated core is obtained: that wettability is a function of the rock, water, and hy-
I. Set casing and cement to a point immediately above drocarbon properties and their associated oxygen-carbon
the target interval to ensure that the drilling fluid chains. In fact, most ofthe hydrocarbon reservoirs were
does not become contaminated with uphole fluids. initially deposited under marine environments where
2. Keep coring fluid in a closed system to prevent water the initial saturating fluid, water, was subsequently
from being introduced inadvertently. partially displaced by hydrocarbons.
3. Analyze samples ofthe drilling fluid for water con- 5.11.5 Effective Porous Zone and Net
tent at regular intervals during the coring procedure. Pay from Cores
4. Avoid penetration of any underlying aquifer. Effective porous zone and effective net pay refer to that
5. Preserve recovered core in lease crude, or suitably portion of the porous reservoir rock that has sufficient
protect it from exposure to the atmosphere until it permeability to permit the flow of reservoir fluids.
is ready for analysis in the laboratory. Porous rock, with permeability below a certain mini-
mum level in conjunction with capillarity and relative
In Alberta, the Energy Resources Conservation Board
permeability, will not allow the flow ofreservoir fluids,
(1993) publishes each year an updated PVT and Core
at least at rates significant in terms of production eco-
Studies Index, which is useful in identifying the reser-
nomics. These minimum permeability levels may differ
voirs that have had special core studies performed.
depending on the production mechanism under consid-
However, caution should be used in selecting core analy-
eration. In other words, effective net oil pay under a
ses and special studies from this index since some cores
depletion drive mechanism, where expansion of reser-
identified as being obtained with oil-base muds were
voir fluids is the driving force, may be greater than under
not obtained under properly controlled conditions.
a waterflood, where the water displacing the oil tends
Frequently the muds used were oil-water emulsion muds
to follow the path of least resistance and may by-pass
containing high proportions of water.
low permeability reservoir rock. In practice, the con-
Another useful source of connate water saturation nate water saturations related to minimum permeability
data and relationships derived from oil-base core levels tend to be in the range of 50 to 60 percent.
analyses relating to reservoirs in the western Canada
Special core studies and conventional core analyses
sedimentary basin is available in a paper published
should be used to establish cutoffs of permeability and
by Buckles (1965).
porosity below which the reservoir is considered
In instances where suitable oil-base cores are noneffective for specified depletion and production re-
unavailable, capillary pressure studies are performed on gimes such as solution gas drive, water displacement,
samples of conventional core to determine information gas displacement, or miscible displacement. Once

102

s
ESTIMATION OF VOLUMES OFHYDROCARBONS IN PLACE

these cutoffs have been established from core Conductive minerals in the reservoir rock
data, correlations (cross-plots of water saturation
Selection of coefficient "a", cementation exponent
vs. permeability, water saturation vs. porosity, and "m "an d ' exponent "n"
saturation
permeability vs. porosity) with porosity logs may be
Resistivity of the formation water
developed, thereby permitting a relatively uniform and
consistent approach to the selection of effective porous With regard to formation water resistivities, care should
intervals and effective net pays throughout a given res- be taken to use measurements from samples considered
ervoir. This approach provides a logical and reliable to be representative of reservoir water uncontaminated
basis for the creation of effective porous zone maps and by drilling mud filtrate. Water resistivities determined
net pay maps. Cutoffs that have been selected arbitrarily from log calculations over known wet intervals should
and applied inconsistently throughout a reservoir can be compared to those determined from water analyses
lead to unrealistic estimates of in-place hydrocarbons, wherever possible.
ultimate recoveries, and costly mistakes in reservoir 5.11.8 Effective Porous Zone and Net
management.
Pay from Well Logs
In reservoirs where core information is unavailable, log As earlier discussions have stressed, the determination
porosity cutoff values may be determined from core of realistic cutoff levels for permeabilities and porosi-
information using nearby reservoirs as models or by ties are critical to the selection oftruly effective porous
applying generally accepted porosity cutoffvalues from zones and net pay from well logs. Errors in determining
the reservoir rock under consideration (2 to 4 percent effective net pay may introduce order-of-magnitude
for carbonates; 7 to 10 percent for sandstones). These errors in estimates of effective hydrocarbons in place
porosity cutoffs are based on experience that shows that
and thus lead to costly consequences, particularly in the
the corresponding horizontal permeability cutoffs are planning and implementation of enhanced recovery
in the range of 0.5 to 1.0 mD, with the lower end of the schemes.
range used for gas reservoirs and the higher end for oil
It is important to use all the data available to ensure the
reservoirs. It should be noted that these cutoffs are
reliability of results. For instance, in situations where
related to measurements made on unstressed core.
core information is lacking, correlation of mud cake
5.11.6 Porosity from Well Logs build-up on caliper logs can give a good indication of
It is important to calibrate porosity logs using core data the sections of the reservoir that have effective perme-
wherever possible since good core-derived data are gen- ability and can be used in conjunction with porosity logs
erally considered to provide the best benchmarks. to select effective net pay.
Cross-plots of log information should be used exten- In summary, it cannot be emphasized too strongly that
sively in order to better characterize porosity. realistic cutoffs ofhorizontal permeability and porosity
Uncertainty in the detailed mineral composition of the should be used in determining effective porous zone and,
reservoir rock and borehole rugosity can result in ap- in conjunction with water saturations, net pays from
parent log porosities that are much different than the cores and well logs. Unless unusual reservoir conditions
true effective porosities. Bitumen and pyrobitumen con- exist, such as the presence of large concentrations of
tained in reservoir rock can greatly reduce effective clays, horizontal permeability and porosity cutoffs gen-
porosity with contents ranging up to 30 percent of pore erally correspond to connate water saturations greater
space in some reservoirs. The analyst should be atten- than 50 to 60 percent. Based on empirical determina-
tive to all indications of the presence of bitumen and tions derived from unstressed core measurements,
pyrobitumen and should make it a point to scrutinize generally accepted (minimum) cutoffs are as follows:
well cuttings and core descriptions for evidence oftheir Horizontal air 1.0 mD (medium to high gravityoils)
presence. permeability 0.5 mD (wet gas)
0.1 mD (dry gas under special
5.11.7 Water Saturations from Well Logs circumstances)
Water saturations determined from well logs may be Porosity 2 to 4 percent (carbonates)
influenced by the following: 7 to 10percent (sandstones)
Thin beds (averaging effect ofresistivity tools due to 26 to 28 percent (heavyoil in
lack of vertical resolution) sandstones)
Watersaturation 50 . 60 percent

103

7
DETERMINATION OFOIL AND GAS RESERVES

The cutoffs selected for a given oil reservoir may vary 5.11.12 Reservoir Temperature
widely depending on the type of depletion mechanism The most reliable source of reservoir temperature data
being contemplated. Fracture porosity in certain gas is a bottom-hole temperature taken with a continuous
reservoirs may justify the use of lower porosity cutoffs recording subsurface temperature gauge under stabilized
(0.25 to 2 percent). bottom-hole conditions, preferably in conjunction with
5.11.9 Drillstem Tests a static bottom-hole pressure measurement. Other meth-
ods, such as using maximum reading thermometers
The drillstem test provides an indication of the fluids
during testing or logging operations, are considered to
contained in a reservoir, a measure of the flow charac-
be less reliable.
teristics, and a reading of the reservoir pressure. The
reservoir pressures measured during a drillstem test may Small variations in bottom-hole temperature, when
be used to assess the quality and reliability ofthe test as converted to absolute temperature, generally result in
follows: only a very small percentage error in the overall reserves
estimates; nonetheless, care should be taken to obtain
1. The hydrostatic pressures measured should be
the best measurements possible.
checked to ensure that no significantpressure change
took place during the test. Any significant change As a general rule, temperatures measured in wells will
in hydrostatic pressure would indicate that a proper tend to understate true reservoir temperature because
packer seal had not been obtained and that the zone temperature equilibrium has not yet been reached in the
being tested was not properly isolated from the wellbore. However, in certain situations such as in
wellbore fluid column. shallow wells on warm days, maximum reading ther-
mometers may reflect the high atmospheric temperature
2. The pressures measured on different gauges should
on the day the measurement was made.
be checked for consistency, particularly when more
than one gauge is run at any position. Charts should 5.11.13 Reservoir Pressure
be checked for evidence of tool plugging by com- Accurate static reservoir pressures are extremely
paring inside and outside gauge pressures. important in the determination ofhydrocarbon reserves.
5.11.10 Production Tests The accuracyof the measurements is a function of the
following:
Good production tests are a function of the objectives
of the test and the test design, as well as the reliability The type of measurements being made: surface or
of the equipment used. From the design viewpoint, it is bottom-hole
wise to use two downhole pressure recorders so that The reliability of the recorders used for pressure
comparisons can be made to check for consistency. Sur- measurements
face and bottom-hole pressures should be compared, and The duration of the shut-in period
any fluid level changes should be noted during build-
Bottom-hole measurements are considered to provide
ups. Flow rates should be of sufficient duration to permit
more reliable measurements of reservoir pressure than
stable conditions to be reached. Generally, when the
surface measurements, which must then be extrapolated
objective is to determine static reservoir pressure,
to bottom-hole conditions. Usually tandem recorders are
buildup times should be at least twice as long as the
run to allow comparisons and verification of the
preceding flow rates.
accuracy of the measurements as well as to ensure that
5.11.11 Reservoir Fluid Samples at least one pressure is obtained should one of the
recorders fail.
The sampling equipment and procedures are of utmost
importance in obtaining representative reservoir fluid The duration of the shut-in period is critical in obtain-
samples. Care must be taken to prevent contamination ing reliable pressure information and should be a
of the samples by ensuring that the sample containers function of the quality (permeability) of the reservoir
are properly purged prior to sampling. Special contain- rock and the fluids that occupy it. The poorer the reser-
ers should be used when collecting gas samples voir quality and the higher the viscosities of the
containing hydrogen sulphide. Proper well condition- occupying fluids, the longer the shut-in period.
ing prior to obtaining subsurface oil samples is
important, especially when more than one fluid phase
is present in the wellbore.

104

s
ESTIMATION OFVOLUMES OF HYDROCARBONS INPLACE

5.11.14 Gas Compressibility Factor 5.11.17 Interrelationships


Reliable gas compressibility factors are dependent on The interrelationships and interdependencies of the
the quality ofthe gas analyses being used and how rep- various parameters are important in arriving at reliable
resentative they are of the reservoir fluids. Since a estimates of in-place volumes. Ifthe sources ofthe data
compressibility factor is only correct at the pressure and are reliable, then the quality of the resulting estimates
temperature used in the estimation, it is important to can be improved by a consistent approach in the selec-
use reservoir pressure and temperature data of accept- tion ofparameters. For example, in a particular reservoir
able quality. With gases containing carbon dioxide or where reliable oil core data are available, water satura-
hydrogen sulphide, large errors can be introduced into tions can be plotted vs. porosities and vs. horizontal
the reserves estimates if the appropriate sour gas corr- permeabilities. In tum, porosities can be plotted vs. hori-
ections are not made in estimating gas compressibility zontal permeabilities. Minimum porosity and horizontal
factors. permeability cutoff values can then be selected that are
consistent with a selected water saturation cutoff value,
5.11.15 Formation Volume Factor say 50 percent. The porosity and horizontal permeabil-
The quality and reliability of formation volume factor ity cutoffs established from the oil core data can then be
data are dependent upon whether or not the reservoir applied to conventional core data. The combined core-
fluid samples from which the data were obtained are derived information can then be used to calibrate well
truly representative of reservoir conditions. Proper logs and additional interrelationships established
selection of flash vs. differential formation volume fac- through the use of further cross-plots. This approach
tors is required to best represent reservoir mechanisms. ensures that the data derived from one source is
consistent in its application with data from another
5.11.16 Material Balance
source.
Errors in material balance calculations generally fall into
Not only does interrelating the various parameters
the following categories:
introduce consistency to the estimates of in-place vol-
I. Thermodynamic equilibrium not attained in actual umes, it also provides a sound basis for the application
field conditions of recovery factors. Care should be taken to ensure that
2. PVT data obtained using liberation processes that the applied recovery factors are consistent with the in-
do not represent reservoir condition mechanisms place volumes and cutoff values used. For example,
3. Inappropriate average pressures negotiated in-place volumes, such as those resulting from
unitization negotiations, should be used with great cau-
4. Uncertainty in the material balance "m" ratio
tion since they are not necessarily an accurate and
5. Inaccurate production data consistent representation ofthe reservoir.
6. Inability to recognize the presence of an exterior
source of energy, such as an aquifer References
The amount of pressure decline covered by the Buckles, R.S. 1965. "Correlating and Averaging
production history is one of the best criteria in gauging Connate Water Saturation Data." JCPT, Jan. -
potential errors. The material balance is a comparison Mar. 1965, pp. 42-52.
of voidage to expansion. It concentrates on evaluating Energy Resources Conservation Board. 1993. PVT
fluid expansion. Large pressure declines produce large and Core Studies Index. Guide G 14, Calgary, AB.
expansions, making inaccuracies in production volumes
relatively less significant. Similarly, pressure errors are
less critical with more pressure depletion. In general, a
pressure decline of 10 percent of the original reservoir
pressure is needed before the material balance becomes
reliable. This critical depletion level is highly depend-
ent upon the quality of pressure, production, and PVT
data.

105

7
Chapter 6

PROBABILITY ANALYSIS FOR ESTIMATES OF


HYDROCARBONS IN PLACE

6.1 INTRODUCTION between the agreed-to perceptions and reality, and thus
Chapter 5 has addressed the importance of, and the introduce the potential for unfortunate consequences.
challenges involved in, obtaining accurate and reliable The single-value approach presents some organizational
measurements from samples. This in itself is difficult disadvantages as well. In order to arrive at the "right"
enough, but there is a "fact of life" in the petroleum number there are only three ways to handle differences
industry that further complicates the volumetric estima- of opinion:
tion procedure: petroleum reservoirs are heterogenous, I. Some people have to concede they are wrong,
so parameter values vary from sample to sample even despite evidence that suggests they might be right.
when they are correctly measured. The variation might
2. The group goes into an endless analysis mode and
be handled by using many sample measurements and
never determines the "right" answer.
statistical techniques, but the cost of obtaining samples
is so expensive that there can never be even close to a 3. Dissenting opinions are overruled and ignored.
sufficient number of samples. This could hardly be called good team building-
To gain an appreciation for the magnitude of the imagine the confrontations generated and the feelings
shortfall, imagine trying to predict the outcomes of of the participants! Is it appropriate that, after a certain
political elections from the opinion of one voter. If this amount of discussion, the debate is often adjudicated at
sounds ludicrous, it is; yet a one voter sample is a larger a higher level of the organizational heirachy? The po-
percentage of the total population than the reserve esti- tential for bias in the assessment likely increases as the
mator can realistically hope for. Several approaches to debate proceeds to higher-authority levels, because each
this dilemma have been tried over the years and each successive level is less familiar with the technical de-
has its shortcomings. This chapter is about searching tails, but more cognizant of the impact that a particular
for a better way. number will have on current plans and operations. Some-
times there may even be personal implications, as with
Industry's historical approach has been to "guesstimate"
management whose performance assessment is directly
a single best value for each parameter, resulting in a
linked to the reserves booked for the year, or the con-
single value for the volumetric estimate. This sounds
sultant whose opportunities for further work may depend
easy until it is tried. There is never enough information
directly on the magnitude of the reserve estimate.
to justify the selected value. Getting a second opinion
does not help because no two people will calculate the A final criticism of the single-value approach is that at
same volumetric number, and some data will exist to the conclusion of the exercise the participants are
support and contradict both. Thus two technically com- expected to be fully committed to the resulting deci-
petent people can have very different opinions and either sions and to work together to implement them. This is
or both could be right or wrong. not a reasonable expectation for a process that is essen-
tially adversarial as winners and losers seldom work well
The industry's current practice of multi-disciplinary
together.
group or team decision-making compounds the prob-
lem because the multiple opinions will almost certainly In spite of the high organizational costs and the low
be different. Achieving group consensus is rarely pos- probability of achieving a reliable, accurate estimate,
sible because no "right" answer can be determined, and the single-value approach is still used. A plausible
even consensus does not guarantee truth; in fact, it can explanation is that the industry is unaware of a better
provide a false sense of security that may collectively alternative. Other approaches have been tried over the
lead all those involved into subsequent contradictions years, including those listed in Table 6.1-1. Of the

106

S'
PROBABILITY ANALYSIS FOR ESTIMATES OFHYDROCARBONS IN PLACE

approaches listed, the Warren Method is the most work- The Warren Method is simple enough that it can be used
able, but it is not widely used at the present time. The on a personal computer or even a hand-held calculator,
method was developed by a pioneer in the application and successive iterations are actually easier to perform
of probabilistic methods to the oil industry, Dr. Joseph than the initial calculation. These features enable the
E. Warren (1988). It works because it: focus to be on the quality of the input data rather than
Is applicable to volumetric theory on the arithmetic, and they encourage its use. In addi-
tion, the method can be extended to provide reserve and
Provides a means to deal effectively with varying
net present value estimates, while dry-hole risk can be
amounts of indirect data that may, at times, seem
accommodated in the pre-drilling evaluations.
overwhelming in volume but are always incomplete
and insufficient to support a purely statistical analy- 6.2 WARREN METHOD THEORY
sis, or justify a single number as the right answer The Warren Method is based on the following
Quantifies the uncertainty in the estimate by separat- combination of theory an~ assumptions:
ing the range ofprobable values from the much larger I. It has been proven that the product of unimodal
range of possible values random variables is log-normally distributed as the
Is applicable to all stages of evaluation, from initial number ofvariables approaches infinity (Aitcheson
assessment of basin potential to individual pool and Brown, 1966, Theorems 2.8 and 2.9), and that
development the product oftwo or more log-normal distributions
Is sufficiently flexible to incorporate all the avail- is a log-normal distribution (Theorems 2.2 and 2.3).
able data, which can differ for every pool and at each This theory and its application in analogous
evaluation stage situations, plus the tests on artificial samples,
Is quick, easy and inexpensive to use suggest that the volumetric hydrocarbon-in-place
estimate may be approximated as a log-normal

Table 6.1-1 In-Place Volumetric Estimation Techniques

Methodology Comments

Single-Value Estimate No satisfactory way to select the "right"value for each parameter in the volumetric
equation. No way to resolve differing opinions on prospect potential. Cannot quantify
uncertainty in in-place estimate nor the probability of occurrence.
Absolute Minimum! Consistent use of minimum!maximum parameter values to calculate absolute minimum!
Maximum Value Approach maximum hydrocarbonsin place yields a minimum value that is uneconomic and a
maximum value that is too good to be true. Range is too large to be of practical use. No
way to separate range of probable values worth considering from the much larger possible
value range.
Statistical Analysis Generally insufficient samples to develop in-place distribution for the total population
from the sample population. Drilling best prospects first biases sampling, yielding
optimistic predictions if sample results are extrapolatedto total population. Sufficient
samples for a play are usually available once the explorationist has run out of prospects.
For a given pool, they are available after the pool has been developed. The timing is
unacceptable for both.
Monte Carlo Computer Developmentof in-place probability distribution is a significant advancement over
Simulation previous methods. The dilemma is how to model parameter distributions. Development
of in-place distribution from multiple single value calculations is computer-intensive and
time-consuming. The method tends to be too cumbersome to accommodate iteration
requests and time constraints.
Warren's Probability Yields similar solutions as Monte Carlo computer simulation in less time and at lower
Analysis costs.

107
DETERMINATION OFOILANDGASRESERVES
---
distribution because it is the product of successive maximum error of 2.05 percent in the tests, while
multiplications. The characteristics of the average absolute and maximum errors for the vari-
hydrocarbon-in-place (HCIP) distribution may ance were 2.2 percent and -7.5 percent respectively.
be calculated from the moments of the parameter The recommendations balance the need for accu-
distributions as follows: racy with the need for simplicity in the estimation
procedure. In particular, a formula utilizing the mode
M, (HCIP) = m, (x.) x m, (x.) x m, (x.) x ... (I) rather than the median of the distribution was
chosen to estimate the mean (it is easier to estimate
the mode than the median). The distribution
M, (HCIP) = m, (x,) x m, (x,) x m, (x.) x ... (2)
moments are calculated from the minimum, most
likely and maximum values for the distribution
using the following equations:
Rio = M, (HCIP) ~,. " (3)
m, (x)
I
= -- (x mi, + .95 x pm b + xm,,) (5)
2.95
(4)

where
m, (x) = m~ (x) + [
x
m"
-x ' (6)
az M, (HCIP)
= In ----=--'--------'-
3.25 J
mi,

M~ (HCIP) where xmin = minimum parameter value


(probability = 0.05)
M,(HCIP) = first moment of hydrocarbon
xprob most likely parameter value
in-place distribution
(mode)
MiHCIP) = second moment of hydrocarbon
xmax = maximum parameter value
in-place distribution
(probability = 0.95)
m.Ix,...) = first moment of the nth
parameter distribution 3. Consistent, reliable, unbiased 3-point estimates can
mixn ) = second moment of the nth be developed. This assumption, which is also
parameter distribution necessary to Monte Carlo simulation, may appear
x i- = parameter distribution (<\>, h, daunting. Capen's (i 976) hypothesis that SPE mem-
A ...) bers will "miss" an average 68 percent of the
R so = median value of the in-place questions and the results that support the hypoth-
distribution; plotted at the 50th esis are a sobering assessment of the industry's
percentile on log-probability present inability to deal with uncertainty. However,
paper Capen suggests that the skills necessary to provide
R s4., = median value plus one standard reliable estimates may be developed with practice,
deviation; plotted at the 84.1th and he offers some practice techniques. He notes
percentile that some meteorologists have apparently mastered
this skill and suggests that oil industry personnel
2. A three-point approximation can be used to can eventually attain a similar proficiency.
estimate parameter distribution moments in the
In practice the assumptions are applied in the reverse
absence of complete knowledge of the continuous
order listed.
distribution. This assumption, which is also inte-
gral to Monte Carlo simulation, is necessary because 6.3 APPLICATION
a complete knowledge is seldom, if ever, available. The first step in estimating the in-place hydrocarbons
It is supported by the work of Keefer and Bodily
of a pool is the development of value ranges for each
(1983), who compared the accuracy ofseveral three- of the parameters in the volumetric equation. The
point approximations in estimating the means
minimum and maximum values establish the range
and variances for a set of beta distributions. The
for the pool average value by distinguishing between
recommended approximation for the mean had what is and what is not within the realm of possibility.
an average absolute error of 0.37 percent and a It is crucial that the true average value for the pool be

108

s
PROBABILITY ANALYSIS FOR ESTIMATES OF HYDROCARBONS IN PLACE

greater than the minimum value and less than the Possibly the most challenging part of the evaluation is
maximum value. However, if unrealistic minimum or incorporating parameter interdependence into the volu-
maximum values are used, the variation in the in-place metric equation. Team members may agree that a
distribution will be so large that the estimate will have dependence exists, but that the relationship is vague or
no practical use. For example, the minimum average unknown. An apparent impasse in the discussion usu-
pool porosity value must be slightly greater than the ally signals that the team is grappling with a dependency.
cutoffvalue for the rock type or the discovery well could This is especially obvious when individuals are basing
not have produced hydrocarbons on the drillstem test. their estimates of one parameter on their estimates of a
Using the cutoff value as the minimum average pool previous parameter. Because each case is unique, a single
value is probably acceptable, but using zero as the mini- solution applicable to all cases does not exist. Resolu-
mum average value is not. Similarly, assuming the well tion requires flexibility and at least one team member
flowed gas on the test, the residual gas saturation value with the ability to postulate the mathematics ofthe de-
might be ~n acceptable approximation for the minimum pendence from the discussion. The guiding principles
pool average gas saturation value. Values of zero and are as follows:
one are always too extreme when estimating the 1. Deal with only one geologic process at a time.
volume of hydrocarbons in a pool because they imply
2. Prevent the team from estimating parameters for
that no hydrocarbons exist, contrary to the production
which they have no direct measurements.
from the pool. Warren's methodology does permit an
evaluation of "dry hole risk," but the topic is beyond 3. Ifa parameter can be identified as a product of other
the scope of this discussion. parameters, estimate the primary parameters and
substitute them into the volumetric equation.
The most likely value or modal value is the "pool
parameter average value with the highest frequency 4. When one parameter is clearly dependent upon an-
of occurrence." By definition, it is greater than the other, substitute the dependency into the volumetric
minimum value and less than the maximum value. equation to minimize the number ofparameter esti-
A suggested interpretation is the "best guess" for the mates required from the team, and thus reduce the
pool average value. Several iterations with different chance ofinconsistencies creeping into the estimate.
best guesses usually demonstrate that the in-place An example ofthe application ofthese guidelines is the
distribution is relatively insensitive to variation in the estimation of pool rock volumes. The rock volume
most probable value. Because the in-place distribution should not be guessed at directly because the pool rock
can be calculated so easily, iteration using all the poten- volume is never measured. Teams often find it easier to
tial probable values is often the quickest and easiest way approximate the rock volume as a combination of geo-
to resolve which value should be used for this metric shapes and estimate the dimensions for each
parameter. shape. For example, a rectangle-triangle combination
In the absence of sufficient measurements, the source might be used to approximate a reef cross-section
for parameter values is the combined training and (Figure 6.3-1). The rectangle represents the reef crest
experience ofa company's earth science personnel. The while the two triangles represent the reeffront and back
multi-discipline team approach to in-place estimates slopes. Now the team's expertise can be used to pro-
provides some desirable features. It brings a higher level vide estimates for gross thickness, H, crest width, W,
of competency to the parameter estimates than can be reeflength, L, and slope angles, X. Angle ofrepose con-
supplied by anyone discipline working in isolation, and trols the front slope, while regional dip is the primary
influence on the back slope. This information, plus the
the inter-discipline discussion tends to highlight any
individual bias or inconsistency that may exist in the equations for triangular and rectangular areas, yields the
cross-sectional area of the reef. Multiplication by both
evaluation. For a given prospect, the objective is to iden-
tify the models that do not apply, based on the available the ratio ofnet pay to gross thickness and the reeflength
yields the volume of the reef considered to
information, and then develop unbiased parameter value
contain hydrocarbons.
ranges encompassing all the models that may apply to
this particular prospect. A multi-discipline team that The dependency between cutoff values and pool
appreciates the unique viewpoints of its individual mem- average values for porosity and net pay deserves men-
bers and works to include all views in a consistent tion. Increasing the cutoff value decreases the net pay
explanation has a definite advantage in accomplishing value, but increases the average porosity value. The
this task.

109
DETERMINATION OFOIL AND GAS RESERVES

Reef Back Slcpe


/'

/'
/' Reef
/'
/' Front Slope
/'
/'
/
/
/
/
/ /
/ /'
/' /'

Underlying Water -W-

Hydrocarbon Bearing
Rock Volume = (Area Back Slope + Area Crest + Area Front Slope) (Length) (Net/Gross Pay Ratio)
2 2
= (0.5 H + HW + 0.5 H ) (L) (Net/Gross Pay Ratio)
tan Xb tan X,

Figure 6.3-1 Estimation of Reef Volume

recommended method of addressing this issue is to The gas deviation factor is calculated from the gas
calculate in-place distributions for each of the param- composition as 0.88 at a temperature of81 C and a press-
eter value combinations corresponding to the different ure of 24 731 kPa. Radius of investigation calculations
cutoffvalues. Iteration usually demonstrates that the dif- yield an investigation area of 56 hectares. A single
ferent combinations yield essentially the same in-place boundary is interpreted to exist at a distance of 266 m
distribution. from the well. This correlates with the seismic interpre-
tation, which located the eastern edge of the structure
6.4 TYPICAL SITUATION: 200 to 350 m from the wellbore. No insight on the loca-
CONVENTIONAL GAS tion of the other edges is available from the well test or
The example described in the next few pages is typical the seismic interpretation.
ofmany ofthe situations encountered. It serves to show Geological interpretation provides the location of
just how far afield one can go if insufficient attention is the remaining edges, which are inferred from the
paid to the uncertainty in the in-place estimate. To give depositional model, dip angle, and offset well data.
this example some reality and illustrate the economic Post-depositional erosion results in a very steep-sided
utility of the method, typical recovery and economic structure. Subsequent infilling of these erosional chan-
factors are assumed; however, in practice, equal atten- nels with impermeable material provides the trapping
tion is paid to developing the range of all parameters. mechanism for the structure. From these interpretations,
A recent carbonate discovery well flowed gas at a rate the maximum areal extent of the pool is four sections
of 225 x 103 m3/d from 10 m oflogged pay following (Figure 6.4-1). The geologist has also interpolated a most
completion. Log-derived porosity and water saturation likely value, covering about 2.25 sections. The basis
values are 0.13 and 0.205 respectively. Movable water for this contour is solely the assumption that the true
was not interpreted to exist in the pay interval. The value is likely nearer the mid-point than the extremes.
formation temperature during logging was 74C. Core The Exploration Department is rumored to be
is not available from this well. contemplating a bid in excess of $3000/ha for the off-
Based on the interpretation of the single rate flow and setting acreage. Justification seems to be the four-section
buildup data, the well is completed in a single porosity upside potential ofup to 4900 x 106 m3 ofreserves. The
reservoir, with 300 mD-m conductivity and a -2 skin Exploration Department's request for review of their
factor. Bottom-hole formation temperature recorded numbers has just been received. The sale will take place
during the buildup stabilized at 81C. The Homer plot at the end of the week.
extrapolation yielded a value of 24 731 kPa(abs).

110
PROBABILITY ANALYSIS FOR ESTIMATES OFHYDROCARBONS IN PLACE

2000 x 106 m3 and an economic hurdle volume of


Optimizing porosity. area,
recovery factor, etc., 120 x 106 m3
3
indicates up to 4900 X 10' m
of recoverable gas.
Your boss just "volunteered" you to resolve the situa-
tion. In addition, he advises that senior management
would like to review the corporate reserves booked
Geologist's most likeiy contour
against this well, plus production and cash flow fore-

.' -"---V/\
p -------\--. casts at the upcoming quarterly review. The press
reports described the well in glowing terms, "possibly
,
, .: ' . / ; the best discovery ofthe year" and-you agree-it can't
.,. .. ,
,,
,,
just sit there.
How will you proceed?
p:, ,,
,, ,
,, "*- , Behind the Numbers
,
, I
,,,
,
'\ The situation may seem tense but it is not hopeless!
Although some sabres are rattling, your boss's insight
,,,
P/'
.
,
,,,
,
~
j;/ \ ge~s you in while the majority are still willing to listen.
Pnvately, both departments confide that their numbers
are not absolute but ...
,,
-- -------- --- ..
. \\ The ultimate purposes of reserve estimates are as fol-
lows:
1. To assess whether the uncertainty in the reserves
A completion test has shown
excellentreservoir with one of a given prospect is of sufficient magnitude to
adjacent boundary. justify the expenditures required to reduce the
uncertainty
Figure 6.4-1 Typical Situation: Gas Pool Map 2. To assess the safety of the prospect and of the
aggregate from an investment viewpoint
The Production Department apparently has no plans 3. To provide an indicator of aggregate performance
to tie in this well at the present time. Volumetric
Ea~h of these different purposes requires a unique
estimates using minimum parameter values yield
estimate for the prospect. Additionally, there are times
in-place hydrocarbons of 44 x 106 m'. The economic
when the prospect estimate is less important than its
hurdle volume for the tie-in is 250 x 106 m30freserves.
impact on an aggregate ofreserve estimates, such as the
Environmental concerns preclude flaring additional gas
company reserve profile. An understanding of the re-
volumes to perform an economic limits test.
sponsibilities and COncerns of the different groups and
Review of the four analogous pools reveals various their relation to the prospect or the aggregate is vital to
stages of depletion, with pool reserves estimated at 55, resolving this situation. Erroneous conclusions with
120,250, and 550 x 106 m'. Cumulative production from potentially disastrous consequences can result when
the seven wells in these pools ranges from 30 x ]06 m3 an estimate intended for one purpose is misused for
to 300 x 106 m3 This statistical review did not persuade another.
the Production Department to tie in the subject well,
In this case, the Production Department is charged with
but raised questions concerning the size of facilities re-
the responsibility for tying in the well. The concerns
quired. In addition, the Production Department advises
that relate directly to the prospect estimate are the size
that they recently abandoned the lone well in the 55 x
and design of the surface facilities, the type of sales
106 m3 pool, due to reservoir depletion. Several reviews
contract to negotiate, and the likelihood that the tie-in
with increasingly senior levels of management have
will be economic. Budget allocation requires that the
resulted because the well tie-in costs were not recouped,
economic potential of this prospect be compared and
and Production's personnel are anxious to avoid any
ranked relative to the other financial opportunities avail-
future recurrence. They note that the recently abandoned
able to the department. This is an aggregate-related
well also demonstrated a commercial flow capability
issue because the focus now is on the cumulative
following completion and had an upside potential of
outcome for the budget period and the effect on the

111

7
DETERMINATION OF OIL AND GAS RESERVES
'1!
overall performance of both the department and the Pool Parameter Values
company.
Congratulations! You've established sufficient trust that
The company's future depends on continued access to representatives from both departments have agreed to
economic sources ofproduction which, in this example, meet with you for the purpose of establishing param-
is the responsibility ofthe Exploration Department. One eter value ranges. An unexpected break is the attendance
way to access new production sources is via the bid- of two people whom you've successfully worked with
ding process. To be successful, the bid price must exceed before. Several intense discussions prove fruitful and
all competitive bids, but it must also be less than the net produce group consensus on the following parameters.
economic value of the reserves acquired. The conse-
quences of bidding too low or acquiring the prospect at Areal Extent
an uneconomic price are equally undesirable. This pros- By group consensus, the pool areal extent must be greater
pect-related issue can be addressed by comparing the than 56 hectares. The most conservative guess is 64
likelihood of exceeding the prospect economic value hectares, which is deemed to be the minimum possible
for a given bid price to the likelihood of acquiring the value. The maximum possible value is quickly set at
prospect at that price. The aggregate issue is again bud- 1024 hectares, but opinions on the most likely value
get allocation and the impact of this opportunity on range from 1.5 to 2.75 sections. Resolution is reached
overall performance. when you offer to run three cases, using 384, 576, and
The issues at the corporate level tend to be aggregate- 704 hectares as the most likely value, to demonstrate
related. Both internal and external comparisons to the impact on the in-place distribution. Discussion of
established criteria are performed at this level, under- deposition and erosional processes, seismic interpreta-
scoring the need for aggregate reliability and consistency tion plus several pictures of badlands terrain produces
throughout the industry. Reliability is required to es- consensus that the area ofthe top ofthe pool is less than
tablish trust in future projections, and is achieved when the area of the base. Opinions range from 60 to 95 per-
past performance essentially agrees with past projec- cent ofthe basal area, with 80 percent as the most likely
tions over some time period. Consistency is necessary value. The inter-relationship is handled using an aver-
to permit comparison. Comparisons may be between age area, which is equal to 0.5 (base area + top area).
producing horizons, between geographic areas, between Substituting these percentages into the equation yields
departments within a company, between companies, or the average area equal to 80, 90 and 97.5 percent ofthe
even between industries. Comparison criteria are usu- base area respectively (Figure 6.4-2). These percentages
ally economic and incorporate required or desired and the basal area estimates are substituted for the
objectives. An example of a required objective might average area in the in-place distribution calculation.
be the time component in sales contracts, security of
Net Pay
supply issues, or possibly safety and environmental
issues. Discussion quickly identifies that for this case the pool's
This section demonstrates that calculating the in-place net pay is the product of two geological processes. The
hydrocarbon distribution cannot satisfy these concerns gross thickness of the rock is controlled by deposition
directly. The calculation is only a necessary first step in and erosion, but not all of the rock is reservoir quality.
developing solutions that avoid disaster while achiev- Only the portion whose porosity and permeability has
ing acceptable results for at least the majority of the been enhanced via post-depositional processes is con-
probable reserve outcomes. This approach is based on sidered to contain hydrocarbons. This interrelationship
the concept that a solution that avoids disaster under all is handled by first estimating the gross pay of the pool
probable outcomes is preferable to one that performs and then the percentage conversion to reservoir rock.
nearly ideally under a narrow range of conditions, but Net pay is the product of the two parameters.
provides unacceptable results the majority of the time. The gross pay thickness is controlled by topographical
The optimal solution is the one that avoids disaster for variation on the upper erosional surface and the eleva-
all probable outcomes while maximizing the desired tion ofthe gas-water contact, ifone exists, on the bottom.
results over the widest range ofprobable outcomes. For In the worst case, free water exists just below the
an individual prospect, this requires consideration ofthe bottom of the discovery well and, in the best case, it is
probable range of outcomes available to the prospect, not present. Free water is known to exist in two of
while an aggregate question requires consideration of the analogous pools, but at different elevations. This is
the probable variation in the aggregate.

112

<
PROBABILITY ANALYSIS FOR ESTIMATES OFHYDROCARBONS IN PLACE

the most likely at 15 percent. Water saturation estimates


For the minimum case,
are 18, 20 and 22 percent respectively.
Atop = 0.6 Abo" (7)
AOVg = 0.5 (A,op + Abo,,) (8) Pressure
substituting (7) in (8) The initial reservoir pressure is uncertain. The Homer
Aovg = 0.5 (0.6 Abos + Abos.) plot gives an extrapolated pressure of 24 731 kPa (abs)
0.5 (1.6 Abos.) from the buildup, but this is not the initial reservoir press-
0.8 Abos ure because the boundary's presence violates the
requirement for infinite acting radial flow. Regional
Similarly for
pressure gradients suggest an initial pressure of 22 000
Atop = 0.8 Abos to 26000 kPa (abs). The group agrees that the mini-
Aavg = 0.9 Abas mum possible pressure is 24 000 kPa (abs) because the
and when pressure was still building at the end of the buildup
Atop = 0.95 Abos period, with a final value of 23 966 kPa (abs). A maxi-
Aavg = 0.975 Abos mum value of26 000 kPa (abs) is assumed, with a most
likely value of24 700 kPa (abs).

Figure 6.4-2 Conversion of Base Area to Temperature and Gas Deviation Factor
Average Pool Area Recorded bottom-hole temperatures during the buildup
consistent with the theory that the hydrocarbons were ranged from 80.97 to 81.25C. This variation is very
locally sourced. From this and the 0.98 degree regional small relative to the uncertainty in the other parameters.
dip angle, the gross pay thickness estimates are 6.5 m Perhaps parameters with less than I percent difference
as the minimum case, 19 m as the maximum, and 15 m between the minimum and maximum values can be
as the most likely value. At 13 m, the gross pay thick- treated as a constant without significantly affecting the
ness for the discovery well is slightly below the pool in-place distribution? The effect can be observed by first
average and came in about 2 m lower than expected. considering temperature as constant at 81C, and then
as a parameter, with values of 80.97, 81 and 81.25C.
A number of possible mechanisms are discussed for con-
version of limestone to dolomite, none of which are The gas deviation factor varies from 0.87 to 0.89 over
definitive. In the end the estimates are based on the the 24 000 to 26 000 kPa (abs) pressure range. The
group's experience with the region, gained from the variation between the minimum and maximum value is
examination of logs and core from this formation over less than 3 percent, so perhaps it too can be treated as a
the entire geological basin. Based on that experience, constant? The incentive for doing so is that the increased
the rock encountered by the discovery well is about av- accuracy achieved by incorporating the gas deviation
erage in terms of converting gross pay to net pay. The factor's dependency on temperature, pressure and gas
conversion efficiency for the pool is estimated at 65, composition into the calculation(s) may not be worth
80, and 90 percent, respectively. the effort. Since the gas deviation factor is actually some-
thing between a constant and a random variable, the
Porosity and Gas Saturation validity ofthe assumption might be confirmed by con-
Regional experience again comes to the forefront in the sidering the impact of the two extremes on the in-place
estimation of these parameters. The question of bitu- distribution. Values of 0.87, 0.88 and 0.89 were used
men infilling of the available porosity arises but is for the parameter range, while 0.88 was selected when
considered remote, based on the group's experience with the gas deviation factor was considered constant.
this formation. The group also considers the possibility Gas In Place
that porosity and water saturation are interrelated, but
postulated correlations prove inconclusive. However In-place distribution calculations using 384, 576 and
it is agreed that the greatest variation in the in-place 704 hectares as the most likely value for areal extent
estimate results from the independent treatment of are presented in Tables 6.4-1, 6.4-2, and 6.4-3. For a
the two parameters, so value ranges are developed constant, m, (x) = constant and m2 (x) = constant
accordingly. The minimum possible pool porosity is squared. The in-place distribution is obtained using the
estimated at 12 percent, the maximum at 17 percent and calculated R so and Rs4.t values to establish a straight
line on log-probability paper (Figure 6.4-3). For

113
,
DETERMINAnON OF OIL AND GAS RESERVES
I
Table 6.4-1 Gas-in-Place Distribution for Most Likely Area of 384 Hectares

Pool Minimum Most Likely Maximum


Parameters Possible Value Value Possible Value
xmin xprob xMs x m. (x) m, (x)

Basalarea, Abo" (ha) 64 384 1024 492.5 329783


Correction to avg. area, C, 0.80 0.90 0.975 0.8915 0.7977
Grosspay, H(m) 6.5 15 19 13.47 196.4
Net/gross pay ratio, N/G 0.65 0.80 0.90 0.7831 0.6191
Porosity, <p 0.12 0.15 0.17 0.1466 0.02173
(l - Sw) 0.78 0.80 0.82 0.80 0.6402
Pi(kPa abs) 24000 24700 26000 24903 620557523
10 000 (288.16) 10000(288.16)
Constants 0.000091 8.327 x 10-'
10' (101.325) r,z, 10' (l 01.325) (354.16) (.88)
M1 (OGIP)= 1234.7 M,(OGIP) = 2 298 761

10000 (288.16) Ab", (C,) H (N/GH (l-Sw) Pi M, (OGIP)


OGIP= a' = In 0.4107
10' (101.325) Ti Z, M; (OGIP)

1
m, (x) = - - (x mio + .95 x pmb + xm,,) -"-
R,o=M,(OGIP)e' = 1005.5 x 10 m'
,
2.95

m, (x) = m; (x) + [X max -


3.25
J
x min a , ,
R 84 . , = R so e = 1908.6 x 10 m

M 1(OGIP) = m, (x,) X m, (x,) X m, (x.) X ... M, (OGIP) = m, (x.) X m, (x,) X rn, (x,) X ..
Note: Pi. Ti and Zj are respectively initial reservoir pressure, temperature, and gas formation factor.

prospect issues the question is: How much of the The effect of varying the most likely value of the
distribution should be considered? The suggested range distribution can be seen on Figure 6.4-3. In this example
is all values from the R, to R,s values, which can be this variation is insignificant compared to the Rs to R,s
read from the graph. For this example the range is 400 range in the distribution. Group consensus on which
to 3250 X 106 m 3 using the 576 hectare most likely value value to use is usually easy to obtain following the team's
distribution. This encompasses 90 percent of the prob- inspection ofthe graph because it does not really matter
able outcomes and is consistent with developing which distribution is used. However, if consensus does
solutions that work the vast majority of the time. Since not exist, a further compromise is to draw a line through
human nature is inclined to over-estimate the extent of the smallest R, value and the largest R,s value to estab-
knowledge, an initial reaction might be disbelief at the lish a composite in-place distribution. The characteristics
magnitude of the range. However, an order-of-magni- ofthis distribution can be calculated by reading the R so
tude variation in the range is common, especially for and R 84. 1 values from the graph and using the equations
new discoveries. For situations where a single number to calculate M,(HCIP) and M 2(HCIP). Alternatively, one
is desired to describe the distribution, the mean value can carry the two extreme distributions through the de-
(M1(HCIP is recommended. For the 576 hectare dis- cision-making process until everyone agrees that "it does
tribution M 1 (HCIP) = 1389.7 X 10 6 m 3 This value has not matter."
no significance to prospect issues, only to aggregate
questions. Misuse it at your own peril!

114

d
PROBABILITY ANALYSIS FOR ESTIMATES OFHYDROCARBONS INPLACE

Table 6.4-2 Gas-in-Place Distribution for Most Likely Area of 576 Hectares

Pool Minimum Most Likely Maximum


Parameters Possible Value Value Possible Value
X m1n x pr ob XMax m, (x) m, (x)

Basal area, Ab,,,, (ha) 64 576 1024 554.3 394506


Correction to avg. area, C f 0.80 0.90 0.975 0.8915 0.7977
Gross pay. H(m) 6.5 15 19 13.47 196.4
Net/gross pay ratio, NIG 0.65 0.80 0.90 0.7831 0.6191
Porosity, <I> 0.12 0.15 0.17 0.1466 0.02173
(I - Sw) 0.78 0.80 0.82 0.80 0.6402
P, (kPa abs) 24000 24700 26000 24903 620557523
10000 (288.16) 10 000 (288.16)
Constants 0.000091 8.327 x 10'
10' (10 1.325) T, Z, 10' (101.325) (354.16) (.88)
M, (OGIP) = 1389.7 MlOGIP) = 2 749 913

10000 (288.16) Ab" , (C,) H (NIGH (I-Sw) P, M, (OGIP)


OG1P= a' =In = 0.3533
10' (101.325) T, Z, M: (OGIP)

a'
- - 6 3
a , ,
R so = M, (OGIP) e' = 1164.7 x 10 m R 84.l =Rsoe =2110.4x 10 m

Note: Pi. Til and Z, are respectively initialreservoirpressure, temperature, and gas formation factor.

Table 6.4-3 Gas-in-Place Distribution for Most Likely Area of 704 Hectares

Pool Minimum Most Likely Maximum


Parameters Possible Value Value Possible Value
x min x prob x Max m. (x) m, (x)

Basal area, Ab,,,,(ha) 64 704 1024 595.5 441 902.6


Correction to avg. area, C, 0.80 0.90 0.975 0.8915 0.7977
Gross pay, H(m) 6.5 15 19 13.47 196.4
Net/gross pay ratio, NIG 0.65 0.80 0.90 0.7831 0.6191
Porosity, <I> 0.12 0.15 0.17 0.1466 0.02173
(1 - Sw) 0.78 0.80 0.82 0.80 0.6402
P, (kPa abs) 24000 24700 26000 24903 620557523
10 000 (288.16) 10 000 (288.16)
Constants = 0.000091 8.327 x 10'
10' (101.325) T, Z, 10' (101.325) (354.16) (.88)

M, (OGIP) = 1493.1 M,(OGIP) = 3 080 291

10000 (288.16) Ab" , (C,) H (NIGH (l-Sw) P, M, (OGIP)


OG1P= a'= In = 0.3233
10' (101.325) T, Z, M: (OGIP)

R so
-,
=M, (OGIP) e " = 1270.2 X 10' m' R 84. 1 =R so ea =2243.0 x 10, m,
Note: Pi' Ti and ~ are respectively initial reservoir pressure, temperature, and gas formation factor.

115
DETERMINATION OFOIL AND GAS RESERVES

2 5 10 20 3040506070 80 90 95 98 ,
Observations
10' 10 The purpose of performing the calculations is to show
the ease with which the in-place distribution can be up-
dated. In the working world, this feature translates into
more rigorous estimates that are updated more frequently
and with less time and effort than is achieved with any
other method. This statement becomes truer as the team
gains familiarity with the methodology, the prospect,
and each other. Gradually the emphasis on the reasons
for performing the calculation shifts from a reactive post-
384 ha
Il / event exercise to more of a planning and evaluation
L576 ha
activity.
i:
.~ Production's 44 X 106 mJ minimum pool volume and
(!J 102 Exploration's 4900 x 106 mJ upside number do not ap-
pear on the probability distribution. The 44 x 106 mJ
value is the product of all the minimum possible pa-
rameter values, while the product of the maximum
parameter values and an optimistic 87 percent recovery
factor yields the 4900 x 106 m' upside number. Consis-
tently using the worst or best parameter values for the
10 10 in-place estimate always results in a number which is
2 5 10 20 3040508070 80 90 95 98
Percentage less than or greater than 99.5 percent of the cumulative
probability distribution and is even more extreme for
Figure 6.4-3 Typical Situation: Gas-in-Place the cumulative reserve distribution. The question for
Distribution both groups is why they are basing their decisions on
such improbable numbers.
The previous distributions were calculated assuming Some insight on what numbers should be used can be
that reservoir temperature and gas deviation factor are gained by preparing a reserve distribution (Table 6.4-5,
constants. For comparison, in-place distributions were Figure 6.4-4) and a discounted net profit before invest-
calculated using 384, 596 and 704 hectares as the most ment (DNPBI) distribution (Table 6.4-6, Figure 6.4-5)
likely value and the following temperature and gas for the pool. Both distributions are prepared analogous
deviation factor assumptions: to the in-place distribution. The reserve distribution uses
I. Variable temperature, constant gas deviation factor the in-place distribution moments and recovery factor
2. Constant temperature, variable gas deviation factor estimates of 65, 75 and 87 percent respectively as
input, while the DNPBI distribution requires the reserve
3. Variable temperature and gas deviation factor
distribution moments and a unit value for the gas of
In all cases, the calculated values for M 1 (HClP), R so $8.00, $11.00 and $15.00 per thousand cubic metres.
and RS4. 1 agree with the previously calculated values The unit value for the gas is the estimated present value
to four significant figures: In-place distribution ofthe future profit from the future production, account-
calculations for a 576 hectare most likely value with ing for prices, production profiles, effluent composition,
variable reservoir temperature and gas deviation factor royalties, operating costs, inflation and discounti?g.
are presented as Table 6.4-4. The inverse (liT, I/Z) Multiplying by the prospect reserves and subtracting
of the denominator parameters is used to conform to the present value of the capital investment yields an
theory. Calculations for the other combinations are not estimated net present value for the prospect."
presented, but left as an exercise for the reader. For com-
From the reserve distribution shown in Figure 6.4-4,
parison purposes, the time required to prepare all twelve
pool reserves are between 320 and 2350 x 106 m'. With
distributions was approximately 3 hours using a
programmable calculator.
An understanding of Warren's theory governing the unit
value parameter is necessary to attempt this procedure
(Warren, 1988).

116
_ _ _ _ _ _ _ _ _C1
PROBABILITY ANALYSIS FOR ESTIMATES OFHYDROCARBONS INPLACE

Table 6.4-4 Gas-in-Place Distribution for Most Likely Area of 576 Hectares.
Variable Temperature and Gas Deviation Factor

Pool Minimum Most Likely Maximum


Parameters Possible Value Value Possible Value
xmin xprob xMax m, (x) m, (x)

Basal area, Ab. " (ha) 64 576 1024 554.3 394506


Correction to avg. area, Cr 0.80 0.90 0.975 0.8915 0.7977
Gross pay, H(m) 6.5 15 19 13.47 196.4
Net/gross pay ratio, NIG 0.65 0.80 0.90 0.7831 0.6191
Porosity, <I> 0.12 0.15 0.17 0.1466 0.02173
(I - Sw) 0.78 0.80 0.82 0.80 0.6402
Pi(kPa abs) 24000 24700 26000 24903 620557523
1 1 1
Temperature 0.002823 7.9693 X 10"
273.16+ 81.25 273.16+ 81 273.16 + 80.97
Gas Deviation Factor 11.89 1/.88 11.87 1.136463 1.291612
10000 (288.16)
Constants 0.028439 0.000809
10' (101.325)
M1 (OGlP) = 1389.6 M,(OGlP) ~ 2 749 372

10000 (288.16) Ab", (C,) H (NIGH (I-Sw) Pi M, (OGIP)


OGIP= a' = In = 0.3534
10' (101.325) r,z, M: (OGIP)

a , ,
"
R so = M 1 (OGIP) ~,-- = 1164.5 X 10' m' R 84. 1 = R so e = 2110.2 x 10 m

Note: Pi. Ti and Z, are respectively initial reservoir pressure, temperature, and gas formation factor.

a 98 percent probability of exceeding the 250 x 10' m3 X 103 m3/d as the maximum, is technically acceptable
tie-in hurdle volume, development of this pool should and more economical than designing to cover the larger
be a sufficiently safe bet for even the Production range. Completion of the equipment sizing exercise in
Department. Once pool deliverability, pressure, temper- this fashion provides the input required for sales con-
ature and effluent composition information have been tract negotiation, and simplifies matching contracted
supplied, the central production facilities, such as deliverabi!ity to facility capability.
the gathering line to the gas plant, can be sized. The The purpose of equipment sizing at this stage is two-
number of wells required to deplete the pool and inter- fold. The present value cost of both present and future
well spacing can be estimated by comparing well capital is required to evaluate the economic attractive-
deliverability to pool deliverabi!ity. Sizing of the indi- ness of developing the prospect. However, only those
vidual wellsite facilities can also be determined from facilities, such as the gathering line to the gas plant, that
the well deliverability estimates. are required immediately to initiate production will be
One way of obtaining an estimate for pool deliverabi!- constructed on the basis of this initial estimate. Sizing
ity is to divide the reserve distribution by a desired rate of future facilities, such as field compression, can be
of take. For this case a 1/3650 rate of take yields an confirmed prior to their construction because signifi-
initial deliverability range of88 to 644 x 103 m3/d. Since cantly more information will be available by that time.
the discovery well flowed at 225 x 103 m3/d, it is not At this stage the optimal design is the one which pro-
necessary to design the central facilities to handle the vides the largest probability of achieving a positive net
entire 88-644 x 103 m3/d range. Using the discovery present value over the prospect reserve distribution. The
well's capability as the minimum throughput, with 644 optimal design does not have to provide the capability

117
DETERMINATION OF OIL AND GASRESERVES

Table 6.4-5 Reserve Distribution for Most Likely Area of 576 Hectares

Pool Minimum Most Likely Maximum


Parameters Possible Value Value Possible Value
xm1n x prob xMax m, (x) m, (x)
aGIP (10 m') 1389.7 2749913
Recovery Factor 0.65 0.75 0.87 0.7568 0.5773
M, (RIG) = 1051.7 M,(RIG) = I 587 519

a M, (RIG)
a =In =0.3613 -," = 877.9 x 10 m 6 J
M: (RIG) R so = M, ( RIG ) e
, 6 J
R"., =Rsoe = 1601.4 x 10 m

2 5 10 20 3040506070 80 90 95 98 4
miUion, while sunk costs are $2.5 million. Now the
10' 10 effect ofbid price on profitability can be observed. The
cumulate exploration and development cost of $8.6
million" ($2.6 miUion + $3.5 million + $2.5 million)
intersects the discounted net profit before investment
curve at a probability of42 percent (Figure 6.4-5). Thus,
ifthe remaining four sections ofland could be acquired
at no cost, there is a 58 percent probability ofachieving
a positive net present value (NPV) through development
of this pool. At the rumoured bid price of $3000/hect-
are, the cost for the remaining four sections is
approximately $3 million, which reduces the probabili-
ty of achieving a positive NPV to 39 percent on a total
cost of$II.6 million (Figure 6.4-5). Is this a good gam-
ble? Unless one is unusually lucky, probably not. A wiser
course might be a minimal bid price and anticipating
that the rewards (and risks) of development will likely
be shared with others. Then the sharing options can be
identified and their economic merits evaluated.
The example illustrates one way of turninga promising
10 10 exploration prospect into a probable money-losing ven-
2 5 10 20 304050.6070 80 90 95 98 ture. Of course there are many other ways. The key to
Percentage
consistent financial success is staying true to the pur-
pose ofexploration and development, which is profitable
Figure 6.4-4 Typical Situation: Reserve investment, not production at any cost. Warren's meth-
Distribution od ultimately provides a means to do just that, and it
to operate at all the rates specified by the rate of take starts with the in-place estimate.
deliverability distribution, and probably would not when
Summary
its magnitude is very large.
In this case the present value tie-in cost is estimated at The example illustrates the use of the Warren Method
$2.6 million, including future field compression. The to estimate hydrocarbons in place, and some
present value of future development drilling, including
dry hole and wellsite facility costs, is estimated at $3.5 *Although variablecapital costs can be accommodated,
single-value costshave been used to simplify the example.

118

s
PROBABILITY ANALYSIS FOR ESTIMATES OFHYDROCARBONS IN PLACE I
Table 6.4-6 Discounted Net Profit Before Investment Distribution for Most Likely Area of 576 Hectares

Pool Minimum Most Likely Maximum


Parameters Possible Value Value Possible Value
xml n Xprob xMax mt (x) m, (x)
RIG (10' rrr') 1051.7 I 587519
Unit Value ($/m3) 0.008 0.011 0.015 0.01134 0.0001332
M, (DNPBI) = 11.926 M,(DNPBI) = 211.4759

z M, (DNPBI) a'
a = In = 0.3967 R50 = M, (DNPBI) e- 2" = $9.78 X 10'
M~(DNPBI) .
,
R"., = R50 e = $18.36 x 10
,

10
when the input is unrealistic, and it cannot identify the
2 5 20 30 40 50 60 70 80 90 95 98
10' 10' reasons for the discrepancies. These limitations restrict
its use to knowledgeable, conscientious evaluators and
evaluation teams that are comfortable with the meth-
w
0 od's assumptions and theory and willing to expend the
~

x effort required to attain realistic input. The payoff for


~ these individuals is an analysis that faithfully summa-
C
Q)
2 rizes their thoughts and their earth science expertise in
10' 10
~
Q) a mathematical form and that can be extended to any
>
E desired depth and variables.
!!!
Despite this caveat, the Warren Method will undoubt-
~
ID edlybe attemptedby the unthinking and the unqualified;
,,
e'"
Q. 0
, the output, if accepted unquestioningly, will prove
;; 0 0
costly. The only safeguard is a careful examination of
z 10 ~BidPrice 10 the evaluators' competence and the supportingevidence
'0
Q) / " Sunk Capital for the input. If both survive scrutiny, the predictions
C
~
0
0
Development from the output are worth testing.
'" Drilling Capital
is ..:.:...- References
Tie-In Capital
Aitchison 1., and Brown J.A.C. 1966. The Lognormal
1 1 Distribution. Cambridge University Press, New
2 5 10 20 30 40 50 60 70 80 90 95 98 York,NY.
Percentage
Capen, E.C. 1976. "The Difficulty of Assessing
Uncertainty." JPT, Vol. 28, Aug. 1976.
Figure 6.4-5 Typical Situation: Discounted Net
Profit Before Investment Keefer, D. L., and Bodily, S. E. 1983. "Three Point
Approximations for Continuous Random
applications of the in-place estimate in economic Variables." Management Science, No. 29, pp.
evaluations. For those who accept that a probabilistic 595-609.
answer is the limit ofhuman capability, when assessing Warren, J.E. 1988. "Exploration and Production
the future it is an extremely powerful and flexible, yet Decisions: Risk, Uncertainty and Economics,"
deceptively simple, tool for dealing with the uncertain- Course, OGGl, Houston, TX, Sep. 1988.
ties of reserves estimation. But it is not infallible. It
cannot compensate for unrealistic input, it cannot warn

119
...

Chapter 7

MATERIAL BALANCE DETERMINATION OF


HYDROCARBONS IN PLACE

7.1 INTRODUCTION oil, gas, water and rock with changes in pressure and
One of the fundamental principles used in engineering temperature over discrete time periods. These time
is the Law of Conservation of Matter. The application periods are chosen to extend from initial production
of this law to petroleum reservoirs is known as the to various later dates when both reservoir pressures
"material balance equation" which has proven to be an and voidage cumulatives are known.
invaluable supplement to direct volumetric calculation The pressure-volume-temperature (PVT) properties
of reservoir parameters. Numerous articles and papers described in Chapter 5 provide the basis for relating
describe all aspects ofits use in the analysis ofreservoir expansion to voidage. In material balance usage, rock
performance. and fluid volumes are normally considered at two con-
The material balance equation is being widely used ditions: (I) reservoir pressure and temperature, and (2)
today, aided by access to computers and the increasing surface reference conditions. The PVT data is usually
knowledge base in the literature. The results from ma- presented in a format that conveniently bridges these
terial balance calculations are significant because they conditions. Since changes in reservoir temperature are
are largely independent of the factors that contribute to relatively insignificant except for thermal projects, ex-
volumetric estimates. As databases for production, res- perimental PVT data is generally based on a constant
ervoir pressure, and fluid properties improve, the reservoir temperature, and pressure is treated as the
usefulness of the material balance equation increases. primary independent variable.
When oil, gas or water is removed from a reservoir, the The material balance equation has been used extensively
pressure in the reservoir tends to fall, and the remaining to determine initial fluids in place, calculate water
fluids expand to fill the vacated space. The hydrocar- influx, estimate fluid recovery, and predict reservoir
bon system is also affected by fluids and energy sources pressures. The use of the equation in defining initial
that are in pressure communication with it. Examples fluids in place is the focus of this chapter. Applications
of these include connected natural aquifers, nearby in- of the equation to gas reservoirs, oil pools, and mixed
jection or production activities, and other oil or gas drives will be discussed.
reservoirs.
7.2 UNDERLYING ASSUMPTIONS
The material balance is the application of the Law of
Conservation of Matter to a petroleum reservoir during In terms of normal physics, the material balance
equation itselfis devoid ofconditions and assumptions,
its depletion history. It is important for the reservoir
but in regular oilfield usage, a number of underlying
engineer to understand the system at hand and apply
the material balance realistically. assumptions arise. These may result from the way in
which the input data is derived or from computational
Simply stated, the material balance says that the initial simplifications. The material balance calculation is
mass, plus the mass added, less the mass removed, must based on changes in reservoir conditions over discrete
equal the mass remaining in the system. In reservoir periods of time during the production history. The
engineering usage, mass is often replaced by volume. calculation is most vulnerable to many of its under-
Thus the bulk volume, plus fluid entry volumes, plus lying assumptions early in the depletion sequence when
expansion, must equal the bulk volume remaining plus fluid movements are limited and pressure changes
voidage. If the bulk volume is considered constant, are small. Uneven depletion and partial reservoir
then at reservoir pressure and temperature, expansion development compound the accuracy problem.
equals voidage. The writing of a volumetric material
balance is an exercise in describing the expansion of

120

s
MATERIALBALANCE DETERMINATION OFHYDROCARBONS INPLACE

The basic assumptions in the material balance method compositions are also important. Special laboratory
are as follows: procedures may be used to improve PVT data for
Constant Temperature. Pressure-volume changes volatile fluid situations.
within the reservoir are assumed to occur without re-
7.3 EXPLANATION OF TERMS
lated changes in temperature. The pressure changes
happen slowly in most of the reservoir, and the mass As previously indicated, the material balance equation
of adjacent rock volumes is such that the reservoir sys- relates net reservoir voidage to expansion of reservoir
tem very closely approaches constant temperature fluids. This section describes the various components
performance. of voidage and expansion used in the conventional black
oil material balance. .
Pressure Equilibrium. A uniform pressure is assumed
to apply across the pool. The model is considered as a Table 7.2-1 lists reservoir voidage terms. In addition to
tank, with infinite permeability. This is a critical assump- wellbore flow streams, water influx-efflux acts as a
tiou, since the expansion properties ofthe rock and fluids pseudo production quantity. Various independent wa-
are stated in terms of prevailing pressure. Local ter influx formulations are discussed in Section 7.7.3.
pressure variations around producing or injection well-
bores may generally be disregarded. However, regional Table 7.2-' Reservoir Voidage Terms
trends must be recognized and included in the pressure
Surface Reservoir
averages.
Fluid Volumes Volumes
Constant Reservoir Volume. Reservoir volume is as-
sumed to be constant except for those conditions ofrock Gas cap gas Gpe GpeBge
and water expansion or water influx that are specifi- Liberated gas Gps-N pRs (Gp-N
sp R)B
sgs
cally considered in the equation. The formation is Injected gas -0-I -GiBgi
considered to be sufficiently competent that no signifi-
Oil Np NpBo
cant volume change will occur through movement or
reworking of the formation due to overburden pressure Water Wp WpBw
as the internal reservoir pressure is reduced. The con- Water injected -w I
-WB
I w
stant volume assumption also relates to an area of interest
to which the equation is applied. If the focus is on some where G = gas subscripts c = gas cap
part of a reservoir system, except for specific exterior B = formation g = gas
flow terms it is assumed that the particular portion is volume factor = injected fluids
encased in no-flow boundaries. N = oil a = oil
Reliable Production Data. As measurement tech- W = water p = produced fluids
nology has improved and regulatory authorities have R = gas-oil ratio s = solution gas
consolidated the data-gathering process, the reliability w = water
ofproduction and injection data has improved substan-
tially. Good well rate data is critical to the material
In Table 7.2-1, the formation volume factor, B, is the
balance, as net voidage figures directly in the calculated
volume at reservoir temperature and pressure per unit
oil in place.
of surface reference volume. The change in formation
Representative PVT Data. The PVT information is the volume factor for the various fluids is proportional to
other main ingredient of the material balance equation. their compressibilities. Rock compressibility usually
It is assumed that the PVT samples or datasets repre- ranges from 0.4 x 10,6 to 1.5 X 10-6 vol./pore volume/
sent the actual fluid compositions and that reliable and kPa (kPa,I), and is primarily dependent upon porosity.
representative laboratory procedures have been used. Water compressibility is linear with pressure, and ranges
Notably, the vast majority of material balances assume from 0.3 to 0.6 kPa,l. Oil compressibility shows
that differential depletion data represent reservoir flow some nonlinearity with pressure. It varies from 0.4 to
and that separator flash data may be used to correct for 3.0 kPa,l, relating to its gravity. Gas at 14000 kPa has a
the wellbore transition to surface conditions. Such compressibility in the order of 60 x 10-6 kPa,l. The
"black oil" PVT treatments relate volume changes to behaviour of the material balance calculation follows
temperature and pressure only. They lose validity in directly from the relative compressibilities as manifested
cases of volatile oil or gas condensate reservoirs where by the formation volume factors.

121

7
qiit-

DETERMINATION OFOIL AND GASRESERVES

As pressure is reduced in an oil-gas-water system, all of the factors that could be applied to routine deter-
liquid volumes increase in the undersaturated fluid re- minations of oil and gas in place. The fifth term in
gion. When the oil reaches its saturation pressure, gas the numerator, We' is water influx and is defined in
is released and a vapour phase begins to form. Further Equation (13) in Section 7.7.
pressure depletion results in diminishing liquid volumes
and rapidly expanding gas volumes. Both total fluid
volume and system compressibility then increase.
Table 7.2-2 provides various expansion terms that
occur in a material balance equation. These terms off- (1)
set the various voidage quantities in the material balance In Equation (1) the formation volume factors reflect the
equation. reservoir volume per unit of stock tank or surface vol-
ume. They are dimensionless, i.e., reservoir m 3/surface
Table 7.2-2 Reservoir Expansion Terms m3 The terms of the equation represent volumes or
changes at reservoir conditions. Reservoir engineers
Material Expansion commonly use the same formation volume factors for
gas cap gas, solution gas and injected gas, the degree of
Gas Cap error inherent in such a simplification depending upon
the circumstances. If such a shortcut is taken, Equation
(1) is reduced to the form ofEquation (2), which will be
Liberated Gas N(R,;-R,)B g,
used to illustrate adaptations ofthe material balance for
Oil N(B,-B,;) particular conditions. The engineer is free to re-insert
the distinction between diverse gas compositions when
NB (Hm) S c dP it is worthwhile to do so.
Water 01 _ ww
1 8w
NB,j(Hm)
Rock --'-----crdP
I-S w
(2)
where c compressibility (volumechange/
volume/pressure unit) 7.5 SPECIAL CASES OF THE
f formation MATERIAL BALANCE EQUATION
dP change in pressure
7.5.1 Undersaturated Oil Reservoirs
m gas cap reservoir volume/ oil zone
reservoir volume Several terms of the material balance equation may
N oil in place disappear when reservoir conditions negate their use.
B formation volume / surfacereference This is particularly true for the volumetric undersaturated
volume oil reservoir. For this case there is no gas cap, and since
R ratio of gas content/ oil volume (surface reservoir pressure is above the bubble-point pressure of
reference conditi'ons) the oil, there is no free gas in the oil zone. Production
connate water saturation(fraction of pore depends largely upon liquid expansion ifreservoir pres-
space) sure is being depleted. Therefore, rock and connate water
expansions are significant and should be included.
Equation (3) provides a material balance for an
7.4 GENERAL MATERIAL BALANCE undersaturated pool with water injection, production,
EQUATION and influx.
The general material balance equation equates
reservoir voidage to reservoir fluids expansion. If the N
voidage terms of Table 7.2-1 are equated to the expan- BOi (3)
sion terms of Table 7.2-2 and N is factored out from (B, -B,;) + I-S (Swcw+c r) dP
w
the expansion terms, rearrangement yields the general
material balance, Equation (I). This form contains

122

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _1
MATERIAL BALANCE DETERMINATION OFHYDROCARBONS IN PLACE

7.5.2 Saturated Oil Reservoirs With the usual assumption of an isothermal reservoir,
The saturated oil reservoir, either with or without a gas Equation (6) becomes:
cap, exhibits a much greater compressibility than the
liquid-filled undersaturated system. Even a small gas (J,,((Z/P),,-(Z/P),;) = (Jp,(Z/P)" (8)
saturation is noteworthy, due to the relatively high com-
pressibility of gas. In such cases rock and water Rearranging, Equation (8) becomes:
compressibility are often neglected in the interest of

= o, C_(P/Z~,,(Z/P)J
minimizing the calculations. Equation (4) is the materi-
al balance equation for a saturated reservoir, initially at (J" (9)
the bubble-point pressure. The terms for gas and water
injection, water influx and water production may be Equation (9) can also be transformed to the form shown
added as required. in Equation (10):

~p13,1f((Jp-~pFt,)13, P
(P/Z)" = (P/Z)"-(Jp,(--),, (10)
(13,-13,) (4) (J"Z
(13,-13,) -l- (Ft,,-Ft,) 13,1fm13'i
s, Equation (10) is in the form of a straight line, y = mx -t-
b. Hence, plotting P/Z vs. (J and extrapolating the line
7.5.3 Gas Reservoirs to P/Z = 0 yields the initial gas in place. This is a tradi-
tional method ofcalculating gas reserves for a volumetric
Gas reservoirs are also amenable to the material
pool. Fluid entry or exit from the system is indicated by
balance treatment. Starting with Equation (1), it is as-
upward or downward plot curvature, respectively. Such
sumed that water production, influx and injection are
performance may be seen in cases of water influx from
zero. Since gas has a very high compressibility, rock
an aquifer, interference with other pools, or interference
and water expansion in the gas cap may be safely ne-
with a portion of the reservoir outside of the area of
glected. Oil production and expansion terms are not
interest. Formation compaction also may cause a
applicable. Cross-multiplying Equation (I) and making
nonlinear PIZ curve. In this case the historical trend will
substitution gives Equation (5):
run above the gas-defined slope in early years and then
tum sharply down to the true gas in place.
m~13"
(J =-- (5)
" 13 gci 7.6 LIMITATIONS OF MATERIAL
BALANCE METHODS
Eliminating the terms for net water voidage, rock and The basis of the material balance is firm, and the
water expansion, and those relating to oil zone produc- equation can be made to encompass most ofthe factors
tion and expansion gives Equation (6): relevant in hydrocarbon production. However, in prac-
tical application, several sources of errors limit the
(6) accuracy of material balance methods. The gravity of
these errors varies with circumstances.
The gas formation volume factor, 13g' may be replaced 1. Thermodynamic equilibrium is not attained in
according to Equation (7): actual field conditions.
2. PVT data is obtained using liberation processes that
(7) do not represent reservoir conditions.
3. Inappropriate average pressures are used.
4. There is uncertainty in the "m" ratio.
where P sc = standard or reference pressure
Z = gas compressibility factor 5. The production data used is inaccurate.
T = reservoir temperature The amount ofpressure decline covered by the produc-
T sc = reference temperature tion history is one ofthe best criteria in gauging potential
P = formation pressure errors. The material balance is a comparison ofvoidage
to expansion and concentrates on evaluating fluid

123

DETERMINATION OF OIL ANDGASRESERVES

expansion. Large pressure declines produce large If an aquifer is large enough to impact the pressure
expansions, making inaccuracies in production volumes performance ofthe hydrocarbon zones significantly,part
relatively less significant. Similarly, pressure errors are of the water is likely to be substantially removed from
less critical with more pressure depletion. In general, a the hydrocarbons, due to its low compressibility. Water
pressure decline of 10 percent of the original reservoir also has much less mobility than gas. Therefore, the
pressure is needed before the material balance becomes assumption of common pressure used for oil zones and
reliable. This critical depletion level is highly depen- their gas caps is usually not applicable to hydrocarbon
dent upon the quality of the pressure, production and zones and their aquifers.
PVT data.
7.7.2 Water Influx Measurements
Pressure errors originate from several sources. Gauge
and sonic survey errors can be compounded during The simplest method of externally determining water
processing and conversion to a common datum. True influx for use in the material balance equation is to
static pressures may be difficult to derive in low trans- measure it directly. In pools where water influx is an-
missibility pools with high viscosity fluids. Areally ticipated, the operators may periodically log selected
imbalanced withdrawal or injection may create regional wellbores to determine water saturations. The advance
pressure gradients in the pool. It is important that such ofthe oil-water or gas-water contact can be defined with
areal pressure variations be properly reflected in the a selection of logged wellbores distributed across the
averages applied to material balance equations. Volu- area of the hydrocarbon-water interface. The engineer
metric averaging of measured values is the preferred must have reliable data for reservoir porosity and water
technique. Multiple layers ofdiffering permeability and saturation adjacent to the water contact. It is also very
severe lateral changes in permeability within the for- helpful to have an independent source of residual
mation may complicate the gathering of representative hydrocarbon saturation in the water-invaded zone.
pressures. A study by Hutchinson (1951) presents Such data may be obtained from relative permeability
the quantitative effect of pressure errors on material measurements in special core analyses.
balance determinations of hydrocarbons in place. The accuracy of water influx volumes from periodic
water contact elevation maps varies with the circum-
7.7 SUPPLEMENTAL CALCULATIONS stances. The reliability of water saturation and porosity
7.7.1 Gas Caps and Aquifers values is important.
Most ofthe material balance parameters are defined by There is also an element of doubt in the reservoir
pressures, PVT measurements, and production-injection stratification. Rock capillarity variations and trans-
data. Original oil or gas in place can be calculated in missibility barriers may cause undulations in the
some circumstances, but in cases where gas caps or aqui- water contact as influx occurs. Areal variations in res-
fers exist, the material balance equation contains more ervoir pressure can also lead to nonuniform water
than one unknown. Supplementary calculations must advance. The user should be aware of the potential for
then be utilized for a solution. error when working with a limited number of water
Gas caps can often be estimated by volumetric means. contact measurements.
Core and log data from upstructure wells can be used 7.7.3 Analytical Water Influx Models
with conventional volumetric mapping techniques to
estimate the amount of associated gas that is in contact Water influx may be calculated from the material
with the oil zone. The gas cap volume enters the mate- balance equation as a function oftime using a volumet-
rial balance equation through the parameter "rn" in ric estimate of oil in place. The engineer can then
Equation (1). As gas is a high mobility fluid, the gas endeavour to match this influx vs. time trend with an
analytical "model." Ifa reasonable match ofan extended
cap can often be represented as having the same reser-
voir pressure history as the adjacent oil zone. However, historical period is achieved with a single set of coeffi-
cients, the analytical relationship is plausible and
when the gas zone is large relative to the oil zone or
provides a basis for estimating future influx for use in
when the gas zone is geographically widespread, the
areal pressure variation within the gas cap should be the material balance.
considered. Small errors in gas cap average pressure can Schilthuis (1936) provided the simplest aquifer influx
produce large changes in calculated oil in place, because model. His model assumes that constant pressure is
gas is much more compressible than oil. maintained somewhere in the aquifer and that flow to
the oil zone is proportional to the pressure differential,

124

n
MATERIAL BALANCE DETERMINATION OFHYDROCARBONS INPLACE

with the remaining factors in D'Arcy' s Law constant.


~p = pressure differential, aquifer limit to
Equation (II) shows the Schilthuis steady state
formulation: oil-water contact (kPa) (psi)
Q(t) = dimensionless water influx;
function of to
(I I)
to = dimensionless time
lJ. = constant, 0.0863 (6.323 x 10-3)
k = aquifer permeability (Ilm2) (mD)
where k = water influx constant (m3/d/kPa) t = time (days)
P, = aquifer boundary (initial) pressure <I> = porosity, fractional
(kPa)
Il = water viscosity (mPa's)(cp)
p = oil-water contact pressure (kPa) c = effective rock, water compressibility,
Hurst (1943) proposed a modification of Equation (II) kPa-1 (psi")
wherein the influx constant is altered and a denominator rw = equivalent oil zone radius (m) (ft)
term, log (at), is added. The denominator compensates ~ = constant, 6.2792 (1.119)
for the gradually lengthening flow path of the water h = equivalent aquifer thickness (m) (ft)
through the aquifer as depletion progresses. Hurst's El = azimuth angle of aquifer inflow
modification is shown in Equation (12): (degrees)
The superposition theorem is applied to calculate water
dW,= c(p;-p) influx, We' The pressure history at the water contact is
(12)
dT log (at) divided into a series oftime intervals for which average
contact pressures can be estimated. These average pres-
where c = water influx constant (m3/d/kPa) sures define decrements between the initial aquifer
a = time conversion constant that depends pressure and the hydrocarbon interface pressure that are
on units of time assumed to be constant within each time interval. The
t = elapsed time from start of influx (h) superposition theorem holds that the aggregate effect
Van Everdingen and Hurst (1949) produced an unsteady of all these pressure differentials is equivalent to the
state water influx solution which can deal with infinite summation of their individual effects, each operating
or limited aquifers. This model is based on radial flow over its respective time interval. In practice, reservoir
from a concentric aquifer to an interior oil zone, but it parameters are chosen to calculate to as a function of
can be adapted to situations where the aquifer underlies the time intervals. Tables and figures ofQ(t) have been
or extends primarily in one direction from the oil pool. supplied by Van Everdingen and Hurst (1949) and in
Van Everdingen and Hurst overcame the site-specific the summary by Craft and Hawkins (1964). Craft and
nature of the solutions to the radial form of the diffusivity Hawkins also provide a good description ofhow to cal-
equation by providing their data in terms ofdimension- culate the summation of ~PQ(t) to get W as a function
less time and dimensionless influx. Briefly, their of time. e
. formulation is as follows: Carter and Tracy (1960) developed a method based on
Hurst's (1958) simplification of the Van Everdingen
W, = BL [~p. Q (t)] (13) and Hurst unsteady state influx calculation. The Carter-
Tracy method gives answers similar to those of Van
Everdingen and Hurst without the iterative solution
(14) involving the conventional material balance equation
and the water influx summation equation.

El 7.8 MULTIPLE UNKNOWN MATERIAL


B= Amcr ' h - (15) BALANCE SITUATIONS
t''Y w 360
The solution methods outlined rely on separately
where We = water influx (m") (bbl) determining relationships for secondary unknowns in
B = water influx constant (m3/kPa) the material balance equation, namely the gas cap to oil
(bbllpsi) zone ratio, m, or the water influx term, We' A second
technique utilizes a simultaneous solution for oil in place
and a secondary parameter. Theoretically, given

125
DETERMINATION OF OIL AND GASRESERVES

multiple pressure and production combinations, the by Eo, s, and Eg, respectively. The s, components may
material balance equation could be simultaneously be deleted, except in the case of undersaturated oil pools.
solved for multiple unknowns. In practice, transient ef- The final right term, We' is calculated by the unsteady-
fects, data errors and unrepresentative averages make state water influx equation, Equation (13). Alternatively,
the simplistic simultaneous solution unreliable. the Carter-Tracy influx formulation could be used.
Havlena and Odeh (1963) presented an algebraic There are many different formulations of the straight-
rearrangement of the material balance. Their technique line material balance method. The reader is encouraged
involves calculating production and expansion entities to reference the comprehensive and readable presenta-
that are interrelated as terms of a linear equation. Since tion by Havlena and Odeh (1963). Figure 7.7-1 shows
the pressure-production-time points plot as a straight the form of the straight-line plot for a pool with un-
line, graphical methods can more easily be used to de- known oil zone and gas cap size, and Figure 7.7-2
termine the best solution for the dataset. Havlena and portrays one with unknown oil zone and water drive.
Odeh emphasized the idea of examining multiple val- McKibbon et al. (1963) provide an excellent example
ues of a parameter by means of a statistical variation of the application of the straight-line material balance
factor. In some circumstances, this approach provides a to an oil reservoir with active water influx.
useful supplementary measure of how well the entire
pressure-production history is satisfied by a particular
reservoir solution.
The straight-line method involves the use of variable
groups. The reservoir circumstances determine which
variable groups are plotted against each other. This N
method attaches a significance to the sequence and
direction of the plotted points and the shape of the
resulting plot. The variable groups can be effectively
computed and plotted with a spreadsheet program, u,
particularly if the derivation of PVT data is automated
through macros. The analyst must then examine the
sequence and configuration of the plot points to assess
their meaning. N =oil in place
With minor rearrangement, Equation (2) may be Btl
E,+rnsE g
rewritten as: g'
Source: Havlena and Odeh, 1963.

N, [B, + B,(R,-R,,)] + (W,-W,) a, - G,B"


Figure 7.7-1 Straight Line Plot for Oil Zone and
Gas Cap Case
The usual criteria for a successful material balance
solution are consistency of the results and agreement
+ --" J
mB (B.-B,,) + W, (16) with volumetric calculations. The consistency aspect is
n, often left as a rather nebulous, unquantified factor, but
Havlena and Odeh offer a method to systematize it.
where cf = formation compressibility Agreement with volumetric oil in place estimates can
Cw = water compressibility be overemphasized. Volumetric calculations tend to
B, = formation volume of oil and originally focus on total oil in place due to their reliance on geol-
dissolved gas ogic interpretations and petrophysical data. Material
balance oil-in-place is the active oil that takes part in
Using Havlena and Odeh terminology, the left side of the depletion history. The similarity of volumetric and
Equation (16), denoted by F, represents the net reser- material balance oil-in-place values should not be
voir volume ofproduction. The expansion terms for oil, overrated as a measure of the accuracy of either.
rock and water, and gas on the right side, are denoted

126

$
MATERIAL BALANCE DETERMINATION OFHYDROCARBONS INPLACE

Formal computer programs are available to perform


many material balance calculations. They handle much
of the repetitive computation and greatly speed the
solution process. However, users must be sure that they
understand how such programs work. The methods must
fit the problem and be compatible with the available
dataset.
Havlena and Odeh (1963) caution against total auto-
mation ofthe straight-line material balance, because the
N B=
sequence and direction of successive points provide in-
N = oil in place formation as to the nature ofthe solution. The engineer
o0 IdpQ(A1 D) should take care to scrutinize this aspect ifmachine plots
Eo are utilized in the straight-line method.
Source: Havlena and Odeh. 1963. References
Carter, R.D., and Tracy, G.W. 1960. "An Improved
Figure 7.7-2 Straight Line Plot for Oil Zone and Method for Calculating Water Influx." Trans.,
Water Influx Case AIME, Vol. 219, p. 415.
Craft, B.C., and Hawkins, M.F. 1964. Applied
Although it is theoretically possible to solve for Petroleum Reservoir Engineering. Prentice Hall,
multiple unknowns with the straight-line method, in Inc., Englewood Cliffs, NJ, p. 205.
practice, difficulty is met in some cases. Highly accur-
Havlena, D., and Odeh, A.S. 1963. "The Material
ate data are needed to solve simultaneously for a notable
Balance as an Equation of a Straight Line."
gas cap and an oil zone, or for a gas cap, oil zone and
Trans., AIME, Vol. 228, p. 896.
water influx. The difficulty in these two cases relates to
the high compressibility of gas and its large potential Hurst, W. 1943. "Water Influx Into a Reservoir and
impact on the pressure response. its Application to the Equation of Volumetric
Balance." Trans., AIME, Vol. 151, p. 57.
In conclusion, the straight-line requirement does not
prove the uniqueness of the solution, but is one of the - - -.. 1958. "The Simplification of the
conditions that a satisfactory solution should meet. As Material Balance Formulas by the Laplace
always, the quality of the solution will depend on the Transformation." Trans., AIME, Vol. 213, p. 292.
quality and quantity ofthe input data and on the ability Hutchinson, C.A. 195I. "Effect of Data Errors on
and thoroughness of the analyst. The straight-line Typical Engineering Calculations." Paper pre-
method is recommended as being robust and effec- sented at SPE of AIME meeting, Oklahoma City,
tive. Its dynamic nature is a valuable supplement to OK.
traditional methods. McKibbon, lH., Paxman, D.S. and Havlena, D. 1963.
"A Reservoir Study ofthe Sturgeon Lake South
7.9 COMPUTER SOLUTIONS
D-3 Pool." JePT, Vol. 2, No.3, Fall 1963, p. 142.
Computer spreadsheets are valuable tools in material
Schilthuis, R.l 1936. "Active Oil and Reservoir
balance work. They greatly reduce laborious calcula-
Energy." Trans., AIME, Vol. 118, p. 33.
tions and allow easy sensitivity analyses with varied
data. A noteworthy advantage of spreadsheets is that Van Everdingen, A.F., and Hurst, W. 1949. "The
the user retains complete knowledge and control of the Application of the Laplace Transformation to
computation method. Flow Problems in Reservoirs." Trans., AIME,
Vol. 186, p. 305.

127
i

g
PART THREE
ESTIMATION OF RECOVERY

FACTORS AND FORECASTING

OF RECOVERABLE HYDROCARBONS

R
---
Chapter 8

OVERVIEW OF PART THREE

8.1 INTRODUCTION gas injection, thermal stimulation, and carbon dioxide


Part Two focuses on in-place hydrocarbons or resources; flooding.
Part Three addresses reserves, which are the portion of Another method of improving recovery from oil
the resource, or the quantities of oil and gas and related reservoirs is by the use ofhorizontal wells, which allow
substances that are economically recoverable under drainage from larger areas than vertical wells. Chapter
known technologies and a generally acceptable forecast 16 discusses horizontal wells.
of future economic conditions. Reservoir characteristics that may affect hydrocarbon
Forecasting of recoverable hydrocarbons may be recovery include heterogeneity and reservoir dis-
approached from several standpoints: recovery factor continuities, both vertical and lateral; the structural
as a percentage of original in-place resources; statisti- characteristics of the reservoir; the presence of natural
cal analogies, reservoir simulations, and material balance fractures, both open and closed; pore size geometry and
techniques; or methods such as decline analysis, where distribution; permeabilities; in situ stresses and fracture
the determination of in-place hydrocarbons is not a orientation; parting pressures (injecting fluids); and
requirement. reservoir pressure.
Many factors may affect the recovery of hydrocarbons: Hydrocarbon characteristics that may affect recoveries
Depletion mechanisms and the timing of the include viscosity, composition, and the pressure-
implementation of various recovery methods volume-temperature relationships of the hydrocarbons
in the reservoir. The interrelationship of fluids and
Reservoir and hydrocarbon characteristics
reservoir rock, expressed in terms such as interfacial
Well spacing, completion techniques, mechanical tensions and wettability, control fluid movement in a
conditions, and production equipment reservoir. The overall contrast between the mobility of
The natural depletion mechanisms for oil include, but fluids in a reservoir significantly affects recovery.
are not limited to, primary production mechanisms in The well spacing, completion intervals within wells,
which reservoir fluids are produced as a result of the completion techniques such as fracturing, and proxim-
energy of fluid expansion, solution gas drive, water ity of wells to underlying water or a gas cap are all factors
drive, gas cap drive, compaction drive, and combina- to consider when analyzing recoveries. Mechanical
tion drive. These primary production mechanisms are equipment such as compressors can also significantly
described in Chapter 9. affect recoveries as well as the abandonment of wells.
Production of natural gas generally involves primary
depletion using surface compression, but recovery of 8.2 PURPOSE OF DEPLETION
liquid- and sulphur-rich gases often utilizes re-injection STRATEGY
of dry gas or cycling to maximize recovery. The deple- The purpose of a depletion strategy is to maximize
tion methods for natural gas recovery are covered in project economics and the recovery of hydrocarbons.
Chapter 10. While this may sound obvious, the current focus on
Primary oil recovery can be improved by secondary and quarterly earnings by most North American sharehold-
tertiary recovery schemes referred to as "enhanced re- ers, coupled with a tough economic climate, often results
covery." Chapters II through 15 describe the various in the need for immediate cash flow, which sometimes
enhanced recovery methods used in oil reservoirs: water- overrides longer term business strategies. However, it
should not preclude companies from investigating other
flooding, hydrocarbon miscible flooding, immiscible

131
DETERMINATION OFOILAND GASRESERVES

development options and addressing those that meet their The reliability of techniques to forecast reserves and
financial constraints. production improves during the life of the pool as more
The development of a depletion strategy should options become available. In the very early stages, with
ultimately result in the identification of all potential re- little more than geophysical, geological, and wellbore
coverable reserves and the establishment ofa framework data and test information available, it is common prac-
that can maximize revenues from the project. tice to rely on analogy and statistical data for preliminary
Developing a depletion strategy early in a project is very reserves estimates.
important because the timing of the implementation of During subsequent phases of reservoir depletion, the
various production strategies could be critical. It may availability of increasing volumes of information may
not be prudent to continue primary production without lead to the use of two more sophisticated techniques
fully addressing a depletion strategy for a pool. The of reserves estimation: numerical simulation and
following are examples of what could happen: decline curve analysis. These are the techniques most
1. Depleting a gas cap could cause a disastrous commonly used for reserves estimation and production
decrease in the recovery factor of an oil pool. forecasting.
2. Production from an oil pool to the extent that the The use of numerical simulation is not restricted to
pressure drops below the critical gas saturation in reservoirs with significant producing histories, but the
the reservoir prior to commencement of a water- ability to calibrate the reservoir model developed by
flood could have a detrimental effect on recovery. matching historical performance offers far more reli-
able results although the technique is often expensive.
3. Gas production with the pressure declining
This technique is of particular value where decisions
significantly below the dewpoint in a retrograde gas-
are necessary regarding the feasibility of some form of
condensate reservoir before implementing a dry gas
enhanced recovery mechanism. Numerical simulation
cycling scheme could result in a dramatic decrease
is discussed in Chapter 17.
in liquid recovery.
Decline curve analysis is both used and misused in
Planning the depletion strategy during the initial
reserves and production forecasting, and it has wide-
development stages of a pool will also identify the app-
spread use in every aspect ofreservoir depletion. Clearly,
ropriate data that should be gathered and accumulated
the more established a decline trend becomes, the more
through both the drilling and the production stages of
reliable the extrapolation ofthat trend, provided the un-
development. The availability of this information will
derlying reservoir or production mechanism that is
assist in identifying the most economically feasible
causing the decline does not change. Decline curve
depletion mechanism.
analysis is discussed in Chapter 18.
8.3 TECHNIQUES FOR RESERVES In Part Two, the techniques for determining the most
AND PRODUCTION FORECASTING likely in-place hydrocarbon volumes are discussed. The
The techniques used for reserves estimation and assignment of recovery factors to these volumes at this
production forecasting vary depending upon several stage, particularly in the case of oil, requires an
criteria: assessment ofthe reservoir environment and the recov-
The reservoir depletion strategy ery mechanism in order to determine likely performance
by analogy to similar, and preferably nearby, pools.
The type of depletion mechanism, both existing and
In westem Canada, a wealth of statistical data is avail-
future
able from the Alberta Energy Resources Conservation
The stage of reservoir development and depletion Board (ERCB); the B.C. Ministry of Energy, Mines,
The extent of the production history and Petroleum Resources; and the Saskatchewan
The constraints that have been imposed on produc- Department of Energy and Mines. Some ERCB data is
tion by regulation, markets, or the physical nature of presented in Chapter I 9.
production facilities .

132

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _. .d
Chapter 9

NATURAL DEPLETION MECHANISMS


FOR OIL RESERVOIRS

9.1 INTRODUCTION 9.1.2 Solution Gas Drive


Pressure drops in a reservoir caused by the withdrawal The predominant source ofenergy for solution gas drive
of some of the fluids initiate the expansion of the comes from the expansion of gas released from the oil.
remaining fluids. Oil, gas, and water are then produced As the pressure drops in a reservoir, the ability of the
as a result of their expansion and the expansion of the oil to keep gas dissolved is reduced, and free gas is re-
surrounding reservoir rock. This recovery process leased. With further pressure reduction, the free gas
is called a natural depletion mechanism. The names expands and displaces oil towards the producing wells.
for the various natural depletion mechanisms-fluid Because of its highly compressible nature, the gas will
expansion, solution gas drive, water drive, combination expand and displace significantly more oil than an
drive, and gas cap drive-are associated with the major initially equal volume of liquid.
contributing source of expansion energy. When more In an undersaturated oil reservoir, that is, one without
than one major source of expansion energy contributes any initial free gas, the initial depletion mechanism will
to the depletion process, it is referred to as a combination be due to the expansion ofoil. Generally, there will be a
drive. direct relationship between the volume and rate at which
This chapter discusses the natural depletion mechanisms, the oil is produced and the pressure reduction, as shown
the types of predictive tools and their applicability in Stage I in Figure 9.1-\. When the pressure drops
at the different stages of development of a reservoir, below the bubble point, free gas is released and becomes
and the factors affecting recovery. the major source of expansion energy. Gas-oil ratio
does not significantly increase during this stage until
9.1.1 Fluid Expansion
the critical gas saturation is reached. Because of the
Fluid expansion exists as a natural depletion process compressible nature of the gas, with continued oil
when only one mobile fluid exists in the reservoir. (Fluid production, the pressure drop is significantly reduced
may refer to either gas or oil.) The withdrawal of some and the oil rate will be fairly constant, as shown in Stage
of this fluid will cause a pressure drop. The remaining II of Figure 9.1-\.
fluid will expand and displace itself toward the pres-
sure drop. Because ofthe highly compressible nature of
Expansion SolullonGas Drive
gas, fluid expansion is generally the dominant deple-
tion mechanism in gas reservoirs. Conversely, because II III
ofthe low compressibility ofliquids, fluid expansion is
not a good source of depletion energy in oil-filled res- Pressure
,. .... -- .....
ervoirs. Fluid expansion in oil reservoirs exists by itself I
/ "\ \
~I \
only at pressures above the bubble point. At the bubble q!!'1
point, the gas dissolved in the oil breaks out of solution, Oil
rY/ 1
~I I
and the expansion energy associated with the compres- Production o
sive nature of this gas becomes the dominant depletion I
I
mechanism. Only oil deposits containing very under- /

saturated oil will be produced with fluid expansion ----_ .... /

as their dominant depletion mechanism.


Cumulative Oil

Figure 9.1-1 Solution Gas Drive Reservoir

133
DETERMINATION OF OIL AND GAS RESERVES
,
As the pressure continues to drop, the evolved free gas
will reach the critical saturation; at this point, gas will
start to move and will be produced in conjunction with
the oil. As the gas saturation increases, the ease with
which gas moves within the reservoir relative to oil Partial
Water
increases, and the gas is then produced preferentially Drive .,
ty0t\ >
over the oil. With continued production and the associ- '\et '5\l.9......
. '!\QI.1\ ... '"
ated pressure drops, the gas continues to be evolved, 'ncteas\~9_ ~- Full
increasing its saturation level. The production of gas
increases and the production ofoil decreases. This com-
~ -- -~-
Solution
- ~~~~
Gas Drive
plicated procedure, represented by Stage III in Figure
9.1-1, continues until the rate at which gas is being
evolved from the oil is less than the rate of gas being Cumulative Oil

produced. At this point, the pressure and production rates


drop quickly, as shown in Stage IV. Figure 9.1-2 Comparison of Solution Gas Drive
and Water Drive Reservoirs
9.1.3 Water Drive
An oil deposit is considered to be produced by water 9.1.4 Gas Cap Drive
drive when the predominant source of expansion en- A reservoir that initially contains free gas as well as the
ergy comes from the water-filled portion of the reservoir. gas dissolved in the oil will benefit from the additional
Since water has a lower compressibility than oil, the expansion energy of the free gas. If the volume of free
volume of water needs to be significantly larger than gas is large enough so that this source of expansion
the oil-filled portion of the reservoir. energy overshadows the effect of other sources of en-
The pressure in the oil deposit will drop as production ergy such as solution gas drive, the primary depletion
is initiated. As the pressure gradient reaches the aqui- mechanism is called a gas cap drive.
fer, the water starts to expand, displacing the oil toward As in water drive reservoirs, the oil undergoes an
the producing wells. If the aquifer is large enough and initial pressure drop until the pressure gradient reaches
thus has sufficient expansion energy, all the mobile oil the gas cap. The gas then expands and displaces the oil
will be produced without any further pressure drops. toward the producing wells. If the gas cap is large
The oil rate will remain constant until the aquifer con- enough, the oil deposit will undergo only minimal pres-
tacts the producing well, after which the water sure drop, and the oil production rate will remain
production will increase as the oil rate drops. constant until the gas cap reaches the producing well
If the aquifer is not large enough to provide full interval. Due to relative permeability effects, the gas
pressure support, the pressure drops. When the bubble- production rate will then increase quickly as the oil rate
point pressure is reached, free gas will be released, and drops off. If the gas cap is not large enough to give com-
this gas will start to contribute significantly to the deple- plete or nearly complete pressure support, then as the
tion energy. This type of depletion mechanism is referred pressure drops, solution gas drive will be contributing
to as a combination drive because there is more than free gas energy. The resultant drive mechanism is also
one significant source of depletion energy. Figure 9.1-2 referred to as combination drive. Figure 9.1-3 shows
shows the relative difference between solution gas drive, the response ofa gas cap drive reservoir that becomes a
full water drive, and a partial water drive. combination drive reservoir.
In many situations, at a localized area around the As in water drive reservoirs, many gas cap drive
producing wells, the water contact will rise dramatically reservoirs are also subject to coning effects. Because of
and effectively water out the wells. This phenomenon the inherent differences in viscosity of gas and oil,
is called "water coning." The consequence of water con- coning is often more serious in gas cap reservoirs than
ing is that large volumes of oil will be trapped and thus water drive reservoirs. In the presence of gas coning,
become unrecoverable. In reservoirs that are subject to recovery factors tend to be relatively low.
coning, recovery factors tend to be very low. The more
viscous the oil and/or the greater the vertical perme- 9.1.5 Compaction Drive
ability, the more dramatic the effect of coning on In weak, unconsolidated reservoirs, the pressure drop
recovery. due to the production of fluids causes an imbalance III

134

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _FZ8
NATURAL DEPLETION MECHANISMS FOR OILRESERVOIRS

this "sandwich" effect. The recovery factor in this


situation would be fairly low.

___ Pressure , 9.2 FORECASTING OF


, RECOVERABLE OIL
Oil
,,,
Production
, , Throughout the productive life of a reservoir, there is
Rate
,,
always a need to establish the reserves. Recovery esti-
,
,, mates are used to justify capital spending, predict future
cash flow generation and, ultimately, estimate share-
holder value. Because of the importance of reserve
estimates, al1 available data should be used when deter-
mining the size of the oil deposit and the amount of oil
Cumulative Oil
that can be recovered economical1y. The amount and
accuracy ofthe available information increase as an oil
deposit passes through the various phases of the
Figure 9.1-3 Gas Cap Drive Reservoir production life cycle. Thus, the recommended method-
ologies used to estimate recoverable oil change as the
the stress within the bulk rock, and the weight of quantity of information increases.
the overburden causes the bulk rock to compact. Two basic approaches are used to establish reserves for
The compacting rock squeezes the internal fluids, an accumulation. In the first approach, the ultimate eco-
thus maintaining the pressure. The resultant drive nomic recovery factor is established through analogous
mechanism is referred to as compaction drive. or analytical methods, and then applied to volumetric
Compaction drives are found in heavy oil reservoirs estimates based on geological interpretations (as dis-
and some natural1yfractured reservoirs where fractures cussed in Part Two). The second approach predicts future
tend to close as the reservoir is being depleted. Com- production rates, with reserves calculated as the sum-
paction drives can increase the recovery due to solution mation of the volume produced above the economic
gas drive by more than 10 percent of the original oil in limit. Table 9.2-1 and Figure 9.2-1 show the recom-
place. mended methodologies according to stage ofproduction
life and whether recovery factor or reserves are
9.1.6 Combination Drive predicted. Sometimes material balance and numerical
Often recovery from oil reservoirs is the result ofmore simulation are useful in the development stage
than one drive mechanism. A reservoir with combina-
The purpose of establishing a reserves estimate, the size
tion drive poses a difficult problem for reserve
and value of the reserves to the corporation, and the
estimation. General1y one depletion mechanism is domi-
nant at any stage of depletion or geographic area of the
reservoir. In a reservoir that has a smal1 gas cap, ini-
tial1y the dominant drive mechanism is solution gas
drive. When significant volumes of gas have evolved
out of solution, the dominant drive mechanism becomes
gas cap drive. For example, in the presence of both a
gas cap and an aquifer, the dominant mechanism at the
gas-oil interface would be gas cap drive, and the domi-
nant drive mechanism at the water-oil interface would
be water drive. It is critical for the evaluator to under-
*
a:
is
MaterialBalance ~>

Decline Analysis-)-
-,
-<-' Numerical Simulation )-
stand the reservoir and which drive mechanism is
Analytical Methods "-. ~ )-
dominant.
k-c7""c-_- Analogous Methods -~
In a combination drive reservoir that has both a water
leg and a gas cap, coning has a double effect in that Time
the gas cones downward and the water cones upward.
Thus, significant volumes of oil will be by-passed by
Figure 9.2-1 Recommended Methods
for the Stages of Exploitation

135

DETERMINATION OF OIL AND GAS RESERVES

Table 9.2-1 Recommended Reserves Forecasting Methods

Stage Forecast Method What is Forecasted


Exploration Analogous Recovery factor
Analytical methods Recovery factor
Delineation/ development Analogous Recovery factor
Analytical methods Recovery factor
Early life Analytical methods Recovery factor
Middle/late life Numerical simulation Reserves
Decline analysis Reserves
Material balance OOIP
Abandonment Actual production Reserves

amount and reliability of the data should dictate the volumes of oil, gas and water. In order to establish a
degree of effort put into calculating an estimate. Often recovery estimate, the results of the material balance
comparing two or more methods of evaluation is analysis must be combined with another prediction tech-
recommended. For example, an estimate determined nique or assumptions applied to the depletion of the
from decline analysis could be compared with one reservoir. For example, assumptions on abandonment
calculated using an analytical method. conditions define the pressure or production rate at which
Information on a particular reservoir can be obtained the field would be abandoned; thus the difference
by techniques such as drilling, coring, logging, produc- between volumes in place and the volumes remaining
tion testing, pressure testing, and fluid analysis. Prior at abandonment establishes the reserves. The material
to obtaining any ofthis information through the drilling balance method is discussed in detail in Chapter 7.
of the first well, the evaluator must resort to the use Decline analysis is the prediction of future rates based
of established information from analogous fields. on observed behaviors seen in actual production histo-
Analogies can be used to estimate recovery factors, ries. Typically, reservoir engineers forecast the future
initial production rates and decline rates that are applied well flow behaviours by extrapolating production his-
to the geological interpretation. The more similar the tory using a straight line. A single straight line will
analogous field is in size, depth, fluid properties and represent the entire life ofa reservoir only when there is
formation, and the closer its proximity to the prospect, one source of reserve energy in a simple homogeneous
the better the estimate of recovery factor will be. reservoir with all wells producing at a similar rate. In
In analytical methods, the mathematical equations that other words, a single straight line would represent the
represent material balance calculations have been sim- entire production life for only a few oil reservoirs. In
plified by making certain assumptions about particular using decline analysis, it is important to know what stage
parameters. By measurement of some and "guessing" of the natural depletion is represented by the produc-
at the remainder, the evaluator can establish the recov- tion history and is being represented by the prediction.
eries. Analytical methods have been developed for the More than one straight-line segment may be necessary.
more complicated processes such as solution gas drive, Other factors that can invalidate the use ofthe straight-
water drive and gas cap drive. Fluid expansion is a fairly line method are the existence of dual porosity systems,
simple process, and therefore production forecasting and layered reservoirs with each layer having different prop-
recovery estimates are generally solved directly from erties, and geographic areas of an accumulation with
the material balance equation. Analytically predicted each area having different properties. These phenom-
recovery factors along with either early life production ena, when incorporated into the prediction, change what
history or rates based on analogous fields are applied would have been a straight-line segment in a homogen-
to the geological interpretation in order to establish eous reservoir into a curved line. A technique to handle
recoverable volumes of hydrocarbons. geographic differences is to subdivide the reservoir i?to
Material balance, whether done graphically or areas of similar characteristics and perform dechne
numerically, attempts to establish initial in-place

136
NATURAL DEPLETION MECHANISMS FOR OIL RESERVOIRS

analyses on each area. Summing the various areas will of specified periods, and the interim production or
give a more accurate picture of the entire reservoir. pressure change is obtained by difference.
Numerical simulation, material balance and decline Short-cut methods are used when there is little data or
analysis are the methods most commonly used in the when a recovery estimate is desired quickly. These are
middle and late stages of depletion. These methods re- not recommended if a high degree of confidence is
quire a sufficient amount ofreliable data to be effective desired. Two short-cut methods are as follows:
predictors of recoveries. The following subsections Wahl et al, (1958) created various nomographs based
present general comments on the use ofthese methods on the Muskat Method using varying fluid properties
for the specific drive mechanisms. Numerical simula- and relative permeability characteristics.
tion and decline analysis are discussed in more detail in
The Roberts and Ellis (1962) Method uses the early
Chapters 17 and 18, respectively.
GaR data to predict future production. Using oil grav-
9.2.1 Solution Gas Drive ity and solution gas-oil ratios, the trend of producing
Oil recovery as a result of solution gas drive typically gas-oil ratio is matched to the published predictions.
ranges between 2 and 30 percent. The lower recoveries Decline Analysis
generally occur in low API, shallow, and low pressure
oil reservoirs, whereas the higher recoveries occur in The productive life for a solution gas reservoir that
high API oil, deep, and high pressure reservoirs. initially was above the bubble point is made up of four
distinct stages as shown in Figure 9.1- I. In a decline
Analytical Methods analysis, the analyst must know what stage of depletion
The most common analytical methods for estimating is represented by the production and must predict when
recovery in solution gas drive reservoirs are based on the reservoir will enter future stages. Because ofthe dif-
material balance concepts. Four methods are applicable ficulty of predicting when these future stages will occur,
below the bubble point. The most common analytical production decline analysis is generally not used as a
approach used is the Tracy Method, followed by the predictive tool until the production data reaches Stage
Muskat Method. III.
The following are the most commonly used analysis Reservoir Simulation
methods: In solution gas drive reservoirs, generally analytical
The Tracy or Tarner Method (Tracy, 1955) is a re- and decline techniquesare sufficient to estimate reserves.
arrangement of the basic material balance equation so In special situations typically dictated by geological
that pressure-dependent variables are grouped. Tamer discontinuities or heterogeneity and in naturally frac-
extended the method by incorporating the gas-oil equa- tured reservoirs, simulation may be warranted to
tion based on gas-oil relative permeability curves, establish reservoir flow and resultant recoveries.
resembling the Pirson and Muskat methods.
9.2.2 Water Drive
The Muskat Method (Muskat, 1949) uses the material
balance equation, written in differential form, in con- Oil recoveries in a water drive reservoir can typically
junction with the gas-oil relative permeability curves. range from 2 to 50 percent depending on factors
Because of the importance of these curves, some de- inherent in the reservoir.
gree of confidence in the data is crucial. A common method for evaluating recovery efficiency
The Pirson Method (Pirson, 1950) is based on the of water drive reservoirs uses the observed rise of the
Schilthuis material balance equation written in finite water-oil contact due to the water influx from the aqui-
difference form. This is essentially a material balance fer. This requires sufficient production history for the
equation that predicts oil recovery as a fraction of oil in water-oil contact to rise noticeably and a method of
place at the bubble point as the pressure declines over a measuring the rise. The relationship over time between
time period. The gas-oil relative permeability curve is the fraction of the reservoir invaded by water and the
required to define the producing gas-oil ratio. initial oil-filled reservoir compared to the oil produced
allows the prediction of the total oil recovery.
The Humble (Schilthuis) Method (Schilthuis, 1936)
Additional factors that affect reserves include coning,
is based on the Schilthuis material balance equation. In fractional flow, and economic limit.
the forecasting of future production, the equation is
applied to reservoir conditions at the beginning and end

137

DETERMINATION OFOILANDGAS RESERVES

Analytical Methods The last term on the right-hand side of Equation (2)
represents the effect of gravity on fractional flow. For
If the observation of the advance of the water-oil
a nontilted reservoir, this term becomes zero. The
contact is insufficient to directly predict recovery effi-
ciency, or direct measurement of the advance is not relative permeability vs. saturation relationship must be
possible, theoretical methods based on material balance reliable in order for this method to result in a reason-
are recommended with preference given to the Welge able recovery estimate.
Method. Assuming near-constant pressure at any time, The Dietz Method (Dietz, 1953) predicts oil
the reservoir recovery, ER , can be calculated using the recovery in reservoirs where the waterfront flows up-
relationship: dip along the base of the formation, causing the front
to assume a tilted position. This is especially notice-
W, w,e, able in reservoirs with a water influx rate that exceeds
E = --'---'---'- (I)
R HCV e the critical rate and in reservoirs containing viscous oil.
The MarshaI'Method(Marshal, 1957) uses Buckley-
where W, = water influx
Leverett theory to predict recovery in a stratified
Wp = cumulative water production
reservoir. From production history the time required for
Bw water formation volume
a given water cut to move between two rows ofwells in
factor
a field is obtained, and the velocity of the water front
We - Wp Bw net water influx at reservoir
determined. Field-measured water cuts are used to de-
conditions
scribe oil-water relative permeability curves. If enough
HCV, = cumulative water-invaded
water-cut ranges are available, the fractional flow curve
hydrocarbon volume
vs. distance in the reservoir, as defined by Buckley-
Ultimate recovery is then determined from reservoir Leverett, can be predicted.
production vs, cumulative water encroachment.
The Schilthuis Method (Schilthuis, 1936) determines
The following are the most commonly used analysis water influx by calculating the water flow from the aqui-
methods: fer to the reservoirin a series ofsteady-state steps. Water
The Welge Method (Welge, 1952) is recommended if influx is assumed to be proportional to the pressure dif-
production history data is insufficient to determine the ference between the aquifer and the reservoir. Since
efficiency of the water drive. Fractional flow of water, aquifer pressure is assumed equivalent to the initial
fw ' as a function of water saturation, is used to predict reservoir pressure, this method is valid only for
oil recovery. infinite-acting aquifers. The weakness in this method
is due to calculation of an aquifer constant from
I . _A_kk-,,"::..:(_.1.,:-:,pg::...s_in_CJ....:.) production history.
q,/.lo The Modified Hurst Method (Hurst, 1943) is similar
(2) to the Schilthuis material balance method in that it also
I + /.lw k ," . predicts water influx. The Hurst equation extends the
J.Lo k.; Schilthuis Method by accounting for the increase in the
drainage radius in the aquifer.
where A throughput area
k = formation permeability Correlations have been identified and should only be
used for quick evaluations or where data is minimal:
!c"o relative permeability to oil Khan and Caudle (1968) for thin oil columns, Caudle
.1.p = density difference, water density-
oil density and Silberberg (1965) for edge-water drive, Hutchinson
g acceleration due to gravity and Kemp (1956), and Henley et al. (1961).
CJ. = formation dip The analytical methods discussed in this subsection
q, total throughput rate assume that the water-oil contact rises as a flat surface,
Ilw = water viscosity either from the flank or from the bottom. If the reser-
Jlo ::;:;: oil viscosity voir is subject to coning, these analytical methods
k.w= relative permeability to water will overestimate oil production rates and ultimate

138
NATURAL DEPLETION MECHANISMS FOR OIL RESERVOIRS

recoveries. In the early life of the reservoir, i.e., prior the difficulty of predicting the timing of water break-
to water break-through, empirical correlations exist to through using decline analysis, this method is generally
identify the susceptibility of the wells to coning. These used after break-through has occurred.
methods forecast recoveries by estimating break-through Many approaches are available in analyzing production
time and the water-oil curve forecast. Using the water- after water break-through. Table 9.2-2 outlines the more
oil forecast, oil production can be estimated. Although commonly used combinations of production data plots.
reservoir simulation is recommended for evaluating In the analysis of any data set, it is recommended that a
coning situations, the following correlations are number of these combinations be used, selecting the
available for quick evaluation: combination that gives the best match.
I. Kuo (1989) combines various correlations that
determine critical rate calculations, break-through
time calculations, and water-cut performance pre- Table 9.2-2 Decline Analysis Plots Used
dictions on a PC spreadsheet for rapid analysis of after Water Break-through
comng. 1. Logoil rate vs, time (exponential decline)
2. Boumazel and Jeanson (1971) combine experimen- 2. Oil rate vs. cumulative oil (exponential decline)
tal correlations with a simplified analytical approach 3. Logoil rate vs. cumulative oil (harmonic decline)
based on the assumption that the front shape 4. Logcumulative oil vs. log cumulative oil plus
behaves like a straight line. This method may be water
applied to thick homogeneous reservoirs that are 5. Oil and waterratesvs. cumulative oil
horizontally fed. 6. Logoil and waterrates vs. cumulative oil
3. Sobocinski and Cornelius (1965) developed a 7. Log water-oil ratio vs, cumulative oil
correlation based on laboratory data for predicting 8. Logwater-Coil + water) ratio vs. cumulative oil
water coning time as it builds from static to
break-through conditions. This method involves
correlating dimensionless cone height against di- Material Balance
mensionless time.
Material balance methods for estimating reserves in
4. Kuo and DesBrisay (1983) developed correlations water-drive reservoirs frequently result in erroneous
based on numerical simulation to determine the estimates. A detailed understanding of the supporting
sensitivity ofwater coning behaviour to various res- aquifer is required for any degree ofreliability. Often
ervoir parameters, including the ratio of vertical to information about the aquifer is extremely difficult to
horizontal permeability, the ratio of perforated in- obtain. Knowledge that is critical includes the size of
terval to oil thickness, the production rate, and the the aquifer, the strength or pressure support provided
mobility ratio. by the aquifer, and the areas of the oil reservoir that
5. Numerous correlations have been developed receive pressure support. In addition to an estimate of
based on the theoretical curves by Muskat for original oil in place, the parameters defining the aquifer
homogeneous reservoirs. The best known correla- must be solved from the production and pressure his-
tions include Muskat and Wuckoff(l935), Chaney tory data. With the addition of these unknowns, the
et al. (1956), and Chierici et al. (1964). All these material balance method has a greater number ofvari-
methods use the theoretical curves to obtain a criti- abies to solve than it has equations. Because of this,
cal production rate, the maximum production rate material balance generally results in multiple estimates
at which oil can be produced without coning. In of original oil in place.
order to estimate recoveries, a way of forecasting Early in the production history of a reservoir, material
water-oil ratio and oil production must be incorpo- balance methods may give erratic results for water in-
rated. Therefore, these correlations in themselves flux due to inaccurate pressure measurements or because
will not forecast recoveries. well pressure measurements may not be an accurate rep-
Decline Analysis resentation of actual average reservoir pressure. In the
early life of depletion, an erroneous negative water
In some water drive reservoirs, the production influx may be calculated.
forecast might be represented by two straight-line
segments, pre- and post-water break-through. Due to

139

F
DETERMINATION OF OIL AND GASRESERVES

Reservoir Simulation and pro-rated back to the individual wells, sometimes


In reservoirs where coning is a key issue, a reservoir result in erroneous amounts and allocation of gas
simulation radial coning model is recommended. production. The accuracy ofgas production depends on
Reservoir simulation is discussed in more detail in the frequency and method of measurement and the
Chapter 17. variation between wells in the reservoir.

9.2.3 Gas Cap Drive Reservoir Simulation


Oil recoveries in a gas cap drive reservoir can be as Because ofthe relatively higher mobility ofgas, careful
high as 60 percent depending on factors inherent to the planning is critical if a reservoir simulation model is to
reservoir. Three dominant factors influence recovery: be used. The grid blocks and time steps should be small
I. Since the gas cap provides the recovery energy, it enough that the movement ofgas can be physically rep-
resented by the simulator. If coning is an issue, a radial
must be of sufficient size to displace oil to the pro-
ducing wells. In general, the longer the gas cap can model is recommended. Reservoir simulation is
discussed in more detail in Chapter 17.
maintain the pressure, the greater the recovery.
2. High vertical permeability allows the liberated 9.2.4 Combination Drive
solution gas and oil to segregate, adding additional In a combination drive reservoir, generally one
energy to the gas cap. depletion drive mechanism is dominant at a particular
3. Early gas break-through increases the gas-oil ratio time or in a particular area of the reservoir. Therefore,
significantly, thus removing the main source ofdrive in generating production forecasts, it is necessary to
energy. identify the predominant sources of energy throughout
the life of the reservoir and to identify the predominant
Analytical Methods sources of energy affecting a particular geographic area
Because the drive mechanism in gas cap drive of the reservoir. Because of the complexity of predict-
reservoirs is frequently combination drive, generally in ing the start and shape of the future production affected
conjunction with solution gas drive, the recommended by different dominant depletion mechanisms, decline
methods for prediction of recoverable oil are decline analysis techniques generally are not attempted until the
analysis, material balance and reservoir simulation, all last stage. Techniques appropriate to the specific deple-
of which take into account the complicated nature of tion mechanism dominant during the last stage of
the reservoir. Short-cut methods include the following: depletion should be used.
The Welge Method (Welge, 1952), as previously 9.3 FACTORS AFFECTING OIL
described for water drive reservoirs, may be used for RECOVERY
low viscosity oil reservoirs.
Although the drive mechanism is the primary factor
The Dietz Method (Dietz, 1953), as previously influencing recoveries, numerous other factors, either
described for water drive reservoirs, may be used in inherent to the reservoir or resulting from human inter-
reservoirs where the gas cap overruns the oil along the vention, influence ultimate recovery. The following
reservoir flank. In this case, the rate ofadvance must be subsections address some of these other major factors.
below the critical rate for the method to be valid.
These analytical methods assume the gas-oil contact will 9.3.1 Production Rate
advance as a flat interface. If the reservoir is subject to The production rate, qo' of a well is defined by the
severe coning, these methods will overestimate both the radial flow equation:
production rate and the recovery. The correlations de-
scribing water coning can also be modified to estimate 21tkk"h (Pr- Pw)
q = (3)
gas corung, o IJ)n(r,lrw )
Material Balance where k = permeability
Since gas is an important fluid in the recovery of oil in k,o = relative permeability to oil
gas cap drive reservoirs, a word of caution is advised h = net pay
when using the material balance method. Oil field mea- Pc = in situ pressure of accumulation
surement practices, where gas is measured periodically Pw = wellbore pressure
110 = viscosity of oil

140
NATURAL DEPLETION MECHANISMS FOR OILRESERVOIRS

r, = external boundary radius In general, lower API oil receives a lower price at the
rw = wellbore radius refinery. Since the price directly impacts the economic
For natural depletion mechanisms, the only parameters limit, the limit would be reached sooner for lower priced
that can be altered due to human intervention are near- crude.
wellbore permeability and producing pressure. The 9.3.3 Reservoir Characteristics
near-wellbore permeability can be enhanced through
Reservoircharacteristics can affect recovery factors from
stimulation techniques such as acidizing and fracturing.
theoretical calculations primarily because of heteroge-
The producing wellbore pressure can be reduced by the
neities in the reservoir. Generally, heterogeneities cause
installation and optimization of artificial lift equip-
a reduction in reserves either by (I) decreasing the
ment. For a given oil deposit, adjusting the production
amount of oil in place that can be effectively tapped by
capability of the wells will not alter the theoretical
the wells, or (2) causing uneven depletion of portions
quantity ofmoveable oil, but will affect the recoverable
ofthe reservoir, in turn resulting in a greater amount of
. resource through economic limit, as demonstrated in
oil being left in the ground because it is uneconomic to
Figure 9.3-1. Ifthe only difference between the two cases
produce. Some ofthese reservoir characteristics include
shown is the production capacity of the well, the cumu-
permeability variations, dual porosity systems, naturally
lative production at the economic limit will be larger
fractured reservoirs with cemented fractures, and low
for the high rate case.
permeability stringers.
Although a heterogeneous reservoir generally has a
lower recovery than a homogeneous reservoir, some
heterogeneities can assist the drive mechanism, and thus
increase reserves. For example, in bottom-water-drive
reservoirs where coning is of concern, shale stringers
can restrict the advance of water, allowing higher oil
Reserves
production for a longer period of time. Also, open
uncemented, or partially cemented natural fractures
can help improve recoveries from low permeability
Theoretical
Recovery reservoirs that otherwise would be uneconomic to
Economic
produce.
Limit
In general, the more heterogeneous the reservoir, the
larger the difference in the actual reserves as compared
Cumulative Recovery
to the theoretical calculations.

Figure 9.3-1 Relationship Between Production 9.3.4 Reservoir Geometry


Rate and Reserves Many factors associated with the reservoir geometry
influence the amount of oil produced under primary
9.3.2 Oil Quality depletion. Some of these are the shape of the reservoir,
The type of oil in the reservoir directly affects reserves the continuity ofthe formation, the layering ofmultiple
through the volume of gas in solution and through oil sands, faulting, structure, and dip. These factors can
viscosity. Oils that have less gas dissolved in solution affect both the drive mechanism and the economic
have less reservoir energy for oil recovery under solu- viability of developing the accumulation.
tion gas drive; these are generally lower gravity oils. Depending on the predominant drive mechanism, the
Oil viscosity influences recovery in two ways. First, if geometric configuration will have varying degrees of
there are two fluids in a reservoir with significantly dif- effect. For example, in a solution gas drive reservoir,
ferent viscosities, oil production would decline quite vertical relief could allow the formation of a secondary
rapidly because ofconing or fingering ofthe other fluid. gas cap, which would maintain the evolved gas as an
Second, productivity of a well is inversely proportional energy source.
to viscosity (Equation 3). All things being equal, a more In general, the less continuous reservoirs would result
viscous oil would have a lower production rate and in a lower recovery because some parts of the reservoir
would reach its economic limit sooner. might not be in communication with the producing

141
,
DETERMINAnON OFOILANDGASRESERVES

wells. In this case, infill drilling to reach untapped oil If other wells are drilled into the same reservoir, but are
would result in an increase in reserves. Also, due to dis- far enough apart that their respective pressure gradients
continuities in the reservoir, gas-oil and water-oil will not interact until after the economic limit has been
contacts might not advance as a flat interface, and thus reached, each will behave as if it were the only well in
oil would be by-passed. the reservoir. If the densities of the wells are such
A layered reservoir poses a different type of problem, that their respective pressure gradients interact at
especially if the multiple zones have significantly dif- the economic production limit, the reservoir pressure
ferent reservoir characteristics. If one zone were more would be at the original level at the point of interaction,
prolific due to considerably higher permeability, it would resulting in an overall high average reservoir pressure
have a higher recovery factor than the less prolific at abandonment. Inserting a well midway between the
zone. In this case, it is often beneficial to estimate the two original wells will result in a lower average res-
recovery factor separately for the multiple zones. ervoir pressure at abandonment, and thus a higher
Because ofthe different behaviours of the various zones, economic oil recovery. However, the oil recovered per
a layered reservoir manifests itself as a hyperbolic or well will be less. With continued reduction in spacing,
harmonic decline if decline analysis is being used. the average reservoir pressure at abandonment will con-
tinue to drop, but in diminishing increments. The result
9.3.5 Effects of Economic Limit will be a typical relationship between the oil recovered
Whether a recovery factor is rigorously established above the economic limit and the number of wells in
through detailed techniques like numerical modelling the pool. The intersection of the oil recovery forecast
or estimated through engineering judgement, innate ass- and the economic limit establishes the reserves for this
umptions are made about the economic limit of the reservoir. The relationship between well spacing and
reservoir. In some cases the economic limit is estab- abandonment pressure is depicted in Figure 9.3-2.
lished in the current economic environment using known The point at which increasing the number of wells will
technology. The key factors affecting the economic limit no longer markedly increase the oil recovered when
are the prices for the hydrocarbons, the operating cost, producing above the economic limit is generally referred
the current fiscal regime, and encumbrances such as to as the optimum spacing (Figure 9.3-3). This assumes
overriding royalties and net profit interests. These that the revenue benefit from the additional recoverable
factors are discussed in Part Four. The following sub- oil in reducing spacing while moving from point a to
sections discuss some of the other factors that influence point b offsets the cost ofdrilling, completing, and equip-
the economic limit. ping the necessary additional wells, and provides the
Well Spacing required return on investment. Increasing the density of
wells beyond point b may be economic through the ef-
A single well in a large deposit of oil will theoretically fects of rate acceleration. However, the volume of oil
produce all of the moveable oil, but this would take a recovered above the economic limit will remain the same
very large number of years and would not provide the unless by having more wells and thus larger volumes,
optimum economic recovery. As the well is produced, the economy-of-scale factors will reduce the average
a pressure gradient is established in the reservoir. With economic limit per well. The optimum well spacing will
continued production, the pressure gradient moves fur- be unique for each deposit and should be established by
ther out into the reservoir, effectively reducing the a combined technical and economic assessment.
average reservoir pressure. As the average pressure
drops, the production rate of the well will drop propor- Facility Sizing and Constraints
tionately. When the radius of the area affected by the Facilities must be installed in order to separate the
pressure gradient becomes sufficiently large, a pseudo- produced oil, gas, and water. The size ofthe facility and
equilibrium is established in which the flow at the the resulting capital and operating costs (the economics
furthest boundary reached by the pressure gradient of the project) have an impact on the ultimate reserves.
is equivalent to the production rate of the well. The Very simply, if the capital cost of the required produc-
pressure gradient will continue to move further out into tion facility is greater than the potential revenue,
the deposit, minimally affecting the production rate, the reservoir will not be developed and produced, and
until the physical limits of the deposit are encountered. therefore cannot be considered to contain reserves, even

142

- .-sra
NATURAL DEPLETION MECHANISMS FOR OILRESERVOIRS

Original Pressure

Single Well Single Infill Multiple Infills

Average Abandonment Pressure

Figure 9.3-2 Relationship Between Well Spacing and Abandonment Pressure


the decline of the oil rate will be sharper, as depicted
in Figure 9.3-4. The decision whether to increase
Present ~ ~
Cumulative the capacity of the facility is based on an economic
p .....

, Oil
Value ~~
,, evaluation of the benefit of the additional oil and the
'\
~/ ,, cost of expansion.
,,
,
,,
,,
!
.,.~,/I~b
is
,,
,,
,, ~
," a E
,, ,,
o" Constrained
,r ,
,, od\.\C\\O{\

,, F==:::::=::-'l'lQ!ol!!!!alC!F",lu!"id,;..Po-'-
,,
Oil
Production .::
Number of Wells

Figure 9.3-3 Optimum Well Spacing

if it has been adequately delineated through drilling. A Cumulative Oil

facility sized large enough to handle the maximum ini-


tial production will continue to have high operating costs Figure 9.3-4 Effects of Facility Constraints
when oil volumes decline in the future, and will reach on Economic Limit
its economic limit earlier than a smaller, less expensive
facility that limits initial production, but has lower Regulatory Constraints
operating costs. In addition to the standard economic considerations of
Sometimes facilities need to be installed in oil fields to developing a reservoir (rate of return, payout, operating
handle increasing production volumes ofassociated gas costs, and facility costs), there are also the regulatory
and water. Installing large facilities that will not be constraints imposed by the local government agencies.
utilized for many years may not be economic, and the The purpose of these regulations is to ensure the
use of constraining facilities may be necessary. When conservation and responsible exploitation of a
a naturally declining oil rate reaches a facility constraint, depleting resource, to ensure that the equitable rights of

143
DETERMINATION OF OIL AND GASRESERVES

competing producers are met, and to protect the envi- Khan, A.R., and Caudle, B.H. 1968. "Scaled Model
ronment. Regulations with respect to well spacing, Studies of Thin Oil Columns Produced by Natural
location of wells on a spacing unit, production rate, Water Drive." SPE 2304.
water-oil ratios, gas-oil ratios, and hydrogen sulphide Kuo, M.C.T. 1989. "Correlations Rapidly Analyze
emissions have been established to meet the objectives Water Coning." O&GJ, Oct. 1989, pp. 77-80.
ofthese agencies. These regulations will, in some cases,
Kuo, M.C.T., and DesBrisay, C.L. 1983. "A
impose constraints on development scenarios and thus
Simplified Method for Water Coning
affect the estimates of recoverable hydrocarbons. This Predictions." SPE 12067.
topic is discussed in more detail in Chapter 23, The
Regulatory Environment. Marshal, D. 1957. "Mathematical Treatment of Water
Invasion of Oil-Bearing Formations." Erd. Kohle,
References Vol. 10, Dec. 1957, p. 825.
Bournazel, C., and Jeanson, B. 1971. "Fast Water- Muskat, M. 1949. Physical Principles ofOil
Coning Evaluation Method." SPE 3628. Production. McGraw-Hili, New York, NY.
Caudle, RH., and Silberberg, I.H. 1965. "Laboratory Muskat, M., and Wuckoff, R.D. 1935. "An
Models of Oil Reservoirs Produced By Natural Approximate Theory of Water Coning in Oil
Water Drive." SPEJ, Mar. 1965, pp. 25-36. Production." Trans., AIME, Vol. 114, pp. 144-
Chaney, P.E., Noble, M.D., Henson, W.L., and Rice, 161.
T.D. 1956. "How to Perforate Your Well to Pirson, SJ. 1950. Elements ofOil Reservoir
Prevent Water and Gas Coning." O&GJ, Vol. 55, Engineering. McGraw-Hill, New York, NY.
May 1956, pp. 108-114. Roberts, T.G., and Ellis, H.E. Jr. 1962. "Correlation
Chierici, G.L., Ciucci, G.M., and Pizzi, G. 1964. "A of Gas-Oil Ratio History in a Solution-Gas-Drive
Systematic Study of Gas and Water Coning by Reservoir," JPT, Vol. 14, Jun. 1962, p. 595.
Potentiometric Models." JPT, Aug. 1964, pp. Schilthuis, RJ. 1936. "Active Oil and Reservoir
923-929. Energy." Trans., AIME, Vol. 118, p. 33.
Dietz, D.N. 1953. "A Theoretical Approach to the Sobocinski, D.P., and Cornelius, AJ. 1965. "A
Problem of Encroaching and By-Passing Edge Correlation for Predicting Water Coning Time."
Water." Proc., Konikl. Ned.-Akad, Wetenschap, JPT, May 1965, p. 594.
Series B, Vol. 56, p. 83.
Tracy, G.W. 1955."Simplified Form of the Material
Henley, D., Owens, W.W., and Craig, F.F. 1961. "A Balance Equation," Trans., AIME, Vol. 204, p.
Scaled Model of Bottom Water Drives." JPT, Jan. 243.
1961, pp. 90-98.
Wahl, W.L., Mollins, L.D., and Elfrink, E.R 1958.
Hurst, W. 1943. "Water Influx Into a Reservoir and "Estimation of Ultimate Recovery from Solution-
Its Application to the Equation of Volumetric Gas Drive Reservoirs." JPT, Jun. 1958, p. 132.
Balance." Trans., AIME, Vol. 151, p. 305.
Welge, HJ. 1952. "A Simplified Method for
Hutchinson, T.S., and Kemp, C.E. 1956. "An Computing Oil Recovery by Gas or Water Drive."
Extended Analysis of Bottom Water Drive Trans., AIME, Vol. 95, p. 91.
Reservoir Performance." Trans., AIME, Vol. 207,
pp.256-261.

144

_____________n
Chapter 10

DEPLETION MECHANISMS
FOR NATURAL GAS RESERVOIRS

10.1 INTRODUCTIOJII
During the depletion of natural gas reservoirs, many Associated Gas
factors affect the production performance. The basic
characteristics and physical properties ofthe gas and its
associated constituents or products, and its proximity
and interrelationship to other fluids in the reservoir can
either enhance or adversely affect the recovery from
a pool. The most significant aspect, however, is the
compressibility and, conversely, in the reservoir, the
expandable nature ofpressurized gas. On average, a sig- Nonassociated
nificantly higher percentage of the gas in a reservoir is Gas
recovered through natural depletion mechanisms than
of the oil, which has lower compressibility. Source: Clark, 1960,
This chapter highlights some of the characteristics of
Figure 10.2-1 Classification of Gas Based on
the gas and the reservoir that influence recoveries and
Source in Reservoir
basic approaches in forecasting recoverable gas reserves.
10.2 CHARACTERISTICS OF NATURAL reservoir conditions and producing practices, the
GAS dissolved gas may come out of solution in the reservoir
The gases that constitute natural gas belong mainly to and form a "secondary" gas cap or add to a natural gas
the "paraffin series." The main constituent is methane. cap.
Impurities such as nitrogen, carbon dioxide, helium, and At low pressures in shallow fields, natural gas and crude
hydrogen sulphide may be present in natural gas. oil appear as distinct substances in the reservoir (Figure
The Alberta Energy Resources Conservation Board 10.2-2, Reservoirs A and B). As the pressure at which
classifies natural gas with less than one percent hydro- petroleum is found rises with increased depth, gas dis-
gen sulphide as "sweet." When the hydrogen sulphide solves in crude oil, and the high-boiling constituents
content is over one percent, the gas is classified as "sour." dissolve in the gas phase. Some fields have both oil and
gas in contact (Figure 10.2-2, Reservoir C). Deeper fields
Natural gas found by itselfin a reservoir and completely
at pressures over about 27 600 kPa (4000 psi) and at
in the gaseous state is classified as "nonassociated,"
temperatures ofmore than 95C (200F) contain single-
(Figure 10.2-1). Gas found in an oil reservoir with no
phase fluids that are not immediately distinctive as oil
free gas present except that which is in solution is class-
or gas fields (Figure 10.2-2, Reservoir D).
ified as "solution gas." Gas and oil may be found in a
reservoir in many different combinations when the field "Dry" gas reservoirs normally yield little or no surface
is discovered, and the relationship of the gas and oil liquid recovery with processing through normal lease
mayor may not change, depending on the reservoir and separation equipment.
fluid characteristics and on drilling, completion and pro- A gas is "wet" if hydrocarbon liquids are extractable in
duction practices. For example, gas may be found surface separation equipment, and may be produced
as free gas above the oil. This is called a "gas cap," and from a single-phase gas reservoir, a retrograde con-
the gas is classified as "associated" gas. Under some densate gas reservoir, or an "associated gas" reservoir.

145
-/
DETERMINATION OFOILANDGAS RESERVES

temperature between the critical and cricondentherm


Ground Level values, as shown by point B. Here the fluid is also in the
one-phase gaseous state. As pressure declines because
of production, the composition of the produced fluid
will be the same as for reservoir A, and remain constant
.\ containing Dissolved G until the dew-point pressure is reached (Point B 1)
A ........... 0\ Os _ _......
Below this pressure, liquid condenses out of the gas as
Water Water fog or dew, leaving the gas phase with a lower liquid
B content. The condensed liquid adheres to the walls of
the pore spaces of the rock, and is immobile. Thus the
gas produced at the surface has a lower liquid content
and the producing gas-condensate ratio increases. This
process of retrograde condensation continues until a
point ofmaximum liquid volume is reached (Point B2) .
Vapourization of the retrograde liquid occurs from B2
to the abandonment pressure at point B) and can be noted
by decreasing gas-condensate ratios on the surface.
When a retrograde gas condensate reservoir has
conditions on or very close to the dew-point line at
the time of discovery, it means that the percentage of
Source: Katzet al., 1959. intermediates (C2 - C6) is high.
Figure 10.2-2 Occurrence of Oil and Gas It is also quite common to find a volatile oil rim. In this
case, the gas cap would be exactly at the dew point.
10.3 DEFINITION OF RESERVOIR If the accumulation occurred as shown by point C, the
TYPES FROM PHASE DIAGRAMS reservoir would be in a single-phase (oil) liquid state,
Various types of reservoirs can be defined using since the temperature is below the critical temperature.
pressure-temperature phase diagrams (Figure 10.3-1). In this case, as the pressure declined, the bubble point
The area enclosed by the bubble-point and dew-point would be reached (Point C I). Below this point, a
lines is the region ofpressure-temperature combinations free-gas phase would appear. This gas is classified as
for which both gas and liquid phases exist. The curves "solution gas."
within the two-phase region show the percentage ofthe Ifthe same hydrocarbon mixture occurred at point D, it
total hydrocarbon volume that is liquid for any would be a two-phase reservoir, consisting of a liquid
temperature and pressure. Initially, each hydrocarbon or oil zone overlain by a gas zone or "gas cap." As the
accumulation would have its own phase diagram, which compositions of the gas and oil zones are entirely diff-
would depend only upon the composition of the erent from each other, they may be represented
accumulation. separately by individual phase diagrams. The oil zone
A single-phase gas reservoir at discovery is shown by will produce as a bubble-point oil reservoir and the gas
point A. Since the fluid in the reservoir during produc- cap will be at the dew point, and may be either retro-
tion remains at 150C(300F), it retains its gaseous state grade as shown in Figure 10.3-2 (a) ornonretrograde as
as the pressure declines along path A-AI' Furthermore, shown in Figure 10.3-2 (b).
the composition of the produced gas does not change The initial in-place gas and condensate for gas
as the reservoir is depleted. However, cooling and condensate reservoirs, both retrograde and non-
pressure drop in the wellbore and surface facilities retrograde, may be calculated from the available
allow the condensing of gas along the line A-A2 This production data by recombining the produced gas and
accounts for the production of condensate liquid at the condensate in the correct ratio to find the composition,
surface from a gas in the reservoir. average specific gravity (air = 1.000), pseudo-critical
Retrograde gas condensate reservoirs or dew-point pressure, and pseudo-critical temperature of the total
reservoirs exist at pressures sufficient to be at or above well fluid, which is presumably being produced initially
the upper boundary of the two-phase envelope and at a from a single-phase reservoir.

146
DEPLETION MECHANISMS FOR NATURAL GASRESERVOIRS

Reservoir Temperature (oG)


-18 10 38 66 94 122 150 178

4000 27600
Bubble Point DewPoint Single Phese
or or Gas Reservoirs
Dissolved Gas Retrograde

3500
Reservoirs Gas-Condensate
Reservoirs
',A
II
24150
II
"II
2/1
til 3000
'w 'iiI I
off/l 20700 ~
oS el
0..1
I
I
~
~ 'Cs'I I ~
::> I ::>
l:l 2500 ~I "0 I 17250 l:l
~ IJ.J 'S I ~
a. I u::: I a.
~ I .: I ~

.~
Q)
2000 I" ~
Q) I 13 800 .~
Q)
<J) <Ill <J)

8! &!I Q)
a::
-I
1
1500 1 10350
"'I
0-
1
I

1000 A, 6900
I
I
I
I
3450
100 150 200 250 300 350
Reservoir Temperature (OF)
Source: AfterCraft, 1959.

Figure 10.3-1 Pressure-Temperature Phase Diagram of a Reservoir Fluid

not be recovered down to near atmospheric pressure.


BP
However, the production rates decrease so rapidly when
the pressure approaches atmospheric that some abandon-
ment pressure is established for economic production.
Most volumetric depletion reservoirs with reasonable
011- permeabilities will produce 70 to 90 percent of the
original gas in place. Sometimes the higher limit ofre-
covery can be approached when operating costs are low
T T
Temperature Temperature and gas prices high. In other reservoirs, substantial losses
(a) (b) will occur. But it is sometimes possible to minimize this
Source: Craft, 1959. loss through proper reservoir management and the
application ofbasic principles ofreservoir engineering.
Figure 10.3-2 Phase Diagram of a Cap Gas and The following are some of the reasons for low gas
Oil Zone Fluid recovery:
Drive Mechanism. In terms of drive mechanism, a
10.4 GAS RECOVERY frontal displacement-probably a gas-water contact-
Ideally, 100 percent gas recovery is the goal. For always results in a substantial residual gas saturation.
reservoirs producing by gas expansion and without This is often more than 40 percent in sandstones. In the
water drive, there is no physical reason why the gas may case of near-total pressure maintenance by water

147
~!
DETERMINATION OF OIL AND GASRESERVES

encroachment, more than 40 percent of the gas may be Gas reserves in gas fields may be estimated by the
trapped behind the advancing gas-water contact. volumetric and material balance methods.
Reservoir compaction drive in soft sediments has a
Volumetric Method
similarly negative impact on gas recovery.
The volumetric method is used for new gas fields
Over-Pressured Reservoirs. Over-pressured reservoirs,
before any significant production takes place.
usually at considerable depth, can also have significant
reductions in permeability to gas flow at abnormally In reservoirs where no water influx is expected,
high bottom-hole pressures during the gas exploitation recoverable raw gas, G, is calculated by the following:
process (Duggan, 1972).
Phase Behaviour. If the reservoir temperature is less G=Ah.p(l-S.) - T~ [Pi- - Po]
- (2)
than the cricondentherm (maximum two-phase tempera- r, r, Zi z;
ture), the potential exists for retrograde condensation
where G = original recoverable raw gas reserves
of some of the heavier hydrocarbons as pressure (m") .
declines and, therefore, a loss of valuable liquids.
A = drainage area (nr')
Other Reasons. In addition, gas might be trapped due h net pay thickness (m)
to the reservoir configuration, position and number of .p porosity (fraction)
producing wells, production rates, water coning, migra- Sw = connate water saturation (fraction)
tion offines, damage at the producing wellbore sandface, Tsc = base or standard temperature CK)
0
stratification, and loss of permeability due to facies (273 + 0c)
changes. Low permeabilities often result in high Pso = base or standard pressure (kPaa)
abandonment pressures when reduced well spacing T f = formation temperature CK)
0
cannot be economically justified. (273 + 0c)
10.5 GAS RESERVES Pi = initial reservoir pressure (kPaa)
Zi = compressibility factor at Pi and T f
"Gas reserves" refers to the fraction or portion of the P, = abandonment pressure (estimated)
original gas in place that is economically recoverable. (kPaa)
Consequently, the recovery factor, RF, is defined as Z, = compressibility factor at P, and T f
the ratio of gas reserves to initial gas in place and is
usually expressed as a percentage: The base pressure used varies from 99.284 kPaa to
103.594 kPaa, but is usually 101.325 kPaa. The base
Gpo
temperature is normally 15C (288K).
RF= - x 100 (I) Abandonment pressure, P" can be estimated by the
Gi
following rule of thumb:
where Gp, = cumulative gas produced at abandon-
P, = 240 kPaa + 80 kPaaflOO m of depth
ment conditions
G, = initial gas in place The initial gas in place in the reservoir, minus the
remaining gas at the selected abandonment pressure
Gas reserves are assigned to one of three groups:
gives the recoverable raw gas as shown in Equation (2).
I. Nonassociated gas reserves
In water-drive reservoirs, a residual gas saturation, Sgr'
2. Solution gas reserves remains in the water-invaded zone. The recoverable gas,
3. Associated gas cap gas reserves G, from the water-invaded portion of the reservoir is
The determination of reserves of gas in these three calculated by Equation (3).
groups is discussed in the following subsections.
T" [(I-S.)P, Sg,P o] (3)
10.5.1 Nonassociated Gas Reserves G=Ah.p- --
r., r, z, z,
Determination
Nonassociated gas reserves are those reserves that If water invasion of the reservoir amounts to less than
are not associated with recoverable oil reserves. Their 100 percent at abandonment, a higher effective residual
production is limited only by market availability and gas saturation for the reservoir will result.
contract terms.

148
DEPLETION MECHANISMS FOR NATURAL GASRESERVOIRS

Material Balance Method


P;V, PrV,
This method is applicable only to the reservoir as a ----- (7)
Z,T Z,T
whole, because of the migration of gas from one por-
tion of the reservoir to another in both volumetric and or
water-drive reservoirs. For single-well reservoirs this
method may be used directly, but in multiple-well pools G = P;V,T" _ V,T". P,
the production information must be combined. (8)
p Z,P"T P"T Z,
The Law of Conservation of Mass may be applied to
gas reservoirs to give the material balance as follows: For fixed values of Psc and Tsc, since Pi' Z, and Vi are
also fixed for a given volumetric reservoir, Equation
mass of gas produced = initial mass of gas - (8) may be written as follows:
remaining mass of gas
For the gas system under consideration, if the gas
P,
Gp =b-m-
Z
(9)
composition is constant, the number of moles of gas, r
both produced and remaining in the reservoir, is directly
where
proportional to their masses. A material balance in terms
of moles of gas may be written as follows:
!1>=n;-nf (4)
where subscripts p, i and f stand for produced, initial and
and final remaining at some later stage of production
rather than at abandonment.
If there is a water drive, the final volume, Vf after
producing a volume of gas, Gp , is: Equation (9) is the equation of a straight line, and
Vf = Vi - We + BwWp (5) indicates that for a volumetric gas reservoir the graph
of the cumulative gas production, Gp, vs. the ratio
where V f = final gas pore volume (does not P/Z is a straight line of negative slope "m."
include connate water)
Vi = initial gas pore volume (does not Figure 10.5-1 shows a plot of P/Z vs. cumulative
include connate water) gas production. The plot can be extrapolated to zero
We= volume of water that has encroached pressure to determine the initial gas in place or to any
into the reservoir at the final pressure abandonment P/Z to find the recoverable gas.
Pf For the computation of initial in-place gas for constant-
Bw= the formation volume factor for water volume reservoirs, the following data is required:
in reservoir volume per surface volume Initial reservoir pressure
Wp = volume of water that has been Cumulative gas volume
produced from the reservoir
Stabilized shut-in reservoir pressure at the end of
If the real gas law PV = ZnRT is applied in Equations production '
(4) and (5):
Gas deviation factors at these two reservoir pressures
P;V, _ P,(V,-W,+BwWp ) assuming the reservoir temperature remains constant
(6) This method is not applicable to water-drive gas
Z,T Z,T
reservoirs. With pressure reduction, when water enters
where G, = volume of produced gas at standard the space occupied by gas, the pressures are maintained
pressure, P'o> and standard temperature, either almost completely or only in part depending on
Tsc the nature of the water drive (Figure 10.5-2).
If there is no aquifer present in the reservoir, there is no In reservoirs where an aquifer provides a high degree
water influx and water production will be negligible. of pressure support, the existence of a water drive is
Then Equation (6) may be written as follows: generally quite obvious. In reservoirs with only a par-
tial pressure support, an active water drive may not be

149
"4

DETERMINATION OFOILAND GAS RESERVES

10.5.2 Solution Gas Reserves


Determination
Solution gas reserves are dissolved in the oil in a
reservoir and can only be recovered if oil is produced.
If solution gas cannot be conserved or sold, regulations
N may necessitate that the oil production be shut in. The
ii: rate of solution gas production depends on the rate of
oil production and the producing gas-oil ratios (GORs).
During the initial stages of oil production, GORs will
generally remain at or above solution GOR until the
critical gas saturation is reached. At this point the pro-
I ducing GOR will increase as described in Section 9.1.2.
If decline analysis is used to predict oil production,
Cumulative Gas Production an extrapolation of the GOR trend can be conducted
concurrently. More rigorous prediction methods can also
Figure 10.5-1 Plot of P/Z vs. Cumulative Gas be utilized as described in Section 9.2.1.
Production As a rule of thumb, the ultimate solution gas recovery
factor in solution gas drive reservoirs generally ranges
apparent. A plot of P/Z vs. cumulative gas production from 50 to 65 percent.
in these reservoirs will indicate an overstated In oil reservoirs with an active water drive or water-
extrapolation of recoverable gas. floods, the final recovery factor for the solution gas
will be influenced by the degree ofpressure maintenance
and sweep efficiencies, as well as residual oil and gas
Complete Water Drive saturations.
10.5.3 Associated Gas Reserves
t Determination
The term "associated gas reserves" refers to a gas cap
above oil reserves. Most, if not all, of the gas cap drive
energy is required to maximize oil recovery. For this
reason, associated gas reserves must ideally remain shut
in until all the oil reserves have been produced. These
gas reserves will be recovered during blow-down ofthe
gas cap.
Cumulative Gas Production Associated gas reserves are generally estimated using
the volumetric method and an estimated abandonment
Figure 10.5-2 Effect of Water Drive on pressure. As a gas cap adds inherent complexities to
Pressure Decline an oil reservoir, its presence may justify a more rigor-
ous analysis or reservoir simulation to determine the
Models are available that use Equation (5), the basic appropriate depletion approach.
material balance equation, for water drive reservoirs.
An example is shown by Guerrero (1968). However, 10.6 PIPELINE GAS RESERVES
there are multiple unknowns in the material balance The methods discussed in this chapter give reserves of
equation for water influx reservoirs, and calculations raw gas. Before the gas is delivered to the point of sale,
generally involve several assumptions on the reservoir there are losses at the surface due to processing shrink-
description. Consequently, material balance predictions age and fuel consumption. These losses must
are often unreliable when a detailed understanding of be deducted from the raw gas reserves to calculate
the reservoir and supporting aquifer does not exist. marketable pipeline gas.

150
.~;

-------------- 41
DEPLETION MECHANISMS FOR NATURAL GAS RESERVOIRS

In sweet, dry gas fields, the surface loss is usually about 10.8 GAS DELIVERABILITY
2 to 5 percent. For wet or sour gases, the surface loss FORECASTING
can be estimated from the gas analysis, the recoveries Rawlins and Schellhardt (1935) demonstrated that a gas
of related products that are expected, and an allowance well can be tested to predict its deliverability against a
for plant fuel. specific bottom-hole flowing pressure.
10.7 RESERVES OF RELATED An empirical relationship has been developed to relate
PRODUCTS the well gas flow rate at surface conditions with bottom-
hole flowing pressure and average reservoir shut-in
Natural gas liquids and sulphur are recovered from the
natural gas, and the reserves are estimated from the gas pressure:
analysis and the gas reserves. Q" = C (PR2pl)" (10)
10.7.1 Natural.Gas Liquids where Q,,= flow rate at standard conditions of
For the development of reserve estimates, natural gas pressure and temperature
liquids are defined as those hydrocarbon liquids that, in C = a coefficient that describes the position
the reservoir, are either gaseous or in solution with crude of the stabilized deliverability line
oil and that are recoverable as liquids by condensation PR = average reservoir shut-in pressure
or absorption in field separators, scrubbers, gasoline Pp = reservoir flowing pressure
plants, or cycling plants. Natural gasoline, condensate, n = an exponent equal to the reciprocal of the
and liquefied petroleum gases are in this category. slope of the stabilized deliverability line
Natural gas liquids are in a sense an intermediate Limits of n vary from 0.5 for fully turbulent to 1.0 for
product-lighter than what is usually considered crude completely laminar flow in the formation, reflecting the
oil and heavier than what is usually considered natural degree ofturbulence.
gas. The P/Z vs. cumulative gas production relates the static
Natural gas liquid recoveries can be estimated as shown reservoir pressure to cumulative gas. The results of
in Table 10.71. isochronal (back pressure) testing relates static reser-
voir pressure, well flow rate, and sandface flowing
10.7.2 Sulphur pressure (Figure 10.81).
Sulphur is recovered as a by-product if hydrogen Well performance estimates are made during the
sulphide is present as an impurity in the natural development stage of the gas reservoir and also during
gas. Sulphur recovery can be estimated as shown in the depletion of the gas field. Basically, this involves
Table 10.71. establishing well production rates vs. reservoir pressure
(gas well deliverability) that exist during the life of the
gas reservoir (Figure 10.82).

Table 10.71 Recoveries of Related Products

Related Recovery For For


Product SI Units Imperial Units Fraction Shallowcut Deepcut
Range use use
Propane m'/IO'm' = vol. % x 36.9 bbl/lO'cf = vol. % x 6.54 o to 0.90 0.50 0.90
(raw gas) x recovery (fraction) (raw gas) x recovery(fraction)
Butane m3/10'm3 = vol. % x 43.0 bbl/.JO'cf = vol. % x 7.62 o to 0.95 0.75 0.95
(raw gas) x recovery (fraction) (raw gas) x recovery (fraction)

Pentanes Plus m3/lO'm3 = vol. % x 57.3 bbl/lO'cf = vol. % x 10.15 up to 1.00 0.95 1.00
(raw gas) x recovery (fraction) (raw gas) x recovery(fraction)
Sulphur m3/IO'm3 = vol. % x 13.6 bbl/lO'cf = vol. % x 0.377 0.95 to 1.00
(raw gas) x recovery (fraction) (raw gas) x recovery (fraction)

Source: After Gas Processors Suppliers Association, 1981,

151

?
--
DETERMINATION OFOILANDGASRESERVES

P~-----
Shut-In Reservoir Pressure
Stabilized
Deliverabilily i!!
Curve "
Ul
Ul
i!!
n,
10 0>
e
.~
u::
~

.~

"
Ul

"
a:

10.1 +----r:-----.:---,-L----1
2
10 10 10' 10'
Gas Flow Rate
0+------------+-
o AOF
Gas Flow Rate
Figure 10.8-1 Back Pressure Plot
Figure 10.8-2 Gas Deliverability Plot
Similarly a wellhead gas deliverability plot in wellhead
flowing pressure vs. gas flow rate can be generated from volumetric reservoirs where retrograde condensation
the wellhead back pressure plot. behaviours exist (liquids forming as the pressure
Further discussion on back pressure testing is beyond declines), and in water-drive gas fields where "wet" gas
the scope of the monograph. For further details, the is trapped. It has been noted that liquid hydrocarbons
reader is referred to Theory and Practice ofTesting of formed during pressure depletion of a reservoir are not
Gas Wells (Energy Resources Conservation Board, normally revapourized at lower reservoir pressures and,
1975), Back Pressure Test for Natural Gas Wells therefore, are trapped as a residual liquid saturation.
(Railroad Commission of Texas, 1972) and "Methods Under these circumstances, the gas in the reservoir may
for Predicting Gas Well Performance" (Russell et aI., be "cycled" to reduce the loss of liquids. In this opera-
1966). tion, gas is produced from the reservoir, the liquid
hydrocarbons are extracted, and the dry gas is re-
10.9 WELL SPACING injected. This reduces the rate of pressure reduction in
Optimum well spacing for the exploitation of gas the reservoir, which is responsible for the retrograde
reservoirs may be substantially different than for oil res- condensation. The dry gas re-injected may be only part
ervoirs. Where spacing regulations govern, spacing of the gas produced, or it may be all of the gas pro-
would normally be wider for a gas reservoir than for an duced, or it may even be gas in excess of that
oil reservoir. These regulations recognize the increased produced, so that the reservoir voidage is fully replaced.
mobility of gas as compared to oil, and the correspond- There is evidence (Smith and Yarborough, 1968) that
ing greater migration capability ofgas during producing at least part of any liquid saturation that formed prior
operations; thus the spacing assigned to a gas well is to the implementation of dry gas cycling operations,
considerably greater-typically, 259 hectares (640 will be revapourized into the dry gas. To achieve
acres) per well. However, a denser well spacing may maximum benefit from dry gas cycling, cycling should
exist in areas with shallow,low-permeability reservoirs. be initiated before the dew point of the reservoir
10.10 CYCLING OF GAS CONDENSATE hydrocarbon fluid is reached.
RESERVOIRS WITH DRY GAS In reservoirs where rock characteristics are favourable,
Incentive exists in cycling of gas condensate reservoirs cycling with dry gas should provide recovery of part of
with "dry" gas in those cases where natural depletion the liquids which otherwise would be lost.
of the reservoir will result in substantial loss of Not all cycling projects are successful. Sprinkle et al.
liquid hydrocarbons in the reservoir. This occurs in (1971) have reported the adverse influence of stratifi-

152

s
DEPLETION MECHANISMS FOR NATURALGAS RESERVOIRS

cation on gas cycling operations. The presence of a high References


permeability layer in the reservoir was believed to be Boyd, W.E., Jr., Christian, L.D., and Danielsen, c.L.
the cause for poor liquid hydrocarbon recoveries and 1982. "Secondary Gas Recovery from a Watered-
resulted in the ultimate abandonment ofthe gas cycling Out Reservoir." Paper presented at the fall SPE
project in a Texas Gulf Coast Frio Sand reservoir. meeting, New Orleans, LA., Sep. 1982, SPE No.
Income from dry gas cycling projects will initially be 11158.
all or mainly from liquid hydrocarbon sales and, later, Clark, N.J. 1960. "Elements of Petroleum
during "blow-down," from the sale of both gas and Reservoirs." SPE of AIME, Dallas, TX.
liquids, but the rate ofliquid recovery will be declining.
Craft, B.C., and Hawkins, M.F. 1959. Applied
10.11 SECONDARY RECOVERY OF GAS Reservoir Engineering. Prentice-Hall, Inc.,
Secondary recovery of gas is uncommon because Englewood Cliffs, N.J.
primary recovery usually yields a high percentage of Duggan, J.O. 1972. "The Anderson "L" - An Abnor-
the gas originally in place (70 to 90 percent). New op- mally Pressured Gas Reservoir in South Texas."
erating practices, however, have sometimes made JPT, Feb. 1972.
commercial deposits out of some that were considered Energy Resources Conservation. Board. 1975. Theory
to be uneconomic. and Practice ofthe Testing ofGas Wells. 3rd ed.,
Boyd et al. (1982) described secondary gas recovery Calgary, AB, Canada, Second Printing, 1978.
from the watered-out Frio gas reservoir in the Double Gas Processors Suppliers Association. 1981.
Bayou Field, Chambers County, Texas. Engineering Data Book (9th ed., 5th rev.).
10.12 ENHANCED GAS RECOVERY Guerrero, E.T. 1968. Practical Reservoir Engineer-
ing, The Petroleum Publishing Co., Tulsa, OK.
Enhanced gas recovery has been traditionally used
to describe methods of unconventional gas recovery Katz, D.L., Cornell, D., Kobayashi, R., Poettman,
from tight gas sands, Devonian shales, coal-bed meth- F.H., Vary, J.A., Elenbass, J.R., and Weinaug,
ane, and methane from geopressured aquifers. However, C.F. 1959. Handbook ofNatural Gas
many difficult problems such as technology, risk and Engineering. McGraw-Hill Book Co., New York.
economics remain barriers to progress in this direction. Railroad Commission of Texas. 1972. Back Pressure
In general these reserves are not commercially viable Testfor Natural Gas Wells. Oil and Gas
without subsidy. Engineering Department, State of Texas.
Higher recovery from conventional gas reservoirs is Rawlins, E.L., and Schellhardt, M.A. 1935. Back
a more likely place to look for additional gas and gas Pressure Data on Natural Gas Wells and Their
condensate production. Application to Production Practices. US Bureau
The largest obvious source of gas from discovered of Mines, Monograph 7.
reservoirs would be those reservoirs that have had strong Russell, D.G., Goodrich, J.H., Perry, G.E., and
water drives. It is worth mentioning that approximately Bruskotter, J.F. 1966. '.'Methods for Predicting
two-thirds of the gas reservoirs of the world have an Gas Well Performance." JPT, Jan. 1966, pp.
original gas-water contact, and approximately 50 99-108.
percent of these reservoirs have at least a partial Smith, L.R., and Yarborough, L. 1968. "Equilibrium
displacement with water. Revaporization of Retrograde Condensate by Dry
Gas Injection." SPEJ, Mar. 1968, pp. 87-94.
Sprinkle, T.L., Merrick, R.J., and Caudle, RH. 1971.
"Adverse Influence of Stratification on a Gas
Cycling Project." JPT, Feb. 1971, pp. 191-194.

153

D
Chapter 11

ENHANCED RECOVERY BY WATERFLOODING

11.1 INTRODUCTION 11.2.1 Mobility Ratio


Waterflooding is the process of injecting water into D' Arcy developed an empirical relationship for
a formation for the purpose of displacing oil to the velocity of a fluid through a porous medium as a
producing wells. The displacement of oil by water is function ofpressure differential, viscosity, and a propor-
governed by wettability, pore size distribution and tionality constant (permeability). The mobility ofa fluid
geometry, rock heterogeneities, and fluid properties. is the effective permeability of the rock to that fluid
Waterflooding is a proven technology to improve re- divided by the viscosity of the fluid. For a frontal dis-
covery, but the degree of improvement and economic placement scheme, the mobility ratio, M, is the ratio of
viability is dependent upon the following: the mobility of the displacing phase behind the flood
The type of flood scheme implemented front to the displaced phase ahead of the flood front.
Properties of the reservoir rock
Properties of the oil (I)
Well spacing
Economic factors (i.e., cost of the scheme, oil price, where I<.w =relative permeability to water
royalties, regulatory constraints) k,o = relative permeability to oil
Waterflooding is classified as "secondary" recovery
Ilw = water viscosity (cp)
because it supplements recovery of oil by natural or
Ilo = oil viscosity (cp)
"primary" depletion. For a waterflood scheme, water mobility is determined
In certain reservoirs, mobility ratios are improved by at the average water saturation at water break-through.
Oil mobility is determined at the initial connate water
the addition of polymers, and interfacial tension is re-
duced by the addition ofsurfactants to the injected water. saturation. Mobility ratios for water displacing oil
generally vary from 0.1 to 10. Increased mobility ratios
These processes are "tertiary" recovery schemes and
are referred to as "polymer" and "micellar" flooding, have a detrimental effect on displacement, areal sweep
respectively. and vertical sweep efficiencies, as discussed in the
following subsections.
Based on a statistical review of waterfloods in western
Canada, total recovery factors generally vary from 16 11.2.2 Interfacial Tension
to 45 percent with an average of 30 percent of original Interfacial tension is a thermodynamic property of an
project oil in place. These values are typically at least interface between two phases. Typical values of inter-
double the primary recovery factor values. facial tension between oil and water at reservoir
This chapter reviews the waterflooding process, the conditions range from 10 to 30 dynes/em. Interfacial
industry methods used to estimate reserves and produc- tension generally increases with increasing molecular
tion forecasts and the factors that affect the results, the weight ofthe reservoir fluid and decreases with increas-
accuracy of these methods, when and how to apply the ing reservoir temperature. In water-wet rocks, interfacial
them, and typical statistical data. tension tends to create bubbles of oil that block pore
throats. In oil-wet rocks, interfacial tension tends to bind
11.2 DISPLACEMENT PROCESS the oil to the rock surface. Interfacial tension is one of
The displacement process is governed by several the major reasons why oil becomes increasingly
fundamental principles that include mobility ratio, more difficult to recover as water saturation increases.
interfacial tension, and fractional flow.

154
--- 1
ENHANCED RECOVERY BYWATERFLOODING

Over the range of interfacial tensions encountered in using relative permeabilities to oil and water determined
waterflooding, residual oil saturations are relatively con- in laboratory tests. Frontal advance theory and the
stant. Residual oil saturations decline when interfacial application of fractional flow curves are presented in
tension is reduced to less than one dyne/em and approach considerable depth by Craig (197Ia) and Willhite
zero when interfacial tension is approximately 0.001 (1986). Typical fractional flow curves are illustrated in
dyne/em. Figures 11.2-1 and 11.2-2.
11.2.3 Fractional Flow These fractional flow curves illustrate that the displace-
ment of oil from a water-wet rock is more efficient than
Fractional flow is the fraction of the total fluid flow
from an oil-wet rock. Water injection and water pro-
that is due to the flow of the displacing phase, and is
duction volumes will be higher for an oil-wet reservoir
a function of the saturation of the displacing phase. than for a water-wet reservoir.
The simplified form of the fractional flow equation,
excluding gravity and capillary forces, is as follows: It is noted that the fractional flow following break-
through represents the producing water cut at the
1 sandface. In single layer displacement, remaining oil
saturation to waterflooding should be determined from
(2)
fractional flow curves at the estimated economic water
cut limit. In multi-layerdisplacement, it is common prac-
tice to assume that the residual oil saturation to
where fw = fractional flow
waterflooding is equal to the endpoint saturation from
Fractional flow is a function of water saturation since relative permeability data. This is a consequence of
relative permeabilities to oil and water are functions of producing well oil cuts being maintained at economic
water saturation. Fractional flow curves are constructed rates by layers that have not broken through with water.

0.8

-
c: 0.7
-'"
ttl
0.6
-
3:
0
~
0
0.5
u:
a; 0.4
c:
0
:;:::
o 0.3
!!1
u.
0.2

0.1
o L-~===----'-_-'---J_-'-_---'
0~::::....J-......L_--'---'--'--
20 30 40 50 60 70 80 10
20 30 40 50 60 70
Water Saturation (% pore vol.) Water Saturation (% pore vol.)
Source: Craig, 1971 a. Source: Craig, 1971 a.

Figure 11.2-1 Effect of Oil Viscosity on Figure 11.2-2 Effect of Oil Viscosity on
Fractional Flow Curve, Strongly Fractional Flow Curve, Strongly
Water-Wet Rock Oil-Wet Rock

155

n
DETERMINATION OFOILANDGASRESERVES

In practice, average remaining oil saturations will be Pembina Cardium


slightly higher than endpoint residual oil saturation Wainwright - Sparky
values due to economic limit constraints. Swan Hills - Beaverhill Lake
In dipping reservoirs, fractional flow data are adjusted Steelman - Midale
for gravity and capillary effects. For oil being displaced
updip, the performance ofa waterflood improves as dip
, 0
A---- A
increases. Capillary pressure effects are assumed to be

I I-
negligible for most reservoir flow systems.
A Injector
11.3 TYPES OF WATERFLOODS 0 Producer
The two general types of waterflood schemes are 0---- A Principal direction
0
of oildisplacement
classified by the primary direction of the displacement

I I I
- horizontal
process, i.e., vertical or horizontal.
Vertical Waterflood Schemes. Water is injected at
wells completed at the bottom of the formation, and oil A--- 0 I A
is produced at wells completed at the top of the forma-
tion (Figure 11.3-1). The higher density of water
as compared to oil results in water gravitating to the
Figure 11.3-2 Plan View for Horizontal
bottom of the formation and displacing oil in an
Waterflood
upward direction.
Horizontal flood schemes are typically classified by
Oil production the type of injection pattern. The most common, as
t t o interval
Completion illustrated in Figure 11.3-3, include the following:
Five-spot
--> --
Inverted nine-spot
Line drive
Principal
direction of oil Peripheral
I displacement A combination of the vertical and horizontal processes
Oil is used in dipping reservoirs. Other types ofpatterns are
-----------
- ' -- Water discussed and illustrated by Craig (197Ib).
Water
injection
11.4 ANALYSIS METHODS AND
WHEN TO APPLY THEM
Figure 11.3-1 Cross Section for Vertical There are five general types of reserve and production
Waterflood forecast methods for waterfloods in common use:
This type of scheme is best suited to relatively thick 1. Volumetric analysis
formations and is most commonly applied to reef 2. Decline performance analysis
reservoirs such as the following in Alberta: 3. Comparison to analogous pools
Rainbow, Virgo, Zama, Shekelie-Keg River 4. Analytical performance prediction
Pembina, West Pembina-Nisku 5. Numerical simulation
Horizontal Waterflood Schemes. Water is injected in The volumetric method is used only to calculate reserves,
a pattern of wells, and oil is produced from wells com- whereas the other methods may be used to calculate re-
pleted between injectors (Figure 11.3-2). Pressure serves and production forecasts. Wherever possible,
gradients caused by injection and production result in reserves should be calculated using more than one
displacement of oil in a horizontal direction. method in order to substantiate the results and increase
This type of scheme is best suited to relatively thin or confidence.
layered formations and is commonly applied to blanket The following subsections discuss the applicability of
or channel type sands as well as carbonate reservoirs the methods at various stages of depletion.
such as the following reservoirs in western Canada:

156

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _d
ENHANCED RECOVERY BYWATERFLOODING

<;> A Q A Q
I I I
<?- - -0- - -?- - -0-- - {>
I I I
\>A\>A\>
I I I
?- - -0- - -9-- -0-- - \>
I I I
6 A 6 A 6
Inverted Nine-Spot

A Injection well
o Production well
'f -0- -0- - 0 - - 9 Pattern boundary ,A"
I
I
I
I
I
I
I
I
I
I /
/ / " <,
-,
I I I I I // <,
r--b--b--k--* / 0 0 -,
I I I I I
/
/ ""
I I I I I ~ 0 ~
I I I I I -, /

'f -6- -6- -6--Q " "0 0 / /


I
I
I
I
I
I
I
I
I
I
" " -, / /
/

I I I I I -, /

~-lr--lr--I:r-" ""If /

Direct Line Drive Peripheral


Source: After Craig, 1971 b.

Figure 11.3-3 Flood Patterns for Horizontal Flood Schemes


11.4.1 Pool Discovery and are normally used to assess waterflood feasibility.
At pool discovery, there is normally insufficient Performance prediction methods alone are only approxi-
reservoir data to accurately calculate waterflood reserves mate, but are reasonably accurate if adjustments are
by any method. If the reservoir is seismically defined, made to fit volumetric reserves and analogies. Numeri-
waterflood reserves may be calculated using volumetrics cal simulation is commonly performed if waterflood
or analogies and are normally categorized as "possible" feasibility has been established by analytical tech-
because of the considerable uncertainties in reservoir niques. This technique is generally accurate for ultimate
definition. recovery predictions, "provided" reservoir properties
are accurately defined and numerical effects are
11.4.2 Delineated Pool: Immature properly handled. Frequently, however, reservoir rock
Depletion properties, layering and heterogeneities are not
Once a pool has been delineated and on primary accurately known, and unreliable break-through pre-
production for a reasonable period of time, waterflood dictions result. Analogies in these cases sometimes yield
reserves can be calculated more accurately since reser- more reliable results if the analogous pools have
voir size and configuration will have been established, similar heterogeneities and rock properties.
reservoir properties can be measured at various points If economically feasible, waterflood reserves at this
across the pool, oil properties will have been established, time are frequently classified as "probable." Where
and the primary depletion mechanism can be established. strong analogies can be made to similar successful
At this stage, volumetric, analogous comparison, perfor- flood schemes, a portion of the reserves may also be
mance prediction, and numerical simulation methods classified as "proved." The degree to which proved
may be utilized. Properly assessed volumetric and reserves are assigned depends upon the type of
analogy methods are reasonably accurate at this stage reservoir, the reliability ofthe data, the commitment of

157
DETERMINATION OFOILAND GASRESERVES

the operator to implement a scheme, and the strength of volumetrically ifhistorical oil-water contact movements
the analogies. are measured. Changes in contact levels compared to
mapped pore volumes yield in situ determination ofdis-
11.4.3 Post-Injection Startup
placement and sweep efficiencies which may be used
After startup of injection, reserves are generally to assess remaining reserves. Hydrocarbon pore volume
calculated in the same manner as that described in or original oil in place vs. depth relationships are
Section 11.4.2. Slightly higher confidence may be placed required to evaluate in situ recovery efficiencies.
on the calculated results as water injectivity and
potential premature break-through problems can be 11.5 VOLUMETRIC ANALYSIS
ascertained.
11.5.1 Overview of Method
11.4.4 Post-Waterflood Response The volumetric equation for the calculation of water-
After waterflood response has been exhibited (i.e., oil flood reserves is a relatively simple one (Slider, 1983a):
production increases and gas-oil ratio (GaR) decreases),
more of the possible and probable waterflood reserves N p=f ''"lE V [Sop -
'tswB
~]
B
(3)
may be reclassified as "proved" or "probable." There is op or

basically no change in the way volumetric, analogy and


performance prediction methods are utilized at this stage where Npf total waterflood reserves from
of depletion; the only difference is in the confidence commencement of the flood to
level ofthe results. Numerical simulation results become abandonment (stm")
more accurate, however, as reservoir and rock proper- average porosity within the gross
ties are tuned to match actual response. swept area of the flood scheme
E, = total sweep efficiency = EH x Ev x Ec
11.4.5 Mature Waterflood EH = horizontal sweep efficiency (areal)
Mature horizontal waterflood schemes exhibit trends of Ev vertical sweep efficiency
increasing water cut and declining oil production. Once Ec = conformance efficiency (continuity)
the trends have been established, decline performance V sw = gross swept rock volume of the flood
analysis may be used to calculate reserves and oil pro- scheme (m")
duction forecasts. As discussed in Chapter 18, normally Sop = oil saturation within the gross swept
over 50 percent recoverable reserve depletion is required volume at the start of the flood
before decline analysis is performed. Properly assessed (fraction)
decline analysis is the most accurate conventional Sor = residual oil saturation (fraction)
method to determine proved and probable producing Bop = oil FVF @ start of flood (m3/m3 )
reserves. Numerical simulation techniques can be B or = oil FVF @ abandonment of flood
more accurate, but the expense of performing the sim- (m3/m3)
ulation may not be warranted unless operating and The equation is straightforward, but the derivation of
optimization strategies are being examined. Waterflood each parameter of the equation may not be.
recoveries obtained from decline analysis are fre-
Waterflood reserves are frequently confused with total
quently rationalized volumetrically. This procedure will
reserves. Total reserves are equal to primary plus
indicate whether all areas of the reservoir are being
waterflood reserves. Similarly, total recovery factor is
efficiently flooded. Additional nonproducing proved
equal to the primary plus waterflood recovery factors.
or probable reserves may be assigned to areas of the
Typically, the total recovery factor for waterflood
reservoir that require infill or delineation drilling,
schemes is at least double that of primary recovery.
additional injection well conversions, or recompletion
workovers to improve recovery. 11.5.2 Parameters and Factors
Mature vertical waterflood schemes may not have Affecting Analysis
established oil production decline or water cut trends The individual parameters that make up the volumetric
as a result of regulatory production rate limitations im- waterflood equation are discussed in this section. More
posed on oil wells and manual restrictions to prevent complete discussions are presented by Craig (1971),
water coning. Recoveries can be accurately predicted Willhite (1986) and Slider (1983).

158

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _51
ENHANCED RECOVERY BYWATERFLOODING

Horizontal Waterflood Schemes 100

1. Porosity
Average porosity, cp, within the gross swept reservoir
should be used in the calculation. It should be
noted that this may not equal average pool porosity.
0..80
Q)
2. Total Sweep Efficiency ~
(f)
Total sweep efficiency, E" has three components:
horizontal efficiency, EH , vertical efficiency, Ev, and '" 70
~
-c
conformance efficiency, Ec . Many evaluators rearrange
Equation (3) and incorporate SolBop- So/Borin a fourth "" 60

component term, displacement efficiency, ED:


50 ~:::::JLU-lWlL_---L---l---LilWJ
0.1 1.0 10
(4) Reciprocal of Mobility Ratio
Source: After Craig, 1971d.
Some horizontal waterflood schemes exhibit piston-like
oil displacement. The oil wells produce water-free until Figure 11.5-1 Effect of Mobility Ratio on Oil
flood front arrival, and then water out within a few Production for the Five-Spot
Pattern
months. This behaviour can result from unstratified
deposition, water-wet characteristics, or the over- This plot also illustrates that EH decreases as mobility
displacement of water injection volumes relative to ratio increases. Thus, high viscosity oil (commonly low
pattern producing rates. When this behaviour occurs API gravity) reservoirs will have a lower EH and a lower
in a number of wells, the shape and position of recovery factor than similar low viscosity (high API
waterflood fronts can be mapped, enabling in situ mea- gravity) oil reservoirs.
surement of sweep efficiency by the comparison of Permeability trends must be addressed when horizontal
swept pore volumes with either injected water or pro- sweep efficiency is being determined. Unfortunately,
duced oil volumes. The accuracy of this method is these are frequently not identified until after implemen-
largely a function ofthe accuracy of the mapped shape tation of a waterflood scheme when wells on trend with
of the flood front. water injectors prematurely water out. These problems
3. Horizontal Sweep Efficiency are usually rectified by converting the scheme to a line
Horizontal (or areal) sweep efficiency, EH , may be drive waterflood with alternating rows of injectors and
defined as the areal fraction ofa waterflood pattern con- producers oriented along the permeability trend. For ex-
tacted by injected water. This fraction is affected by ample, most Cretaceous Cardium reservoirs in west
pressure gradients, permeability trends, mobility ratios central Alberta have southwest to northeast permeabil-
and injected volumes. Values of EH at water break- ity trends resulting from tectonic stress during the
through for various waterflood pattern configurations building of the Rocky Mountains.
have been determined through laboratory models in Horizontal sweep will also be affected by nonuniform
numerous studies (Craig, 197Ic). With continued pressure sinks at production wells. EH is normally not
water injection after break-through, EH increases as a affected by gas saturations prior to waterflooding.
function ofthroughput volumes until it reaches 100 per- However, if gas saturations are too high prior to water-
cent. For volumetric reserve calculations, horizontal flooding, cusping of the waterflood front at the
sweep efficiencies are determined for conditions at eco- producing well prior to fill-up may occur and adversely
nomic water cut limits. A number of design correlation affect horizontal sweep efficiency.
charts have been developed to determine EH ; these are Of greater operational significance when high free gas
summarized by Craig (1971d). Figure 11.5-1 illustrates saturation exists is the high reservoir voidage created
the correlation for a five-spot flood pattern. As can by high GORs. To maintain cash flow, it is common
be seen from this plot, horizontal sweep efficiencies practice to continue oil production during waterflood
are generally over 90 percent since economic water cut, fill-up. High GORs result in high voidage replacement
fw ' limits are typically greater than 95 percent. requirements and defer re-pressuring ifinjectivity is low
or injector-to-producer ratios are low.

159
DETERMINATION OFOIL AND GAS RESERVES

4. Vertical Sweep Efficiency but infill drilling results throughout North America
Vertical sweep efficiency, E y , accounts for incomplete indicate that reservoirs are less continuous than had been
sweep of reservoir layers at abandonment of the water- assumed. Generally Ec is difficult to quantify and is
flood scheme. Incomplete vertical sweep is caused by usually back-calculated in mature producing pools where
the stratified nature ofmost reservoirs. Strata are flushed reserves from decline analysis do not rationalize volu-
with water in descending permeability sequence. At metrically using only vertical and horizontal sweep
economic water cut limits at the producing well, not all efficiencies.
strata may be flushed with water, and the vertical sweep Without considering continuity, infill drilling programs
efficiency will then be less than 100 percent. technically do not usually increase ultimate recoverable
Vertical sweep efficiencies are commonly calculated reserves; they only accelerate recovery. In reservoirs
from methods that order flow capacity thicknesses and with poor continuity, infill drilling will improve conti-
permeabilities from core analyses. The two most com- nuity and, therefore, reserves by accessing additional
mon techniques are the Stiles Method, which primarily pore volume. A more complete discussion of infill
concerns capacity thickness ordering (Slider, 1983b), drilling and continuity is presented by Gould and Sarem
and the Dykstra Parsons Method, which relates statisti- (1989).
cal variations in permeability with floodout behaviour 6. Gross Swept Volume
of flood pot tests made on California core samples
Gross swept volume, Vsw, refers to the reservoir rock
(Craig,197Ie).
volume that is subject to waterflood sweep. In a hori-
In both methods, Ev is a function of mobility ratio and zontal sense this includes the area within waterflood
permeability contrast. Ev decreases as mobility ratio and patterns and a portion ofthe area outside the waterflood
permeability contrast increase. Thus reservoirs with thin patterns. A common error in waterflood analysis is to
high permeability streaks have low vertical sweep utilize entire pool volumes instead of gross swept vol-
efficiency. umes. A procedure for determining gross swept areas
Care must be taken to ensure that the stratified reservoir discussed by Slider (1983c) is dependent on the gas satu-
assumption is valid in both methods. Some reservoirs ration existing at the start of a flood scheme. The higher
that undergo post-depositional porosity alteration have the gas saturation at the start of the flood, the lower the
high permeability contrasts on core, but these contrasts swept fraction of oil outside the enclosed flood pattern.
may be so random in nature that the reservoir will When reservoir permeability trends exist, they should
appear homogeneous, and piston-like displacement also be considered when 'estimating gross swept areas.
may occur with virtually 100 percent vertical sweep The vertical component of gross swept volume is
efficiency. frequently overlooked in volumetric waterflood analy-
Other factors that affect vertical sweep efficiency sis. Gross swept volumes should reflect layers which
include gravity and cross-flow between layers. are receiving injected water volumes. In thick stratified
Due to gravity forces, water will tend to move at the reservoirs some layers may be ofpoor quality and may
bottom of the reservoir and, in uniform permeability not be completed or may not be receiving injected
distributions in horizontal reservoirs, this movement water volumes due to formation damage.
tends to decrease vertical sweep efficiency. Ifreservoir 7. Oil SaturatIon at Start of Flood
permeability decreases with depth, however, gravity Oil saturation, Sop, at the start of a flood for a solution
forces will improve vertical sweep. In dipping and ver- gas drive reservoir may be determined using the
tical reservoirs, gravity forces can be used to advantage following equation (Slider, 1983e):
by injecting downdip and displacing oil updip.
Cross-flow between layers tends to improve Ev at (N - N pp ) Bop (1 - Sw)
SOP = (5)
favourable mobility ratios (low) and diminish it at NB o;
unfavourable mobility ratios (high).
where N = oil in place (stm')
5. Conformance Efficiency
N pp = primary oil production (stm')
Conformance efficiency, Ec , or continuity, is a term used
Bop = oil FVF after primary depletion
to account for discontinuous reservoir pore volume. (m 3/m3 )
In the past, engineers widely assumed that all pore
Sw connate water saturation (fraction)
spaces in a reservoir are interconnected with each other,
a, = initial oil FVF (m3/m3)
160
ENHANCED RECOVERY BYWATERFLOODING

Initial oil in place is calculated by either material values from conventional core analyses. These values
balance or volumetric methods. Connate water satura- should be adjusted to reservoir conditions using the oil
tion is measured by log analysis or capillary pressure formation volume factor. In situ residual oil saturations
tests. This Sop calculation assumes the saturation is are sometimes taken in waterflooded portions of reser-
uniform at the star! of the flood. voirs using log or sponge coring techniques. This could
8. Residual Oil Saturation only be performed in a mature waterflood or pilot
project.
Residual oil saturation refers to the microscopic oil
saturation left in reservoir rock. Because oil and water Residual oil saturation may also be affected by trapped
are immiscible, surface tension of fluids with reservoir gas saturations, Sgt, when initial gas saturations
rock results in incomplete displacement of oil by water. are present in the reservoir prior to waterflooding.
The efficiency of this displacement is a function of Experimental studies discussed by Craig (1971 f) indi-
the reservoir wettabiIity and pore throat size and cate a reduction in Sor with Sg! in water-wet rocks but
configuration. not in oil-wet rocks. These correlations assume that no
compression or resolution of gas occurs. In most water-
Residual oil saturations are most commonly determined
flood schemes,gas saturation is reduced by re-pressuring
by flooding reservoir core samples with multiple pore
which reduces the impact on residual oil saturation.
volumes ofwater in either steady-state or unsteady-state
Dardaganian (1985) discussed the effect of free gas
tests. Since Sor is dependent upon wettability, care must
saturation on waterflooding and a method for deter-
be taken to ensure that the rock samples do not have
mining the optimum pressure at which to initiate a
altered wettability properties as a result of core hand-
waterflood.
ling. The effects of core handling on wettability are
discussed at length by Anderson (1986). The accuracy Vertical Waterflood Schemes
and reliability of Sor measurements generally decrease
In vertical waterflood schemes, gravity results in oil
from native state to restored state to cleaned cores.
displacement across stratified layers; hence, Ev and
The most significant conclusions from Anderson's EH are usually taken to be 100 percent. Gross swept
literature survey are summarized as follows: volumes, however, should be adjusted downwards to
Removal of a core from the reservoir may increase reflect the following:
oil wettability due to the decreased solubility of Sandwich Loss. This is the volume of oil remaining at
wettability-alteringcompounds as a result of tempera- the top of the reservoir after waterflooding. As a result
ture and pressure reduction. of water coning, not all of the reservoir can be swept
Core flood tests conducted qt ambient vs. reservoir with water before producing wells reach economic wa-
temperature and pressure may exhibit oil-wet char- ter cut limits. Also, ifthe reservoir is updip ofproducing
acteristics resulting in a hig9 estimate of residual oil wells, attic oil losses may result. Coning correlations
saturation. have been developed (Kuo, 1989) to predict sandwich
Cleaning and drying of core samples prior to use in loss; however, they are highly dependent on mobility.
core flood tests tend to induce water wettability and Typically, sandwich losses can vary from 2 to 15 feet
result in a low estimate of residual oil saturation. for mobility ratios of I to 10 respectively in unfractured
reservoirs.
Ideally, multiple core samples should be tested and
averaged to determine Sor because most reservoirs are Unswept Volumes (along the periphery of the pool).
heterogeneous, and one sample may not be represen- Under perfect gravity segregation in a homogeneous
tative of the average reservoir. Due to cost and core pool, water will areally displace the entire reservoir.
availability considerations, this is not always feasible. However, discontinuities, permeability channels, and
In Alberta, the Energy Resources Conservation restrictions may limit volumes swept by the flood. These
Board publishes a guide of nonconfidential core flood effects may be incorporated by reductions in either the
tests (Energy Resources Conservation Board, 1993). swept volume or horizontal and conformance factors.
Values of Sor may thus also be estimated by analogy Vertical waterflood schemes have been implemented in
to other pools of similar geologic horizon in the same pinnacle reefs in northern Alberta where the pools have
geographic area. been essentially depleted under a primary recovery
Another means of estimating Sor whhe core flushing mechanism. The success of these schemes may be
tests are not available is by examining average Sor questionable as primary depletion has established

161
DETERMINATION OF OIL AND GASRESERVES

high gas saturations. These likely form gas caps that This greatly increases confidence in the calculations.
improve primary recovery to levels approaching Waterfloods of this type include vertical and horizontal
typical secondary recovery values. bank displacement schemes.
In situ sweep efficiency in vertical waterflood schemes
11.6 DECLINE PERFORMANCE
with a high degree of gravity segregation can be mea-
ANALYSIS
sured by comparing oil recovery to water-flushed
hydrocarbon pore volume. The flushed pore volumes 11.6.1 Overview of Method
are determined using oil-water contact measurements Decline analysis is used to evaluate mature waterflood
from log analysis and pore volume vs. depth correla- schemes. Historic decline trends are used to extrapolate
tions. The accuracy of the sweep efficiency evaluation future trends; the two generalized methods are oil rate
in this method is a function of the accuracy in the oil- and oil cut declines. Decline trends may be either expo.
water contact measurement and pore volume vs. depth nential or hyperbolic. The mathematics of decline
plots. analysis are discussed in Chapter 18.
Factors affecting the accuracy of oil-water contact
measurement include the following: 11.6.2 Factors Affecting Analysis
Completion Status. Is the log run in a cased or open Oil decline trends in waterfloods are a consequence
hole? Cased hole interpretations are more subtle and of increasing water cuts and constant or declining well-
difficult to interpret. bore flow capacity. The shape of the decline trend
is a function of relative permeability, mobility and res-
Producing Status. Is the log run in an observation or
ervoir permeability variation. Ideally, under stable
producing well? Oil-water contacts measured in shut-
conditions, extrapolation of oil cut and oil rate declines
in producing wells may be higher than the pool
should yield the same reserve value. Economic oil cut
average if the water cone is not allowed sufficient
and oil rate limits should be determined for design fluid
time to settle.
lifting capacity and used as endpoints in the decline
Variability of Measurements. Is measurement made analyses.
at one or a number of wells, and does the value vary
Pools with a high degree of stratification, permeability
significantly? The more variation, the more interpre-
variance, or dual porosity behaviour will tend to
tation required to derive a pool average value.
decline in a hyperbolic or harmonic fashion. Most res-
The sensitivity ofthe calculated sweep efficiency to oil- ervoirs, however, exhibit exponential decline behaviour.
water contact variations should also be checked to gain
For horizontal floods, the following points should be
confidence in the answer, e.g., does a 0.91 m (3 foot)
considered when analyzing production decline trends:
change in interpreted contact change calculated sweep
efficiency 5 or 50 percent? I. Total fluid production should be plotted along with
oil cut and oil rate data. Increasing fluid rates
Once sweep efficiency has been derived, the remaining
may be achieved by increased drawdown at pro-
uncertainties pertain to the determination of remain-
ducing wells, increased reservoir pressure through
ing gross swept pore volume, which is a function of
overinjection, or well stimulation. While total fluid
the geological mapping and petrophysical properties of
rates are increasing, oil rate decline trends are
the reservoir.
dampened. The use of oil cut trends is preferred in
11.5.3 Reliability of Results these cases as oil rate trends will yield optimistic
results. Conversely, if total fluid rates are declin-
The accuracy of volumetric reserve calculations is
ing, the use of the oil rate decline trend will yi~ld
a function ofthe accuracy ofthe parameters in the analy-
conservative results unless the fluid rate dechne
sis. An engineer using volumetric analysis must assess
cannot be arrested.
the uncertainties in the parameters when assigning
proved and probable reserve values. There is usually 2. When wells are grouped for decline analysis, care
considerable uncertainty in assessing volumetric should be taken to ensure that wells within the group
parameters in proposed flood schemes prior to imple- have experienced water break-through. A preferred
mentation. These uncertainties diminish as additional method is to group wells with similar water cut.s.
data is gathered. This ensures that there will be no sudden change III
decline behaviour as a result of water breakthrough.
In certain types of mature waterfloods, total sweep
efficiencies can be determined from performance data.

162
ENHANCED RECOVERY BYWATERFLOODING

3. Generally, oil cut trends should not be used ifwater 11.7 COMPARISON TO ANALOGOUS
cuts are still less than 50 percent. POOLS
4. Infill wells should be grouped separately for
11.7.1 Overview of Method
decline analysis. Decline trends of the infills and
original wells, pre- and post-infill drilling, can Predicting waterflood performance by the analogy
be used to assess incremental recovery associated method refers to the comparison of a previous mature
with the infill program. waterflood project to a proposed or current project in
order to predict results ofthe proposed or current project.
5. Yearly voidage replacement ratios should be
The method is usually reliable and is best applied in
checked when decline trends are being analyzed. conjunction with the volumetric method. The method
Underinjection will cause gradual pressure loss, can be used to determine recoverable reserves as well
accelerated oil rate declines and dampened oil cut
as production and injection forecasts. A rigorous anal-
declines. The reverse is true for overinjection. This
ogy involves comparison of all volumetric recovery
is most sensitive in low GOR and low API gravity parameters.
oil reservoirs.
6. Decline analysis can be used as a diagnostic tool. 11.7.2 Procedure and Factors Affecting
Declining fluid production rates when voidage is Analysis
being maintained may be due to formation damage The first step in a rigorous analogy analysis is to
or pumping equipment failure. rationalize the volumetric parameters in the analogy
7. Producing conditions should be verified when pool. The recoverable reserves in the analogous pool
declines are being analyzed to ensure that declines should be well-established from decline analysis.
are real and have not been imposed by operating The oil in place should also be well-established from
constraints. mapping and volumetric calculations.
These comments also apply to vertical waterflood The volumetric parameters should be determined as
schemes, which generally exhibit a more sudden water- described in Section 11.5. The only unknown variable
out behaviour. Flood-out is controlled by coning rather that is not definable empirically is the conformance ef-
than by stratification characteristics. Thick vertical flood ficiency Ee. Once all the other volumetric parameters
schemes will exhibit a relatively extensive water-free have been derived, this value can be back-calculated to
production period followed by a steep decline trend. match recoverable reserves. In addition to continuity,
this factor will include any error or anomalies associ-
When reserves are determined by decline analysis in
ated with the determination of the other parameters in
vertical flood schemes, completion intervals should
the volumetric equation.
be checked to ensure that wells are completed at the top
of the productive zone. If not, additional reserve The next step of the analogy procedure is to calculate
assignments are warranted. reserves of the proposed or current waterflood scheme
using the volumetric method. If differences in mobility
11.6.3 R.eliability of Results ratios, oil saturations and permeability variations exist
Decline analysis is one of the more reliable methods of between the analogy and the proposed waterflood
estimating reserves. The reliability of the method in project, these differences should be incorporated in the
creases with the maturity ofthe pool and the smoothness analysis. The conformance efficiency of the analogy
of the data. At the start of production decline, when project should be applied to the proposed project.
trends are not clearly established, interpretation of de- The underlying assumption in the analogy method
clines may vary from engineer to engineer. Most is that the continuity and anomalies associated with
engineers adhere to exponential trends until hyperbolic the analogous pool will also apply to the proposed or
trends can be confidently quantified. current waterflood scheme.
Engineers with experience in analyzing decline trends When the analogy project is similar to the proposed
of pools similar in nature to the subject pool may have project in terms of geological deposition and oil grav-
more confidence in assessing a certain type of decline ity, the analogy method is usually simplified by
and thus may use a different trend than an engineer with comparing the recovery factor ofthe analogy project to
less experience. the proposed project. This is also often performed when
the specific volumetric parameters are not well-defined

163
DETERMINATION OF OIL AND GASRESERVES

in the analogy or proposed waterfloodproject due to an Stage I Periodprior to interference of oil banksaround
absence of reliable laboratory core tests. injectors
Analogies can also be used to predict production and Stage 2 Period from interferenceto fill-up of gas pore
injection performance. Rigorous application of rate- space
dependent analogies is describedby Slider(1983d). This Stage 3 Period from fill-up to water break-through
procedure is useful in estimating waterflood response
Stage 4 Period from water break-throughto flood-out
time, magnitude of oil productivity improvement and
flood-out behaviour after response. The procedure in- During Stage I, water injection rates are calculated
volves plotting oil rate divided by effective injection using radial flow equations. Water injection rates dur-
rate vs. cumulative effective injection divided by ulti- ing Stage 2 are calculated using the Caudle and Witte
mate flood recovery. This plot provides a normalized conductance ratio. Oil production in Stages I and 2 is
relationship that can be applied to a flood scheme of assumed to be negligible or zero. If oil production is
any size. significant, then adjustments are made to fill-up times
and volumes. Oil production during Stage 3 is equal to
11.7.3 Reliability of Results water injection rates. Afterwaterbreak-through in Stage
When analogies are applied in an analysis, it is good 4, the following are calculated:
engineering practice to provide a comparison of reser- Horizontalsweepefficienciesas a functionof break-
voir properties so that the reader can judge the strength through areal sweep and injected water volumes
of the analogies being made. The strength of the anal- Water-oil ratios from frontal advance theory
ogy is critical to the assessment of proved or probable
Injectivities from Caudle and Witte
reserves.
Oil producing rates from producing WaRs and
The closer the analogy project to the proposed project
injection rates
in terms of geographic area, geologic horizon, oil vis-
cosity, waterfloodpattern and orientation,permeability The method can handle multi-layer effects by normal-
variation, residual oil saturation and degree of deple- izing injection, production, and pore volume data for
tion prior to waterflooding, the strongerthe analogyand each layer and multiplying the results by single layer
the more reliable the results. An analogyshouldbe cho- calculations.
sen that is typical of performance and not one that is 11.8.2 Reliability of Results
clearly the best or worst performance.
All waterflood predictive methods have underlying
Analogiesare best utilized prior to or immediatelyafter simplifyingassumptions. The accuracy ofthe methods
implementationof a waterflood project. therefore relies on the validity of these assumptions in
11.8 ANALYTICAL PERFORMANCE additionto the accuracyof the reservoirdescription. The
PREDICTION Craig-Geffen-Morse Method is one of the more
rigorous methods; however, the following limiting
11.8.1 Overview of Methods assumptions apply:
The analytical methods summarized in Table 11.8-1 Waterflood response is injectivity-driven.
yield production and injection forecasts for horizontal Gravity effects are negligible.
waterflood schemes. The Higgins-Leighton (1962)
Methodhas fewerlimitingassumptionsthan othertech- There are no cross-flow effects.
niques and is adaptable to varioustypes of patterns.The There is no lateral variation in reservoir properties.
method models a flood pattern as a series of parallel Reservoir continuity is 100 percent.
stream flow tubes and is available in computerprogram Oil production is negligible prior to fill-up.
format.
Capillary effects are negligible.
For composite injection and producing rate, WaR and
There is no bottom water or gas cap.
recovery vs. time, Craig (1971 g) recommended the use
of the Craig-Geffen-Morse (Table 11.8-1) Method The engineer must judge the significance and validity
coupled with the Caudle and Witte (1959) correlation of these assumptionsto the reservoir being analyzed. It
for injection rates. This procedure splits a waterflood is recommended that the production profile resulting
forecast into four stages: fromthepredictive methodbe adjusted to matchreserves
calculated by volumetric, decline or analogy methods.

164
_________.a
ENHANCED RECOVERY BYWATERFLOODING

Table 11.8-1 Classification of 33 Waterflood Prediction Methods

Basic Method Modification


A. Methods primarily concerned with permeability heterogeneity-injectivity
1. Dykstra-Parsons (1950) (a) Johnson (1956)
(b) Felsenthal-Cobb-Heuer (1962)'
2. Stiles (1949) (a) Schmalz-Rahme (1950)'
(b) Arps ("Modified Stiles") (1956)
(c) Ache (1957)
(d) Slider(1961)
3. Yuster-Suder-Calhoun (1949) (a) Muskat (1950)
(b) Prats et al. (1959)'
4. Prats-Matthews-Jewett-Baker
(1959)
B Methods primarily concerned with areal sweep efficiency
1. Muskat (1946)
2. Hurst (1953)
3. Atlantic-Richfield (1952-1959)
4. Aronofsky (1952-1956)
5. Deppe-Hauber (1961-1964)
C. Methods primarily concerned with the displacement process
1. Buckley-Leverett (1942) (a) Terwilliger et al. (1951)
(b) Felsenthal-Yuster (1951)
(c) Welge (1952)
(d) Craig-Geffen-Morse (1954)3
(e) Roberts (1959)
(I) Higgins-Leighton (1960-1964)'
2. Craig-Geffen-Morse (1954) (a) Hendrickson (1961)
3. Higgins-Leighton (1960-1964)
D. Miscellaneous theoretical methods
1. Douglas-Blair-Wagner (1958)
2. Hiatt (1958)
3. Douglas-Peaceman-Rachford (1959)
4. Naar-Henderson (1961)
5. Warren-Cosgrove (1964)
6. Morel-Seytoux (1964)
E. Empirical methods
I. Guthrie-Greenberger (1955)
2. Schauer (1957)
3. Guerrero- Earlougher (1961)

Source: After Schoeppel, 1968.


Note: Complete citations for all of the references listed in this table are given at the end of the chapter.
I Also applies to Stiles method.
'Also applies to Yuster-Suder-Calhoun and Schauer methods.
3Also concerned with areal sweep problem. Also recognized as basic method.

165
q
I
DETERMINATION OF OIL AND GASRESERVES I
Predictive methods are normally applied at the Sensitivity studies on gridblock sizing should be
waterflood design stage to assist in scoping econ- performed to ensure that the selected sizing is sufficiently
omics and facility design rates. The methods can be used, accurate. Increased grid definition should be used in
however, at any stage of waterflood depletion and highly heterogeneous areas and around wellbores.
history-matched to actual performance by tuning reser- Large areal waterflood simulations should employ
voir rock properties. The reliability of the procedure several grid blocks between wells so that pattern modi-
increases if this is performed. fications and infill drilling may be studied.
11.9 NUMERICAL SIMULATION If reservoir projects are fairly consistent across a
proposed waterflood area, partial pattern waterflood
11.9.1 Overview of Method simulations are frequently performed and the results
The most advanced method for determining waterflood scaled up to reservoir dimensions. The examination of
reserves and performance predictions is numerical simu- a partial pattern can result in better grid definition for
lation, which can be described as the use of digital more accurate results.
computers to numerically solve mathematical models Grid Block Orientation. Grid blocks should be
representing physical reservoir systems. Simulation oriented along permeability trends and geological lay-
techniques are discussed in Chapter 17. Aspects of'simu- ers. The orientation and size of the grid may affect the
lation that are relevant to waterflooding are presented manner in which water break-through occurs. This prob-
in this section. lem is most pronounced where there are high contrasts
11.9.2 Parameters and Factors in the water-oil mobility ratios. More advanced simula-
Affecting Analysis tors use variational or nine-spot finite difference
approximations to eliminate this effect.
The following factors may affect numerical simulation
results: Timestep Sizing. Also related to grid block sizing is
timestep sizing. Saturation fronts cannot pass through a
Model Phases. Waterflood simulations are performed
grid block in one timestep. Thus, the smaller the
using Beta or black oil models. When the reservoir is
gridblock, the shorter the timestep must be to ensure
above the bubble point, only two phases (oil and water)
this condition is not violated. A smaller timestep means
are required. Ifthe reservoir is below the bubble point,
more timesteps, and hence a higher number of calcula-
then three phases are required (oil, water and gas). The
tions to be performed ina simulation run. Most modem
relative permeability and physical properties of the
simulators utilize automatic timestep selection to
phases are required in the simulation. The physical prop-
optimize running times.
erties are usually easily measured and accurate; however,
the accuracy of relative permeability data is less History Match. Once a reservoir description is set up
reliable and can significantly influence the simulation in the model, a simulation history match is run by en-
results. tering actual oil production, water injection, or pressure
constraint data. Calculated results such as reservoir pres-
Model Dimensions. Waterflood simulations are
sure, water-oil ratios, gas-oil ratios, and oil rates are
typically two- or three-dimensional. Three-dimensional
compared to actual results to judge the accuracy of the
studies are required where there is distinct layering or
model. Model parameters are then revised and the model
important gravitational influences. Two-dimensional
rerun to get a better match. This process is a trial-and-
cross-sectional simulation studies are frequently used
error procedure and relies on the judgement of the
to quantify the effects of gravity segregation. Results
simulation engineer to revise the properties in an app-
may then be incorporated in 2-D areal studies on hori-
ropriate manner. The normal practice is to revise poorly
zontal waterfloods through the use of pseudo-functions.
defined properties first.
Grid Block Sizing. Numerical simulation involves
a trade-off between calculation time and accuracy. 11.9.3 Reliability of Results
The more grid blocks used to define a reservoir, The numerical simulation technique is the most
the more accurate the calculated results. However, rigorous method of determining reservoir flow be-
calculation time and cost also increase, and in many haviour and compensates for most of the shortfalls
cases, prohibitively. experienced by analytical methods. Assuming that
the model is set up appropriately to compensate for

166

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _A
ENHANCED RECOVERY BYWATERFLOODING

the numerical factors as described, the limitation ofthe 11.10 WATERFLOODING VARIATIONS
simulation results rests solely on the accuracy of the
reservoir description. 11.10.1 Naturally Fractured Reservoirs
When reservoir properties are established to a high Displacement of oil by water in naturally fractured
degree of confidence by good well control, production reservoirs is related to capillary and gravity forces act-
results, pressure tests, and core studies, and the simula- ing on individual matrix blocks. "Imbibition" is the
tion history match requires very little alteration to the mechanism by which the nonwetting phase is displaced
reservoir description, then a high degree of confidence by the wetting phase in porous media due to the effects
may be placed on the results. As the number of alter- of capillary pressure. Oil recovery by imbibition is an
ations performed to achieve a match increases and the important process in waterflooding of fractured reser-
duration of the history-match period decreases, less voirs. As injected water advances along the fractures
confidence can be placed on the results. Confidence is a and is imbibed into the matrix, an equivalent volume of
function of the reasonableness of the alterations made oil is released to the fractures. A discussion ofthe theory
during the history-match process. of waterflooding in fractured reservoirs has been
presented by de Swaan (1978).
Example The imbibition process is the dominant displacement
This example demonstrates the kind of problem that mechanism when matrix blocks are small and capillary
simulation engineers may encounter in a history match pressures are high. Gravitational pressure governs dis-
in an immature waterflood. placement when matrix blocks are tall and capillary
Water break-through has not occurred at a producing pressures are low. For oil-wet rocks, external forces
oil well when the simulator predicts that the well should (gravity and applied pressure differentials) must over-
be producing significant water. The engineer must come capillary pressures to recover oil from the matrix
decide which of the following applies: blocks. It follows then that matrix blocks must be of a
certain height in order for waterflooding to be success-
o The relative oil-water permeability data is wrong.
ful in oil-wet reservoirs. Knowledge of reservoir rock
o There is directionalpermeability diverting water away wettability is important in the evaluation of reserves in
from the producing well. fractured reservoirs. For rocks that tend to be oil-wet,
o The pore volume between the injector and producer such as some dolomites, spontaneous imbibition of
is too low. water will not occur. Fortunately, most dolomitic rocks
o There is a flow barrier between the producer and have somewhat low capillary pressure due to large pore
injector. sizes, and gravity dominates the displacement process.
Bridging between matrix blocks may result in a more
o The reservoir model has been layered when no
continuous capillary network that will improve oil
layering is in fact occurring.
recovery.
The solution may be anyone of these. An incorrect
Oil recovery by imbibition is described by a time-
alteration may still achieve a history match, but will
dependent transfer function that is determined in the
result in incorrect forecasts.
laboratory and can be modelled mathematically as pre-
Simulations performed in proposed waterflood schemes sented by Aronofsky et al. (1958). Laboratory tests on
will only have the primary depletion with which to small reservoir samples are scaled according to rules
history-match. While these should give a good deter- presented by Mattax and Kyte (1962) to determine
mination of oil in place and oil and gas flow behaviour, recovery from reservoir matrix blocks contacted by
they do not address directional permeability, reservoir injected water.
layering, flow restrictions or actual relative oil-water
Displacement efficiencies within the fracture system,
permeability characteristics. In vertical schemes they
expected to approach 100 percent, are governed by grav-
will not address water coning characteristics, which are
ity forces and applied pressure differentials since
critical to flood performance.
capillary pressures are negligible. Often, the original oil
The assignment ofproved and probable reserves from a in place within the fracture system represents a small
simulation study must address these limitations. fraction of the total system.
The areal and vertical sweep efficiencies in fractured
reservoirs are expected to be similar to those in

167
DETERMINATION OFOILANDGASRESERVES

unfractured reservoirs provided that injection patterns active agents) are added along with polymers to injected
in horizontal waterfloods properly account for perme- water to reduce interfacial tension, and thereby reduce
ability anisotropy. The water injection wells should line residual oil saturation and improve oil recovery. The
up parallel to the permeability trend. The influence of reduction of residual oil saturation due to the addition
vertical fractures on areal sweep efficiency has been of surfactants is determined in the laboratory. The tech-
presented by Crawford and Collins (1954) and Dyes et nical success of a surfactant flood is dependent upon
al. (1953). It is noted that their studies were conducted how much of the surfactant is lost due to adsorption,
for hydraulically fractured wells, but the results can be precipitation, the irnmobility ofthe surfactant-rich phase,
applied to naturally fractured reservoirs. and dissipation. The estimation of reserves for micellar
In vertical waterflood schemes, the oil-water contact floods is similar to that for a waterflood, but with a more
should be monitored to determine the in situ sweep viscous displacing phase. In the assignment of proved
efficiency. The measured oil-water contact represents and probable reserves, the micellar-polymer slug sizing
the fluid contact within the fracture system and corre- and potential surfactant losses must be considered.
sponds to the free water level since capillary pressures
11.11 STATISTICAL WATERFLOOD
in the fractures are generally negligible. The recovery
ANALYSIS SURVEY
efficiency within the water-flushed portion ofthe reser-
voir will increase with time and can be history-matched 11.11.1 Overview of Database
using the model presented by Aronofsky et al (1958). In order to illustrate typical usage of various reserve
The final recovery efficiency is obtained from the analysis methodologies and resulting recovery factors,
history-matched model. Waterflood reserves are deter- reserve data on approximately 200 waterflood units
mined by applying the final recovery efficiency to the in the western Canadian sedimentary basin were com-
estimated gross swept volume to account for sandwich piled from the database of an independent petroleum
losses at the top of the reservoir. consulting firm. Recovery factor statistics are pre-
The accuracy ofreserve estimates in naturally fractured sented in Table 11.11-1, and methodology statistics are
reservoirs is dependent on accurate interpretation offrac- summarized in Table 11.11-2.
ture characteristics such as frequency, width, orientation The recovery factors presented are proved plus prob-
and distribution, reservoir structure, laboratory tests and able values derived by dividing ultimate recoverable
reservoir monitoring. Proved and probable reserve esti- reserves by original oil in place within the unit bound-
mates must consider the uncertainties and reasonable aries. Ultimate recoverable reserves are values calculated
range of values associated with these parameters. by the evaluators using the various assigrunent meth-
11.10.2 Polymer Flooding odologies. Original oil-in-place values are based on
estimates prepared by the operator, a governmental regu-
In reservoirs with unfavourable mobility ratios, water-
latory body, or an independent consultant. Depletion
soluble polymers may be added to improve displacement
refers to cumulative oil production at the time of the
and sweep efficiencies. The mobility of the displacing
evaluations divided by original oil in place. The ranges
phase is reduced due to an increase in fluid viscosity
presented represent 7.5 percent of the sample points.
and an alteration in relative permeability related to
Most of the sample points represent horizontal flood
polymer retention and modification of pore sizes.
schemes.
Reduction of water mobility has the disadvantage
of reducing injectivity, so this limits the economic The data are from a sampling of waterfloods in western
application of polymer flooding to high permeability Canada, and the table is intended to show typical
reservoirs. Estimation ofreserves for polymer floods is values and ranges of results.
similar to that for a waterflood but with a more viscous 11.11.2 Discussion of Results
displacing phase. In the assignment ofproved and prob-
The following general observations may be made from
able reserves, the polymer slug sizing and potential
a review of the data:
losses due to dissipation and polymer degradation must
be considered. I. The typical total recovery factor is 30 percent; range
is 16 to 45 percent.
11.10.3 Micellar Flooding 2. The average API gravity of samples is 33; range is
Reduction of interfacial tensions is a major objective in 23t041.
micellar flooding processes. Surfactants (or surface-

168
ENHANCED RECOVERY BY WATERFLOODING

Table 11.11-1 Summary of Recovery Factors: A Sampling of Western Canadian Waterfloods

No. of Total Proved


Data Oil Gravity Plus Probable
Geologic Horizon Litbology Points API Recovery Factor Depletion
Range Range (%)
Average (75%) Average (75%)

Upper Cretaceous SS 42 38 37-41 23 15-35 65


Lower Cretaceous SS 16 33 20-41 29 18-40 62
Mannville SS 27 26 19-36 27 20-35 54
Jurassic SS 36 23 21-26 35 16-54 73
Triassic SS 13 40 39-42 40 25-51 76
Triassic Carb 7 37 36-42 35 25-43 67
Permian SS 3 40 40-40 28 6-34 73
Mississippian SS 5 21 14-22 17 8-22 36
Mississippian Carb 32 34 30-40 33 21-46 74
Devonian SS 3 42 41-43 38 25-51 55
Devonian Carb 22 39 37-42 32 19-53 65

Average/Total 206 33 23-41 30 16-45 67

Table 11.11-2 Reserve Analysis Technique Aronofsky, J.S., Masse, L., and Natanson, S.O. 1958.
Distribution "A Model for the Mechanism of Oil Recovery
No. of %of Depletion (%) from the Porous Matrix Due to Water Invasion in
Data Points Samples Average Range Fractured Reservoirs." Trans., AIME, Vol. 213,
pp.17-19.
Volumetrics 51 25 46 25-75
Decline 110 53 72 52-87 Caudle, B.H., and Witte, M.D. 1959. "Production
Vol. & Decline 27 13 68 43-87 Potential Charges During Sweepout in a Five-
Analogies 12 6 52 30-74 Spot Pattern." Trans., AIME, Vol. 216,
Sim. Studies 6 3 35 26-44 pp. 446-448.

Total 206 Craig, F.F. 1971a. "The Reservoir Engineering


Aspects of Waterflooding." SPE Monograph No.
3, pp. 29-44.
3. Assuming a recovery factor of 10 to 15 percent, the
------.197Ib.pp.48-49.
ultimate recovery under waterflood is typically at
least double that of primary recovery. ------. 1971c. pp. 50-52.
4. Very few waterfloods exist for pools under200API - - - -.. 1971d. pp. 108-111.
gravity. - - - -.. 1971e. p. 64.
Decline analysis is generally not used until depletion is - - - -.. 1971f. pp. 41-43.
over 50 percent. The reason is the lack of definitive de- - -.. 1971g. p. 93.
cline trends in immature stages ofwaterflood recovery.
Crawford, P.B., and Collins, R.E. 1954. "Estimated
The data also suggest that waterflood declines start at
Effect of Vertical Fractures on Secondary
approximately 50 percent depletion.
Recovery." Trans., AIME, Vol. 201, pp. 192-196.
References Dardaganian, S.O. 1985. "The Application of the
Anderson, W.O. 1986. "Wettability Literature Buckley-Leverett Frontal Advance Theory to
Survey." JPT, Oct. 1986, p. 1125. Petroleum Recovery." Trans., AIME, Vol. 213,
pp. 365-368.

169

7
_.s..
.~
I
I

DETERMINATION OF Oil AND GASRESERVES

de Swaan, A. 1978. "Theory of Waterflooding in Kuo, M.C.T. 1989. "Correlations Rapidly Analyze
Fractural Reservoirs." SPE Journal, Apr. 1978, Water Coning." OGJ, Oct. 1989, pp. 77-80.
pp.117-122.
Mattax, C.C., and Kyte, lR. 1962. "Imbibition Oil
Dyes, A.B., Kemp, C.E., and Caudle, B.H. 1953. Recovery from Fractured Water-Drive
"Effect of Fractures on Sweep-out Pattern." Reservoir." Trans., AIME, Vol. 201, pp. 192-196.
Trans., AIME, Vol. 213, pp. 245-249.
Schoeppel, R.J. 1968. "Waterflood Prediction
Energy Resources Conservation Board. 1993. PVT Methods - 7, Comparative Evaluation." O&GJ,
and Core Studies Index. Guide G- 14, Calgary, Jul. 1968, p. 73.
AB.
Slider, H.C. 1983a. Worldwide PracticalPetroleum
Gould T.L, and Sarem, A.M.S. 1989. "Infill Drilling ReservoirEngineeringMethods. Petroleum
for Incremental Recovery." JPT, Mar. 1989, p. Publishing Company, Tulsa, OK, p. 551.
229.
- -. .l983b. p. 569.
Higgins, R.V., and Leighton, AJ. 1962. "A Computer
- - . 1983c.p. 557.
Method to Calculate Two-Phase Flow in Any
Irregularly Bounded Porous Medium." JPT, Jun. - - . 1983d. p. 600.
1962,pp.679-683. - - . 1983e. p. 554.
Willhite, G.P. 1986. Waterflooding. SPE Textbook
Series, Vol. 3, pp. 53-110.

170

- 1
Chapter 12

ENHANCED RECOVERY
BY HYDROCARBON MISCIBLE FLOODING

12.1 INTRODUCTION the displaced oil. In contrast, miscible fluids are soluble
After discovery, most oil reservoirs produce under the in oil, so there will be no interfacial force between oil
natural energy of the reservoir. The primary drive and solvent and the theoretical residual oil saturation
mechanism for these reservoirs varies significantly. For will be zero.
pools with an initial reservoir pressure above the bubble- This chapter is limited to miscible flooding with
point pressure, the energy is initially obtained by fluid hydrocarbon solvents. Miscible flooding is a proven
expansion and rock compaction. Later in the life of the technology that increases reserves. However, the im-
reservoir, when the pressure falls below the bubble-point provement of the reserves estimation and the economic
pressure, additional energy will result from gas libera- viability are affected by the following:
tion and expansion. Usually these pools have recovery Reservoir geology
factors ofless than 20 percent. For pools with a bottom Rock properties
or edge water drive, oil is displaced by water, and the
Reservoir fluid properties
rate of decline of the reservoir pressure is reduced by
Solvent composition and slug size
the encroaching aquifer. The recovery factor for this
type ofreservoir can be as high as 60 percent (e.g., Fenn Chase gas composition and slug size
Big Valley D2A Pool, Alberta, Canada). Implementation cost
Well spacing and well patterns
Reservoirs with a gas cap produce oil because of gas
cap expansion. Other reservoirs may have both a gas Flood types
cap and an aquifer. The recovery factor for these reser- Oil, gas and condensate prices
voirs can be as high as 80 percent (e.g., Westerose D-3 Royalty regime
Pool, Alberta). The high recovery factor is due to rich Stage of implementation
gas sitting at the bottom of a thick gas pay zone because This chapter reviews recognized hydrocarbon miscible
of gravity. This rich gas effectively acts as a solvent, flood processes, the methods for the estimation of re-
and the result is a vertical miscible displacement of oil. serves, the accuracy of these methods, and the factors
In most reservoirs, oil recovery may be improved by affecting this estimation as reported in the literature.
the implementation of an enhanced oil recovery (EOR) 12.2 TYPES OF HYDROCARBON
scheme. EOR schemes can be classified as secondary
MISCIBLE FLOODS
and tertiary floods. Water injection for pressure main-
tenance, pattern waterflooding and immiscible gas Hydrocarbon miscible floods are the most common
injection are secondary EOR schemes. Hydrocarbon tertiary EOR schemes in western Canada. They can be
miscible floods and carbon dioxide miscible floods are subdivided into vertical or horizontal miscible floods.
tertiary EOR schemes. The terms "secondary" and "ter- 12.2.1 Vertical Miscible Floods
tiary" indicate the EOR technology only, and not the
Vertical miscible floods are usually implemented in
state of the pool being flooded. Therefore, if a project
pinnacle reefs or reservoirs with a high relief angle. In
is being miscible flooded before any waterflood, the
Alberta, the majority of these are in Rainbow Lake,
miscible project is deemed a tertiary EOR project.
Brazeau River, Pembina/West Pembina, and Wizard
In a waterflood or an immiscible gas flood, the Lake. The solvent is injected as a blanket at the top of
displacing fluid is not soluble in the displaced oil. The the reservoir to take advantage of a gravity-stabilized
displacement results in a residual oil saturation due to displacement. Subsequent chase gas injection drives
the interfacial forces between the displacing fluid and solvent downward.

171
~
....
.., I

DETERMINATION OFOILANDGASRESERVES I

The highest wells in the structure are usually chosen 12.3 METHODS OF ACHIEVING
as the injectors to maximize oil displacement, and the MISCIBILITY
producing wells are completed at the lowest porous
interval above the oil-water contact. Production rates 12.3.1 First-Contact Miscible Process
are controlled to restrict solvent and water production. The simplest and most direct method of achieVing
Horizontal wells are becoming popular in vertical mis- miscibility is to inject a solvent that is completely soluble
cible floods. These wells are usually drilled as producers in the oil in all proportions. Such solvents are called
near the water-oil contact to reduce water and gas con- "first contact miscible" (FCM) and are the most expen-
ing problems and thus increase the production rate and sive. As the ternary diagram shown in Figure 12.3-1
reduce the sandwich loss. indicates, combining the oil and solvent in any propor-
Innovative completion techniques such as perforation tion results in a single phase, i.e., no two-phase region
below or at the oil-water contact have also resulted in is developed. Cost savings can be balanced against pro-
reduced sandwich losses. cess risk by injecting less expensive "multi-contact
miscible" (MCM) solvents which are subdivided into
The expected incremental recovery compared to upward
condensing and vapourizing processes.
waterflood is in the range of IS to 40 percent. The high
incremental recovery factor in vertical displacement is
due to high volumetric sweep efficiency as a result of Intermediate
a gravity stable displacement. The vertical miscible
displacement is ideal in homogeneous reservoirs. In
heterogeneous reservoirs with horizontal shale barriers,
Solvent
\
a substantial reduction in incremental oil recovery im- \
\
provement can be expected as a result of poor vertical \
\
sweep efficiency (e.g., Golden Spike D-3 Pool, Alberta). \
\
\
\
12.2.2 Horizontal Miscible Floods
In horizontal miscible floods, solvent and water are Reservoir Oil
\
..
injected alternately to mobilize residual oil and push it
to the producers. After the injection of solvent and
water, chase gas (which is miscible with solvent) and
Light Heavy
water are injected to extend the solvent bank size and
complete the displacement process. After injection of
25 to 40 percent hydrocarbon pore volume (HPV) of Figure 12.3-1 Pseudo-Ternary Diagram Indicating
solvent and chase gas, the process reverts to horizontal First-Contact Miscibility
waterflood to depletion. In other words, in the early stage
of the miscible project, oil is replaced by miscible sol- 12.3.2 Multiple-Contact Miscible
vent and moved toward producing wells. Later, residual Process
solvent is mobilized by chase gas and moved to where In a condensing process, the intermediate hydrocarbons
it can contact more residual oil. Through this process, from the injected solvent condense into the reservoir oil
an expensive commodity, residual oil, is replaced with to create a mixing zone. Initially, a given volume of
a cheaper commodity, chase gas. solvent contacts the reservoir oil, resulting in a mixture,
The majority of these floods are implemented in Swan M I, which separates into an equilibrium gas, 01, and
Hills (Swan Hills A and B, South Swan Hills, Virginia liquid, Ll (Figure 12.3-2). Further injection of solvent
Hills, Judy Creek A and B), Kaybob (Kaybob BHLA pushes the more mobile equilibrium gas ahead of the
and Kaybob South Triassic), Goose River and Fenn- liquid, and the solvent contacts liquid, L I, resulting in a
Big Valley areas of Alberta. The expected incremental mixture, M2. The mixture again separates into equilib-
recovery factor of 5 to IS percent results from gravity rium gas and liquid phases (G2 and L2, respectively).
override, viscous fingering, and the inability to control This process is repeated and, after a series of chain
injection profiles. flashes, results in the formation of a two-phase envel-
ope on the ternary diagram. The composition of the

172
ENHANCED RECOVERY BY HYDROCARBON MISCIBLE FLOODING

equilibrium liquid travels up the bubble-point curve, the reservoir pushes the equilibrium gas, G I, further
becoming richer in the components of intermediate into the reservoir. This gas contacts fresh reservoir
molecular weight as they condense out of the solvent oil resulting in a mixture, M2, which separates into an
and into the oil. However, as the equilibrium liquid equilibrium gas, G2, and a liquid, L2. Further injection
becomes richer, the amount ofthe intermediate compo- causes gas, G2, to flow ahead and contact fresh
nents lost from the solvent into the oil at each contact reservoir. In this process, the composition of the
becomes less, and the vapour flashed at each contact gas at the displacing front is getting richer and
and pushed ahead into the reservoir also becomes richer. progressively moving along the dew point until it reaches
the composition that is directly miscible with the
Intermediate reservoir oil.

Intermediate

Reservoir Oil
G~2g~~
Reservoir Oil M2

L1

Light Heavy Solvent

Light Heavy
Figure 12.3-2 Development of Multiple-Contact
Miscibility Condensing Process
This in situ multiple contact generation of miscibility Figure 12.3-3 Development of Multiple-Contact
establishes a "transition zone of contiguously miscible Miscibility Vapourizing Process
fluid compositions from the reservoir oil composition If the reservoir pressure is close to the bubble-point
through compositions Ll, L2, L3, ... Ln on the bubble- pressure, small pockets of gas may be formed at the
point curve to the injected gas composition." That is, structurally high area of the reservoir. These pockets of
the solvent is in first-contact miscible with the equilib- gas may dilute the equilibrium gas to the extent that the
rium liquid LM-I, which is in first-contact miscible with miscibility is lost.
equilibrium liquid LM-2, and so on. This process domi-
nates the leading edge of the multiple transition zone.
12.4 EXPERIMENTAL METHODS TO
DETERMINE MISCIBILITY
12.3.3 Vapourizing Multiple-Contact Four methods have been widely used by the industry to
Miscibility determine miscibility and design the composition of
In a vapourizing process, the intermediate weight solvent and chase gas:
hydrocarbons from the reservoir oil vapourize into the 1. The pressure composition diagram (P-X)
injected solvent to create a mixing zone. In this pro- 2. The multi-contact ternary diagram
cess, miscibility can be achieved with natural gas, flue 3. The slim tube test
gas, carbon dioxide or nitrogen, provided that the reser-
4. The rising bubble apparatus (REA)
voir pressure is above the minimum miscibility pressure.
The development of miscibility in a vapourizing 12.4.1 poX Diagram
solvent drive can be explained with the help of the ter- A typical poX diagram is perfomed as a screening test
nary diagram in Figure 12.3-3. Initially, a given volume by combining reservoir fluid with increasing mole
of solvent contacts the reservoir oil, resulting in a mix- fractions of injection solvent, and measuring the
ture, MI, which separates into an equilibrium gas, Gl, saturation pressure of each mixture. The cricondenbar,
and liquid, LI. Subsequent injection of solvent into critical point, and solubility limit can be determined

173
DETERMINATION OFOILANDGASRESERVES

at the operating temperature (Figure 10.2-1). The 12.5 SCREENING AND FEASIBILITY
hydrocarbon mixture is deemed acceptable for injec- STUDIES
tion ifthe cricondenbar lies below the reservoir operating Screening, design and implementation ofa hydrocarbon
pressure. This defines an FCM solvent. miscible project usually involve the following steps:
12.4.2 Multi-Contact Ternary Diagram I. Estimate the incremental oil reserves based on the
The test is performed at reservoir pressure and tempera- volumetric method.
ture by combining the reservoir fluid with solvent. The 2. Make a preliminary production forecast based on
compositions of the resultant equilibrium vapour and the break-through ratio (BTR) concept (Section
liquid are determined and become the first points on the 12.5.2) and preliminary economic evaluation.
phase envelope. The next step depends upon which 3. Use a detailed geological model to evaluate the
multiple-contact miscibility (MCM) process is being reservoir characteristics; from this model, provide
simulated. For a condensing MCM process, the equil- input data for simulation study.
ibrium gas is discarded and more solvent is added to the 4. History-match the pool performance with a black
equilibrium liquid. oil simulation model under primary and secondary
For a vapourizing MCM process, the equilibrium drive mechanisms. This model will provide the
liquid is discarded and more oil is added to the equilib- saturation and pressure distributions required for a
rium gas. The procedure is repeated several times; subsequent pseudo-miscible or compositional study.
tie-lines are defined after each step, and the appropriate 5. Use a pseudo-miscible or compositional model
phase envelope is generated. The hydrocarbon mix- to generate a production forecast, evaluate the
ture is deemed immiscible if the solvent lies on the reservoir's performance under miscible flood, and
extension of a tie-line. design the project.
12.4.3 Slim Tube Test 6. Use experimental and numerical model studies to
The slim tube test apparatus consists of a long (usually determine the optimum slug size and design the
more than 20 m) coiled stainless steel tube packed with composition of the injection fluid.
glass beads or crushed silica. The porous medium is ini- 7. Make an economic evaluation and feasibility
tially saturated with reservoir oil at the desired test design.
temperature and pressure. Solvent is injected at one end, 8. Obtain regulatory approvals.
and miscibility is determined through visual observa- 9. Design facilities and implement.
tion ofthe transition zone, the recovery factor ofthe oil
10. Develop the data acquisition system, and prepare
and the break-through performance ofkey solvent com-
ponents (e.g., CI, C2, C3). Unlike the ternary and PoX detailed monitoring programs and detailed field
diagrams, which are conducted at static conditions, slim operation guidelines.
tube tests represent a dynamic process where the de- II. Monitor performance and reservoir management to
gree of dispersion in the reservoir is to some extent improve the pool performance under the miscible
reproduced in the lab. flood.
Prior to implementation ofa hydrocarbon miscible flood,
12.4.4 Rising Bubble Apparatus
the project goes through several stages. At the early
The rising bubble apparatus (RBA) consists of a stage of the screening, usually a crude method is used
small-diameter vertical tube mounted in a high-pressure to generate a production forecast and conduct an econ-
cell. A bubble of solvent is injected at the bottom ofthe omic evaluation. At this stage, the incremental reserves
tube. The miscibility characteristic is determined by may be estimated by the volumetric method, and the
visual observation of the bubble decay as it rises through production forecasts may be generated by the BTR
the reservoir oil. The rising bubble apparatus (RBA) technique. For the feasibility study, it is imperative to
combines the small size and compactness of the visual conduct a detailed geological and reservoir simulation
cell with the dynamic nature ofthe slim tube test. Hence, study to evaluate the economic viability of the project.
this method can make miscibility determination much Other methods such as statistical models have also been
more efficient than the other three methods. used to evaluate the feasibility of a hydrocarbon
miscible flood.

174

______________________cn
ENHANCED RECOVERY BY HYDROCARBON MISCIBLE FLOODING

12.5.1 Volumetric Method dead end pore volume, this method requires a careful
The volumetric equation for estimating incremental oil examination of the data obtained and a comprehensive
reserves, RE, is: simulation study.
For a given formation and interval, the remaining oil
RE=EHxEvxEDxOOIP (1) saturation obtained from these methods may be differ-
where EH aerial sweep efficiency ent because, besides the question of accuracy, the depth
Ev vertical sweep of investigation and vertical resolutions of the various
ED displacement efficiency methods are usually different. For example, the single
OOIP original oil in place well tracer technique represents a capacity-weighted
average while pressure coring or logging gives a
The reserves target for a miscible flood is the residual volumetric-weighted average.
oil saturation after waterflooding. Therefore, the dis-
The comparison ofresults provides important measures
placement efficiency, ED, is defined as:
of the quantity and distribution of remaining oil. For
ED= (Socw - So,,)/ (I-S w) (2) example, if the former is significantly lower than the
latter, the interval may be highly stratified or contain
where Socw= residual oil saturation after dead end pore volume. In all cases, the measured re-
waterflood (fraction)
maining oil saturation will exceed the residual oil
residual oil saturation after miscible
saturation.
flood (fraction)
Sw = connate water saturation Estimation of Residual Oil Saturation after
The connate water saturation is the water saturation in Miscible Flooding
the reservoir at discovery, which can be determined from Theoretically speaking, the residual oil saturation after
resistivity logs. miscible flooding should be zero due to the lack of in-
terfacial tension between oil and solvent. However, even
Estimation of Residual Oil Saturation
ifthe miscibility criteria are met, all the oil may not be
The residual oil saturation is the amount of oil left displaced due to trapping by mobile water or dead end
behind in a water-swept zone when the relative perme- pores. The average oil saturation left behind after hy-
ability approaches zero. The residual oil saturation is a drocarbon flooding is usually greater than that estimated
function of wettability, adhesion, and rock properties. from the core flood studies. The usual expectation in
Four methods are used to determine residual oil sat- western Canada carbonates is 5 percent HPV.
uration: core flood test, pressure coring, logging, and
the single-well tracer method. The core flood test is Estimation of Areal Sweep Efficiency for
discussed in Chapter II. Horizontal Miscible Floods
Pressure coring is considered to be an accurate method Areal sweep efficiency is the fraction ofthe pattern area
for obtaining a volumetric measure ofremaining oil satu- that has been contacted by solvent and mainly depends
ration. However, this method is expensive and requires upon the mobility ratio of the displacement process in
that a new well be drilled in a waterflooded part of the that the areal sweep efficiency decreases as the mobil-
reservoir. ity ratio increases or become more unfavourable. The
mobility ratio, M, between an oil bank and the solvent
Logging techniques that can be used for obtaining a
volumetric measure of remaining oil saturation are log displacing the oil bank in the presence of mobile water
is defined by Stalkup (1983) as:
inject log (pulsed neutron, gamma radiation, resistiv-
ity), and carbon-oxygen logging. Each method has its
k, +k- w)
own special advantages and limitations. The resistivity (-
'

logs can be run only in open holes. J..ts u, sW avg


M = -'----'--------""'- (3)
The single-well tracer method (Deans and Majoros, k, k w)
1980) measures an average remaining oil saturation that ( M: + J..Lw oW avg
is weighted according to the product of thickness and
effective permeability to brine at remaining oil satura- where k, = effective permeability to solvent (mD)
tion (capacity) for the various strata sampled by injected k; = effective permeability to water (mD)
k, = effective permeability to oil (mD)
tracer. In carbonate reservoirs, due to the effect of the

175
~-
DETERMINATION OF OIL AND GASRESERVES

IJ" = solvent viscosity (m Pa.s) hydrocarbon phases. Obviously, a homogenous


Ilw water viscosity (m Pa.s) reservoir with low ratio of horizontal to vertical perme-
Jlo oil viscosity (m Pa.s) ability has a higher chance of incremental recovery
sw = solvent/water reserves losses. Conversely, diffusion and convective
ow = oil/water dispersion may allow solvent to liberate the remaining
Since solvent-oil mixtures have much lower viscosities oil from zones where water would not enter.
than oil, the solvent-oil mixing zone becomes less stable In a WAG process, gravity segregation will cause the
than for waterflood, and numerous fingers of solvent injected gas to rise to the top of the formation and water
may develop and extend toward producing wells. This to settle to the bottom. This will result in a low recovery
is one explanation for early solvent break-through and factor since only a thin layer at the top of formation is
poor sweep efficiency. As can be seen from Equation solvent flooded while the bottom layer is waterflooded.
(3), the concept of injecting water alternately with the Stone (1982) showed that recovery is primarily a func-
miscible fluid improves the overall mobility of the dis- tion of the viscous-gravity ratio, VGR, defined as:
placement and thus improves the areal sweep efficiency.
Areal sweep efficiency in a miscible flood is also a func- VGR= q, (4)
tion of areal heterogeneity, geometry of pattern flood, dp k, a (k,. + k,,)
dispersion/diffusion, pore volume of solvent injected, Jl, Jl.
and water alternating gas ratio (WAG).
where q, = total flow rate
Craig (1971) extensively reviews lab measurements for
dp = density difference between water
displacement with a favourable mobility ratio where the
and solvent
displacement front is stable and the effect of viscous
k, vertical permeability (mD)
fingering is insignificant. For an unfavourable mobility
A reservoir area
ratio, Habermann (1965), Mahaffey et al. (1966), Dyes
~ = relative permeability to water
et al. (1954), and Kimbler et al. (1969) measured areal
Jlw water viscosity (m Pa.s)
sweep efficiency of a homogeneous five-spot pattern
k,., relative permeability to solvent
for a single-front displacement, where solvent was
Jlg = solvent viscosity (m Pa.s)
injected continuously and initially oil was the only
mobile fluid. The data indicated that areal sweep The recovery factor is also a function of water-gas
efficiency at solvent break-through decreases with ratio. For the same solvent slug size, higher values of
increasing mobility ratio. WAG may result in higher recoveries.
Claridge (1973) developed a correlation for areal sweep Based on the Stone (1982) model, Jenkins (1984)
efficiency by using Dyes' data and applying Koval's presented a solution for estimating the vertical
(1963) equations for linear displacement efficiency of sweep efficiency for a horizontal displacement in a
an unstable displacement. This correlation applies to a homogenous reservoir with either rectangular or radial
confined five-spot pattern -in a homogenous, single-layer geometries. This model will provide only a rough esti-
reservoir where the gravity force is negligible compared mate of the vertical recovery due to the limitation in
to the viscous forces and in the absence of movable water ignoring capillary pressures, nonuniform saturation
or gas. Because of these assumptions, the Claridge distribution, and physical dispersion. Hence, this model
method can be used only for agross estimation of areal is recommended only for the screening study.
sweep efficiency. Okazawa et al. (1992) used the Claridge correlation for
the estimation ofareal sweep efficiency, and the Stone-
Estimation of Vertical Sweep Efficiency
Jenkins model for the estimation of vertical sweep
for Horizontal Miscible Floods
efficiency to predict the performance of large-scale mis-
In a horizontal miscible displacement, where the cible flood. The Okazawa model may be used for the
density of the solvent is much less than the density of screening study or performance monitoring of a large-
either oil or water, vertical sweep efficiency is substan- scale miscible flood. However, for a feasibility study, a
tially reduced as a result of gravity segregation where detailed geological study and a simulation study are
solvent overrides oil. Parameters that affect vertical recommended.
sweep efficiency are reservoir stratification, vertical The volumetric method can also be used to estimate the
distribution of flow capacity and segregation of incremental reserves from vertical miscible floods. In

176

______________________a
ENHANCED RECOVERY BY HYDROCARBON MISCIBLE FLOODING

this estimation it is important to calculate with coning ultimate recovery is the incremental oil due to the
correlations the sandwich loss due to water and gas miscible flood.
coning. The BTR method can be used to generate a production
Field Estimation of Volumetric Sweep forecast for the preliminary evaluation of hydrocarbon
Efficiency miscible floods. The incremental hydrocarbon miscible
flood estimated from the volumetric method, the water-
Many experimental and mathematical studies of flood reserves obtained from extrapolation ofWOR vs.
volumetric sweep efficiency have been presented in the cumulative oil, and the economically limiting BTR are
literature. However, little attention has been paid to used to determine the ultimate point on the BTR curve.
the field evaluation of volumetric sweep efficiency. The BTR curve is then constructed based on waterflood
Asgarpour and Todd (1988) used a radioactive tracer performance and the performance of a similar pool un-
program along with the simulation study to estimate the der hydrocarbon miscible floods. Finally, the production
volumetric sweep efficiency for an ongoing miscible forecast is generated using a trial-and-error procedure
flood in central Alberta. In the simulation study, the (i.e., an oil rate is assumed-the total production rate
historical performance of the primary natural water is obtained from the BTR curve and this rate is com-
drive and the first five years of solvent injection were pared with the injection rate for appropriate voidage
reproduced with a fair degree of accuracy by a pseudo- replacement).
miscible model. This information, along with the results
The BTR method can also be used to estimate the
ofthe radio-active tracer program, was used to estimate
incremental reserves and monitor the performance of
the volumetric sweep efficiency of 45 percent for this
ongoing miscible floods (Asgarpour et al., 1988). The
flood. This study concluded that the effect of gravity
incremental reserves are estimated by the extrapolation
override and viscous fingering were much more
ofthe BTR curve to the economically limiting BTR pro-
moderate than had been expected from the lab models.
vided that the pool is in a mature stage (i.e., BTR >5).
12.5.2 Break-Through Ratio Method 12.5.3 Geological Model
The break-through ratio, BTR, is defined as the water
For the geological study, structural and stratigraphic
production plus free gas production at reservoir condi-
cross sections are constructed to evaluate the effect of
tions divided by the oil production at stock tank
stratification for the horizontal miscible flood or the
conditions.
impact of shale barrier for the vertical miscible flood.
BTR = (GOR - R,) x Bg + (WORx Bw ) (5) The determination of vertical and horizontal permeabili-
where GOR = gas-oil ratio ties and the averaging method is also essential for this
R, = solution gas-oil ratio evaluation. From this model, input data is provided for
B g = gas formation volume factor the simulation studies.
WOR = water-oil ratio
12.5.4 Simulation StUdies
B; = water formation volume factor
A black oil simulation study is conducted to reconcile
The BTR vs. cumulative oil production plotted on the geological and reservoir data by 'history-matching
a semi-log graph for most waterfloods is a straight the pool performance under primary and secondary
line terminating at the ultimate recovery and the drive mechanisms. This model provides saturation
economically limiting BTR. The upward trend of the distribution, pressure, etc. required for a subsequent
BTR line for a waterflood is due to the increase in water pseudo-miscible or compositional study. Pseudo-
production. For a miscible flood that is implemented
miscible or compositional models are used to generate
after a waterflood, the BTR curve is expected initially
production forecasts and predict reservoir performance
to have a downward trend as a result of a steady decline
under several miscible flood options. Project design is
in water production accompanied by an increase in oil
then based on the optimum case.
production. This downward trend will be followed by
an upward trend primarily due to solvent and chase gas The compositional simulator is capable of evaluating
break-through and later by an increase in water produc- and predicting changes in compositions and press-
tion. The upward trend of the BTR will terminate at the ures of the hydrocarbon phases. Since the model is
ultimate recovery and the economically limiting BTR. developed to simulate flow in three dimensions, it con-
The difference between the waterflood recovery and the siders cross-flow between layers, gravity segregation,
channelling, and the effect of variable mobility.

177
DETERMINATION OF OIL AND GASRESERVES

Simulation studies using the compositional simulator distribution ofthe parameters required for the reserves
can be used to estimate slug size requirements and the estimation and the output is the reserves distribution.
effects of mass transfer between phases on miscibility Figure 12.5-1 shows a reserves distribution for a
conditions at the leading and trailing edges of the proposed miscible flood in central Alberta. Based on
mixing zone. Lack ofphysical dispersion or mixing pa- this distribution, a different reserves category can be
rameters in the miscible flow calculation is a major assigned. For example, this figure indicates proved
drawback. However, this problem can be overcome by reserves of 1.375 million cubic metres with 80 percent
adjusting the numerical dispersion to reflect the physi- confidence.
cal dispersion. The major problem with this model to
date has been the cost, which makes a field study im-
practical. The advent of a high-capacity PC version is
100
reducing this problem.
There are two types ofcompositional model: one based 80 ----- - - --
on k value correlations, and the other on the equation of ~
60
state. The first is more cost-effectivebecause ofthe lower ~
computational cost for the flash calculations. Prior to a
:0
m
.c 40
t
simulation study, phase behaviour should be studied e
a.
20
so that the fluid can be properly characterized and the
equation of state can be "tuned" to experimental data. o -I---.-,r-'-r----,--.---,--;:=;---.--
The pseudo-miscible model was developed (Todd and o 1.0 2.0 3.0 4.0

Longstaff, 1972) by modifying an existing three-phase Incremental Reserves (106m3)

simulator to forecast miscible flood performance. The


simulator is capable of modeling the essential features Figure 12.5-1 Reserves Distribution
of miscible displacment by a fairly coarse numerical
grid. The degree of dispersion rate between solvent and 12.5.6 Determination of Solvent and
oil, which reflects the degree of viscous fingering, is Chase Gas Slug Size
represented by an input mixing parameter. For most field In a miscible flood, the total amount of solvent used
applications mixing parameters in the range of0.5 to 0.8 should be enough to maintain miscibility conditions at
are used. For a system exhibiting strong gravity seg- the displacement front in the bulk of the reservoir.
regation, a large number of grid blocks is required to Whereas heterogeneity and stratification have a net
represent different layers. effect ofincreasing the solvent losses and consequently
Production forecasts from the simulation study are the solvent requirements, economic considerations
used to conduct detailed economic evaluations, make dictate optimizing these amounts. The principal param-
project decisions and obtain management, partner and eters determining solvent losses are the dispersion and
regulatory approval. mixing coefficient. Unfortunately, no simple methods
for determining these coefficients are available. The
12.5.5 Estimation of Uncertainties
complexity of the flooding process makes the interpre-
The estimation ofincremental reserves for a hydrocarbon tation of data from any of the available methods
miscible flood depends on several parameters: porosity, extremely difficult. These complexities, besides hetero-
pay thickness, areal extent, residual oil saturation to geneities and stratification, could be a result ofthe front
waterflood, connate water saturation, formation volume displacement, the geometry of flood propagation
factor, and residual oil saturation to miscible, areal and (Asgarpour et aI., 1989), dead end pores (Asgarpour,
vertical sweep efficiency. For most ofthese parameters, 1987), the nature of the miscible flood (Chen et aI.,
only a range may be available. In reserves estimation, 1986), the presence of mobile water or trapped gas
the uncertainty associated with these parameters should (Asgarpour et aI., 1986, Tiffin, 1982), and wettability.
be taken into account. To properly describe the risk and Furthermore, the dispersion observed in a single core
uncertainty associated with the incremental reserves sample is different from what is observed a few metres
of a proposed hydrocarbon miscible flood in central around a wellbore. These dispersions, in tum, could
Alberta, Asgarpour and Papst (1990) developed a be different from those observed over the inter-well
statistical model based on the Monte Carlo simulation distance in the reservoir.
technique. The input parameters to this model are the

178

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _.--0
ENHANCED RECOVERY BY HYDROCARBON MISCIBLE FLOODING

The most common method to determine solvent mature miscible floods where a large portion of solvent
and chase gas slug size is on the basis of dispersion- has been injected, horizontal injectors can be drilled to
diffusion calculations at the leading and the trailing access the unswept layers and improve the volumetric
edges ofthe solvent-oil mixing zone (Asgarpour, 1987). sweep.
12.5.7 Field Performance of Miscible In horizontal miscible floods, producers should also be
Floods equipped with mechanical packer assemblies to control
solvent cycling. In the latter stages of miscible floods,
The performance of hydrocarbon miscible floods has
horizontal producers may be used to improve produc-
been extensively reviewed in the literature (Griffith and
tion from layers with low productivity.
Home, 1975), (Beeler, 1977), (Reinhold et aI., 1992),
(Anderson et al., 1992), (Pritchard and Nieman, 1992), Poor vertical sweep efficiency caused by gravity over-
(Patel and Broomhall, 1992), (McIntyre et aI., 1991), ride can also be partially improved by increasing the
(Adamache et aI., 1990), (Fong et aI., 1990), (Wood et solvent and water injection volumes.
aI., 1990), (Bennett and Geoghegan, 1990), (Okazawa The miscibility process also plays a significant role in
and Lai, 1989), (Dawson et aI., 1989), (Bilozer and the success and failure of the hydrocarbon miscible
Frydl, 1989), (Sorenson and Griffith, 1988). In general, process. Usually, the first-contact and condensing
vertical miscible floods have been more successful than multiple-contact miscible processes have proved to
horizontal floods due to the gravity stable displacement. be more successful than the vapourizing process. The
However, in some vertical hydrocarbon miscible floods, poor success of the latter may be due to the presence of
poor geological understanding of the reservoir has pockets of gas in reservoirs with pressures near the
resulted in lower than expected reserves due to the bubble-point pressure. This gas may dilute the solvent
presence of shale barriers which resulted in poor volu- to the extent that it is no longer miscible with oil.
metric sweep efficiency. Sandwich loss due to gas and
12.6 CLASSIFICATION OF MISCIBLE
water coning has also been a major factor in reducing
HYDROCARBON RESERVES
the incremental reserves and economics. Recently, in a
few hydrocarbon miscible floods, through innovative For the purpose of estimating reserves, it is important
completion techniques, the volumetric sweep efficiency to identify the development stage of the project. The
has been increased significantly by the reduction of stage will signify the degree of confidence in recovery
sandwich loss. of the reserves and can be linked, therefore, to the
timing of allocation of reserves to various categories.
In vertical miscible floods, horizontal wells can be used
as both producers and injectors. Horizontal producers 12.6.1 Possible Reserves
drilled at the water-oil interface can reduce coning prob- It is suggested that prior to classifying any miscible
lems and improve the volumetric sweep efficiency. reserves in the possible category, a reservoir engineer-
Horizontal injectors drilled in vertical miscible floods ing study should be completed to identify the reserves.
can provide a stable solvent transition zone, prevent the An economic evaluation should also be conducted based
pure solvent from fingering into oil, and improve the on the present, or on a reasonable anticipated, economic
volumetric sweep efficiency. condition. A confidence level of 10 to 40 percent prob-
The major problems associated with the horizontal ability of the incremental EOR reserves being recovered
miscible floods are gravity override and viscous finger- is required to allocate reserves to the possible category.
ing. In addition, poor injection profile control has Caution should be used in estimating possible reserves
resulted in a low vertical sweep efficiency in many based only on analogy to similar pools under miscible
floods. In these, the layer with the highest capacity takes flood. The feasibility of a miscible scheme is depen-
the bulk of the solvent. Only a small portion of the dent upon numerous complex parameters, and simple
reservoir can be contacted, and solvent is cycled through analogy is usually misleading.
this layer without improving the incremental reserves
Miscible flood reserves in the possible category serve
from the other layers. Therefore in the early stages of
for easy identification of EOR potential for business
floods, equipment of injectors with mechanical packer
planning. Once the business opportunity is identified, it
assemblies is important to control the amount of sol-
can set in motion an action plan for implementation of
vent injected per layer so each layer receives enough
the scheme.
solvent to meet the miscibility criteria. However, for

179
DETERMINATION OF OILAND GAS RESERVES

12.6.2 Probable Reserves Asgarpour, S.S., and Todd, M.R. 1988. "Evaluation
When the project is in the implementation phase, of Volumetric Conformance for the Fenn-Big
tertiary EaR incremental reserves can be allocated Valley Horizontal Hydrocarbon Miscible Flood."
to the probable category provided there is sufficient Proc., 63rd Annual Technical Conference and
confidence (40 to 80 percent) that these reserves are Exhibition, SPE of AIME, Houston, TX.
expected to be recovered. Asgarpour, S.S., Card, C., Singhal, AX., and Wong,
12.6.3 Proved Reserves T. 1989. "Performance Evaluation and Reservoir
Management of a Tertiary Miscible Flood in the
The amount of incremental tertiary EaR reserves
Fenn-Big Valley South Lobe D-2 Pool." JCPT,
allocated to the proved category should be based on Nov-Dec, 1989, p. 6.
the performance of the miscible flood. In the year the
scheme is started, a small percentage ofthe incremental Asgarpour, S.S., and Papst, W. 1990. "A Statistical
reserves could be added to the proved category based Model to Evaluate a Hydrocarbon Miscible Flood
on the confidence level (Mukherjee, 1988). in an Upper Devonian Field in Central Alberta."
JCPT, May-Jun. 1990, p. 61.
Additional hydrocarbon miscible reserves may be
allocated to the proved category in a gradual manner Beeler, P.F. 1977. "West Virginia CO 2 Oil Recovery
over a period of time provided there is sufficient tech- Project Interim Report." Proc., US DOE
nical confidence in the scheme that the proved reserves Symposium on Enhanced Oil and Gas Recovery
figure has a high probability (80 percent) of being and Improved Drilling Methods, Tulsa, OK, Aug.
recovered. - Sep. 1977.
Bennett, F., and Geoghegan, J.G. 1990. "Monitoring
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Jun. 1990. Mature Miscible Flood in Rainbow Field,
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Kennedy, P. 1992. "Brassey Field Miscible Flood Technical Conference, San Antonio, TX; Proc.,
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180

2
-I
ENHANCED RECOVERY BY HYDROCARBON MISCIBLE FLOODING

Deans, H.A. and Majoros, S. 1980. "The Single-Well Okazawa, T., and Lai, F.S.Y. 1989. "Volumetric
Chemical Tracer Method for Measuring Residual Balance Method - To Monitor Field Performance
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181
...
.""'"

DETERMINATION OF OIL AND GASRESERVES

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No. CIM/SPE 90-79, Jun. 1990.

182

c
Chapter 13

ENHANCED RECOVERY
BY IMMISCIBLE GAS INJECTION

13.1 INTRODUCTION Notable exceptions can occur, however, when the


Immiscible' gas injection (gasflood) was first used to subject reservoir has any of the following:
enhance oil recovery before the turn of the century and A sizable original gas cap
actually predates the use of water as an injectant. As A remote location where gas sales are not feasible
with water, gases are used for both their pressure main-
A location that lacks a suitable or economically
tenance and their fluid displacement properties. In the
attractive water source
case ofgas injection, however, displacement takes a de-
cidedly secondary role. A further difference can also be Extremely low permeabilities, making waterflood-
attributed to the fact that gases can have a substantial ing impractical
degree of mutual solubility with crude oil and hence Water-sensitive minerals
can, to some extent, do the following: Extreme attic oil losses (e.g., due to adverse coning
Vapourize various oil components characteristics)
Cause contacted oil to expand and mobilize Substantial vertical relief
Reduce viscosity of contacted oil If any of these conditions are present, the feasibility
All three phenomena may enhance oil recovery beyond of employing a gasflood for enhancing the primary
that expected from a simple gas-liquid displacement recovery mechanism should be considered.
process.
13.2 TYPES OF FLOODS
The gasflood injectant that is most commonly used is
Gasfloods have historically been categorized as being
hydrocarbon-based, not necessarily due to its effective- one of two types according to where the gas is injected
ness, but rather to its availability and relatively low cost. in relation to the oil zone. Figure 13.2-1 schematically
Other gases that have been or could be successfully
illustrates an "external" or updip injection scheme, and
employed include (but are not limited to) nitrogen (N,), a "dispersed" or pattern-style flood. Although both types
carbon dioxide (CO,), sulphur gases, flue gas, and air. are subject to similar physical processes and principles,
Despite the fact that the performance of a gas injection they have by design, different primary gas flow direc-
scheme can, under some circumstances, compete with tions (vertical for external; horizontal for dispersed).
or even surpass that of a waterflood, the use of gas- This can cause them to have very different performance
flooding has diminished with time particularly during characteristics and hence different prediction technique
the last 25 years, when natural gas became an increas- requirements.
ingly valuable commodity. In addition to the cost of External injection schemes are more popular and
foregone gas sales, high-pressure gas injection schemes effective as they are often used to assist a primary gas
also carry added costs associated with high pressure cap drive, and because they take advantage of the natu-
injection flowlines, compression, reprocessing, and ral phenomenon of gravity segregation or "override,"
possibly the purchase of gas external to the project. a process that is detrimental to the effectiveness of
These additional costs often make waterflooding or even horizontally flooding with gas. External gravity
primary recovery more economic than gasflooding. stable injection projects have exhibited incremental
recoveries as high as 40-50 percent.
Dispersed gas injection schemes are relatively rare, and
Immiscible refers to gas and oil existingas separate phases when used in the absence of a gravity stable process,
in all concentrations everywhere withinthe system.

183
DETERMINATION OF OIL AND GASRESERVES

EXTERNAL GAS INJECTION

Oil Gas Oil Gas


Production Injection Production Injection

- --
DISPERSED GAS INJECTION
Oil Gas Oil
Production Injection Production

--~---------------------------------
Figure 13.2-1 Gas Injection

they have historically shown themselves to be only reservoir; or (3) recede at a controlled rate with some
marginally effective, with typical recoveries of only a other mechanism employed to deplete the reservoir.
few percent. This is due to the adverse impact of the It should be noted that for a vertical gas displacement
strong tendency for gas to find the path of least configuration, gas need not necessarily be injected
resistance, either vertically (override) or areally (fin- directly into the gas cap or even the structurally highest
gering). Furthermore this tendency is considerably point as the gas will migrate to these locations of its
aggravated by the existence of almost ever-present own accord. This is a particularly useful attribute when
geological heterogeneities. flooding dipping reservoirs where considerations such
In addition to this distinction, further subsets can occur as surface topography may limit access to the structural
due to the degree ofpressure maintenance invoked (full highs.
or partial) and, in the case of vertical schemes, the ex-
istence or nonexistence of a gas cap. Combining both 13.3 PERFORMANCE PREDICTION
ofthese variables results in vertical floods in which the The flood stage at which one of five basic prediction
original gas-oil contact will (I) advance, resulting in a techniques is most appropriate is treated in consider-
true gas displacement process; (2) remain stable, allow- able detail in Chapter II. The reader is encouraged
ing for some other mechanism to be used to deplete the to review this passage for the rationale behind the
recommended methods shown in Table 13.3-1.

184
___________________a
ENHANCED RECOVERY BYIMMISCIBLE GASINJECTION

Table 13.3-1 Recommended Performance mobilityratio, and the long oil-production tail is caused
Prediction Methods by gravity drainage.

Stage Prediction Technique 13.3.2 Dispersed Gas Injection Schemes


Exploration/discovery Analogies, volumetrics As with external gas injection projects, the preferred
Delineationthrough Analogies,numerical simulation, methodfor estimatingrecovery and future performance
early life volumetrics, analytical methodsI is numerical simulation-not an easy task as the rapid-
Middle through Numerical simulation. ity and degree of gas break-through are often difficult
late life decline analysis to simulate. This is a direct consequence of the low vis-
cosity and density of the gas, and its nonwetting
A word of caution in the use of these recommendations characteristics, which combine to generate very high
is warranted: regardlessofthe depletion stage and tech- mobility ratios (50 to 100 times that of water) and, as a
niqueemployed, it is wisewheneverpossible to use more result, poor sweep efficiencies.
than one procedure as a cross-check or validation Should the lack of time or data not permit a simulation
process. to be undertaken, the analyticalPirson (1958) technique
When gas injection is used primarily for pressure for solution gas drive can be utilized, as can Craig's
maintenance anddisplacement," production performance horizontal displacement technique (Craig et al., 1955).
prediction methods are eitherfor external injection meth- These methods are discussed and recommended in
ods, which are an extension of gas cap drive prediction Chapters 9 and II, respectively.
techniques; or for dispersed injection schemes, which The volumetric analysis technique described in
arean extension of solutiongas drivemethods withmany Section 11.5 is also applicable, but particular care must
elements similar to horizontal waterfloods. be paidto the estimation of horizontaland verticalsweep
Due to these and previously noted similarities, the efficiencies. In addition to the expected mobility-ratio-
various analysis techniques will not be described in as induced reduction in areal sweep (Dyes et aI., 1954),
completea manner as they are elsewhere.To avoid rep- and the layering-induced reduction in vertical sweep
etition, only those aspects that need to be emphasized (Stiles, 1949),furtherefficiency losses can occur due to
or that are unique to gasflooding are described here. both override and fingering. Analogous reservoirs and
mechanistic numerical models may be used to evaluate
13.3.1 External Injection Schemes the significance of these two phenomena.
As noted in Chapter 9, the preferred techniquesinvolve
References
the use of material balance or numerical simulation
methods. The analytical Welge (1952) method is also Craig, F.F. Jr., Geffen, T.M., and Morse, RA. 1955.
recommended as a shortcut approach. Further to this, "Oil Recovery Performance of Pattern Gas or
however, often it is important to include the effects of Water Injection Operations from Model Tests."
gravitydrainage as reportedby ShreveandWelch(1956) JPT, Jan. 1955, pp. 7-14; Trans., AIME, Vol.
and Craig et al. (1957). 204.
If decline analysis techniques are to be used for perfor- Craig, F.F. Jr., Sanderlin, J.L., Moore, D.W., and
mance prediction purposes, it should be noted that Geffen, T.M. 1957. "A Laboratory Study of
gas-drive-only reservoirs, after an initial period of Gravity Segregation in Frontal Drives." JPT, Oct.
sustained oil production, often exhibit harmonic de- 1957,pp. 275-81; Trans., AIME, Vol. 210.
clines; the initial rapid decline is caused by the adverse Dyes, A.B., Caudle RH., and Erikson, R.A. 1954.
"Oil Production after Breakthrough as Influenced
by Mobility Ratio." JPT, Apr. 1954, pp. 27-32;
Trans., AIME, Vol. 201.
1 A concise set of examples utilizing classicalanalytical
Pirson, SJ. 1958. Oil Reservoir Engineering.
prediction techniques for both external and dispersed
McGraw-HiIl Book Co. Inc., New York, NY,
injection witheither complete or partial pressure
maintenance can be found in Roebuck (1987). pp. 484-532.
2 If phase behavior effects playa significant role,
Roebuck, J.F. Jr. 1987. "SPE Petroleum Engineering
compositional numerical simulation must be given serious Handbook." SPE of AIME, Chapter 43, Appendix
consideration as the preferred prediction technique. A, pp. 10-13.

185
DETERMINATION OF OIL AND GASRESERVES

Shreve D.R., and Welch, L.W. Jr. 1956. "Gas Drive Welge HoI. 1952. "A Simplified Method for
and Gravity Drainage for Pressure Maintenance Computing Oil Recovery by Gas or Water Drive."
Operations." JPT, Jun. 1956, pp. 136-43; Trans., Trans., AIME, Vol. 195, pp. 91-98.
AIME, Vol. 207.
Stiles, W.E. 1949. "Use ofPerrneability Distribution
in Water Flood Calculations." Trans., AIME, Vol.
186,pp. 9-13.

186

s
Chapter 14

ENHANCED RECOVERY
BY THERMAL STIMULATION

14.1 INTRODUCTION and the quick return on investment. The ultimate oil
The thermal recovery processes that have been used recovery from this process (1520 percent) is generally
extensively for the recovery of heavy oil and bitumen much lower than recovery from steam flood (2050
from the oil sands have met with mixed success. percent). However, most steam stimulation processes
The term "heavy oil" is used to designate crude oils may be converted to steam flood once inter-well heat
having an API gravity range of IS to 25 degrees. Heavy communication has been established.
oil is literally heavier, thicker and slower to pour than Cyclic steam stimulation is a single well process with
the conventional light and medium crudes. Heavy oil, injection and production carried out at the same well.
however, is relatively mobile at reservoir conditions and Steam is injected into the well for a certain length of
can be successfully produced by primary recovery meth- time, usually at a rate and steam quality that are rela-
ods. Thermal recovery processes are then used to further tively constant (60.80 percent cold water equivalent at
increase the recovery of heavy oil. wellhead). Generally, the steam injection rate is the
The bitumen found in the oil sands deposits is a viscous maximum rate obtainable at bottom-hole pressures be-
mixture of hydrocarbons with an API gravity of less low the formation fracture pressure. The bottom-hole
than 15 degrees and a viscosity of several thousand steam quality and pressure may be predicted using
centipoise at room temperature. Thus, bitumen is not wellbore models ofthe type discussed by Fontanilla and
economically recoverable in its natural state by conven- Aziz (1982) and others (Farouq Ali, 1981; Durrant and
tional primary or secondary recovery methods. Thambynayagam, 1980; Willhite, 1966).
The ultimate objective of any thermal process is to The well is allowed to soak for a period (of at least a
improve the mobility ofthe crude by reducing its viscos- few days) that depends on the volume ofsteam injected;
ity through the introduction of heat into the reservoir. soaking allows the injected steam to condense and dis-
In addition, steam pressure and thermal expansion also tribute the heat more evenly. At the end of the soak
enhance the driving forces present in the reservoir: period, the well is put on production. The reservoir pres-
gravity drainage, solution gas drive, and reservoir sure during the initial production period is very high,
compaction. The following are the thermal processes and fluids are able to flow back under the reservoir pres-
most commonly used for the recovery of heavy oil and sure alone. The production during this flowback period
bitumen: consists mostly of hot water, flashed steam, formation
gases, and traces ofoil. Upon completion ofthe flowback
Cyclic steam stimulation period, the reservoir pressure will have dropped and a
Steam flood bottom-hole pump will be required to lift the reservoir
In situ combustion fluids.
Electromagnetic oil heating These injection-production cycles are repeated until the
These are discussed in the sections that follow. oil production rate drops below the economic limit. At
this stage, other thermal recovery methods such as steam
14.2 CYCLIC STEAM STIMULATION flooding or in situ combustion may be considered.
Cyclic steam stimulation is probably the most widely
14.2.1 Process Variation
used thermal recovery process at the present time. The
popularity of this process is mainly due to its relative The cyclic steam stimulation process is sometimes
ease of application, the low initial capital required, modified in order to improve its sweep and thermal

187
.,-1
C.', !

DETERMINATION OFOILANDGASRESERVES
I

efficiencies. Laboratory studies and field tests have been 4. Thermal expansion ofoil providing energy for fluid
conducted to investigate the addition of chemicals or flow (Denbina et aI., 1987)
gases to the injected steam. These include surfactants,
5. Reservoir compaction maintaining reservoir
carbon dioxide, ethane, naphtha, methane, propane,
pressure (Denbina et al., 1987)
butane, heptane, natural gas, air, and oxygen (Kular et
al., 1989; Ploeg and Duerkson, 1985; Ivory et al., 1991; 6. Steam distillation causing the lighter hydrocarbons
Pursley, 1974; Waxman et aI., 1980). The following are to separate from the heavy ends and form a
the major mechanisms by which steam additives miscible oil bank ahead ofthe steam front
improve oil recovery: 14.2.4 Design Considerations
I. The diversion ofsteam to higher oil saturation zones Screening guidelines have been developed by many
improves sweep efficiency. researchers (Adams and Khan, 1969; Belyea, 1956;
2. The reduction in surface tension ofthe oil improves Boberg and Lantz, 1966; Buckles, 1979; Bums, 1969;
displacement efficiency. Crawford, 1971; Doscher, 1966; Gontijo and Aziz, 1984;
3. Gas expansion and flashing of solution gases Prats, 1978; Shepherd, 1979; Williams et aI., 1980) in
provide an additional driving force in the reservoir. order to define the reservoir and fluid properties under
which steam stimulation processes are most likely to be
Although steam additives seem to offer some potential
economical. The following guidelines are based on the
under certain reservoir and operating conditions, fur-
results of some successful projects:
ther research and testing are needed to improve the
recovery of the cyclic steam stimulation process. Formation thickness (m) > 10
Depth (m) 400 to 1000
14.2.2 Field Examples
Porosity (% PV) > 30
The following are some of the steam stimulation and
steam flood projects in Canada and the United States: Permeability (mD) 250 to 1000
API gravity (degrees) 10 to 34
Shell Peace River Thermal Pilot (Waxman et aI.,
1980) Oil viscosity at reservoir
Husky Paris Valley Cyclic Gas-Steam Pilot (Meldau conditions (mPa.s) < 15,000
et aI., 1981) Initial oil saturation (% PV) > 40
Petro-Canada PCEl Steam Stimulation Project The mechanisms involved in a steam stimulation
(Towson and Khallad, 1991) process are very complex. Methods used to predict per-
Amoco Gregoire Lake In Situ Steam Pilot (Kular et formance are only approximate at best because of the
aI., 1989) many simplifying assumptions that have to be made.
Nevertheless, there are certain prominent factors that
Chevron Keen River Steamflood Project (Oglesby et
al., 1982) may affect the oil recovery in a steam stimulation pro-
cess: the volume of steam injected, steam quality,
Esso Cold Lake Thermal Project (Mainland and Lo, injection pressure, and reservoir thickness. The amount
1983) of heat injected determines the volume of heated reser-
Athabasca Oil Sands Project voir and ultimately the percentage of oil recovery. A
thick pay zone is also desirable for effective gravity
14.2.3 Recovery Mechanisms
drainage (Butler et aI., 1981; Dykstra, 1978). The depth
Cyclic steam stimulation and steam flood recovery ofthe reservoir is another important factor. Deep reser-
mechanisms are as follows: voirs (2000-3000 m) may not be suitable for steam
I. Reduction ofoil viscosity due to increased tempera- stimulation, because of the large heat losses from the
ture wellbore. On the other hand, shallow reservoirs (200-
2. Steam pressure providing the drive energy for oil 250 m) may not allow high enough injection pressures
to flow towards the producing well to maintain reasonable steam injection rates and
provide sufficiently high steam temperatures for the
3. Gravity drainage of the liquid phases (Denbina et
reduction of oil viscosity.
aI., 1987; Cardwell and Parson, 1949; Farouq Ali,
1982) The well patterns most commonly used for the cyclic
steam stimulation process are the 5-spot and the 7-spot,
which allow the conversion of cyclic steam stimulation

188

_______________________a
ENHANCED RECOVERY BYTHERMAL STIMULATION

to steam flood later if desired. Single weIl tests variety of surfactants. CommerciaIly available
(Dillabough and Prats, 1974) are generally conducted surfactants are now chemically stable at temperatures
to obtain preliminary data on recovery potential, oper- up to 300C. However, the in situ behaviour offoam is
ating costs, and other design factors. Well spacing may still not fully understood, and field tests (Kular et al.,
vary from 0.4 to 2 hectares. Infill drilling has also been 1989; Patzek, 1988; Sander, 1991) indicate that its propa-
used to exploit developed heat zones and achieve early gation in the porous medium is very slow. In most cases
inter-well communication. Another common practice in the cost of surfactants offsets the possible benefits.
commercial projects is to drill clusters ofdeviated wells Field pilots have been conducted to test the injection of
from a single well pad in order to optimize the use of gas atthe boundaries ofthe steam zone to improve steam
land and surface facilities. confinement and to maintain the pressure in the steam
14.3 STEAM FLOODING zone. The injection of air with steam provides another
less expensive alternative to the use of surfactants. The
. In the steam flood process, steam is injected into the steam-air process works on the assumption that low tem-
reservoir on a pattern basis, much like a waterflood. perature oxidation produces coke particles that tend to
Various well patterns, including the 5-spot and 7-spot, plug the pore throats and provide resistance to flow
have been employed. The injected steam reduces the (Ivory et al., 1991). Thus, steam is diverted to other parts
viscosity of the oil and provides the driving force
of the reservoir, and the result is an improved sweep
required to move the oil towards the producing wells. efficiency.
In the application ofthe steam flood process to oil sands
deposits, it is essential to achieve flow communication 14.3.2 Design Considerations
between the injector well and the producers prior to The following guidelines may be used to screen
flooding. Frequently, the wells are produced by steam reservoirs for potential steam flood applications.
stimulation for a few cycles until communication However, these guidelines are only approximate as
between wells has been established, and then steam geological heterogeneities specific to each reservoir
flooding is started. Other naturally existing communi- cannot be accounted for.
cation paths in the oil sands deposits, such as bottom Formation thickness (m) 6 to 20
water and high permeability layers, may provide valu-
Depth (m) 100 to 500
able means of improving injectivity for effective
reservoir heating. Lack of steam injectivity may require Porosity (% PV) >30
hydraulic fracturing ofthe wells before steaming. Permeability (mD) >500
Steam flooding with continuous steam injection can API oil gravity < 25
recover significantly more oil (up to 50 percent) than Reservoir oil viscosity (mPa.s) 5000 to I 000 000
steam stimulation alone (10-25 percent). However, there Initial oil saturation (% PV) > 50
are disadvantages associated with steam flooding. It gen-
erally results in higher steam-oil ratios than cyclic steam Recovery with steam flood is approximately 40 to 50
stimulation because of the much larger volume of res- percent ofthe original oil in place, with steam-oil ratios
ervoir that must be heated before any significant oil in the range of 5 to 7. The steam-oil ratios are depen-
recovery is realized. The amount of reservoir heating dent upon the nature of the reservoir. Very deep
required in cyclic steam stimulation is confined to the reservoirs (1200-1500 m) may be impractical for steam
near-wellbore region, and oil production is therefore flooding due to the excessive heat losses in the wellbore
realized much earlier. and the very high steam pressure required at the sur-
face. The reservoir should be at least 6 to 10 metres
14.3.1 Process Variation thick to minimize heat losses to the overburden and
A number ofadditives have been injected with steam to underburden. Successful steam flood processes are gen-
improve the oil recovery by the steam flood process. erally in shallow (300 m) reservoirs having reasonably
These additives improve the thermal and sweep effi- high porosity (30-40 percent pore volume), permeabil-
ciencies of the injected steam by diverting it towards ity less than I darcy, and oil saturation of 85-90 percent
the colder regions of the reservoir. pore volume.
Patzek (1988) and others (Kular et al., 1989; Ploeg Injection rates for steam flood are generally designed to
and Duerkson, 1985; Sander, 1991; Suffridge, 1991; compensate for heat losses to the adjacent formations
Butler, 1986) have reported mixed success using a while providing effective heating of the reservoir.

189
DETERMINATION OF OIL ANDGASRESERVES

During pilot testing, steam injection rates should also consists of a thin highly water-saturated zone near the
compensate for the heat flowing out of the pattern due bottom of the formation and a fining upward sand
to the lack of steam confinement. Steam flood processes sequence. This results in good thermal efficiency and
are usuaIly started at high injection rates, which are later high oil production rates.
optimized once steam gravity override or steam break- Gas Cap. The presence of a gas cap will tend to
through occurs (Myhill and Stegeimeier, 1978; Chu and channel injected steam to the top of the formation, re-
Trimble, 1975; Ali and Meldau, 1979; Bursell and sulting in excess heat loss and poor thermal efficiency.
Pittman, 1975; Vogel, 1982; Belvins, 1978; Stokes, However, the extent of the gas cap is a critical factor
1978; Van Dijk, 1968). Where fluid communications especially if gravity drainage is the predominan;
have already been developed through cyclic stimula- production mechanism (Kular et a!., 1989). Blocking
tion of the wells, injection rates can be optimized at agents may be used to improve the vertical sweep
start-up. efficiency (Sander, 1991).
However, many factors must be taken into account in Shale. The presence of a substantial and impermeable
designing a steam flood process: the mineral content of shale layer near the middle of the formation may
reservoir rock, the availability of fuel and water, the prevent the rise of the steam zone, resulting in poor
analysis of crude oil, sand production, water disposal volumetric sweep and heat efficiencies.
wells, water treating requirements, production facilities
Thin Formation. Very thin formations may result in
to handle hot fluids, emulsion treating, and transporta-
excessive heat loss to the overburden and underburden,
tion of heavy crude.
leading to poor heat efficiency.
14.4 CAUSES OF FAILURE FOR Lack of Steam Confinement. If the oil sand deposit
CYCLIC STEAM STIMULATION contains natural fractures (e.g., the Carbonate Trend in
AND STEAM FLOOD PROCESSES northern Alberta), a significant fraction of the injected
The following reservoir and operating limitations may steam may be lost. Poor steam confinement may sig-
cause the cyclic steam stimulation and steam flood nificantly reduce the energy available in the heated zone
processes to become uneconomical: to drive the fluids towards the producing well.
Lack of Injectivity. Some oil sands deposits have Low Porosity and Permeability. Some heavy oil
such a high saturation of bitumen that the steam has deposits such as oil shales have such low porosity (less
great difficulty penetrating the highly viscous oil bank. than 20 percent by volume) and low permeability (less
As a result, the steam tends to channel to the poorer part than 100 mD) that the steam injectivity may be seri-
of the formation, which has lower oil saturation and ously limited. Hydraulic fracturing is required to exploit
higher water saturation. Clay swelling due to incompat- such heavy oil deposits (Kular and Chinna, 1988).
ibility between the injected water and the formation Poor Reservoir. Due to the high initial capital invest-
water may also limit steam injectivity. ment and operating costs of the steam processes,
Bottom Water. The term "bottom water" refers to sand reservoirs with less than 40 percent oil saturation are
layers containing mobile water that account for more not likely to be economically recoverable by these
than 20 percent of the formation thickness. Such bot- processes. _.
tom-water layers are detrimental to the cyclic steam Shallow Reservoirs. Shallow reservoirs with insuffi-
stimulation process. Due to the much higher mobility cient overburden will tend to limit the steam injection
of steam in the water zone, most of the injected steam pressure, and thus reduce oil productivity.
will be lost to the water zone, resulting in very poor Deep Reservoirs. Very deep reservoirs have such high
thermal efficiency. During the production cycle, the cold reservoir static pressure that the steam injectivity may
water is much more mobile than the bitumen and will be limited. The oil sand deposits in Alberta generally
tend to be produced first. In addition, the cold water require fracturing before steam can be injected at a rea-
will tend to cool the oil around the wellbore and reduce sonable rate. A deep reservoir means a higher steam
the volume of the heated zone. injection pressure, which requires the added expense of
On the other hand, a thin bottom-water sand can be used high pressure steam generators. Also, deep reservoirs
effectively to heat the formation. For example, the steam cause excessive heat losses from the wellbore, resulting
stimulation process is very successful at the Peace River in the injection of poor quality steam.
Pilot (Waxman et aI., 1980) where the oil sand deposit

190

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _1
ENHANCED RECOVERY BY THERMAL STIMULATION

14.5 FORECASTING MODELS K,b = overburden thermal conductivity


A number of options are available to engineers for (kJ/m/d/C)
predicting the performance of thermal recovery ~T = injection temperature minus initial
processes. These include numerical simulation models, formation temperature (0C)
analytical models and simple correlation equations. D = overburden thermal diffusivity
Ideally, reservoir simulation models will provide the (m2fh)
most accurate answer. However, these models cannot t = time (d)
be utilized in cases where only limited data is available. P = time (d)
Time and, to some extent, cost limitations may also work A = area of steam zone (m-)
against the use of numerical simulation models. As an M, = volumetric heat capacity of formation
alternative, analytical models may be used quite effec- (kJ/m3jOC)
tively for process design and forecasting oil recovery. h = pay thickness (m)
The analytical models for steam recovery processes are
Marx and Langenheim's solution to Equation (I) is given
generally divided into three types. Figure 14.5-1 illus-
in Equation (2):
trates the distribution of fluids as assumed in these
analytical gravity drainage models.
Frontal Displacement Model. This model assumes a A(t) = (HiMrhD) f(x) (2)
4Kob~T
cylindrical steam zone, with displacement of oil over
the full thickness of the oil zone.
where A(t) = area of steam zone (rn-)
Steam Overlay Model. This model assumes that the
x = dimensionless parameter
steam lies directly over the oil zone, and the principal
direction ofsteam zone growth is vertically downwards.
Conical Steam Zone Model. This model assumes that
the steam zone has the shape of an inverted cone. The
steam not only rises upward but also expands outward
due to heat conduction and the drainage of the heated 2x I
oil toward the wellbore. f(x) = e,2 (erfcx) +-- (4)
.,fit
Some of the most commonly used models for predict-
ing the production rates of the cyclic steam stimulation 2
and steam flood processes include those by Marx and
Langenheim (1959), Myhill and Stegeimeier (1978),
erfcx = I - erfx = I - - Ie'
.,fit,
x 2
dP (5)

Vogel (1982), Butler (1986) and Butler et al. (1981).


The development and applications of these models are Applying D' Arcy's law for conditions of gravity
presented in the following subsections. drainage, the rate of oil displacement, qo' in m3/d from
the steam zone may be written as:
14.5.1 Marx and Langenheim Model
Marx and Langenheim developed a frontal displacement Hi<P(SOi-SO,) ] (,2 C )
model in which the growth of the steam zone depends qo = [ e errcx (6)
Mr~T
on the rate of steam injection and the loss of heat to
the overburden and underburden. The heat balance where <P = porosity (fraction)
equation used in this model is written as: So; = initial oil saturation (fraction)
Sor = residual oil saturation (fraction)
Hi = heat loss + heat accumulation
~T = temperature difference between steam
and initial reservoir
= Kob~T J(dA) dP + M,hdT dA
2f'[o "ltD(t-P) (I) temperature (T, - To) (0C)
dP dt Ti = injection temperature eC)
To = initial formation temperature (0C)
where Hi = constant heat injection rate (kJ/d) erf = error function

191
DETERMINATION OF OIL AND GASRESERVES

::::::: Cold Oil-------------------~-----


Zone

Frontal Displacement Model

T . Steam Zone:"
. ,' .

::::::::::::::: Cold Oil Zone :::::::::::::::::::::::::::

----------------------------------------------------------
Steam Overlay Model

--- -------~--

, -------- ---
,,, .-~----- -'.
,
,, ~' " ......
, , ,, 0,' --::.::, ..
,,, ,,,
, , ,~ - : : -
I _
<:
,,
0
,,, ,, ,, ". t e~('('\
,, , , S"',one c;L c a,i..
0 _ ::
e ;-::----
_ - -- _
- -
-

,, \ 0; C,/.- P, .:
0',-
~.I
- _ - - - _-_,
o' .:.:
. ~/-:.:: =--~\O 0\\:
_\ Q
__ - _~oo

- _-::_.-.. 0
. J'-_-_ _-
:'&~-::: -:. z.One
- __ --
:: - - : : ~ o

_-
----
:: -
__ -_- \,,0
- _ - _'0 --~
<:- .-,'-::~- --::---
-v-z>: _-::--
"'("-,,.- ---- -
-
0 0 ,.

-- --:::.-- _"0 e 0/1,.::: _::.:: - -


-
_-- -
_---
_---- _
_--\\ 0 e 0 Q f..-
l--
-
-::--::.--
- - _-
-_-_::t..
- - _-"\00
_-::~o 0
c

- -
-;:'-::::::::--
-::::-- Conical Steam Zone Model
Source: After Gontlio and Azlz, 1984.

Figure 14.5-1 Types of Analytical Gravity Drainage Models

192

c
ENHANCED RECOVERY BY THERMAL STIMULATION

erfc = complementary error function where khz = heat conductivity of steam zone
(Abramowitz and Stegun, 1964) (kJ/m/d/C)
M 2 = volumetric heat capacity of cap rock
14.5.2 Myhill and Stegeimeier Model
(kJ/m3/ 0C)
Myhill and Stegeimeier presented an analytical model t)TS = time of injection (years)
using a simple energy balance to calculate the steam Z, = gross thickness of reservoir (m)
zone size. This energy balance approach is based on the
M 1 = average heat capacity of steam zone
assumption that the oil ultimately produced from both
(kJlkg/C)
steam stimulation and steam flood processes is propor-
tional to the steam zone volume. Other assumptions Figure 14.5-2 is a graph of the thermal efficiency,
made in developing the model are that the steam zone is E hs, vs. the dimensionless time, tD' which can be
cylindrical in shape, and that the thermal properties in used to estimate the thermal efficiency of the steam
the reservoir, the heat losses, and the steam injection processes (Prats, 1986). The ratio, hD, oflatent heat to
rates are constant. It is also assumed that the oil-steam total energy injected is given by:
ratios of any thermal process can be expressed in terms
of a thermal efficiency term, E hs, that is defined as the h = f"L,
---:=.....:...- (9)
ratio of heat remaining in the steam zone to the total D CwLlT + 1
heat injected (Figure 14.5-2).
where fsd = downhole steam quality (fraction)
L, = latent heat of vapourization of steam
s, = 1. (en erfc-F,; + 2 ~ -
tn n
1) (7) (kJlkg)
LlT = injection temperature minus initial
The dimensionless time parameter, tD' is given by: formation temperature (0C)
Ifthe thermal efficiency and enthalpy ratios are known,
35 040 kh,M,t yn it is possible to calculate the maximum oil-steam ratio,
tD = (8)
Z; (M I ) ' OSR, using the following equation:

w
oj
c:
.
~
1.0

0.8
-\ - <,
h D is the ratio of latent heat to
~ I\. '\ -, I::-.. total energy injected
E -, -, ""'" -,
-,
'" I\- l-,
c7J 0.6
'0
-, I'\.,
-, i'-- ~
1>' -, <,
-, 0.667
c
Q)
-:::: l-, .,f;o. ' I
0.5
'0 0.4 <,
ffi <, ,,~
- - ,o.~
'iii <, <;

~
r---...
E <,

~
~ 0.2
r:::: ::::
<;

--- ---- --
I-
0.091

0
0.0
0.01 0.1 10 100
Dimensionless Time, tD
Snurce: After Prats, 1969.

Figure 14.5-2 Thermal Efficiency of Steam Zone as a Function of the Dimensionless Time Parameter

193
DETERMINATION OFOILAND GASRESERVES

condensate and heated oil flow by gravity to a horizon_


PwCw(l + hD ) E"q>dS (~,) tal production well located at the bottom ofthe chamber
OSR= I (I 0) and are removed continuously. The expression for the
M, oil drainage rate, Q, is based on the gravity drainage
theory and is given by:
where Pw = density of water (kg/m')
C; = specific heat of water (kJ/kg/C) 2q>S,kgo.h
Q=2 (I 2)
h o = ratio oflatent heat to total energy my,
injected
where Q oil drainage rate (ml/d/m length of
~, = thermal efficiency (fraction)
horizontal well)
q> = porosity (fraction)
q> = porosity (fraction)
dS = difference between steam temperature
So = initial oil saturation (fraction)
and initial reservoir temperature CC)
k = effective permeability to oil (um")
Z, = net thickness of reservoir (m)
g = gravitation constant (9.81 m/s")
Z, = gross thickness of reservoir (m)
a. = thermal diffusivity of reservoir
14.5.3 Vogel Model material (rnvd)
Vogel's steam overlay model is based on ultimate heat h = pay zone thickness (m)
requirements determined from simple two-dimensional m = bitumen viscosity exponent
heat flow equations. The total heat requirement is equal (usually = 3)
to the sum of the heat lost from the reservoir, the heat v, = kinematic viscosity of oil at steam
conducted to the produced fluids, and the heat that temperature (m2/d)
remains in the steam zone.
14.6 IN SITU COMBUSTION
The heat requirement, Q,o,al' is given by: PROCESSES
In a combustion process, air is injected into one well
Q"", = Ah (p,C,)<lT + 2K,A<lT~ 1tett I "'Ifitii;
+ 2K,A<lT- I and the formation is ignited. As the burnt front moves
through the reservoir, a portion of the bitumen is con-
(II) sumed as fuel and combustion gases and steam are
generated. These hot fluids raise the temperature and
where A = project area (m") reduce the viscosity ofthe bitumen, which is then driven
h = thickness of steam zone (m) towards the production wells.
PsC, = heat capacity (kJ/mlfOK)
In situ combustion projects in Canada and the United
x, = thermal conductivity of overburden States include the following:
(kJ/m/K/d)
= time (d) PetroCanada Viking-Kinsella Wainwright B Oxygen
= thermal diffusivity of overburden Fireflood Pilot (Dugdale, 1986; Dugdale et al., 1985)
(m2/d) Panf'anadian Countess Fireflood Pilot (Metwally,
K2 = thermal conductivity of underburden 1991)
(kJ/m/K/d) BP Cold Lake Pressure-Up Blow-Down Wet
0. 2 = thermal diffusivity of underburden Combustion Pilot (Mehra, 1991)
(mvd)
Murphy Eyehill In Situ Combustion Pilot
14.5.4 Butler Model (Farquharson and Thornton, 1985)
The conical steam zone model developed by Butler Amoco Athabasca In Situ Combustion Project
(Butler et al., 1981; Romney et al., 1991; Dugdale, 1986) (Jenkins and Kirkpatrick, 1979)
is based on the assumption of continuous steam injec- Mobil Kern County South Belridge In Situ
tion into a growing steam-saturated volume or chamber. Combustion Project (Gates et al., 1978)
Steam flows to the boundary ofthe chamber, condenses,
Home Oil Silverdale Water Alternating Gas Project
and gives up its heat to the surrounding oil sands. The (Hanna, 1987)

194

- ..a
ENHANCED RECOVERY BY THERMAL STIMULATION

Texaco Caddo Pine Island In Situ Combustion Pilot lower air requirements and higher oil recovery. Field
(Horne et al., 1979) results show that the simultaneous injection of air and
water is more effective than the injection of a slug of
14.6.1 Recovery Mechanisms
water following air injection. The most important
The following are the major recovery mechanisms of consideration in this process is to ensure that sufficient
the in situ combustion process: water is injected for conversion to steam without quench-
Oxidation of Crude. The temperature at which ing the combustion. The required water-air ratio (WAR)
oxidation takes place depends on the concentration of for a given reservoir is calculated from a material and
oxygen. High-temperature oxidation uses up the heat balance.
oxygen and generates heat. Low-temperature oxida- Combination of Forward Combustion and Water-
tion promotes the formation of fuel and spontaneous flooding. In this process, referred to as COFCAW, the
ignition. water-air ratio is high enough to quench the combus-
Thermal Cracking. Thermal cracking or pyrolysis of tion. Low temperature oxidation occurs in the steam zone
the crude generates light hydrocarbons and leaves coke to maintain the steam temperature.
behind as fuel. Steam Stimulation Followed by Wet Combustion. In
Steam Distillation. Steam generated by oxidation at the reservoirs containing a very viscous crude oil (i.e., bit-
combustion front evaporates the light hydrocarbons from umen), the mobility of the crude is too low to allow
the crude. These are displaced ahead of the steam front economic production rates for the combustion process.
to form an oil bank. Cyclic steam stimulation has been used in a number
Steam Drive. Steam provides the energy to drive the of fields to increase the mobility of the crude, create a
heated oil ahead of the combustion front. communication path between wells and allow the com-
bustion front to move towards the production well more
Thermal Expansion. Thermal expansion of crude,
rapidly.
combustion gases, and light hydrocarbons also provide
the driving force to drive the heated oil towards the Enriched Air Combustion Process. Oxygen-enriched
production well. air and pure oxygen are being used in this process. The
following are the potential advantages of using pure
Gravity Override. Steam, combustion gases, and light
oxygen instead of air:
hydrocarbons are lighter than the crude oil and tend to
rise to the top of the formation, bypassing some of the High displacement rate
crude oil in the middle or lower part of the formation. Lower gas injection volumes resulting in fewer
Viscosity Reduction. Heat generated by combustion operating problems for the compressor
raises the temperature ofthe formation and significantly Increased mobility of the cold oil due to the dissolu-
reduces the viscosity of the crude. tion of carbon dioxide in the oil
Higher recovery factors
14.6.2 Process Variations
Larger well spacing, which reduces the infill drilling
Although the in situ combustion process is more
energy-efficient than cyclic steam stimulation or steam Flammable produced gases may be separated and
flood and can be used in thinner pay zones, the heat used as fuel
efficiency of the dry combustion process is still very An alternative to this process is to gradually increase
low. About 70 percent ofthe heat generated at the high the oxygen content of the air from about 30 percent to
temperature combustion front is left in the burnt zone. 95 percent. Laboratory results show that the injection
The following modifications are required to improve of 99.5 percent oxygen should result in a combustion
the heat efficiency of the dry combustion process: gas primarily composed of carbon dioxide. This may
Thermal Wave Process. This technique involves the reduce the oil viscosity and cause some swelling of the
dilution of the injected air with combustion flue gas to crude.
increase the heat capacity of the injected air. 14.6.3 Design Considerations
Combined Thermal Drive. This is a wet combustion Factors influencing the selection of well patterns include
process designed to improve the sweep efficiency the reservoir dip angle and the utilization of existing
and reduce the volume of air required. It involves the wells. Because of the high mobility of air compared to
simultaneous injection of air and water and results in that ofoil, usually a few injection wells are sufficient to

195
DETERMINATION OFOILAND GASRESERVES

sustain the fireflood with a large number of production 5. Explosions could occur in injection lines, injection
wells. wells, and air compressors. Tubulars may be
In situ combustion pilots usually experiment with destroyed by high temperatures due to the break-
different well patterns and spacings. The inverted 9-spot through of fire front at the production well or
pattern, inverted 7-spot pattern, confined 5-spot pattern, backburn at the injection well. Corrosion may
line drive, and single well injection have all been com- reduce the life of pumps and surface facilities.
monly used. For example, Amoco's in situ combustion 6. Tight emulsions are often created during in situ
pilot (Jenkins and Kirkpatrick, 1979) in Athabasca combustion. Emulsified fluids cause rod fall prob-
started with a two-well test with a distance oDO m (100 lems and high flowline pressure because of their
feet) between the wells. Then different well patterns, high viscosities. The operation of the skim tanks
ranging from a 0.2 ha (1/2 acre) 5-spot to a 4 ha (10 and separators may be affected because the tight
acre) 9-spot, and finally a 1 ha (2.5 acre) 5-spot, were emulsions are very difficult to break.
tested. 7. Sand production problems caused by large volumes
The design criteria for in situ combustion processes are of combustion gases may result in operating and
as follows: erosion problems in pumps and surface equipment.
Formation thickness (m) 3 to 15 Severe gas locking may also lead to dry stroking
Depth (m) < 3500 and will accelerate pump failure due to the lack of
lubrication.
Porosity (% PV) > 35
Permeability (mD) > 100 14.7 ELECTROMAGNETIC HEATING
Oil gravity ( degree API) 10 to 35 Two different methods of electrical stimulation have
Initial oil viscosity (mPa.s) < 10,000 been field-tested in Canada. Both use the reservoir as a
Initial oil saturation at resistive element that heats up as electrical power is ap-
reservoir conditions (% PV) > 10 plied. This reduces the oil viscosity, thus improving oil
production rates. In the first method (Romney et aI.,
Type of formation Sand or sandstone
1991), electrical current at a frequency of 60 Hz is de-
and carbonates
livered from one well to another. In the second method,
with high porosity,
a single well acts as the electrical injector and ground
no gas cap or
return well. This model has been applied to a number of
bottom water
field tests both in Canada and worldwide, with varying
14.6.4 Causes of Failure degrees of success. The mechanics ofthe second method
An in situ combustion process may fail for any of the require electrical current to be transmitted through
following reasons: the formation-pay zone and back up the production
casing. Short-circuiting is prevented by using non-
1. Low oil saturation in the formation may not deposit
conductive materials on the casing and production
enough fuel to support combustion. Incomplete
strings. Romney et al. (1991) discusses the design of
oxygen consumption due to the lack offuel or early
single well electromagnetic stimulation in detail.
break-through of combustion gases at the produc-
tion well may limit inflow into the wellbore and References
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2. Low air injectivity may be caused by a water zone Mathematical Functions with Formulas. Graphs.
near the wellbore, formation plugging, or oil drop- and Mathematical Tables. US Department of
lets present in the compressed air. Low permeability Commerce, National Bureau of Standards,
zones in the formation also cause problems in the Applied Mathematics, Series 55, Jun. 1964.
removal of the combustion gases, which consist Adams, R.H., and Khan, A.M. 1969. "Cyclic Steam
mainly of nitrogen and carbon dioxide. Injection Project Performance Analysis and Some
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leaking of the injected air from the burnt zone will Pilot." JPT, Jan. 1969, pp. 95-100.
result in poor sweep efficiencies. Ali, S.M., and Meldau, R.F. 1979. "Current Steam
4. Low gravity oils characterized by high fuel content Flood Technology." JPT, Oct. 1979, pp. 1332-
may require a large volume of air for combustion. 1342.

196
ENHANCED RECOVERY BYTHERMAL STIMULATION

Belvins, T.R. 1978. "Analysis ofa Steam Drive Doscher, T.M. 1966. "Factors Influencing Success in
Project, Inglewood Field, California." JPT, Sep. Steam Soak Operations." Petroleum Industry
1978, pp. 1141-1150. Conference on Thermal Recovery, Los Angeles,
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Boberg, T.C., and Lantz, R.B. 1966. "Calculation of Canadian Heavy Oil Areas." Paper presented at
the Production Rate of a Thermally Stimulated SPE-DOE Fifth Symposium on Enhanced Oil
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at AIME-SPE California Regional Meeting, 1985. "Design and Operation of the Viking-
Ventura, CA, Apr. 1979, SPE 7994. Kinsella Wainwright B Oxygen Fireflood Pilot."
Bums, J.A 1969. "A Review of Steam Soak Paper presented at the South Saskatchewan
Operations in California." JPT, Jan. 1969, pp. 25- Section CIM Petroleum Conference, Regina, SK,
34. Sep.1985.
Bursell, C.G., and Pittman, G.M. 1975. "Performance Durrant, AJ., and Thambynayagam, C. 1980.
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Aug. 1975, pp. 997-1004. for SteamlWater Injection and Geothermal
Production: A Sample Solution Technique." SPE
Butler, R.M. 1986. "Thermal Recovery." Course
Reservoir Engineering, Mar. 1980, pp. 148-162.
notes (copyright 1986), The University of
Calgary, Calgary, AB, pp. 2.1-4.46. Dykstra, H. 1978. "The Prediction of Oil Recovery by
Gravity Drainage." JPT, May 1978, p. 818.
Butler, R.M., McNab, G.S., and Lo, H.Y. 1981.
"Theoretical Studies on the Gravity Drainage of Farouq Ali, S.M. 1981. "A Comprehensive Wellbore
Heavy Oil During In situ Steam Heating." Steam/Water Flow Model for Steam Injection and
Canadian Journal ofChemical Engineering, Vol. Geothermal Applications." SPEJ, Oct. 1981, pp.
59, Aug. 1981. 527-534.
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Drainage Theory." Trans., AIME, Vol. 179, Course notes (copyright 1982), University of
p.199. Alberta, Edmonton, AB, pp. 47-60.
Chu, C., and Trimble, AE. 1975. "Numerical Farquharson, R.G., and Thornton, R.W. 1985.
Simulation of Steam Displacement-Field "Lessons From Eyehill." Paper presented at the
Performance Applications." JPT, Jun. 1975, First Annual CIM Technical Meeting, South
pp. 765-776. Saskatchewan Section, Regina, SK, Sep. 1985.
Crawford, P.B. 1971. "Thermal Recovery Guide Fontanilla, J.P., and Aziz, K. 1982. "Prediction of
Helps Select Projects." World Oil, Aug. I, 1971, Bottom-Hole Conditions for Wet Steam Injection
pp. 47-48, 53. Wells." JPT, Mar. 1982, pp. 80-88.
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"Evaluation of Key Reservoir Drive Mechanisms Situ Combustion in the Tulare Formation, South
in the Early Cycles of Steam Stimulation at Cold Belridge Field, Kern County, CA." JPT, May
Lake." Paper presented at 62nd Annual SPE 1978, pp. 798-802.
Technical Conference, Dallas, TX, SPE 16737. Gontijo, J.E., and Aziz, K. 1984. "A Simple
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Test for Bitumen Recovery From the Peace River Recovery by Cyclic Steam in Pressure Depleted
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Symposium on Heavy Crude Recovery, Technical Conference and Exhibition, Houston,
Maracaibo, Venezuela, Jul. 1974. TX, Sep. 1984, SPE 13037.

197
DETERMINATION OFOILAND GASRESERVES

Hanna, M. 1987. "The Silverdale Water Alternating Myhill, N.A., and Stegeimeier, G.L. 1978. "Steam
Gas Project." Paper presented at the First Annual Drive Correlation and Prediction." JPT, Feb.
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Patzek, T.W. 1988. "Kern River Steam Foam Pilots."
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"Comprehensive Analysis of the Mechanisms by Tulsa, OK, Apr. 1988.
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Injection Processes." Paper presented at CIM
Successful Steam/Foam Field Tests, Section 15A
Conference, Banff, AB, Apr. 1991, CIM 91-106.
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- - - . 1978. "Current Appraisal of Thermal Recov-
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198

g
ENHANCED RECOVERY BY THERMAL STIMULATION

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Exhibition, Dallas, TX, Sep. 1980, SPE 951 I.

199
Chapter 15

ENHANCED RECOVERY
BY CARBON DIOXIDE FLOODING

15.1 INTRODUCTION The following are crucial for determining reserves and
Carbon dioxide flooding, in both the miscible and evaluating a carbon dioxide flood:
immiscible modes, is one of the most widely used The availability and cost of the CO 2 supply
enhanced oil recovery techniques today. There are over The classification of the process as miscible or
forty carbon dioxide floods in operation throughout the immiscible for recovery purposes
world. In Canada, several pilot and experimental floods
The efficiency ofthe process in terms ofunits ofCO2
have been tried or are currently in operation. In addi-
injected for each incremental unit of oil recovered
tion, single-well "huffand puff' stimulations have been
(utilization rate)
tried in various fields. Carbon dioxide flooding has now
been proven in both the laboratory and the field as a In Canada, the use of carbon dioxide has been limited
viable technology when applied to selected reservoirs. by the location, size, and development and transporta-
tion costs ofthe CO 2 supplies. The use of hydrocarbon
Carbon dioxide flooding may be in miscible, near-
light ends for miscible floods has been preferred in the
miscible or immiscible modes and may be implemented
past because of low prices, proximity, oversupply, and
before, in combination with, or post-waterflood.
government incentives.
Completely miscible (low tension) processes are usu-
ally considered those in which recoveries ofgreater than 15.2 PROCESS REVIEW
90 percent occur in slim tube tests and in which there is The three classifications of carbon dioxide floods are
no visible two-phase flow in lab tests. miscible (including near-miscible), immiscible, and
Carbon dioxide (C02) is a very powerful vapourizer of carbonated waterfloods. The latter are not currently of
hydrocarbons and, as a dense-state gas, it possesses a interest.
dissolving power for light to intermediate petroleum Miscible processes are the most common and are
fractions that is superior to hydrocarbon, nitrogen or characterized by phase behaviour effects that cause a
flue gases. This dissolving power can be utilized for in stable miscible bank with microscopic displacement
situ fractionation of oil to develop high concentration efficiencies near 100 percent. In comparison with
banks of light and intermediate components that have waterflooding, this increase in displacement efficiency
high displacement efficiencies (up to 95 percent) and more than. offsets the adverse mobility ratios between
lower minimum miscibility pressures (MMP). Miscible the CO 2 and the oil, especially if gravity effects, alter-
carbon dioxide floods may also recover oil beyond low- nating water gas injection, or horizontal wells can be
tension effects because ofthe extraction of components used to advantage.
from nonmobile oil in heterogenous rock.
Miscible and near-miscible processes are typically
Immiscible carbon dioxide gas drives are useful for both implemented in reservoirs containing oils with API
oil and condensate reservoirs because of the effects of gravities greater than 27, with reservoir temperatures
swelling, viscosity reduction, vapourization, and effi- less than 105C (220F) and pressures greater than 9650
cient gravity drainage. Medium heavy oils that may not kPa (1400 psi). Miscibility pressures decrease as t?e
waterflood well and that have high intermediate frac- C2-C I 0 fraction of the oil increases, and increase With
tions may also be candidates for immiscible flooding. decreasing API oil gravity and with reservoir tempera-
Some evidence also exists that oil- carbon dioxide mix- ture. Miscibility pressures typically range from 26 200
tures may improve waterflood behaviour by resulting to 9650 kPa (3800 to 1400 psi) as API gravity increases.
in phases that are rich in resins and asphaltenes. These
may stabilize fines and clays and alter wettability.

200

c
ENHANCED RECOVERY BY CARBON DIOXIDE FLOODING

Miscibility with oils having API gravities less than 27 significant reductions in 1FT can also occur in immis-
have also been reported. For these low-gravityoils, es- cible CO2 floods
timates of MMP become scattered, but range from a
~xtractio~/Vapourization, which is especially
low ofl4 620 kPa (2120 psi) to over 27600 kPa (4000
~mporta~t In oils that have high percentages of
pSI). If carbon dioxide is available, it is often the "sol- intermediate componentsthat can be extracted into the
vent of choice" for miscible flooding because it is a
CO2 phase; the amount of 1FTreduction that occurs is
powerful extractor of intermediate components from increased and the MMP is lowered; extraction also al-
crudeoil and can lead to a reductionin MMP of as much lows the recovery of a portion of the nonswept oil
as 6900 kPa (1000 psi).
Dissolved Gas Drive, in which the dissolved CO will
Displacement efficiencies for the miscible process in help recoveries in the blowdown phase of the flood
laboratory core floods with connate water saturations
are over 95 percent of the original oil in place (OOlP). Injectivity improvements can also occur because of
Lab tests on water- flooded cores may recover 70 removal of oil saturation around the wellbore and
percent of the residual oil in place. In field applica- because of interaction between the carbon dioxide and
the rock.
tions implemented before waterflooding, overall oil
recovery factors typically vary between 45 and 65 per- 15.4 DESIGN CONSIDERATIONS
cent for horizontal floods and 55 and 90 percent for
vertically directed gravity stable floods. 15.4.1 Phase Behaviour
For miscible CO2 flooding in the tertiary mode, from The recoveryof oil by carbon dioxidefloodingis highly
20 to 30 percentofthe residual oil to waterfloodmaybe dependent upon the phase behavior between carbon
recovered in horizontal floods. In vertically directed dioxide, water and oil. The phase behaviour strongly
floods, the presence of water may inhibit fingering and affectsfluid flow by altering mobility ratios, interfacial
aid the areal spread of CO2 , resulting in recoveries of tensions, relative permeabilitity, and rates of mass
40 to 70 percent ofthe residual oil. transfer mixing.
Immiscible processes are generally less favoured than Carbondioxide in the dense gas state is a verypowerful
miscible processes where a choice is possible. In the dissolverfor lightand intermediate petroleumfractions.
immiscible version of the process, mass exchange be- The extraction and concentration of these fractions is
tween the oil and the injected CO2 , while not sufficient highly pressure-dependent and causes the formation of
to cause a 100 percent flush of oil, may result in dis- a stable miscible or near-miscible bank. Typically, the
placement efficiencies that are higher than either pressures required for the MMP are 10 350 to 13 800
waterflood or inert gas flood. However, as a rule of kPa (1500 to 2000 psi) lower than for a methane high-
thumb,immiscibleprocessesare chosenfor lower grav- pressure gas drive.
ity oils in the 1824 API range at temperatures where In reservoirs with lowerpressuresand temperatures, the
swelling and viscosity reductionare considered themain process is more complex as more phases develop.
recovery mechanisms. Miscibilitymay not occur, but there will be significant
benefits due to a reduction in 1FT and viscosity, and
15.3 RECOVERY MECHANISMS swelling and solution gas effects.
The following mechanisms contribute to enhanced
recoveryby the use of carbon dioxide flooding: 15.4.2 Displacement Efficiency
Viscosity Reduction, which improves the flow The estimation of the microscopic sweep for gas or
characteristics of the oil and improves the mobility solventdrives in reservoirswith low or immobilewater
ratio in the flood saturations is usually based on measured or simulated
oil recoveries that are obtained from multiple contact
Swelling, which reducesthe amount of stocktank oil in displacement tests in composite cores or tubes packed
the residual oil saturationand may improvethe relative with sand (slim tubes). In reservoirs that have been
permeabilityto oil previously waterflooded, or where connate water satu-
Reduction in Interfacial Tension (1FT), which rations are mobile, corefloods maybe required to ensure
allowsthe oil to be released from the rock; in a miscible that the oil is not shielded from the CO2 in high water
flood, the 1FT is reduced to below 0.1 dynes/em, allow- saturationzones.
ing displacement efficiencies of over 90 percent, but The choice of an optimum flooding pressure or solvent
composition is usually estimated from correlations

201
..
'ilt'

DETERMINATION OF OILAND GASRESERVES

based on a combination of calculated and measured 15.4.4 Slug Sizing


laboratory data. In floods where shielding does occur, Carbon dioxide floods may be operated with essentially
optimum operating pressures may be lower than MMPs horizontal displacement or, in high dip or reef reser-
measured by slim tubes. For CO2 floods, the decisions voirs, with gravity stabilization. In either case, the
should also take into account questions such as possible process usually entails the injection of a slug of CO
reduction of injectivity by precipitation of heavy ends followed by or co-injected with water or flue gas. Th~
and potential flow interference effects that could ben- volumes of CO 2 necessary for a particular application
efit the sweep efficiency in partially miscible floods, as depend on the level of gravity stabilization during dis-
well as the presence or absence of mobile water or gas placement. For gravity stable floods, the slugs of CO
saturations. 2
range in size from 10 to 20 percent hydrocarbon pore
15.4.3 Volumetric Sweep Efficiency volume (HPV). In horizontal floods, the slug sizes may
range from 20 to 60 percent HPV depending on factors
Miscible processes, including CO2 floods, unfortunately
such as water saturation, heterogeneity,well patterns and
can suffer from poor volumetric sweep efficiencies
spacing. A typical formation volume factor for CO2
as a result of the high mobilities of the low viscos-
at 20 690 kPa (3000 psi) and 60 C (140 OF) is 266
ity solvents (less than 0.1 mPa.s) and chase gases.
m3/res. m3 (1500 scfper reservoir barrel).
Unfavourable mobility ratios coupled with reservoir
heterogeneities can be disastrous to miscible flood pro- 15.5 RESERVE EVALUATION
cesses that rely on maintaining the integrity of small In reserves evaluation the following are important
slugs of solvent during the course ofthe flood, not only considerations with respect to carbon dioxide flooding:
because low volumetric sweep efficiencies may result,
I. The availability and cost of the supply must be
but also because fingering may cause premature
evaluated. Carbon dioxide is available from natural
dissipation of the slug and result in greatly diminished
sources, from fertilizer plants, and as a combustion
displacement efficiency between the (immiscible) chase
by-product (such as from electric power generation
gas or water and the reservoir oil.
plants). The use of carbon dioxide in Canada has
Techniques used to improve the volumetric sweep been limited by the location, size, and development
efficiency of miscible floods include alternate gas- and transportation costs of the CO2 supplies. It
water injection (WAG), pre solvent water injection is important to consider the following when
to reduce permeability contrasts, infill drilling to alter evaluating a supply:
patterns, and blocking and diverting agents.
The maximum available rates and total volumes.
Various short-cut methods of estimating volumetric
Contract terms: length, price escalators, perfor-
sweep efficiency may be used by considering areal and
mance clauses, and royalty payments.
vertical sweep efficiencies separately. A final design will
require more sophisticated numerical models. The esti- The reliability ofsupply and availability ofbackup
mation of sweep efficiency considerations for CO2 or alternative volumes.
floods is similar to that for other floods. Purity: nitrogen and methane will raise the MMP,
Areal sweep efficiency is a function of the mobility and propane, butanes and H2S will lower it.
ratio (relative permeability, viscosity ratio), permeabil- Combustion by-products like oxides may have to
ity trends, saturation distributions, well pattern effects, be removed to avoid corrosion.
solvent throughput, and production rates. In vertically The capital required to develop the source of
directed floods, areal sweep is also affected by density carbon dioxide. Dehydration and compression will
ratios between carbon dioxide, oil, gas, and water. be needed for a raw source, and the removal of
Vertical sweep efficiency is often a result of stratifica- combustion products is expensive.
tion in the reservoir rock in a direction parallel to the Transportation costs: These are a limiting factor,
main flow direction. The strata are swept in order of either as pipeline length (capital cost) or as truck-
descending permeability sequence, with the lowest per- ing costs. Generally, trucking is practical only for
meability being unswept at the project termination. Other small pilots, one-well huff-and-puff, small slugs
causes of poor vertical sweep include gravity override such as a small vertical scheme, or as a short-term
or underride in reservoirs with little or no stratification. supplement to lower cost supplies.

202

c
ENHANCED RECOVERY BYCARBON DIOXIDE FLOODING

2. The viability and the estimation of economically producers should be able to handle sporadic slugs
recoverable reserves for a CO 2 flood depend on the of gas (high and low gas-oil ratios).
combinations of the following relationships: 5. Gas or miscible floods such as CO 2 floods can
The cost of CO 2 vs. the netback price received be subject to early break-through, so provisions
for the oil should be made for the separation and re-injection
The CO 2 utilization or flood efficiency, i.e., the of the produced or break-through CO 2 , The
amount of CO2 injected to recover each incremen- re-injection may also reduce the overall CO 2 require-
tal unit of oil-estimated values range from 530 ments, especially if the pool is being flooded in
to 2670 mJ/mJ (3 to 15 mcflbbl) stages, and it will provide the maximum contact time
The incremental production rates-the amount with the oil over the life of the flood.
and timing of the oil production vs. the capital, 6. Corrosion is a major problem in CO 2 floods. In
the operating and injection costs, and the timing producers, the CO 2 can make metal water-wet and
The recovery efficiency depends on the following: accelerate corrosion by stripping off the protective
film ofoil. Also, water and CO2 form carbonic acid,
The oil composition and type-these affect
which is corrosive. Chemical inhibitors and coated
miscibility and the recovery mechanisms
tubing should be used. Injected CO 2 should be
The stage of the flood-the CO 2 injection can handled in a dry state as much as possible and if a
occur before, during or after the waterflood WAG (alternating water and gas injection) is being
The normal factors that affect all floods, e.g., used, an alcohol slug should be used between the
water saturations and geology water and the CO 2 to clean up and dry out the
Some particular situations that may cause problems injection lines and tubing.
with CO2 floods are reservoirs with large gas caps 7. Carbon dioxide flooding can cause asphaltenes to
and water legs, depleted pools, zones with high per- precipitate from the crude oil and result in plugging
meability streaks, and low permeability reservoirs in the formation, downhole equipment and surface
with lower gravity asphaltic crudes. treating facilities. This problem would require a
3. Incremental production rates are more difficult to flush-squeeze treatment with an aromatic solvent
accurately forecast than recovery factors for many such as toluene to restore production or injection.
EOR projects and, especially, early in the life ofthe In some floods, calcium carbonate plugging at the
project. The base production rates may be affected high water cut production wells is a problem. This
by such factors as wellbore problems, injection rates, can be treated with acid jobs and the injection of
permeability streaks, break-through, recompletions, scale inhibitors.
and infill drilling. Computor simulators improve the 8. Because carbon dioxide is a "greenhouse gas,"
ability to handle all the variables, but may not sig- possible goverrunent incentives may improve the
nificantly improve the accuracy of the forecasts. viability of a project.
Good lab test results should be used in the simula-
15.6 FIELD APPLICATIONS
tors to help define the effects the recovery processes
will have on the incremental production rates as well More than forty miscible and immiscible CO 2 pilot,
as on the overall recovery factors. experimental, and mature field applications are in
operation worldwide. Several noteworthy ones are
4. To obtain the highest recovery efficiency, it is
described here.
important to provide the maximum contact between
the oil and the CO 2 (both timewise and areally). The The Wertz Tensleep Miscible CO 2 Project
earlier in the life of the pool that the CO 2 can be This project was undertaken in a reservoir in Wyoming
injected, the higher the target oil saturation will that had previously been waterflooded to 45 percent of
be and the lower the potential water blockage. OOIP. The recovery of an estimated additional 10
Provisions to increase the conformance, such as percent incremental oorp (or 22 percent of remaining
alternate gas-water injection and diverting agents, oil in place) has been attributed to the injection of
may be necessary. CO2 and water to repressure to above MMP, and the
Injectors and producers should be equipped, if drilling ofnew injectors and producers at key locations.
possible, to shut off high permeability zones, and Carbon dioxide utilization is estimated at 2500 mJ/m3
(14 mcflbbl).

203
DETERMINATION OF OIL ANDGAS RESERVES

The SACROC Miscible CO 2 Flood miscibility was developed, and a further 9 percent of
This project in Texas is one of the earliest and largest OOIP was recovered during an 8-year period with an
applications of miscible CO 2 flooding in the world. estimated utilization of 1246 to 1780 ml/m3 (7 to 10
Despite many pioneering difficulties, including con- mcflbbl).
troversy regarding the MMP, this flood continues. It The literature contains textbooks and papers that
is expected to yield incremental recoveries of 7.5 per- contribute to the understanding ofcarbon dioxide flood-
cent OOIP in selected sections of the pool with CO2 ing (Holm, 1982; Mungan, 1981, 1982; Stalkup, 1978;
utilization of 1780 m3/m3 (10 mcflbbl) of incremental Klins, 1984).
oil.
References
The Lick Creek Meakin Sand Immiscible CO 2 Flood
Holm, L.W. 1982. "C02 Flooding: Its Time Has
This immiscible version of the process has used a
Come." JPT. Dec. 1982, pp. 2739-2745.
combination of cyclic stimulation, continuous CO 2
injection, alternating water and CO2, and continuous Klins. M.A. 1984. Carbon Dioxide Flooding - Basic
water injection to recover the 160 mPa.s reservoir oil. Mechanisms and Project Design. International
This project in Arkansas is currently working well and Human Resource Development Corporation,
is anticipated to yield an incremental recovery of 13 Boston, MA.
percent OOIP with CO2 utilization of roughly 1780 Mungan, N. 1981. "Carbon Dioxide Flooding-
m3/m3 (10 mcflbbl). Fundamentals." JCPT. Jan.-Mar. 1981, pp. 87-92.
The Hansford Marmaton CO 2 Flood - - - . 1982. "Carbon Dioxide Flooding -
This project was initiated in an immiscible mode in Applications." JCPT. Nov.-Dec. 1982, pp.
a pressure-depleted reservoir containing a secondary 112-117.
gas cap. Recovery from primary was estimated at 13 Stalkup, F.r. 1989. "Carbon Dioxide Flooding: Past,
percent OOIP. After the reservoir was repressured, Present, and Outlook for the Future." JPT. Aug.
1978, pp. 1102-1112.

204
Chapter 16

RESERVES ESTIMATION FOR HORIZONTAL WELLS

16.1 INTRODUCTION to prior depletion, damage, well length, undulating well


~orizontal wells provide an alternative way of draining trajectory, diameter, and flow rate. The interactions
. 011 and gas from a pool. They allow drainage from a between these factors are extremely complex and not
larger reservoir volume (than vertical wells in the same fully understood at the present time. It may be fair to
setting), along with production at increased rates or say that theoretical developments regarding anticipated
reduced pressure drawdown. production declines under various real life reservoir
Various performance analyses and theoretical studies settings, production mechanisms, and completion
have shown that in certain situations, horizontal wells conditions are still in their infancy. In addition,
can yield significantly higher (more than three times) industry's database in terms of performance history
oil rates and reserves than vertical wells; however, they cost-effective trouble-shooting, and success rates for
also entail higher drilling, completion, and workover remedial measures is extremely limited despite the fact
costs. Although to date, the technical and economic succ- that in early 1993 nearly 5000 horizontal wells were
ess of horizontal wells has ranged from spectacular to producing worldwide, including more than 1000 in
Canada. The net effect of these problems is to lower
very disappointing, there is a growing consensus about
their potential to provide significant additions to the confidence in reserves estimates for horizontal wells (as
compared to vertical wells), whether they are based on
world's oil and gas reserves (up to 2 percent of the
initial in-place volumes). volumetric determinations, performance, analogies,
correlations, or simulation. The challenge is not only to
The most popular uses of horizontal wells have been come up with independent corroboration of reserves
in offshore operations, pools that are prone to coning, estimates, but also to quantify uncertainty.
naturally fractured reservoirs, medium- to heavy-
gravity pools, low productivity pools, and waterflood An ideal procedure would be to project performance to
or enhanced oil recovery. In many cases, in addition to the economic limit and verify reserves by volumetric
determination. However, sufficient data may not always
an increase in the drainage area, the recovery factors
are also improved. From a recent study of Canadian hori- be available to accomplish both of these to the desired
level of confidence.
zontal wells, it has been concluded that the profitability
of horizontal wells is directly linked to the reserves The volumetric method involves determination of the
drained. The increased production rate helps to offset range ofareas and volumes drained by a horizontal well
the increased cost of placing the horizontal wells and recovery factors. The drainage volume would
(Bowers and Bielecki, 1993). depend upon the length, orientation and location of the
well; production mechanism; stratification; and frac-
Other factors, such as heterogeneities, damage, and
tures. The recovery factors would depend upon the
lateral pressure drops within the well, may retard drain-
co~pletion parameters, prior depletion, nature of op-
age, and offset the advantages mentioned. Thus, drainage
erations, and reservoir variability. In practice, even after
hydrodynamics (within the reservoir, and especially in
placement of a horizontal well, many of the parameters
and around the well) have an important influence on
involved may not be known to the desired accuracy.
the reserves. The hydrodynamics around a horizontal
The same would be true for the other methods of re-
well, in turn, depend upon the geological features and
serves determination. Besides, various diagnostic and
dominant production mechanisms. The hydrodynamics
remedial measures for poorer-than-expected perfor-
also depend upon operationally induced features such
mance are slowly being evolved. As experience is
as prevailing pressure and saturation distributions due
gained, they are gradually improving, but there are stilI

205
DETERMINATION OF OIL AND GASRESERVES

significant uncertainties in reserves determination. A life would have significant impact on the Overall
procedure would therefore have to be essentially itera- economics. In situations of marginal economics, incen_
tive to incorporate reasonable and consistent estimates tives could have a major impact on probable reserves.
of various parameters and their implications on drain- Also, the role of horizontal wells in the overall deple_
age. The evaluator would require good geological and tion strategy for the pool must be defined prior to
hydrodynamic models of the drainage volumes of a reserves determination.
horizontal well. One way to quantify the range of un- In view of the uncertainties, reserves determination
certainties on production projections and reserves would would involve several iterations to ensure consistency,
be to use a detailed Monte Carlo computer simulation followed by a quantification of confidence levels
(Springer et aI., 1991). This, in tum, requires prior (Springer et aI., 1991).
knowledge of statistical distribution of various input
parameters. 16.2 RESERVES DETERMINATION
The drainage to a horizontal well could be improved by TECHNIQUES
certain geological features (e.g., fractures) and impeded 16.2.1 Performance Projection
by others (e.g., stratification, previously depleted
Horizontal wells, as already mentioned, mainly provide
regions, and damage). Therefore, detailed geological
increased access to the reservoir. Placement of a hori-
and hydrodynamic models for the drainage area of
zontal well by itself does not change the basic reservoir
a horizontal well are essential for understanding and
mechanism or the type of decline to be expected,
quantifying production performance. Interpretation of
although some variations could occur.
logs and cores, well tests, or pressure data for the hori-
zontal well and any offsetting wells would assist in the Producibility and declines for horizontal wells depend
preparation of these models. upon the nature of the reservoir, the state of depletion,
and the dominant production mechanisms. Theoretical
The examination of flow distribution within and around
discussions are available for only a few idealized hori-
a wellbore (as is done during the design of horizontal
zontal well systems. Using these as guides, it is possible
wells) is of great importance. Significant implications
to project the behaviour of horizontal wells. Usually,
to reserves could be due to vertical location, strat-
the performance of a vertical well provides important
ification, orientation, undulations, prior depletion,
clues to the performance ofa horizontal well in the same
effectiveness of completions, formation damage, and
setting.
lateral pressure drops within the well.
Several methods for determining rates under steady-state
The overall depletion mechanism or the nature of the
conditions have been proposed. Ofthese, Joshi's method
production decline is not altered by the use of a hori-
is the most widely used (Mutalik and Joshi, 1992). Oil
zontal well. However, some changes to decline rates
rate, qh' in barrels per day is expressed as:*
may occur over time due to the effects ofchanging flow
regimes, heterogeneities, cross-flow, and interference 0.007078 khh Llp
from different boundaries ofthe drainage area. The use
J.l,B,
of smaller pressure drawdown (i.e., a coning situation) (1)
or increased flow rates may help to prolong the eco-
nomic life and hence the reserves in some situations.
These may also be helped by gravity drainage to the
horizontal wells. At low pressure drawdown, gravity
may be contributing significantly to the production from
horizontal wells.
where kh = horizontal permeability (mD)
The impact on recovery of regulations concerning h = net pay thickness (ft)
horizontal wells may be hard to quantify. Depletion strat- Llp = pressure drop (psi)
egy and economic reserves may change due to factors u, = viscosity of oil (cp)
such as allowables, spacing, offset distances, and roy-
alty regulations, so these must all be considered in
the determination of reserves. Due to higher initial
productivities of horizontal wells, production curtail- *In metric units, the constant is 542.9 and the units are as
ment or fiscal (royalty, tax) relief during their early follows: permeability, J.lm': pressure, MPa: flow rate,
mJ/d.

206

c
RESERVES ESTIMATION FOR HORIZONTAL WEllS

B, = formation volume factor (res. bbl/stb) platform space that do not permit installation of equip-
a = (L/2){O.5 + [0.25 + (2r'h/L)4]O.5}O.5 ment to handle large volumes ofwater or gas production.
r,h = the drainage radius for the horizontal In these cases, oil or gas reserves would be those
well (ft) obtained prior to significant break-through. Break-
L = length of the horizontal well (ft) through may be delayed by operating at sub-critical rates.
13 = anisotropy = -VkH/kv This would involve continuously altering rates with
rw = well radius (ft) changing fluid contacts until the rates become uneco-
nomic. In other cases where facilities are not major
It may be noted that the equation is valid only for single-
constraints, large gas-oil ratio or water cut may result in
phase flow and uses single values for various input
an uneconomic oil rate. The nondrained part of the oil
parameters. The value of drainage distance, r'h' for a
column is known as the "cresting loss" or, in the case of
horizontal well may not be known a priori. As a first
both bottom water and gas cap, as the "sandwich loss."
approximation, the drainage distance, r,v' for vertical
These can be estimated from the design features for.a
wells could be used for r,h'
horizontal well, as well as from operational and reser-
For horizontal wells in reservoirs under solution gas voir parameters (Chaperon, 1986; Joshi, 1991). It is
drive, producibility under unsteady and semi-steady generally recognized that horizontal wells could signifi-
conditions has been projected by Poon (1990), Mutalik cantly reduce these losses (by 20 to 40 percent).
and Joshi (1992), Babu and Odeh (1989), and others.
Most often, the bulk of oil production would occur
Poon's analysis uses an analogy between horizontal
under increasing water cuts or gas-oil ratios or both.
wells and vertical fractures for projecting performance.
Under these conditions, reserves would again be the sum
It is particularly useful since it provides "type curves"
of oil drained by the mean change of fluid contacts in
for certain idealized conditions. For other situations,
the drainage area (ignoring the effects of the crest) and
flow equations could be combined with material bal-
the volume of mobile oil within the crest. Correlations
ance and the semi-steady state treated as a succession
are available to estimate the time for the crest to break
ofsteady states. The procedure would involve alternately
through at the horizontal well (Papatzcos et aI., 1991;
obtaining estimates of average reservoir pressure (ma-
Yang and Wattenburger, 1991). Estimates of break-
terial balance) and flow rates (steady state) for different
through time would help in estimating the amount of
periods until the economic limit was reached. It must
clean oil production. Oil cuts would harmonically de-
be kept in mind that, in some situations, uncertainties in
cline thereafter (until interference from offsetting wells
many ofthe parameters may render these projections of
was experienced), yielding a straight line on a semi-log
little practical value.
plot ofoil cut vs, cumulative oil. For passive water drive
Another approach could be to use Babu's method for cases, reserves would essentially be due to fluid expan-
projecting performance and study various sensitivities sion and drainage of the movable oil within the crest.
to evaluate the impact of uncertainties.
The latter can be estimated by a method suggested by
In coning and cresting situations, operations would be Butler (1989). He suggested it would be equal to mov-
discontinued at certain minimum oil rates or at certain able oil within half a cylinder between the horizontal
water cuts or gas-oil ratios. The latter parameters well and the fluid contact. * For an anisotropic reser-
may be based upon safety, equipment, economic or voir, this would be modified to a half ellipsoid (Figure
regulatory considerations. Theoretically, cresting can be 16.2-1). The distance between the interface and the well
avoided by producing below certain critical rates (Free- is called "stand-off', h. This would be the vertical axis
born et aI., 1990), which themselves may change with of the ellipsoid, and the horizontal axis would be given
the changing pressures or fluid levels. Chaperon (1986) by the expression h(k H!kv)o.5. For an undulating well or
presented an approximate method for computing criti- a tilted fluid contact, the minimum distance between
cal rates for horizontal wells. This method is generally fluid contacts and well trajectory would be the effective
accepted and used by the industry. stand-off. Similarily, ifthe lateral pressure drop caused
Critical rates for horizontal wells are usually much the rates to exceed the critical in some parts of the well,
higher than for vertical wells. In practice, only a few localized cresting would tend to reduce reserves for the
kinds ofreservoirs can produce "clean" oil or gas for an entire well. In such situations, if heterogeneities could
extended period. These include gas pools under active
water drive or some offshore operations with limited * Butlersubsequently published more sophisticated
theoretical models.

207
DETERMINATION OFOILAND GASRESERVES

completions are not available to fully assess the reasons

(a)
Pi
I
for these increments. Viscous fingering, heterogeneities
or hydrodynamics within and around horizontal welIs
I
I promoting water or gas channelling could be some of
I
I
: ~rev-
t the causes resulting in poorer recoveries.
Once the performance after break-through can be
oil ,
, r projected, a summation of oil production will provide
estimates for reserves.
Whereas horizontal wells have proven to be effective in
minimizing water production, their effectiveness in con-
trolling gas cresting has only provided mixed results. If
(b)
gas cresting is a limiting factor, usualIy the reserves are
., . much lower than the method as described would indi-
cate. The reasons could be a sharp drop in effective oil
h permeability at high gas saturations or viscous finger-
I L~ ing as the result ofunfavourable mobility ofoil compared
to that of gas.
Source: Joshi, 1991. The foregoing discussion pertains to the improved
reservoir drainage by horizontal wells under solution
Figure 16.2-1 Schematic of Horizontal and gas drive and water and gas coning situations. Horizon-
Vertical Well Drainage Areas* tal welIs can also significantly improve reserves drained
from waterfloods as well as thermal and nonthermal
be adequately characterized, detailed numerical model- enhanced oil recovery. The improvement could be the
ling might be the only way ofobtaining reliable reserves result of increased access, injectivity or productivity,
estimates under different completion and operating and increased volumetric sweep efficiencies. However,
conditions. For optimizing reserves, it may be neces- fractures or previously drained regions could seriously
sary to ascertain that the flow along a horizontal well is limit the incremental reserves. Careful engineering of
evenly distributed. horizontal well length, orientation, vertical placement,
and operation is needed to obtain optimal reserves
At this time, no methods other than correlations (Yang
under these conditions. As in the case of primary
and Wattenburger, 1991) are available in the public
production, the key factors controlling the reserves
domain for estimating post-break-through production
would be the hydrodynamics within the drainage region
of oil and water (or gas) via a horizontal well. As a first
and the economics.
approximation, coning correlations of Kuo (1989)
for the vertical wells or Butler's method for horizontal The role of reservoir variability must be taken into
wells (Butler and Suprunowicz, 1992) may be used. account in all situations. Sufficient details on certain
Computer-generated projections for the Suffield Jenner heterogeneities may not be known, even after a hori-
pool in Alberta appear more optimistic than these cor- zontal well starts producing. Due to this variability,
relations. The actual decline ofoil cuts with cumulative the performance of horizontal wells tends to be
oil was not unlike that for a vertical well after allow- site-specific. Another consequence is the difficulty in
ances were made for increased drainage area due to identifying the "average" reservoir parameters.
length, and reductions in crest volume due to heteroge- At this time, in terms of length of performance history
neities (Russell and Espiritu, 1992). For some horizontal and available geological and operational details,
wells in the Provost Dina pools ofAlberta (Heysel, 1992) industry's database is extremely limited for use in de-
very modest increments over vertical wells have riving meaningful analogies and correlations. Well test
been reported. However, data on well trajectories and data and performance histories, besides confirming pro-
duction mechanisms, can help to quantify certain
reserves parameters. Otherwise, they do not seem to be
It can be assumed that drainage distances for vertical definitive enough for reserve estimation. In a few cases
wells (r,,) and horizontal wells (r'h - U2) are equal. where the data are available for a long enough duration
However, experience with partiallydepleted Canadian
to be definitive, the decline curve and material balance
pools indicates that r" could be larger than r,h - U2.

208
.t,~:
RESERVES ESTIMATION FOR HORIZONTAL WELLS

methodologies for conventional wells could be extended one horizontal well would be equivalent to several indi-
for horizontal wells. Generally, the most fruitful vidual vertical wells placed in the path ofthe horizontal
techniques for reserves in vertical wells would also well. The increased producibility as well as the increased
be applicable to horizontal wells. A methodology for reserves would be similar to those expected for closely
horizontal wells is suggested in Section 16.3.3. spaced vertical infill wells. The accelerated drainage may
induce faster declines (as well as interference with
16.2.2 Volumetric Method offsetting wells). Extreme examples of such prolific
Detailed flow distribution around a well is the most zones are fractured regions in Austin Chalk in Texas,
important consideration in identifying the drainage area Bakken Shale in North Dakota, and karstic regions in
for a horizontal well, which would drain a much larger the Raspo Mare oil field off the Italian coast in the
portion of a reservoir than a vertical well, depending Adriatic Sea. Variable fracture or vug density in the
upon its length. Other factors determining drainage area dolomitic reefs of Alberta and Saskatchewan may also
would be the distance to the nearest pool boundaries constitute prolific regions ("sweet spots"), but with less
and the distance to offsetting wells as well as the rate of dramatic impact on reserves. On the other hand, these
drainage by them. For homogeneous reservoirs under sweet spots may also act as pathways for water or gas to
solution gas drive, Joshi (1991) has presented methods break through at the wells and thus reduce volumetric
for estimating drainage areas based upon estimating the sweep and recovery factors.
time to reach semi-steady state for different drainage The vertical and lateral extent of the drained region
geometries. From these, effective drainage area can be would mainly depend upon geological features such as
estimated. stratification, fractures, barriers to flow, and lateral varia-
Limited experience to date suggests that drainage tions. Effective drainage volume for a horizontal well
distance for horizontal wells (reh - Ll2 in Figure 16.2-1) would thus be smaller than the hydrocarbon pore vol-
would, in many cases, be smaller than that for vertical umes contained within the drainage area if these exist.
wells (rev)' The reasons could be heterogeneities and In order to identify the drainage volume of a horizontal
prior depletion. well, a geological model would be very helpful. It may
As a rule of thumb, a 300 m well would drain the be noted that even in pools with good geological
equivalent oftwo vertical wells, and a 600 m well-the control, horizontal wells usually reveal unanticipated
equivalent of three vertical wells. However, this rule of features. A geological model, updated with data
thumb must be used with extreme caution. from horizontal wells, would greatly aid in determining
It has been observed from the performance of several drainage volume for the well.
Canadian oil wells that the reserves for sandstone pools 16.2.4 Importance of Channelling in
are generally proportional to their lengths (Bowers and Reserves Performance
Bielecki, 1933). Corresponding correlations between
In certain geological settings, it becomes apparent that
well lengths and reserves drained for fractured carbon-
the production is dominated by water channelling rather
ate pools are rather weak. It is possible that this is caused
than the classical water coning. For instance, several
by water influx via some of the relatively larger frac-
Mississippian pools in the Estevan area ofthe province
tures. By and large, horizontal wells in Estevan light oil
of Saskatchewan contain no bottom-water leg, and yet
pools were draining 250 to 300 m in the lateral direc-
they produce large quantities of water. They must cer-
tion whereas for Lloydminster heavy oil, this distance
tainly be receiving pressure support via numerous
is less than ISO m and could be as low as 50 to 70 m
fractures present in the region. Besides this post-
(Springer and Flach, 1993). In some Alberta light oil
depositional fracturing, these carbonate deposits have
pools, very disappointing reserves were noted (Bowers
been witnesses to several events of replacement of cal-
and Bielecki, 1993), implying small drainage areas or
cium carbonate by dolomite and anhydrite. Whereas
poor recovery factors.
fractures act as conduits for the active waters to invade
16.2.3 Role of Heterogeneities the oil zone, dolomitization increases storage (poros-
In a heterogeneous reservoir, a horizontal well is likely ity), and vugs and micro-fractures increase permeability.
to traverse many more prolific regions than a vertical In addition, site-specific 3-D configuration of the res-
well. For a given pressure drawdown, most of the in- ervoir (intercalation of porous and dense intervals
flow would be from these more prolific regions. Thus, occasionally traversed by fractures, and poor con-
tinuity of dense and porous features over inter-well

209
DETERMINATION OF OIL AND GASRESERVES

distances) characterize sweeping ofthe pay zone by the 1. Features that improve drainage:
influxing water. Therefore, the reserves drained by hori- Enlarged drainage volume
zontal wells depend upon factors such as the prior
exploitation of underlying zones within the pool (tim- Heterogeneities (sweet spots) within the drainage
ing), the level ofheterogeneity and occurrence of dense area; barriers to the flow of bottom water or gas
into the horizontal well
zones, and the stand-off above the water-oil contacts
or the base of the pay. Contrary to what might be Reduced pressure drawdown, which may help to
anticipated in a classical coning situation, most hori- mitigate drainage restrictions (e.g., cresting, fines
zontal wells in developed pools fail to drain significant production)
amounts of incremental reserves over and above what Effective lowering of the economic oil rate limit
two or three vertical infill wells might drain under (one horizontal well replacing several vertical
similar conditions. wells)
In this area, the advantage of higher initial oil rates for 2. Features that hinder drainage:
the horizontal wells is often negated by sharp declines Heterogeneities (stratification, barriers to substan-
as the water production increases. Water rates and tial drainage in depletion drive, by-passing of oil
cumulative water production are seen to increase in water- or gas-drive flooding)
disproportionately to the corresponding increases in oil
Previously drained regions within the drainage
production because of the existence of numerous verti-
volume that may be at lower pressures, or higher
cal fractures and the prevailing distribution of the
pressures (watered-out regions). .
invaded water (due to prior operations). Under these
circumstances, lateral pressure drops within the hori- Wellbore damage (lower effective well radius)
zontal well due to two-phase (or three-phase) flow Lateral pressure drops (turbulence, multi-phase
assume special significance. Consequently, horizontal flow, sediments or debris present in the hole) caus-
wells may be doing a poor job of draining oil around ing effective drainage from only a part ofthe well
their "toes." The situation may be further complicated Undulating well trajectory or "porpoising" (some
by the specific reservoir description (porous or tight sections may get closer to fluid contacts or the
zones and fractures along the length of the well) and tops or bottoms of the pay zones; in some in-
near-wellbore formation damage. stances, some sections of wells may even be
It follows then that for projecting performance, a outside the pay zone, reducing the effective well
detailed knowledge of reservoir description and a proper length in a good part of the pay)
understanding ofthe geology and hydrodynamics ofthe 3. By examination of geological and hydrodynamic
drainage region around a horizontal well (within the oil models, some of the questions about the impact of
pool, including any supporting aquifer) are absolutely less than ideal conditions on recovery factors may
essential. Viscosity (temperature) of oil plays an im- be clarified. These questions could be as follows:
portant role by way of causing viscous fingering and Are small intervals contributing the bulk of the
limiting volumetric sweep by the invading water. flow?
16.2.5 Recovery Factors If SO, will they continue to be recharged
Once the drainage volume has been estimated, the next adequately?
step is to estimate the upper and lower limits of recov- Is there more severe skin in certain parts of the
ery factors for drainage via horizontal wells. well?
An understanding of the behaviour of vertical wells in Could a lateral pressure drop within the well be
the same pool in terms of the dominant production restricting drainage from some parts ofthe well?
mechanisms and the factors limiting production provides Would early break-through of water or gas be
important clues to the production behaviour of horizon- promoted by the dominant flow routes?
tal wells. As previously mentioned, some features would
Once break-through occurs at any point in the
help in improving recovery whereas others might hinder
well, would it seriously restrict subsequent drain-
efficient drainage. The three lists that follow give some
age by the well?
of the more important of these characteristics.

210

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _sd
RESERVES ESTIMATION FOR HORIZONTAL WELLS

A quantification of these effects on recovery factors 16.3.3 Steps Involved in Reserves


could be obtained by a quick, coarse-grid simulation Determinations
study. The proposed procedure involves iterations of the
16.3 DETERMINATION OF RESERVES following steps until an acceptable determination is
achieved:
16.3.1 Determination of Reserves I. Prepare a geological model for the drainage region
Parameters of the horizontal well. The model should address
Average reserve parameters would be difficult to questions regarding the boundaries, the limits of
determine without closely examining a geological model the drainage area due to any barriers to flow,
of the drainage region around a horizontal well. These heterogeneities and facies changes, fluid contacts,
parameters could be porosity, permeability (vis-a-vis anisotropy, directional trends, preferred fracture ori-
orientation of the well), characterization of the aquifer entations, micro-fractures, and sweet spots.
and the gas cap, net pay thickness (Reisz, 1992), thick- 2. Prepare a qualitative hydrodynamic model
ness above or below the well in the case of undulating incorporating data on the current state of drainage,
well trajectory, location ofpay tops and bottoms within the well trajectory, the pressure and saturation
the drainage region, fractures, effective well length, distribution prior to the placement of the horizontal
reservoir pressure, saturations, damage, and drainage well, the effective drainage region, and the flowing
distances. pressure distribution around the horizontal well,
16.3.2 Key Elements including any possible interference with offsetting
wells.
All of the elements of reserves determination for
horizontal wells are similar to those applicable to verti- 3. Obtain estimates of various drainage and reserves
cal wells. However, the required analysis is usually more parameters such as effective pay thickness,
rigorous because a detailed analysis of the hydro- shape of the drainage area, sweet spots, drainage
distance, porosity, pressure distribution, saturation
dynamics of the drainage around each horizontal well
distribution, compressibility, permeability, kH/kv,
must be included.
and skin.
The procedure is iterative to ensure consistency between
4. Estimate the hydrocarbons in place in the drainage
reserves obtained from volumetric as well as perfor-
volume and the range ofthe associated uncertainty.
mance analysis and all available geological, reservoir,
and production data. 5. Estimate the range of recovery factors for hori-
zontal wells from data on recovery factors for
The procedure calls for sound engineering judgement
conventional drainage, and possible relaxation of
regarding appropriate values of parameters to be used
parameters controlling production. The roles ofvari-
for performance projections and reserves estimation
ous influences may be quantified using coarse-grid
and, in addition, requires a clear understanding of the
dominant recovery mechanism and the parameters that simulation or engineering judgement.
limit reserves for exploitation of the pool by conven- 6. Estimate the initial productivity from the estimates
tional wells. The possible relaxation of the limiting ofdrawdown, permeability (vertical as well as hori-
conditions on drainage using horizontal wells is esti- zontal), compressibility, and saturations. Actual
mated based on these. A hydrodynamic model for the performance or test data may be used for validating
drainage area incorporating reservoir variations, estimates of various parameters.
current state of depletions, and qualitative visualiza- 7. Project the production forecast for the specific
tion of flow distribution within the drainage area of situation. Performance data, equations, material
horizontal wells is required. Finally, the implication of balance, and simulation results, if available, may
operational and economic factors on reserves must be be used for validating decline performance. In the
explicitly included. absence ofany better data, initial productivity along
with volumetric reserves may be used for project-
ing performance. This data may then be input into
economic analysis for obtaining economic reserves.

211
DETERMINATION OF OIL AND GASRESERVES

Depending upon the situation, curves of rate-time, . Bowers, B., and Bielecki, J. 1993. "Horizontal Oil
rate-cumulative production, volumeratios, and cu- Wells: Economicsand Potential Impact on the
mulative volume of gas or water vs. cumulativeoil Reserves and Supply of Canadian Convential
or gas may help to determine the reserves. Oil." WorkingDocument, Horizontal Well
Care must be exercised to ascertain that there is Committee of the National Energy Board,
adequate history,thatthe performance is determined Calgary, AB, Jun. 1993.
by reservoir and geological factors only, and that Butler, R.M. 1989. "The Potential for Horizontal
the performance is consistent with the known Wells for Petroleum Production." JCPT, Vol. 28,
mechanisms. No.3, May-Jun. 1989, pp. 39-47.
Data on the performance of horizontal wells in Butler, R.M., and Suprunowicz, R. 1992. "Vertical
analogous situations, if available, could be useful. ConfinedWater Drive to Horizontal Well - Part I:
Some statistical data on performance of horizontal Water and Oil of Equal Densities." JCPT, Vol.
wells in different oil zones from certain Canadian 31, No.1, Jun. 1992, pp. 32-38.
producing areas over the first 12monthsof produc- Chaperon, 1. 1986. "Theoretical Study of Coning
tion has recently been published (Springer et aI., Toward Horizontal and Vertical Wells in
1993). Anisotropic Formations." Paper presented at 61st
Where uncertainty is high, the production forecast Annual Fall Meeting, SPE of AIME, New
should be based upon estimates of initial prod- Orleans, LA, Oct. 1986, SPE 15377.
uctivity and volumetricallydetermined reserves. Freeborn, R., Russell, B., and MacDonald, A.J. 1990.
8. Identify any enhancementpotential to reserves due "South Jenner Horizontal Wells: A Water Coning
to prudent operational changes, recompletions, Case Study." JCPT, Vol. 29, No.3, pp. 41-46.
facilities or equipment upgrades. These datacanthen Heysel, M. 1992. "Horizontal Well Performancein
be used for further refining the productionforecast. the Dina Sandstonein the Provost Area of
Another fine-tuningcould be required due to inter- Alberta." Presented at Annual CIM Technical
ference with offset wells, if such interference could Meeting,Calgary, AB, Jun. 1992,CIM-ATM
be established fromtheirperformance (Springer and 92-34.
Flach, 1993). Joshi, S.D. 1991. Horizontal Well Technology.
9. Ensure consistency between reserves based on Pennwell Publishing Co., Tulsa, OK, p. 34.
volumetricdeterminationand productionforecasts. Kuo, M.C.T. 1989. "Correlations Rapidly Analyze
A few iterations may be required to achieve this. Water Coning." O&GJ, Oct. 1989, pp. 87-90.
10. Evaluate the range of uncertainties in the reserves Mutalik, P., and Joshi, S.D. 1992. "Decline Curve
estimates and relevant confidencelevels. This will Analysis Predicts Oil Recovery from Horizontal
depend upon geological control, the amount of Wells." O&GJ, Sep. 1992, pp. 42-48.
historical data from the pool, the success of cost-
Papatzcos,P., Herring, T.R., Martinsen, R., and
effective diagnostic or remedial operations, and
Skjaeveland, S.M. 1991. "Cone Break-through
the length of time the horizontal well has been
Timefor Horizontal Wells." SPE Reservoir
producing.
Engineering, Vol. 6, No.3, Aug. 1991,
The Monte Carlo computer simulation method pp.311-328.
for quantifying confidence levels is described in
Poon, D.C. 1990. "Decline Curves for Predicting
Section 22.4.4 (Springer et aI., 1991).
Performance of Horizontal Wells." JCPT, Vol.
References 30, No. I, pp. 77-81.
Babu, D.K., and Odeh, A.S. 1989. "Productivity ofa Reisz, M.R. 1992. "Reservoir Evaluation of
Horizontal Well." SPE Reservoir Engineering, Horizontal Bakken Well Performanceon the
Vol. 4, No.4, Nov. 1989, pp. 417-421. Southwestern Flank of the Williston Basin."
Paper presented at SPE InternationalMeeting,
Beijing, China, Mar. 1992, SPE 22389.

212
RESERVES ESTIMATION FOR HORIZONTAL WELLS

Russell, B., and Espiritu, R. 1992. Personal communi- Springer, S.1., Flach, P.D., Porter, K.E., Christie,
cation. D.S., and Scott, G.C. 1993. "A Review of the
Springer, S.1., Mutalik.P; Asgarpour, S., and Singhal, First Five Hundred Horizontal Wells Drilled in
A.K. 1991. "Risk Analysis for Horizontal Wells." Western Canada."Paper presented at 44th Annual
Paperpresented at 4th Saskatchewan Symposium, Technical Meetingof the Petroleum Societyof
CIM, Regina, SK, Oct. 1991, PaperNo. 13. CIM, Calgary, AB, May 1993, CIM 93-19.
Springer, S.1., and Flach, P.D. 1993. "A Review of Yang, W., and Wattenburger, R.A. 1991. "Water
the Drainage Area/lnterwell Spacing Used in Coning Correlations for Vertical and Horizontal
Some Established Horizontal Well Projects." Wells." Paperpresented at 66th Annual SPE
DEA44/DEA 67 International Forum- Technical Conference and Exhibition, Dallas,TX,
"Horizontal Technology - Living With Reality," Oct. 1991, SPE 22931.
Calgary, AB, Jun. 1993.

213
Chapter 17

NUMERICAL SIMULATION

17.1 INTRODUCTION Compositional simulators (Coats, 1980a; Nolen, 1973;


Numerical simulation is the most sophisticated tool for Thele et aI., 1983), which account for mass transfer be-
estimating hydrocarbon reserves and determining meth- tween liquid and gas phase. The hydrocarbon phase is
ods to use for optimizing the recovery ofhydrocarbons represented by"n" components; k-values and flash equi-
from a reservoir. Numerical simulation has been used librium are used to represent phase behaviour.
in reservoir studies since 1960. The rapid development Enhanced oil recovery simulators, which include in
of digital computer technology in the early seventies situ combustion (Youngren, 1980; Coats, 1980b), steam
stimulated the widespread development and application stimulation, (Coats, 1978) hydrocarbon miscible (Todd
ofreservoir simulation computer programs. At first, the and Longstaff, 1972), carbon dioxide flooding (Chase
high cost of software development and computing lim- and Todd, 1984), and chemical injection (Todd and
ited the use ofnumerical reservoir simulation; however, Chase, 1979). These simulators apply the basic con-
the recent availability of powerful low-cost personal cepts of both black oil and compositional simulators
computers and work stations has made it much more with added features to model a particular enhanced oil
accessible to petroleum engineers. Today, numerical recovery process.
reservoir simulators are more efficient and more Reservoir simulators have also been developed to model
accurate. naturally fractured reservoirs. In addition to modelling
This section provides an overview of numerical the processes described, a naturally fractured reservoir
simulation practice. Readers who wish to gain an simulator must also model the complex flow behaviour
in-depth knowledge ofthe mathematical aspects ofsimu- in a matrix-fracture system.
lation should read the book by Aziz and Sattari (1979). Naturally fractured reservoirs are characterized by two
Excellent discussions on practical applications of res- systems: a matrix system which has low permeability
ervoir simulation may be found in books by Crichlow and high capacity, and a fracture system which has high
(1977) and Mattax (1990). permeability and low capacity. The bulk of the fluid is
contained in the matrix system, and fluid flow occurs
17.2 TYPES OF RESERVOIR
SIMULATORS primarily in the fractures. A comprehensive review of
naturally fractured reservoirs is given by Aguilera
Reservoir simulation is based on the physical principles (1980).
of mass conservation, fluid flow, and the conservation
of energy. From these come a set of partial differential The general approach in naturally fractured reservoir
simulation is the dual-porosity formulation shown in
equations describing the behaviour of fluids in a reser-
Figure 17.2-I(a), in which the rock matrix is con-
voir. According to the type of process and the number
sidered as a series ofdiscontinuous blocks within a con-
of components required to be modelled, reservoir
tinuous fracture system. The matrix blocks act-as the
simulators may be categorized as follows:
source and feed into the fracture system. The fractures
Black oil simulators, which model multi-phase flow in can be thought of as a system of connected pipes. This
a reservoir without consideration for the composition model was proposed by Warren and Root (1963).
of the hydrocarbon fluids. The liquid phase consists of
Recent developments allow a more vigorous treatment
water and the oil and gas in solution. The gas phase
of fluid flow in naturally fractured reservoirs to be
consists of only free gas. Mass transfer of the oil com-
incorporated into simulators. In addition to fracture-
ponent from the liquid to the gas phase is not taken into
matrix interaction, matrix-matrix flow is permitted; this
account.

214
NUMERICAL SIMULATION

gives rise to the dual-permeability formulation (Gilman


and Kazami, 1988) shown in Figure 17.2-1(b).

I I I Llz

l-
- Flow
In
---- ...
-- -l-. Flow
Out
1 I I
Lly
l-
l-
Llx

I I I
Figure 17.3-1 Mass Balance on Reservoir
l-
l-
Element
that will affect the decisions made by a simulation
1
fracture matrix
I
fracture
I
matrix
engineer will be discussed.
The early approach to' solving the multi-phase flow
(a) Dual Porosity (b) Dual Permeability equations was the Implicit Pressure Explicit Saturation
(IMPES) Method, in which the flow equations were
combined into a single pressure equation. After the pres-
Figure 17.2-1 Schematic Diagram of Matrix- sure has been advanced in time, the saturations are
Fracture Connectivity updated explicitly. This approach assumes that the cap-
illary pressure and transmissibility terms do not change
17.3 MATHEMATICAL FORMULATION substantially within a timestep. The advantages of the
Mathematical functions for all the cases discussed have IMPES method are its low computer memory require-
been presented in detail in the literature, and so will not ment and reduced computation per timestep.
be repeated here. In general, the formulations involve The IMPES method has been found to be satisfactory
the use of partial differential equations that are solved for many problems; however, in situations where high
using finite difference schemes. Figure 17.3-1 shows a flow rates exist, such as in water coning, gas percola-
small volume element ofthe reservoir with dimensions tion problems and naturally fractured reservoir
dx, liy, and liz. Simulation involves a mass balance over simulation, a more stable solution method is required.
many elements similar to the one shown. The fully implicit method, on the other hand, requires
The exact solution to the partial differential equations the simultaneous solution ofthe multi-phase flow equa-
is rarely available. In practice, numerical techniques are tions (Au et al., 1980).This method requires substantially
used to obtain approximate solutions to those equations. more computing time and data storage. Increased sta-
The finite difference method is the one most commonly bility ofthe fully implicit method allows larger timesteps
used for reservoir simulation. The method transforms to be used.
the continuous differential equation into a discrete form Most commercial simulators allow the user to specify
in both time and space. The reservoir region is subdi- the method of solution. More advanced simulators of-
vided into elements or grid blocks similar to the block fer semi-implicit and dynamic implicit methods. The
shown in Figure 17.3-1. The solution to the system of semi-implicit method solves a subset of the flow equa-
flow equations is obtained for each grid node. The de- tions simultaneously whereas the dynamic implicit
pendent parameters obtained for each grid node represent method switches between the IMPES and fully implicit
the average value for the element. methods on an individual grid block according to flow
Detailed discussion of the finite-difference method is conditions. Unless computer memory and run time
available in the literature (Aziz and Settari, 1979) and limitations present a problem, it is advisable to use the
will not be provided here. However, certain concepts fully implicit method of solution to avoid unnecessary
numerical problems.

215
DETERMINATION OFOILAND GASRESERVES

17.4 ANATOMY OF RESERVOIR 17.5.2 Rock and Fluid Properties


SIMULATION The important petrophysical properties of rock required
Reservoir simulation is a complex engineering task. A in reservoir simulation include porosity, absolute per-
simulation study must be planned and organized to en- meability, relative permeabilities, capillary pressure
sure that useful results are obtained. The objectives of data, rock compressibility, and fluid saturations.
the simulation study must be clearly defined. The engi- The average porosity can be determined from core
neer should have a list of specific questions the study analysis. The porosity is also calculated from well
should answer, and preliminary reservoir engineering logs. Porosity logs calibrated against core porosity are
calculations should have been completed. Before car- generally more reliable than log data alone.
rying out a simulation study, an engineer should be
Absolute permeability is one of the most difficult
thoroughly familiar with previous reservoir studies. The
reservoir properties to define. It is also critical to the
results and conclusions ofprevious studies may be use-
prediction of fluid migration in a reservoir. Integrated
ful to fine-tune current study objectives and help save
permeabilities from cores and well-test data should be
time.
used in reservoir simulation.
Once the objectives and scope of the study are clear,
In a reservoir where more than one fluid is present, the
a reservoir simulation study generally involves the
relative permeability of individual fluids as a function
following phases:
offluid saturation is required. Relative permeability data
1. Data collection are usually obtained from laboratory measurements on
2. Model grid design core samples. The relative permeability relationships are
3. Sensitivity tests obtained for gas-oil, oil-water, and gas-water systems.
Most reservoir simulators use Stone's (I970) model
4. History matching
to approximate three-phase relative permeability
5. Performance prediction behaviour.
The following sections describe these phases of the The capillary pressure data are determined from
simulation activity. laboratory analyses. Rock compressibility data are
17.5 DATA REQUIREMENTS obtained from laboratory analyses of the reservoir rock
or from published correlations.
A numerical simulator may be used to model any
reservoir. The input data to the simulator describe a Formation fluid saturation distributions can be derived
unique model for a particular reservoir. The data required from log analysis. Another option is to calculate fluid
to construct a reservoir model may be grouped as saturation distributions based on the positions of the
follows: water-oil and gas-oil contacts. The fluids may be
assumed to be initially either fully segregated (no transi-
Reservoir geometry, which describes the size, shape,
tion zone) or dispersed (with a transition zone). The
internal and external boundaries of the reservoir
capillary pressure curves are used to determine the
Rock and fluid properties, which affect the dynamics saturation in the transition zone.
of fluid flow in the reservoir
Fluid properties include formation volume factors, fluid
Production and well data, which describe the well viscosity, solution gas-oil ratio, and fluid density. The
locations, perforation intervals, skin factors, and flow source ofthese data is usually laboratory PVT analysis.
rates Iflaboratory data are not available, correlations can be
used to generate them. For compositional simulation,
17.5.1 Reservoir Geometry
the equation of state is used for calculating fluid pr?p-
A geometric description of a reservoir is usually erties. The effects of temperature on viscosity, density,
derived using a team approach involving geologists, relative permeability and capillary pressure are also
geophysicists and reservoir engineers. A good required for thermal simulation.
understanding of regional geology and depositional
environment is necessary. Seismic sections are useful 17.5.3 Production and Well Data
in preparing structural maps and positions of faults. The data required to specify well operation include well
Formation top and thickness of zones to be simulated locations, perforation intervals, well productivity index,
may be obtained from well logs and drilling records. skin and flow rates for each well. Sources ofproduclion

216

_________________.za
NUMERICAL SIMULATION

and well data are pressure tests, drilling records, and


well production records.
The constraints imposed on wells due to surface
facilities or economic limits must also be available.
Typical well constraints are water-oil ratio, gas-oil
ratio, bottom-hole pressure, and maximum and
minimum flow rates.

17.6 RESERVOIR MODEL GRID DESIGN


A reservoir can be modelled with !D, 2D or 3D grid
systems. Depending on the objectives of the study, one
of the following may be used:
ID models, which have limited applications
including material balance, simulation of experiments, Figure 17.6-2 20 Vertical Model
and interaction between two wells. In a vertical or dipp-
ing !D model, the effect of gravity override, updip gas 2D radial models, which are a special type of 20
injection, and bottom water injection can be evaluated. models. While most simulation models are defined by
cartesian coordinates, the 2D radial models are defined
2D areal models (Figure 17.6-1), which are
using a cylindrical coordinate system (Figure 17.6-3)
commonly used in field simulation. The model is suit-
and have special applications in the study of near-well
able when areal flow pattern dominates reservoir
effect. The 20 radial models are often called coning
performance, and the vertical variation in rock and fluid
models because they are used principally to study water
properties in the reservoir is small.
and gas coning behaviour. This type of model is useful
in studying single well operations to determine the op-
timal completion interval, critical flow rate to avoid
coning, well deliverability, and well test analysis.

Figure 17.6-1 20 Areal Model


,
, . I
I -- z
I
2D vertical models, which are used to model
vertical cross sections of a reservoir (Figure 17.6-2).
The applications include gravity segregation effect,
effect of stratigraphy, frontal displacement, effects of
well completion intervals, and flow into a horizontal
well.
2D vertical models are also used to generate
pseudo-functions, which reduce three-dimensional simu-
lation to two-dimensional areal simulation (Jack et aI.,
1973; Coats et al., 1971).
Figure 17.6-3 20 Radial Model

217
DETERMINATION OF OIL ANDGASRESERVES

3D models, which are used to study large multiple well In areal simulations where the effect ofwell pattern and
reservoirs with thick reservoir pay sections, significant infill wells is studied, sufficient grid blocks should be
vertical variation in rock and fluid properties, faults, and used so that all the wells in the reservoir model are sepa-
partial communication between layers (Figure 17.6-4). rated by several grid blocks. Ifpossible, the orientation
3D models are also used to study large reservoirs with of the grid system should parallel trends of high
several noncommunicating producing horizons, multiple permeability.
completions with or without commingled production, A full field reservoir simulation may not be necessary
aquifer influx, and horizontal well development. to satisfy the study objectives. In many cases, a study
of an element of symmetry from a reservoir with
repeated well patterns may be sufficient.
17.7 RESERVOIR MODEL
INITIAL,IZATION
Preceding sections have indicated that reservoir data
are available mainly at well locations. The reservoir
simulator, however, requires reservoir parameters for
each grid node in the reservoir model. The common
practice is to construct contour maps of the reservoir
parameters. The reservoir model grid is then overlaid
on the contour map, and values are assigned manually
to each grid node.
Figure 17.6-4 3D Model Some simulators utilize reservoir parameters at well
An efficient reservoir model is one that satisfies the study locations and generate the distribution ofparameters for
objectives at the lowest cost. Since the cost of a simula- each grid node using a second or higher order interpo-
tion study, including engineering person-time costs and lation scheme. The number of wells and their locations
computing costs, is proportional to the complexity of can affect the quality of interpolation. The reservoir
the model, it is desirable to employ the simplest model parameters assigned to each grid node by this method
possible. The model, however, must be able to repre- should be examined carefully and any anomalies cor-
sent reservoir geometry and positions offaults and wells, rected. Most reservoir- simulators have the ability to
and be able to show fluid migration patterns. It is diffi- display the reservoir model and initial conditions on a
cult to design an optimal grid system for a reservoir. computer display screen for visual inspection.
However, the following guidelines may be useful. The initial pressure and fluid saturation distributions in
Since the parameter values for each grid node in a the reservoir model can be defined using the interpola-
reservoir model are the average values for the block, tion scheme described. Alternatively, the simulator can
the number of grid nodes should be increased in the be used to calculate pressure and saturation distribution
area of interest or where reservoir parameters are ex- based on specified water-oil and gas-oil contacts and
pected to change rapidly. Typically, smaller grid blocks reference pressure.
are required around wells. One caution is that abrupt 17.8 MODEL SENSITIVITY ANALYSIS
changes in grid sizes introduce truncation errors. As
The numerical truncation error associated with timestep
a general rule, the ratio of the grid lengths for two
size and grid size can affect the accuracy of simulation
adjacent grid blocks should be less than two.
results. Before a detailed history match is performed,
Local grid refinement features are available in most the sensitivity of a reservoir model to truncation error
reservoir simulators. This feature allows any grid in a should be analyzed.
reservoir model to be subdivided into smaller grids with-
The effect of grid size on simulation results can be
out adding extra blocks in other parts ofthe model. Local
evaluated with a simple model of a representative por-
grid refinement can be very useful in areas with wells
tion of the reservoir that includes an injection and
and faults. By subdividing a well block vertically into
production well. A series of simulation runs with de-
more layers, local grid refinement provides a means to
creasing grid size is performed. When the reduction in
specify completion intervals more precisely.
grid size does not change the simulation results beyond

218

__________________________c.
NUMERICAL SIMULATION

the accuracy required, the grid size is considered the pressure data has been corrected to the proper
acceptable. A smaller 2D model is often used to per- datum.
form grid sensitivity tests because it is cumbersome to When long production history is available, it is
change the grid block sizes in a complex 3D field scale customary for simulation engineers to specify monthly,
model. quarterly or semi-annually averaged daily rates as input
The effect of timestep size should also be investigated to the simulator. These daily production rates are ob-
in the reservoir model sensitivity analysis. The timestep tained by dividing the recorded cumulative production
size used in field scale simulation is indirectly controlled during the selected period by the number ofdays in that
by how often the well rates are changed. However, when period. The production data to be matched should also
there is no change in well rates and the maximum be averaged in the same fashion.
timestep size is not controlled, the numerical truncation History matching is a time-consuming exercise. It can
error can be significant. A few simulation runs should take more than fifty percent of the time allocated to a
be made with different timestep sizes to determine the reservoir SImulation study. There is no system for chang-
maximum timestep size that will produce no adverse ing the reservoir parameters that would result in a good
effect on the results. history match, so engineers must rely on their reservoir
Most reservoir simulators use automatic time step simulation experience and their knowledge of the res-
selection algorithms to determine the appropriate ervoir. The general rule in history matching is to change
timestep size. The algorithm selects a timestep size that the parameters that have the largest uncertainty and also
will maintain pressure, saturation or temperature change the largest effect on the results. The engineers must con-
over a timestep at the level specified by the user. If stantly check to make sure the parameters are within
automatic timestep selection is used, the maximum reasonable limits.
time step size determined from the sensitivity study
should be imposed.
17.10 FORECASTING RESERVOIR
PERFORMANCE
17.9 HISTORY MATCHING Following a satisfactory history match, the reservoir
The data available to construct a reservoir model is model may be used to predict reservoir performance.
often limited, so it is very unlikely that the initial reser- From the objectives of the simulation study, a list of
voir model will provide a good representation of the prediction cases is developed. It is always useful to es-
reservoir. However, this data represents the best esti- tablish a base case for comparing different proposed
mates of the engineers and geologists. The predictions development strategies. The base case is usually the
obtained from a reservoir model are thus not very use- continuation ofthe existing operating strategy. The fol-
ful unless the model is able to produce a performance lowing are typical questions a reservoir model may
similar to the historical data. History matching is a pro- answer:
cess in which the parameters of the model are adjusted Estimate of reserves
until the computed results are similar to the historical
Well pattern and spacing
data. The adjustment of parameters should be carried
out within reasonable orders ofmagnitude; the input of Injection well location
unrealistic data for the sake of obtaining a good history Drilling schedule
match is never justified. Critical production rates
The historical data usually includes observed pressures, Well completion strategy
gas-oil ratio, and water-oil ratio. In cases where a well Well deliverability
is produced at a constant pressure or total fluid rate,
Vertical vs. horizontal well performance
the match variable can be the oil or gas rates. In some
cases break-through time may be an important match Migration of fluid
parameter. Recovery mechanisms
Before any of the historical data is used in the history The model provides estimates of fluids in place at
match, an engineer should analyze the data to confirm initial and current conditions. Ideally, these estimates
the accuracy ofthe recorded information. The engineer should compare with the results from volumetric and
must make sure that the data is in comparable units and material balance calculations. The results of the base
case forecast should match reasonably well with the

219
DETERMINATION OFOIL AND GAS RESERVES

results from decline curve analysis. Any significant A reservoir model should not be treated as a "black box"
differences in these results should be investigated and for turning out numbers. Reservoir simulation is no sub-
an explanation included in the engineering report. stitute for good reservoir engineering. Only intelligent
If the objectives of the simulation study include the use of reservoir simulation can avoid costly mistakes.
determination of ultimate recovery for a number of
17.12 SUMMARY
reservoir development alternatives, these cases are
simulated to the economic limit in order to estimate re- Reservoir simulation is a very useful tool for studying
serves. It is necessary to define the appropriate criteria reservoir behaviour, for comparing alternative field de-
for reservoir abandonment conditions, such as minimum velopment strategies, and for forecasting production and
producing rates, maximum water cut, minimum pres- estimating reserves. Reservoir simulation involves the
sure, and other factors that determine the economic limit. use of complex mathematical formulations, numerical
approximations, and reservoir descriptions, all ofwhich
When a simulation model is used to estimate ultimate
contain many uncertainties. It is necessary to use good
recovery, it is important to recognize that results are
engineering judgement in conducting simulation stud-
subject to considerable uncertainty, especially if the
ies and in interpretating the results obtained.
model is developed for a reservoir with limited produc-
tion history. However, the comparison of ultimate The advances in computer technology show no signs of
recoveries from different development strategies can be slowing. This trend will facilitate widespread applica-
very meaningful and an excellent basis for choosing tions of reservoir simulation technology to petroleum
between alternative development methods for a field. reservoir engineering problems in the future.

17.11 USE AND MISUSE OF RESERVOIR References


SIMULATION Aguilera, R. 1980. Naturally Fractured Reservoirs.
The discussions in the preceding sections highlight PennWell Publishing Company, Tulsa, OK.
some applications of numerical reservoir simulation. Au, A.D.K., Behie, A., Rubin, B., and Vinsome,
One major advantage of simulation models is that it can P.K.W. 1980. "Techniques for Fully Implicit
be used to evaluate different field development strate- Reservoir Simulation." Paper presented at the
gies at very small cost and without irreversible damage 1980 SPE Annual Technical Conference and
to the reservoir. The misuse of reservoir simulation, Exhibition, Dallas, TX, Sep. 1980, SPE 9302.
however, can lead to erroneous conclusions and costly Aziz, K., and Settari, A. 1979. Petroleum Reservoir
mistakes. Simulation. Elsevier Applied Science Publishers,
The use ofreservoir simulators requires at least as much New York, NY.
experience and engineering judgement as routine reser- Chase, C.A., and Todd, M.R. 1984. "Numerical
voir calculations. In considering the results obtained Simulation of CO, Flood Performance." SPEJ,
from reservoir simulation, three questions must be asked: Dec. 1984, pp. 597-605.
I. Are the final parameters used to obtain a good his- Coats, K.H. 1978. "A Highly Implicit Steamflood
tory match reasonable? Model." SPEJ, Oct. 1978, pp. 369-83.
2. Is the simulator used in the study appropriate for - - - . 1980a. "An Equation of State
the process under consideration? Compositional Model." SPEJ, Oct. 1980, pp. 363-
3. Are the simulation results consistent with other 76.
engineering calculations? - - - . 1980b. "In Situ Combustion Model." SPEJ,
Forecasts of reservoir performance are more reliable Dec. 1980, pp. 533-54.
during the first few years. Longer term prediction tends Coats, K.H., Dempsey, J.R., and Henderson, J.H.
to be less reliable because errors caused by uncertain- 1971. "The Use of Vertical Equilibrium in Two-
ties in reservoir description become more significant Dimensional Simulation of Three-Dimensional
with time. Predictions of absolute value of recovery, Reservoir Performance." SPEJ, Mar. 1971, pp.
for example, will be less reliable in the long term. How- 63-71.
ever, comparison ofrelative differences between similar
Crichlow, H.B. 1977. Modern Reservoir Engineering
prediction cases are less likely to change.
- A Simulation Approach. Prentice-Hall, Inc.,
Englewood Cliffs, NJ.

220

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _71
NUMERICAL SIMULATION

Gilman, lR., and Kazemi, H. 1988. "Improved Thele, KJ., Lake, lW., and Sepehrnoori, K. 1983.
Calculations for Viscous and Gravity "A Comparison of Three Equation-of-State
Displacement in Matrix Blocks in Dual-Porosity Compositional Simulators." Paper presented at
Simulators." JPT, Jan. 1988, pp. 60-70. the 1983 SPE Symposium on Reservoir
Jack, H.H., Smith, OJ.E., and Mattax, C.C. 1973. Simulation, San Francisco, CA, Nov. 1983,
"The Modeling of a Three-Dimensional Reservoir SPE 12245.
with a Two-Dimensional Reservoir Simulator- Todd, M.R., and Chase, C.A. 1979. "A Numerical
The Use of Dynamic Pseudo Function." SPEJ, Simulator for Predicting Chemical Flood
Jun. 1973, pp. 175-85. Performance." Paper presented at the SPE
Symposium on Reservoir Simulation, Denver,
Mattax, C.C., and Dalton, R.L. 1990. Reservoir
CO, Feb. 1979, SPE 7689.
Simulation. SPE Monograph, Vol. 13.
Todd, M.R., and Longstaff, WJ. 1972. "The
Nolen, J.S. 1973. "Numerical Simulation of
Development, Testing, and Application of a
Compositional Phenomena in Petroleum
Numerical Simulator for Predicting Miscible
Reservoirs." Paper presented at the 1973 SPE
Flood Performance." JPT, Jul. 1972, pp. 874-82.
Symposium on Numerical Simulation of
Reservoir Performance, Houston, TX, Jan. 1978, Warren, r.s., and Root, PJ. 1963. "The Behaviour of
SPE4274. Naturally Fractured Reservoirs." SPEJ, Sep.
Stone, H.L. 1970. "Probability Model for Estimating 1963, pp. 245-55.
Three-phase Relative Permeability." Trans., SPE Youngren, G.K. 1980. "Development and Application
of AIME, Vol. 249. of an In Situ Combustion Reservoir Simulator."
SPEJ, Feb. 1980, pp. 39-51.

221
Chapter 18

DECLINE CURVE METHODS

18.1 INTRODUCTION 18.2 SOURCE AND ACCURACY OF


The decline curve is a basic tool for estimating PRODUCTION DATA
remaining proved reserves, and can be applied once there It is worthwhile to review the source of the basic data
is sufficient history to show a trend in a performance used to prepare decline curves. Production accounting
variable that is a continuous function of either time functions such as royalty payments, allocation ofgroup
or cumulative production. Forecasts are made by production to individual wells, gas plant balances, and
extrapolating trends to an endpoint where production reports to regulatory agencies usually have a monthly
is expected to cease (i.e., an economic limit or a related reporting and reconciliation period. Daily records of
parameter such as water-oil ratio). Such forecasts are hours ofproduction, test rates, system pressure and other
particularly useful in the latter stages of depletion when operating variables are kept to make these monthly re-
trends are clearly evident and there is insufficient rev- ports, but they are often discarded or placed in dead
enue to justify a more comprehensive analysis. files after a few months. The permanently accessible
The origin of decline curves is uncertain, but their record ofproduction and injection data usually consists
usefulness to monitor day-to-day operations likely ofmonthly totals for gas, oil, and water production (in-
predates their use as a forecasting tool. Indeed, prior jection), operated hours, and wellhead pressure. Monthly
to the general trend to centralize and use computers for totals are usually converted to daily rates for graphing
production accounting and engineering functions, it purposes because facility capacity, contract rates, and
was common practice for field offices to maintain economic limits are usually expressed as daily rates.
production graphs to assist with day-to-day operations. The frequency and quality of well tests are the most
Decline curve methods have a universal appeal because important factors affecting official production records.
they provide a simple visual representation of a com- For gas wells, it is common practice to measure raw gas
plex production process. In some cases a visual production for each well and to run annual deliverabil-
interpretation is too simplistic, and some background ity tests. The measured production helps to ensure
knowledge is needed in order to draw reliable conclu- reliable well-by-well cumulatives; however, the seasonal
sions. In particular, it should be appreciated that forecasts and variable demand for gas can result in highly vari-
are usually based on linear extrapolations of historical able rates, and this tends to complicate decline analyses.
trends. Such extrapolations are strongly affected by any For oil wells, it is common practice to measure group
transformation used to obtain a linear relationship. It is production, and test individual wells monthly. The day-
also implicitly assumed that the factors causing the his- to-day demand for oil is less affected by markets, and
torical decline will continue during the forecast period. many oil wells are produced at capacity, which tends to
Some factors causing the decline are physical processes simplify decline analyses.
(e.g., pressure depletion, coning, interface movement) The least complex production facility is a single well
that are not easily changed. However, other factors such served by a single-well battery. In such a facility, there
as regulatory environment (e.g., well spacing, gas-oil is no doubt about the source of the production. The
ratio penalties, maximum rates) and operating practices measurement accuracy will also be reliable if the facil-
(e.g., type and size of artificial lift, hours of operation, ity is properly sized. Among the most complex facilities
frequency ofwork 0 vers, gas gathering system pressure) are central treating facilities that serve several multi-
can quickly change from time to time and from lease to well satellite batteries equipped with three-phase test
lease. separators and operating at high pressure. In this case,
the total (group) production of oil, gas, and water is

222

5
DECLINE CURVE METHODS

allocated to individual wells on the basis of their Ratio curves: the gas-oil ratio (GOR) and water-oil
operated hours and test rates. The accuracy ofthis allo- ratio (WOR) curves that are commonly plotted for oil
cation depends upon the frequency of well testing and wells, These ratios are a measure of the efficiency of
the variation of oil, gas, and water rates among wells. A the oil production process. An increase in either ofthese
good indication of the allocation accuracy is given by ratios is usually accompanied by a decrease in the oil
the quotient of theoretical production and measured rate. GOR penalties are often applied as a rate control
production for each fluid (e.g., oil, gas, and water). measure to limit the amount ofreservoir voidage caused
Theoretical production is the piece-wise sum of the by high-GOR wells. For gas wells, the corresponding
product of test rate and time interval. These quotients ratios are condensate-gas ratio (CGR), liquid-gas ratio
(called proration or allocation factors) are usually (LGR), and water-gas ratio (WGR). The CGR is a mea-
considered to be acceptable if they are in the range of sure of the richness of the raw gas. In gas cycling
0.95 to 1.05. It should be noted that errors in test rates schemes, the CGR decreases with increasing dry gas
or producing hours will cause misallocations among break-through. The WGR ratiois a measure of'produc-
wells and pools. Errors in gas-oil and water-oil ratios tion problems associated with liquid buildup in wells,
can be somewhat larger because the allocation factor hydrates, and water coning.
for each fluid may differ (e.g., an oil allocation factor Cut curves: the fraction of oil or water cut in the liquid
less than 1.0 and a water allocation factor greater than production from oil wells. These curves are another
1.0). Thus, gas-oil ratio and water-oil ratio curves often measure of the efficiency of the oil production process.
show more "noise" than their corresponding rate curves. Their fixed range (i.e., 0 to I) provides an alternative
criterion for an economic limit.
18.3 TERMINOLOGY
Reservoir performance charts: the composite
The following are definitions of terms used in this presentation ofrate-time graphs supplemented with res-
chapter: ervoir data (e.g., reservoir pressure, interface depth) and
Decline curve: the generic label applied to many performance variables (gas-oil ratio, water cut, number
different types of charts, graphs, and data representa- of producing wells, water injection, cumulative oil).
tions. The most basic decline curves show the change These charts are often maintained for a lease or unit
in oil, gas, or water production rate with time (rate-time by the operator, and for a field or pool by a regulatory
graphs). The production rate is usually expressed as agency. Figure 18.3-1 is an example of a reservoir
volume per day to facilitate understanding; however, performance chart for the gas-cycling and gas-cap
hourly, weekly, monthly, and yearly rates may also be operations for a pool in Alberta. In the figure, IR is the
used. Graphs with time as the independent variable are injection rate and cd is the calendar day. WGR is the
easily understood and the rate-time data is directly ap- water gas ratio.
plicable to economic evaluations. The other common Production performance charts: charts graphed on
independent variable is cumulative oil or gas produc- semi-log paper which utilize the fact that the product or
tion (rate-cumulative graphs). The advantage of these quotient of two straight lines on semi-log paper is an-
is that an extrapolation to the economic limit yields a other straight line with a slope related to the slopes of
direct estimate of the proved reserve. the other two. The idea is to use this slope interdepen-
Calendar-day rate: the monthly total production dence to help estimate the decline rate. The advantage
(injection) divided by the number of days in the month. is that the decline should be more reliable because more
Operated-day rate: . the quotient of monthly ofthe data has been used to estimate it. Figure 18.3-2 is
production (injection) and actual operated hours in the an example of a production performance chart for a
month multiplied by 24. If calendar-day and operated- pumping well where the production is controlled by the
day rates are plotted on the same graph, any separation artificial lift. The gas production is not shown because
of the curves is a measure of the shut-in or down time. it is not a factor in the decline. The slopes of the oil,
Ifthere are no rate controls, the area between the graphs water and WOR curves are interrelated.
is a measure of "lost production." Operated-day rates 18.4 SINGLEWELL VS. AGGREGATED
may define a better decline trend than calendar-day rates
WELL METHODS
because they smooth out the variation caused by down
Decline curve methods may be classified many ways;
time.
however, any classification should recognize the diff-
erence between analyses for a single well and analyses

223
DETERMINATION OF OIL AND GASRESERVES

'C M- 100
.Q e
Me
~
24 ~ q. (rna/d)
~ :E'
!;
16
~

''C" ',E"
8 o
M.Q M
e 8 e
0
~o 24
G
10
~
16 o
,E - - - - - - - Operated-day Rate
8 o - - - Calendar-day Rate
40

a:
~
01:: n:I7::'.7"91"""
7-';47=5T-7"". ' . ",, 92:r9::1
0 6"',T""6""26"'3T""64"T6=-=5T""9."T6=7T""66:r6=-9f:"90:r9""f:" 3

Figure 18.3-1 Reservoir Performance Chart

for aggregated production from a group of wells.


Decline curve analyses for single wells are widely used Figure 18.3-2 Production Performance Chart
and readily interpreted because they have the following
advantages: 18.5 DECLINE CURVE METHODS FOR
A SINGLE WELL
All the raw data can be displayed.
Decline curves are a visual tool, and it is easy to
Decline trends are easy to recognize and often overlook that trends and extrapolations (linear or curved)
correlate with the total fluid production rate.
are defined by mathematical equations. The most com-
The economic limit can be directly applied to mon equations were given in classic papers by Arps
estimate reserves. (1945,1956). Table 18.5-1 summarizesArps'rate-time
The conventional decline equations have been shown and rate-cumulative equations along with dimension-
to have a strong foundation based on reservoir less time and production groups proposed by Gentry
engineering principles. (1972). The decline relationships in Arps' first paper
On the other hand, decline curve analyses and forecasts were based on the loss ratios between equal time inter-
for aggregated production from a group of wells are vals. While these relationships were useful for tabular
also widely used, but may be misinterpreted for the data, they are ofless interest today with the easy access
following reasons: to computers and graphing programs. Mead (1956) re-
fined the loss ratio and series methods and was among
Only part of the raw data can be displayed.
the first to attempt to associate the type of decline with
Decline trends may be masked by the number and the drive mechanism. The equations in Table 18.5-1 are
variability ofthe wells contributing to the aggregated solutions to the following differential equation:
production.
The economic limit cannot be directly applied to
estimate reserves. d (dq~dt)
-b= ---'-- (I)
The analyses are largely empirical (may be enhanced dt
by statistical analysis).

224

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _1
DECLINE CURVE METHODS

where b decline exponent 18.5.1 Exponential Decline


q = producing rate Exponential decline is most commonly used because
t = time both the rate vs. cumulative and the log (rate) vs, time
At the time they were formulated, the equations were graphs are linear. Figure 18.5-1 is an adaptation of
considered to be empirical and were classified as expo- a normalized rate, q/q., vs. a normalized cumulative
nential, hyperbolic or harmonic. The classification was relationship, N'/(NP)l yr s by Schoemaker(1967) show-
based on the value of the exponent, b, used to charac- ing both decline rate, d, and time, t, as parameters. The
terize the change in decline rate with the rate of diagram uses one year as the reference time, and
production. The classification is still widely used, but it decline rates are expressed as percentage per year. The
is now recognized that the value of b is not limited to chart illustrates a subtle difference between the slope,
the range 0 ~ b ~ 1. a, and the annual decline rate, d. Various combinations
of decline rate and time (such as d = 5%, t = 10 years;

Table 18.5-1 Decline Curve Equations

Type of Decline
Exponential Hyperbolic Harmonic
Characteristics Decline is constant. Decline varieswith Decline is directly
instantaneous rate proportional to the
raised to power "b." instantaneous rate.

Exponent b=O b = 1.0

-1
Rate-time
q = qJI + ba, t)'
relationship

Rate-cumulative
relationship

Dimensionless
(~) -I
time, td
a.t> - - -
, b a,t=(~)-I
-]

I_(~qi) In (~)
Dimensionless N,= ~---q-
production, q"
q, t In (~) qt m- l

where a = decline as a fraction of producing rate (slope of line)


ai = initial decline rate
b = decline exponent
e = natural logarithm base 2.71828
Np = cumulative production
q = producing rate at time (t)
qi = producing rate at the beginning of the decline
t = time
Source: After Arps, 1956;Gentry, 1972.

225
-----=-r-/
;;"', I
DETERMINATION OF OILAND GAS RESERVES

d = 10%, t = 5 years; and d = 50%, t = I year) do not 100 m3/d and is expected to decline at 10 percent per
result in the same final rate, q/qi' Values of 0.6,0.59 year, what will the rate and cumulative production be
and 0.5 can be read from Figure 18.5-1.The difference after 10 years? The answers can be read from the inter-
in rate is due to the number of times the annual decline section of the 10 percent decline and 10-year lines
rate is applied(becauseofthe similarityof declinecurve r
(i.e., q/q; = 0.35 N/(Np)1 = 6.18). Thus, after 10
calculations to compound interest or depreciation cal- years, the rate will be 35 m /d and the cumulative will
culations). The slope, a, corresponds to very short be 100 x 365 x 6.18 = 225660 m3
compound periods,and inthe mathematical limitingpro-
cessis calledcontinuous compounding. The decline rate, 18.5.2 Hyperbolic Decline
d, is related to the decline slope, a, by the expression: With hyperbolic decline, the decline is proportional to
the productionrate raised to the power b. Unfortunately,
d = I - e' (2) hyperbolic decline does not plot as a linear relationship
on common graph papers (i.e., linear, semi-log, or log-
Schoemaker shows how Figure 18.5-1 can be used to logco-ordinates). Priorto the widespread use ofpersonal
solve many practical exponential decline problems. He computers, this lack of linearity was the main reason
points out that five parameters are used in the equations for the restricted use of hyperbolic declines. Slider
(q, q, N p, t, and either a or d) and, when any three are (1968) preparedtransparent overlays (each overlayhad
known, the other two can be determined from the a fixed b-value and a family of decline rates) that could
figure. For example, if a new well has a capacity of be visually matched to log (rate) vs. time graphs. Once

0.3 1-----hI-+--\-iL.IJ-~:.+W~_",._~~_J!."___A.,._,,A.,._,,jL~.L-_bA=Lj__r::::::,"5<""1 \'0 'lIS

ZO'lIS

2 3 4 567 8 9 10
Normalized Cumulative Production, Np/(Np) 1 y'
Source: After Schoemaker, 1967.

Figure 18.5-1 Exponential Decline Chart

226
DECLINE CURVE METHODS

the overlays were prepared, the visual matching tech- 10.0


nique could be applied with about the same ease as an
exponential decline extrapolation.
The next development in handling hyperbolic declines
was based on the dimensionless groups shown
in Table 18.5-1. Gentry used these groups to develop
the generalized rate-time and rate-cumulative graphs 1.0:f- ~~~,y

shown in Figures 18.5-2 and 18.5-3, respectively.


Figure 18.5-2 is simply the family of rate-time graphs
for a unity decline rate (a, = 1.0). It should be noted that
the exponential decline (b = 0) plots as a straight line
as expected on the log rate vs. time co-ordinates.
Figure 18.5-3 is more difficult to understand because
the transformation to dimensionless production changes 0.8 0.6 0.4 0.2 o
q, = Np/(q,t)
the character of the graph. This figure is not directly Source: AlterGentry, 1972.
comparable to standard rate-cumulative graphs. It should
be noted that the harmonic decline (b = I) does not plot Figure 18.5-3 Decline Curve Analysis Chart
as the expected straight line on the log rate vs. cumula- Relating Production Rate to
tive co-ordinates. Figure 18.5-3 shows that the Cumulative Production
cumulative production is strongly related to b, but some
calculations are required to quantify the sensitivity in f(b) = Y(x" - I) (1- b) - b (1 - x
I
) (3)
every case. To apply Gentry's method, two rate-time
pairs are read from a decline graph, and these values where x = q/q
along with cumulative production over the time period y = N/(qjt)
are applied to Figure 18.5-3 to determine b. With a b = decline exponent
knowledge of b and the time period between points, The authors then used standard numerical techniques
Figure 18.5-2 is used to calculate the decline rate. to find the roots of this equation (i.e., f(b) = 0). The
Agbi and Ng (1987) showed that the dimensionless pro- equation was demonstrated to have at least two roots,
duction equation for hyperbolic decline in Table 18.5-1 one at b = 0 and another at b = 1. In general the equa-
can be expressed as a nonlinear equation with "b" as tion behaves as a cubic equation with three real roots
the only unknown. including b = 0 and b = I. If the decline is truly expo-
nential or harmonic, then the data will also satisfy the
dimensionless production equations for these declines
in Table 18.5-1. The value of "b" need not lie between
oand I. Because this is a general solution, it shows that
negative values are also possible. The method is actu-
ally a numerical equivalent of Gentry's graphical
solution based on Figures 18.5-2 and 18.5-3. It should
be noted that both methods assume that any type
of decline is specified by two rates, the cumulative
production, and the actual time on production (i.e., qj'
q, Np ' t). Ifthe production rigorously followed the Arps'
equations and there were no measurement or reporting
errors, then everyone using the method would get the
same answer. Unfortunately, because real data does not
rigorously follow the equations and has some noise, the
method is data-dependent. When different data pairs are
used, different values may be calculated for both
Source: After Gentry, 1972.
a and b. The method does not give a quality or
Figure 18.5-2 Decline Curve Analysis Chart "goodness-of-fit" criterion, but if the theoretical curve
Relating Production Rate to Time

227
DETERMINATION OFOILANDGASRESERVES

is plotted on the same scale as the raw data, a visual the specified exponential decline rate (slope). The power
comparison is always possible. of the method is that it uses all of the data to establish
In many cases the purpose of decline analysis is to the nature ofthe decline, but allows selection of a point
estimate the value of future production. Experienced at which the decline is expected to hold the decline rate
evaluators avoid extrapolating hyperbolic declines over and follow an exponential decline. The method is par-
long time periods because they frequently result in un- ticularly suited where monthly production rate is plotted
realistically high reserve and value estimates. The on standard three-cycle graph paper.
characteristic of hyperbolic decline (i.e., continuously Robertson (1988) developed the following production
decreasing decline rate) can result in extremely long rate equation, which is hyperbolic initially, but
producing lives that are incompatible with experience asymptotically exponential with time:
elsewhere and with expectations for equipment life.
Many wells are observed to trend toward an exponen-
tial decline in their later life. Figure 18.5-4 is a log rate (4)
vs. time overlay developed by Long and Davis (1988)
to cope with this problem. Each line on Figure 18.5-4 where ~ = a dimensionless constant to control
is for a fixed b-value. The range extends from 0.3 to how strongly hyperbolic the initial
I. 7, which allows handling of those wells where decline is before asymptotically
b-values greater than 1.0 have been observed, e.g., in becoming exponential
Alberta tight gas (Milk River) and fractured and hetero- The value of ~ ranges from 0 to 1.0 and is related to
geneous reservoirs (Austin Chalk and Spraberry). The the abandonment pressure and the rock and fluid
numbered dots on Figure 18.5-4 correspond to tangent properties. This equation provides for another slack
points where an exponential decline would start with

10' , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ,
Hyperbolic Decline Type Curves
3-Cycle Semilog x 20 Years
95
80
60
50
40
30

b=1.7 3
4
b= 1.5
b = 1.3

5 b = 1.1
6
b = 1.0 5

10 Li-L..1-.LJe-.J.-L..1-l.2l.-L...L.LJe-.J.-L...LL..l-l..-L-L..L.l-L...L.J.:::J=--....L-L...LL.l-L...LL..l..-LJ-J
o 12 24 36 48 60 72 84 96 108 120 132 144 156 168 180 192 204 216 228
Source: Long and Davis. 1988. Time (months)

Figure 18.5-4 Hyperbolic Curve Overlay

228

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ I,
DECLINE CURVE METHODS

parameterto fit actualdataby an analytical decline equa-


tion. Although the author did not recommend it, the 10' 0------------------,
equation provides a mathematical framework to perform 2 ,
Qw+Qo(10 mid) _
a fully numerical curve fit with results very similar to
the manual and visual process of Long and Davis (i.e.,
similar to the Agbi and Ng extension to the Gentry
graphical solution).
Lack of linearityof hyperbolic declines is no longer an
obstaclewhendataare displayedandprocessedby corn- q. + q, (m'/d)
puter. There are numerouslow-cost softwareprograms
for performing decline curve analysis. Most programs
apply a least-squares criterion to find the value of "b"
which best fits the reported production data. Once "b" 10
has been determined, the production data are displayed
on the samegraph with the theoretical declineand fore-
cast. Some programs allow manual changes to the
least-square parametersto obtain a personalized visual 10
fit to the data.
18.5.3 Harmonic Decline
Harmonic decline is a special case of hyperbolic
decline in which the decline rate is directly propor-
tional to the instantaneous production rate. The rate-
cumulative relationship from Table 18.5-1 shows that
harmonic declinewillplot as a straightline on a log rate
vs. cumulative plot. Figure 18.55 is a production o 20 40 60 80

performance graph for a Blairmore oil well, which Cumulative Oil Production (10' m')
Source: AfterPurvis. 1987.
illustrates severalsegmentsof harmonic decline(Purvis,
1987).
Figure 18.5-5 Production Performance Graphs
The rate and ratio curves are somewhat erratic due to
measurement andbatteryprorationerrors. Thetotal fluid WOR + I. The functional relationship can be demon-
production rate, qw + qo' is determined by the size and strated as follows. Any linear segment of the Qw+ Qo
operating speed of the artificial lift equipment. During graph has the functional form
the past 30 years the total fluid rate has varied widely
with a few periodsof relatively stablerate. It is interest- (5)
ing to note that during these dramatic changes in rate,
the WOR + I graph has shown moderate sensitivity to which, when differentiatedwith respect to Qo yields
rate.This is surprisinggiven that duringthe period 1974
to 1976, the qw + ~ rate was about 10 times the initial d(Q. + Q,) = WOR + I = C 10" '2Q, (6)
rate. d(Q,) 3

Anotherinteresting feature of Figure 18.5-5 is the shape


of the cumulative water plus cumulative oil (Qw+ Qo) where c t , c2' cl = data-specificcoefficients
graph. Thegraphisinitiallyconcavedownward, butafter Consequently, the dash line approximations of the ~
a periodof continuous waterproduction, the graphtrends graphwere drawnto honour the usual slope interdepen-
toward a straight line. In fact, three rectilinear sections dence among the graphs. Because the well is part of a
of this graph are evident. The slopes of these three seg- multi-well pool, no conclusions can be drawn on the
ments were transferred to the WOR + I graph. This is effect the well rate has on pool recovery. However, it is
a useful characteristic of harmonic decline, which clear that increasedrates have increased recovery from
can be applied after a period of continuous water this particularwell.
production. The reason for this particularcharacteristic
is that the derivative, d(Q w + Qo)/ d(Qo)' equals

229
~I
:~, I

DETERMINATION OF OIL AND GAS RESERVES

18.5.4 Dimensionless Solutions and Figure 18.5-6 shows his analytical transient type curves
Type-Curve Matching combined with Arps' empirical depletion type curves.
Fetkovich (1980) used simplified material balance and The depletion type curves are essentially the same as
inflow performance relationships for both gas and oil those proposed by Gentry; however, Fetkovich plotted
wells to show that the Arps' empirical equations match q/qj instead of q/q and used log-log coordinates to
up with some ofthe classical solutions to the radial flow facilitate type-curve matching. It is apparent from Fig-
diffusivity equation. Exponential decline was shown to ure 18.5-6 that the transition from transient to depletion
be the long-time solution to the constant terminal behaviour occurs at a dimensionless time of approxi-
pressure case (constant bottom-hole pressure). The mately 0.3. Figure 18.5-6 also shows that until the
short-time (transient) solution is a function of the dimensionless time exceeds 0.3, it is impossible to know
reservoir size expressed as r/rw ratios (r, = external the type of decline that ultimately develops. Thus, the
boundary radius, rw = wellbore radius). Fetkovich dem- safest approach to extrapolating trends early in the life
onstrated that for oil wells (slightly compressible of a well is to assume an exponential decline.
single-phase flow) the type of decline does not change Type-curve matching was first used to interpret
with the drawdown. On the other hand, for gas wells pressure buildup and drawdown data. The procedure in-
(compressible single-phase flow) it was demonstrated volves comparing the pressure-time data from a well
that a change in back pressure changes the type of de- with a family ofdimensionless solutions. The same gen-
cline. This finding helps explain the reliability ofdecline eral procedure is used for decline data. Fetkovich
analysis for oil wells. In many practical cases, wells are summarizes the procedure as follows:
produced at capacity and the bottom-hole pressure does I. The actual rate-time production data are plotted on
not change significantly over time (i.e., the well is a log-log tracing paper of the same size as the type
pumped off). Fetkovich demonstrated that empirical curves to be used. Any convenient units can be
decline curve analysis has a solid theoretical base. used for rate or time because a change in units

10

So
<00 100
100
<0

1000
Transient + Depletion

1.0
r'/rw = 100000

Exponential
Common to Analytical
and Em irical Solutions

Analytical Type Curve Solution

10.1 10
tdO

Source: After Fetkovich, 1980.

Figure 18.5-6 Composite of Analytical and Empirical Type Curves

230

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _6
DECLINE CURVE METHODS

simply causes a uniform shift of the raw data on a analysis can be improved by splitting the wells into a
logarithmic scale. few groups having similar characteristics (e.g., rates,
2. The tracing paper with the data curve is placed over water c~ts, remaining life, well spacing, gas-oil ratios).
a type curve and shifted until a good match is ob- By making sub-groups of wells with similar remaining
tained. The axes of the two curves must be kept lives, an economic limit can be applied with more con-
parallel during this process. Several different type fidence. To establish a reliable decline for tight gas pools,
curves should be tried to obtain the best fit ofall the the wells should be grouped on the basis of their on-
data. production date and initial production rate. In general,
aggregate rate vs. cumulative curves exhibit decline
3. To make a forecast, the type curve is traced onto
trends which are easier to interpret (i.e., better defined)
the tracing paper overlay. Future rates are then sim-
than those for aggregate rate vs. time curves.
ply read from the real-time scale on which the raw
data was plotted. Figure 18.6-1 is a production-performance graph for the
Leduc D-3 A Main Pool showing its final 19 years of
4. To evaluate deciine-curve constants or reservoir
oil production. The pool had an oil zone of 11.6 m sand-
variables, the type of decline is noted and a match
wiched between a large gas cap and an aquifer. By 1974
point is selected anywhere on the overlapping por-
the oil zone's thickness had decreased to about 2.5 m
tion of the curves. With a knowledge of the type
and, by the start of gas cap blowdown in November
of decline and the coordinates of the match point
1989, the oil zone was less than 1 m thick. Figure
on both sheets, the constants or variables are
18.6-1 shows that three correlation segments are required
evaluated from the appropriate dimensionless
to account for the distinct change in the slopes of the
relationship.
curves related to pool oil operations. The gas produc-
Many software programs for performing decline tion from oil wells (solution plus coned gas) was
analysis facilitate a computerized Fetkovich overlay pro- constrained by the portion of the Devon gas conserva-
cedure. These programs greatly facilitate matching tion plant capacity available to the pool. Thus depending
actual data to any of the numerous type curves and are upon the available capacity, many ofthe highest-GOR
particularly useful for analyzing gas wells and other wells would be shut in. Also in September 1978, the
wells with extended transient behaviour. pool water handling (artificial lift and treating capac-
18.6 DECLINE CURVE METHODS FOR ity) became another constraint and contributed to the
A GROUP OF WELLS change in slope of the '10, qo + qw' and oil cut curves.
From 1984 to 1988, several wells were worked over
Estimating the reserves for a group ofwells could be an
and every effort was made to maximize oil recover;
onerous task if a decline analysis were performed for prior to the impending gas cap blowdown. After
each well. Consequently, it is common practice to per-
blowdown commenced, wells were shut in as the aqui-
form one decline analysis for the aggregated production
fer displaced the extremely thin oil zone past the
from all the wells in a lease or pool. While this is com-
completion intervals of the oil wells.
mon practice, it is not as reliable as one might assume.
When the production from a group of wells is aggre- It is apparent from the linearity of the dash lines that
gated (summed), only the total is available for plotting, valid rate forecasts could have been made after a short
and much of the raw data is omitted from the analysis. bit of history in each correlation segment. Figure
Sometimes the average-well rate is plotted to make the 18.6-2 is the corresponding rate vs. cumulative graph.
analysis appear more like that for a single well. An- A good estimate of ultimate recovery could have been
other major difficulty is that the economic limit is not made from this graph as early as 1975. Note also that
clearly defined for aggregated production. This diffi- the straight-line segments on Figures 18.6-1 and 18.6-2
culty also makes forecasts hazardous because some of are characteristic of exponential decline.
the wells will be abandoned during the forecast and will 18.6.1 Statistical Method
no longer be contributing to the aggregate. Clearly, the Purvis (1990) showed that many of the deficiencies of
theoretical base for aggregated production is not as solid decline analysis for a group of wells can be overcome
as that for single wells. by using a log-normal distribution to quantify the
Despite the foregoing problems, decline curve analysis changes in well rates over time. The method provides a
can be successfully applied to aggregated production. means of forecasting future well counts through proper
For example, if there is a wide variation in rates, the application of the well economic limit. The method

231
DETERMINATION OF OIL AND GAS RESERVES

.,--- ---,1 injectors indicates the maturity of the waterflood and


the fact that, at current prices, it is uneconomic to oper-
ate over 1000 wells. In December 1970, the median well
- ---
Oil Cut

0.1
rate was 4.25 m3/d, and by October 1990, it had de-
creased to 1.53 mvd. The dash lines show that the
median well rate is forecast to decline to 0.45 m3/d by
the year 2030. The variance of the distribution has con-
tinuously decreased, as shown by the decreased slope
10' of the distributions. A significant feature of the plot is
that the lines for years 1982, 1986 and 1990 tend to
focus and pivot at about 0.3 m 3/d/well and 2 percent of
Producing Wells wells. This focus is taken to mean that the economic
limit is about 0.3 m3/d/well and that typically 2 percent
of the wells are at, or below, the economic limit at any
time.
10 The coordinates of Figure 18.6-3 are representative of
q, (m'/d/well) the log-normal distribution, the properties of which are
the subject of a classic textbook (Aitchison and Brown,
1966). The linearity of the well rate distributions indi-
cates that they are approximately log-normal. The
median for the log-normal distribution is the arithmetic
average of the logarithms of the population (i.e.,
numerically the geometric average). The small circles
at 50 percent of the wells in Figure 18.6-3 are the geo-
metric averages of the numeric values used to plot the
distributions. These values are in good agreement with
Figure 18.6-1 Production Performance Graph
the values that would be read from the graph. Indirectly
the circles show that the distribution is approximately
TIme Line (years) log-normal. Table 18.6-1 summarizes other numerical
averages and also summarizes the results of chi-square
goodness-of-fit tests of the raw data when divided into
13 equally spaced class intervals.
l!.
E 2 The log-normal is characteristic of phenomena or
"0
processes defined by multiplication (or division).
Examples oflog-normal distributions range from sedi-
mentary petrology (Podruski et aI., 1988) to the probit
methods used for biological assays. There are good rea-
27 29 31 33
sons to expect well production rates to have a log-normal
Cumulative 011 Production (106 m3)
distribution. The radial flow equation that defines steady-
state production rates simply multiplies and
Figure 18.6-2 Rate-Cumulative Production Graph divides parameters that are constant or that change very
slowly. The two most important terms are the pay thick-
was applied in Alberta to the Redwater 0-3, Swan
ness and permeability which are often log-normally
Hills BHL C, Twining Rundle A, and Viking Kinsella
distributed. These actually help to ensure a log-normal
Wainwright B Pools.
rate distribution because the product of two log-normal
Figure 18.6-3 shows some historical and forecast distributions is another log-normal distribution.
distributions ofwell rates for the Pembina Cardium Pool.
The rate-ratio-cumulative graphs in Figure 18.6-4 show
The pool has been penetrated by over 5000 wells. In
that the pool has been on continuous decline for 20 years.
June 1990, there were 3411 producers and 1426 injec-
The linearity ofany rate graph on the linear coordinates
tors, but only 2716 producers and 1037 injectors were
is characteristic of exponential decline. The most
operated. The number of inactive producers and

232

--------------- ..sa
DECLINE CURVE METHODS

Standard Deviation notable change in Figure 18.6-4 is the levelling ofpool


-1 0 +1 +2 water production at about 20 000 m 3/d in 1975.
The levelling occurred after the pool was put on good
production practice and voidage replacement was re-
laxed. The pool oil rate exhibits different decline rates
12 1970
before and after the water production rate levelled. The
12 1974
median well decline rate was less affected by the change.
12 1978
12 1982
It is not clear from Figure 18.6-4 if the decline is sev-
12 1986 eral segments of exponential decline or if the levelling
10 10 1990 ofoil rates is due to harmonic decline. Some ofthe miti-
gation ofpool oil-rate decline from 1980 through 1986
a; was due to increased well count (re-activations and new
drilling) and through judicious selection of the wells
roi to be operated. Since 1986 the pool performance has
(])
1ii deteriorated significantly.
II:
The forecasts shown by the dash line were calculated
(5
on the basis of exponential decline rates of 3 and 4 per
1 cent per year for the median well rate and the pivot point
shown in Figure 18.6-3. The same forecasts on loga-
rithmic coordinates are shown in Figure 18.6-5 which
illustrates that it would not be realistic to assume a
linear (i.e., harmonic) extrapolation of either the pool
rate or median well rate. The median well rate
only changes from 4.25 to 1.53 m3/d so it appears linear
10.1 L--J..._'----'-_'--.L-.L-.L--'---'-_-'-_----' on both linear and logarithmic coordinates. The
2 5 10 20 30 40 50 60 70 80 90 95 98 calculations for Pembina support the pragmatic approach
Percentage of Wells
of limiting a harmonic decline to some time period
followed by an exponential decline. Forecasts based on
Figure 18.6-3 Distribution of Well Rates, harmonic declines of 3 and 4 per cent for the median
Pembina Cardium Pool well rate resulted in ultimate recoveries of 212 and
207 million m3, respectively. These forecasts were not

Table 18.6-1 Statistical Parameters for Pembina Cardium Pool

Statistics for Raw Data Date (month-year)


12-1970 12-1974 12-1978 10-1982 12-1986 10-1990

Numberof wells 2681 2490 2481 2514 2658 2615


Arithmetic average 8.61 5.89 4.01 3.20 2.77 2.07
Geometric average 4.25 3.33 2.57 2.20 1.90 1.53
Harmonic average 2.43 1.88 1.58 1.45 1.30 1.13
Standard deviation 13.35 7.79 4.84 3.33 2.90 1.84
Coefficient of variation 1.55 1.32 1.21 1.04 1.05 0.89
Variation 0.68 0.65 0.60 0.57 0.58 0.54
Lorenz measure 0.59 0.55 0.48 0.45 0.46 0.42
X' Goodness-of-fit test for
log-normal (13 class intervals) 4.15 17.15 14.53 16.79 6.48 7.87

233

7
DETERMINATION OF OIL AND GAS RESERVES
--.r
24 ,---,-"7"<--,-----.----r--..,.--.,.---, 105r--------- ~

3/d)
Pool Oil Rate (10' m'/d) Oil and Water Rate (m
16
~,
,, Oil Rate (m3/d) ." ~,
8
--. " \ \

g
"
4% ~~ -, 3% " "
"
\ \
\ \
I I
\ 13%
\\4%
~
'"
~

103
24 " ""'''''11'11'
" \I
II
Well Count (x 10') II
16 _ _ _ _ _ _ _- .........~%113%

Pool Water Rate (10' m'/d)


10' ""\\
1\
I I
Median Well Rate (m'/d) 113%
4
4%

---
:=><--
2 10

-~--
a 4%" '3%-

4 Median Well Rate (m3Id) ~-


" - , -_ , ,
WaR (m'/m') \ \
o o \ \3%
co
2
, , I ! , "
'"
,',
'"
'"
~
I" '.",1,
4%

a I---.--=r--,--,.-....,...---r----r--i 100 140 180 220


60 100 140 180 220
Cumulative Oil Production (10' m') Cumulative Oil Production (10' m')

Figure 18.6-4 Rate-Ratio-Cumulative Graph, Figure 18.6-5 Production Performance Graphs,


Pembina Cardium Pool Pembina Cardium Pool

believed because of the extremely long producing life Lohec (1984a) demonstrated the effect of reservoir
for the pool. geometry on production rate in reservoirs involving fron-
tal displacement mechanisms. He noted that reservoir
18.6.2 Theoretical Methods
geometry is one of the first characteristics ofa reservoir
Simple theoretical models are sometimes used to make to be defined and understood (e.g., seismic structure defi-
forecasts of pool production. These models can often nition, well control, gas-oil and water-oil contacts). If
be rearranged into rate-time or rate-cumulative equa- the frontal displacement is gravity-dominated, the
tions to prepare a family of forecasts which have some remaining hydrocarbon volume often approximates a
key, but uncertain, reservoir property such as perme- simple geometric shape (e.g., a cone, wedge, or cylin-
ability as a parameter. The family of forecasts can then der) and simple expressions may be developed for the
be used for matching aggregated pool production (i.e., change in hydrocarbon volume with hydrocarbon re-
similar to the type curve matching of individual well covery. Next, the rate ofproduction is assumed to have
production). a simple power law relationship to the remaining
The performance of pools where oil is displaced by hydrocarbon volume. These simple expressions provide
either natural water drive or by water injection can the theoretical basis for calculating rate-cumulative and
often be characterized by a semi-log plot of WOR, oil rate-time performance (i.e., the same role that material
cut, or water cut vs. cumulative recovery. To provide a balance and inflow performance relationships play in
theoretical basis of these cut-cum curves, Ershagi and developing type curves for wells). Lohec (1984b)
Abdassah (1984) proposed a co-ordinate transformation applied the method to the East Texas, Friendswood,
based on fractional flow and Welge's recovery formula. Conroe, and Hawkins fields.

234

7
DECLINE CURVE METHODS

Richardson and Blackwell (1971) showed that several 5. Decline curves for aggregated production from a
reservoir flow mechanisms have an element of symme- group ofwells do not have a strong theoretical base,
try and a single dominant force such that a simple but with appropriate caution and understanding, the
mathematical model could be developed to forecast res- analysis can be reliable.
ervoirperformance. Their models for gravity segregation 6. Experienced evaluators often use an exponential
and water under-running are simple enough to be used decline to extrapolate a hyperbolic decline to pre-
as the theoretical basis for some decline curve analysis. vent unrealistically long lifetimes and reserve
18.7 SUMMARY estimates.
Decline curves are widely used to convey information 7. Dimensionless type curves are powerful tools for
about past production performance and to forecast fu- analyzing and forecasting individual well behaviour.
ture performance and reserves. The following tips and These curves are particularly useful for tight-gas
precautions should be noted: and other wells with extended transient behaviour.
I. Production decline is caused by one factor or a 8. Well production rates for a group ofwells produced
combination of factors including reservoir deple- at capacity can be characterized by a log-normal
tion, equipment wear, operating practice, and distribution. Consequently, the decline rate for the
regulatory environment. It is risky to extrapolate median well is the statistically significant decline
historical trends without understanding the factors rate for aggregated production.
contributing to the decline or anticipating new fac- 9. All of the available data (e.g., reservoir pressure,
tors that can come into play. For example, the gathering system pressure, injection volumes, etc.)
decline ofan oil well in an undersaturated pool will should be plotted and considered when extrapolat-
change as the pool pressure decreases below the ing a decline trend to make a production forecast.
bubble point. Failure to anticipate such a change 10. The results of simple theoretical models and
can negate what would otherwise be reasonable ex- volumetric calculations may be used to constrain
trapolation of past performance. and enhance forecasts starting from an observed
2. The product or quotient of two exponentials is decline trend.
another exponential. This recursive characteristic
References
is useful for any linear functions on semi-log paper.
For example, if the oil rate and gas rate are linear Agbi, B., and Ng, M.e. 1987. "A Numerical Solution
on semi-log paper, the gas-oil ratio must also be to Two-Parameter Representation of Production
linear, with a slope related to the oil and gas rates. Decline Curve Analysis." Paper presented at
Similarly, iftotalliquid production is constant (typi- Petroleum Industry Applications of
cal of pumping wells) then both oil rate and oil cut Microcomputers, Montgomery, TX, Jun. 1987,
must have the same slope. Another example ofslope SPE 16505.
interdependence is that a trend of increasing total Aitchison, J., and Brown, J.A.C. 1966. The
fluid production will tend to offset or mitigate an Lognormal Distribution. The University Press,
oil rate decline. Cambridge, U.K.
3. The misallocation ofgroup production to individual Arps, U. 1945. "Analysis of Decline Curves." Trans.,
wells can cause ratio curves to be more erratic than AIME, Vol. 160, pp. 228-247.
the corresponding rate curves. ---,. 1956. "Estimation of Primary Oil
4. Decline curves for single-well pools produced at Reserves." Trans., AIME, Vol. 207, pp. 182-191.
capacity have the strongest theoretical base followed Ershaghi, L, and Abdassah, D. 1984. "A Prediction
by single-well analysis in multi-well primary Technique for Immiscible Processes Using Field
production pools. Well-by-well decline trends in Performance Data." JPT, Vol. 36, pp. 664-670.
multi-well pools subject to pattern floods can be Fetkovich, MJ. 1980. "Decline Curve Analysis Using
difficult to recognize and forecast due to fluid Type Curves." JPT, Vol. 32, pp. 1065-1077.
migration.
Gentry, R.W. 1972. "Decline-Curve Analysis." JPT,
Vol. 24, pp. 38--41.

235

s
DETERMINATION OFOILANDGASRESERVES

Lohec, R.E. 1984a. "Analytic Approach Evaluates Purvis, R.A. 1987. "Further Analysis of Production_
Frontal Displacement Mechanism." O&GJ, Performance Graphs." JCPT, Vol. 26, No.4, pp.
Vol. 82, No. 38, pp. 83-89. 74-79.
- - - . 1984b. "Analytic Approach Applied to ---.1990. "Pool-Production and Well-Count
Known Reservoirs." O&GJ, Vol. 82, No. 39, pp. Forecasts." JCPT, Vol. 29, No.6, pp, 80-87.
92-97. Richardson, lG., and Blackwell, RJ. 1971. "Use of
Long, D.R., and Davis, M.J. 1988. "A New Approach Simple Mathematical Models for Predicting
to the Hyperbolic Curve." JPT, Vol. 40, pp. 909- Reservoir Behavior." JPT, Vol. 23, pp. 1145-
912. 1154.
Mead, H.N. 1956. "Modifications to Decline Curve Robertson, S. 1988. "Generalized Hyperbolic
Analysis." Trans., AIME, Vol. 207, pp. 11-16. Equation." Unsolicited paper, Aug. 1988, SPE
. Podruski, lA., Barclay, lE., Hamblin, A.P., Lee, PJ., 18731.
Osadetz, K.G., Procter, R.M., and Taylor, G.C. Slider, H.C. 1968. "A Simplified Method of
1988. Conventional Oil Resourcesof Western Hyperbolic Decline Curve Analysis." JPT, Vol.
Canada. Geological Survey of Canada, Paper 20, pp. 235-236.
87-26. Schoemaker, R.P. 1967. "Graphical Method for
Solving Production Decline Problems." World
Oil, Vol. 165, No.5, pp. 122-125.

236

-------- ..a
-I
Chapter 19

RECOVERY FACTOR STATISTICS

19.1 INTRODUCTION play are included with a brief discussion of their use.
Proper management of a hydrocarbon reservoir requires Several plots of recovery factors vs. common reservoir
. a reasonably accurate estimate of reserves early in the parameters are also included to illustrate the problem of
life of a pool when important decisions are made re- finding a simple correlation for recovery. Section 19.4
specting the depletion strategy. The notion that a simple covers the drive mechanism for gas pool recovery.
correlation exists between recovery factor and readily 19.2 DATA SOURCE AND RELIABILITY
definable parameters has considerable appeal; however,
attempts to find one have been largely unsuccessful The Alberta Energy Resources Conservation Board
(American Petroleum Institute, 1984). While there is (ERCB) maintains several databases that store a wide
no substitute for detailed geological and engineering variety of information useful in reserve studies. These
evaluations, recovery factor statistics are useful for databases are shown in Table 19.2-1. The recovery data
bracketing expected recoveries before such evaluations presented in this chapter was taken from the ERCB's
reserve database, which contained information for about
are possible. Average recoveries are generally reliable
6800 oil pools and 23 800 gas pools at year-end 1990
for estimating the aggregate reserves in a given geo-
logical play, but they can be very misleading if used to (Energy Resources Conservation Board, 1991). Since
estimate the reserves ofan individual reservoir. For new most of the reserves in the western Canadian sedimen-
tary basin are found in Alberta, this reserve database is
discoveries, it is common practice to obtain a prelimi-
relatively complete and, because of its size, should be
nary recovery factor from similar mature pools in the
representative of other major producing basins.
same geological play. Unfortunately, this method of
analogy can be risky because the available pools may Table 19.2-1 Public Data Available for
be immature or a poor match for the pool in question. Reserve Studies
When using analogous pools to estimate recovery, the
evaluator is well-advised to monitor the early perfor- Category Types of Data
mance of the pool for deviations from expected
Geological Core, well logs, regional maps
behaviour, and to revise recovery estimates accordingly.
Basic well Completions, treatments, drillstem tests
This chapter focuses on natural or primary oil recovery,
which results from the natural energy sources available Performance Production, pressures, deliverabitily tests
in oil pools. These natural energy sources take the form Analyses Pressure-volume-temperature, conven-
of six drive mechanisms that can operate alone or in tional and special core; oil, water, and gas
combination. The range of recoveries and relative im- compositions
portance of these drive mechanisms are discussed in Reserves In-place volumes of oil and gas,
Section 19.3 with reference to some Alberta pool recovery factors, reserves, cumulative
examples. Unfortunately, a breakdown ofrecoveries by production, pool area, net pay, porosity,
drive mechanism is not possible because many pools water saturation, formation volume factor,
have combination drives, and this information is gener- fluid density, reservoirtemperature, initial
ally not captured in a reserve database. Recovery factor pressure, datum depth
distributions and average recovery values are presented Progress reports for enhanced oil
Other
for various pool groupings to examine differences re- recoveryschemes, applications
lated to pool size, fluid density, lithology, and geological
age. In addition, average recoveries by geological Source: Energy Resources Conservation Board, 1993.

237
DETERMINATION OFOIL AND GAS RESERVES

The reliability ofan individual reserve estimate is largely permeability, and water saturation. Well-established
a function of data quality and quantity, which are in methods are used to define these parameters. Some other
tum related to available technology, and the quality, size, important factors include layering or stratification, frac-
and stage ofdepletion of a reservoir. The reliability of a tures, pool geometry, and rock wettability. These factors
reserve also depends on the knowledge and experience are not as easy to quantify using single numerical val-
of the evaluator. When setting a reserve, the ERCB ues. The inability to properly account for all these
often has the benefit of company geological and parameters and how they vary throughout a reservoir
engineering estimates to compare with its own. Since creates the largest errors in reserves.
recovery factors are obtained from the division of re-
serves by in-place volumes, they can be no more reliable 19.3 CONVENTIONAL CRUDE OIL
than the least accurate of these two estimates. 19.3.1 Natural or Primary Drive
In general, recovery factors for large pools should be Mechanisms
more reliable. Other things being equal, large pools will The six primary recovery mechanisms are gravity
have more wellbores to help define the areal extent of a segregation drive, solution gas drive, bottom-water
pool and other reservoir parameters. This added infor- drive, edge water drive, gas cap drive, and expansion
mation should improve in-place volume estimates. Large drive. It could be argued that there are really only five if
pools are normally developed first in most producing the water drive mechanisms are combined. In general,
basins; therefore, they will have accumulated the most the different recovery mechanisms are additive with the
performance data. Arps (1956) discusses how reserve proper combination of reservoir and operating condi-
estimates improve with the addition ofperformance data. tions; however, they can also compete with one another,
Ofcourse, the rate and stage ofdepletion in a large pool and they can be rate-sensitive.
will depend on reservoir quality, economics, and regu-
Guerrero (1961) provided recovery ranges for oil pools
latory constraints. Another factor that affects recovery
where each of these mechanisms dominate (Table
estimates is the cost of gathering and analyzing data.
19.3-1). His ranges suggest that gravity segregation
In pools with large reserve potential, it is much easier to
drive will give the highest recoveries. While this mech-
justify these costs. On the other hand, advances in data
anism operates in all pools, it requires a pool with large
acquisition technology will benefit new discoveries
vertical reliefand sufficient time for drainage to realize
more than the large mature pools. There is one thing to
these high recoveries. In Alberta, Bonnie Glen D-3
keep in mind: a small change in recovery factor can
has the vertical relief, buta strong bottom-water drive
translate into significant reserves for a large pool.
coupled with a gas-cap drive did not give the gravity-
As a producing basin matures, new discoveries become segregation mechanism enough time to fully develop.
smaller. Many small pools have only a single wellbore
penetrating them. In these pools, in-place volumes are Table 19.3-1 Primary Oil Recovery by Drive
based on an assumed area, usually some fraction of the Mechanism
drilling spacing unit of the well. In the future, 3-D seis-
mic data may help to overcome this problem by Drive Mechanism Recovery
providing a much improved understanding of pool ge- (% OOIP)
ometry. Today, when a small pool is suspended or
Range Average
abandoned prematurely, it is seldom clear whether the
disappointing recovery is due to an optimistic in-place Expansion 2-5 3
volume or an optimistic reserve. When this situation Solution-gas 12 - 25 18
occurs, the ERCB sets the pool's reserve equal to its Gas-cap 20 - 40 30
cumulative production for administrative purposes. In Edge-water 20 -40 30
many cases, the resulting recovery factor is less than Bottom-water 35 - 60 45
1.0 percent, but appears in the database as 1.0 percent Gravity-segregation 50 -70 60
due to rounding.
Source: After Guerrero, 1961.
The importance of reservoir quality in assessing
recovery or reserves cannot be overstated. When Solution gas drive (also known as dissolved-gas drive)
reservoir quality is being characterized, the first items is the most common primary recovery mechanism in
usually compared are average values of porosity, Alberta oil pools. As it happens, this drive mechanism

238
RECOVERY FACTOR STATISTICS

operates in Alberta's largest oil pool, Pembina Cardium, The gas cap drive mechanism can have a wide range of
which has a primary recovery factor of II percent. The recovery efficiencies depending on the relative size and
efficiency of a solution-gas drive is largely a function orientation of the gas cap to the oil zone. About 20
ofpool production characteristics. As the pressure drops percent of Alberta's oil pools are discovered fully
below the saturation pressure, dissolved gas comes out saturated with an original gas cap. Secondary gas caps
of solution and reduces oil flow in two ways: first, the may also form in pools with good vertical permeability
oil becomes more viscous as it loses its lighter ends; under solution-gas drive. One of Alberta's highest pri-
second, the escaping gas soon reaches the point where mary recovery pools (75 percent), Westerose D-3, had
it becomes mobile (critical gas saturation) and competes a large original gas cap (64 metres), but it also had a
with the oil for access to the wellbore by lowering the thick oil zone (73 metres) and a strong water drive.
oil relative permeability. Recovery seldom exceeds 20 Considering that most high recovery pools in Alberta
percent, and values in the 5-15 percent range are more have bottom-water drives or combination drives,
common. Guerrero's recovery range for solution-gas Guerrero's recoveries for gas-cap drive also appear
drives appears somewhat high for Alberta's light and optimistic.
medium density oil pools, but it is clearly too optimistic Expansion drive results from fluid expansion with
for heavy density oil pools, as will be shown later. pressure depletion and is only significant for highly un-
Bottom-water drive is the most important recovery dersaturated pools. The majority of Alberta's oil pools
mechanism for many of Alberta's Devonian (carbon- are discovered at or near their saturation pressure; there-
ate) reef pools. A review of Leduc (D-3) pools along fore, expansion drive normally contributes only a small
Alberta's Rimbey-Meadowbrook reef trend is in- fraction of the primary recovery. One of the most un-
structive with respect to the relative efficiency of the dersaturated pools in the province is Snipe Lake
bottom-water drive mechanism. Glen Park D-3 has a Beaverhill Lake. This pool had an initial pressure of26
high primary recovery factor of 72 percent. The pool MPa and a saturation pressure of 9 MPa. The pool's
has a thick oil zone (39 metres), high permeability,little primary recovery is only 12 percent.
stratification, and no original gas cap. On the other hand,
Homeglen-Rimbey D-3 has a recovery factor of only
19.3.2 Oil Recovery Factor Distributions
9 percent with a thin oil zone (7.5 metres) and a large When oil recovery factors are plotted on a frequency
gas cap (53 metres). Leduc- Woodbend D-3 is similar to histogram (Figure 19.3-1), they produce a skewed dis-
Homeglen-Rimbey with a thin oil zone (II metres), but tribution with a long tail at higher recoveries. This shape
it has less volatile oil, a less active bottom-water drive, is characteristic ofa log-normal distribution. McCrossan
and a smaller gas cap (18 metres). The primary recov-
ery factor for the pool is 56 percent, but water injection 50
was used to enhance the natural water drive, resulting Pools = 5918
in a total recovery factor of 66 percent. Further updip OOIP (1 Oem') = 8302
on the trend, Redwater has a recovery factor of 62 40 Mean = 11.67
percent. The oil zone here is about three times as thick Weighted-Mean = 18.68
as at Leduc-Woodbend and there is no original gas cap. Median = 10.00
Of interest is the high salinity brine encountered at ~30 Standard Deviation =10.76
~
Redwater. The density contrast between the advancing e..- Co-Variance = 0.92
(/)
water and the by-passed oil may be assisting recovery "0
by a buoyancy effect. o
0.. 20
Edge water drives are less common in Alberta, and they
are not as effective as bottom-water drives. Often where
edge water is present, it is relatively inactive; where it 10
is active, other factors tend to reduce its effectiveness.
For example, Joarcam Viking has an edge-water drive,
a gas-cap, a thin oil zone (3 metres), and small reservoir o
dip. These factors contribute to premature water and gas o 10 20 30 40 50 60 70 80 90 100
coning. The pool's primary recovery is 37 percent. Recovery (% OOIP)

Figure 19.3-1 Oil Pools

239

t
DETERMINATION OFOIL AND GASRESERVES
~
(1969) showed that both oil in place and oil reserves in The difference between the arithmetic-mean and
western Canada have log-normal distributions. A plot median recoveries is usually insignificant, but the
of oil recovery factors on probability paper (Figure arithmetic-mean recovery is consistentlyhigher.
19.3-2) gives a reasonablystraightline,which also sug- The mode,or most common recovery value, is only 1.0
gests a log-normaldistribution. The stair-step nature of percent if the completepool sample is considered. This
value is artificially low because of the procedure men-
tioned earlier for handling small pools that become
Standard Deviation inactive prematurely. If these pools are excluded, the
-1 0 +1 +2 mode recoveryjumps up to 10 percent; this is a more
reasonable valuefor a viablepool, andprobablythe best
recovery to assumefor new poolsas a lastresort. It could
be argued that this recovery level becomes more likely
.as a producingbasin matures and pool size drops. This
1L mode recovery of 10 percent will be used in later sec-
is tions as a baselineto compare recoveriesfrom different
o
~ Primary pool groupings.
- 10
e Table 19.3-2 shows average primary and enhanced
~ recoveries by crude oil type and recovery mechanism.
IJ! Theseareweighted-mean values. The data suggests that
two-thirds of Alberta's reserves come from natural or
primary depletion mechanisms, and this represents 19
percent of the total oil in place. It is interestingto note
that light and medium pools under waterflood have a
12 5 10 20304050607080 90 95 98
lower primary recovery than those under straight pri-
Percent of Pools
mary depletion. This indicates that enhanced recovery
is targeted for pools where the natural drives are less
Figure 19.3-2 Distribution of Primary Oil
effective. Solvent floods appear to be very successful
Recovery Factors
based on the enhanced recovery component. It should
be remembered that waterfloodingis a viableoptionfor
the plot results from rounding recoveries to the nearest
most solvent flood pools; therefore, the success of a
5 percent for new and immature pools.
solvent flood should be measured against waterflood
19.3.3 Average Recovery Factors recovery. If this is done, the averageincremental recov-
Several average values are used to suggest the central ery for the solventmechanism drops by halfto about 14
tendency of distributions: the weighted-mean, the arith- percent. In general, vertical solvent floods, which are
metic mean, the median, and the mode. Since oil gravity stable, have the highest recoveries. Horizontal
recovery distributions are skewed, caution must be solvent floods generally sufferfromgravityoverride and
exercised with any use of these average values. rapid break-through of the solvent. In Alberta, most
solvent floods use hydrocarbon-based solvents.
The weighted-mean recovery is a value commonly
reported (EnergyResources Conservation Board, 1990). 19.3.4 Pool Size
The weighting parameter used is usually the in-place Large pools (original oil in place over lOx 106m3) that
volume. This average recovery is particularly useful have reached an advanced stage of depletion (over 50
for aggregate reserves in a geological play. A quick percent) were used to generate Figure 19.3-3. When
method to calculate it is to divide the total reserves for comparedwith the recovery distributionfor the total oil
a group of pools by the total in-place volume. This pool sample (Figure 19.3-1), the fraction of pools with
weighted-mean recovery is consistently higher than recoveries less than 10 percent drops considerably and
arithmetic-mean, median, or moderecoveries forskewed the average values are significantly higher; however,
oil recovery distributions. One explanation is that large the mode (most common)recovery remainsat about 10
pools dominate the weighted-mean recovery and that percent. While the distribution tapers off at higher re-
they tend to have higher recoveriesthan smallpools. Of coveries, it is moregradual. This supports thesuggestion
course,this generalization will not be true in everycase. that large pools have better recoveries. However, it

240
RECOVERY FACTOR STATISTICS

Table 19.3-2 Average Oil Recoveries

Oil Type & Original Oil No. of Average Recovery


Mechanism In Place Pools (% OOIP)
(10' m3) Primary Enhanced Total
Light-Medium
Primary 3374 4485 22 na 22
Waterflood 2675 213 16 14 30
Solvent flood 844 53 27 31 58
Gas flood 69 8 41 5 46
Heavy
Primary I 184 1433 8 na 8
Waterflood 270 63 9 20 30
Total 8416 6255 19 8 27
Source: Energy Resources Conservation Board, 1990.

Pools = 374 Pools = 4485


OOIP (10 6m3 ) = 5787 OOIP (10'm 3 ) = 6884
40 Mean =25.34 40 Mean = 13.01
Weighted-Mean = 22.09 Weighted-Mean = 20.78
Median = 20.00 Median = 10.00
~30
Standard Deviation = 16.86 Standard Deviation = 11.42
~ Co-Variance = 0.67 Co-Variance = 0.88
o'"o
Cl.. 20

10

10 20 30 40 50 60 70 80 90 100 10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP) Recovery (% OOIP)

Figure 19.3-3 Large Mature Oil Pools Figure 19.3-4 Light and Medium Oil Pools

should be noted that most of the higher recovery pools Using the mode recovery of 10 percent for comparison,
are Devonian reefpools with active natural water drives. 40 percent of light and medium pools will exceed this
recovery level, but only IS percent of heavy pools do
19.3.5 Fluid Type: Light and Medium vs. this well. Average recoveries for light and medium pools
Heavy are about double those of heavy pools.
The density ofAlberta's conventional crude varies from Most of Alberta's oil pools are classed as light and
730 to 990 kg/m", Since oil density is closely related to medium density. A cutoff of 900 kg/m! generally dis-
oil viscosity, recovery would be expected to be sensi- tinguishes light and medium from heavy; however, the
tive to oil density. Figures 19.3-4 and 19.3-5 confirm ERCB may also classify a pool by the type of market in
that light and medium density pools will recover a higher which the crude oil is sold. Most of Alberta's heavy oil
percentage oftheir oil in place than heavy density pools. pools are found in shallow, Lower Cretaceous rock in

241
DETERMINATION OF OIL AND GASRESERVES
~I
:",
.

60,---------------, 50r----------::--:------.,
Pools = 1433 Pools = 3941
OOIP (106 m' ) = 1418 6
OOIP (10 m' ) = 4865
50 40
Mean = 7.46 Mean = 8.92
Weighted-Mean = 8.49 Weighted-Mean = 11.33
40 Median = 5.00 Median = 10.00
Standard Deviation = 6.81 ~30
Standard Deviation = 7.41
Co-Variance = 0.91 ~
t.- Co-Variance = 0.83
.!Il30
o
Il)
(;
o o
a. a. 20
20

10
10

10 20 30 40 50 60 70 80 90 100 10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP) Recovery (% OOIP)

Figure 19.3-5 Heavy Oil Pools Figure 19.3-6 Clastic Oil Pools

east-central Alberta. The initial gas in solution and the


50..----------------,
initial pressure in heavy pools are low relative to light Pools = 1977
and medium pools. Heavy oil pools assigned the higher OOIP (10 6 m' ) = 3437
recoveries (up to 45 percent) are usually associated with
40 Mean = 17.14
an active regional aquifer like the one found in the
Weighted-Mean = 29.09
Provost Dina play. In many heavy oil pools, reduced Median = 15.00
well spacing is used to improve drainage and recovery. Standard Deviation = 13.85
It is not uncommon to have a well every two to four Co-Variance = 0.81
hectares.
19.3.6 Lithology: Clastics vs, Carbonates
The type ofrock encountered in a reservoir can be very
important in determining the level and range of recov-
eries expected. Figures 19.3-6 and 19.3-7 show recovery 10
distributions for clastic and carbonate pools, respec-
tively. There is a clear difference in the shape of these
distributions; the carbonate group has more pools with
higher recoveries. Two of every three carbonate pools 10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP)
exceed 10 percent recovery, but only one of every four
clastic pools do this well. Average recovery values are Figure 19.3-7 Carbonate Oil Pools
consistently higher for carbonate pools. The weighted-
mean recovery for carbonates (29 percent) is more than
double the value for clastics (11 percent). Cardium, is an Upper Cretaceous clastic pool with a
As previously mentioned, carbonate pools are very primary recovery of II percent. The pool's recovery
important in Alberta. Many have very efficient primary dominates the calculation of the weighted-mean recov-
drives, mainly bottom-water. They represent just ery for clastics, and this explains the small difference in
one-third of the pools and have one-third of the oil in average recovery values for clastic pools.
place, but they contribute two-thirds of Alberta's con- Considering the different depositional environments of
ventional oil reserves. Alberta's largest pool, Pembina carbonate and clastic reservoir rock, it is not surprising

242

c
RECOVERY FACTOR STATISTICS

that many ofthe parameters affecting recovery are quite


50,--------------,
different. For example, carbonate reefs tend to be quite Pools = 625
thick. This provides the opportunity to complete wells OOIP (10 6 m3 ) = 1982
in a fashion that avoids excessive coning of water or
40 Mean = 8.31
gas. Many are connected to active regional aquifers.
With the vertical relief, gravity stable displacement by Weighted-Mean = 9.74
Median = 10.00
water is common. The porosity of carbonate rocks is Standard Deviation = 5.06
~30
generally low, in the 5-15 percent range, but permeabil- ~ Co-Variance = 0.61
~
ity is very high, especially in dolomitized rock that is
fractured. Clastic deposits are generally much thinner,
'"
'0
o
and oil recovery relies on less efficient horizontal dis- a, 20
placement processes that are controlled by viscous
forces. In clastic rock, the granular nature of the matrix
gives higher porosities; however, permeabilities tend to 10
be lower through the combined effects of compaction,
cementing, grain size distribution, and fines migration.
19.3.7 Geological Period 10 20 30 40 50 60 70 80 90 100
Recovery distributions are shown for eight geological Recovery (% OOIP)
periods in Figures 19.3-8 to 19.3-15. The.most signifi-
Figure 19.3-8 Upper Cretaceous Oil Pools
cant variation in the shape of these distributions occurs
in the Devonian Period. Average recoveries for both
the Upper and Lower Cretaceous pools are under 10
percent and vary only slightly. The median recovery 50
Poois = 2585
for the Lower Cretaceous pools is only 5 percent be- OOIP (10 6 m3 ) = 2111
cause about halfthe pools are heavy. Average recoveries
increase to the 10-15 percent range as one moves down 40 Mean = 7.62
the stratigraphic column to the Jurassic and Triassic Weighted-Mean = 9.53
Median = 5.00
pools. Ofcourse, the sample ofpools drops to one-tenth Standard Deviation = 6.67
~30
that of the Cretaceous Period. Although there are too ~ Co-Variance = 0.87
~
few Permian pools to be of any statistical significance,
the average recoveries are higher there as well. The '"
'0
o
Mississippian Period breaks from the trend, with aver- a, 20
age recoveries dropping back slightly to the 6-13 percent
range. Mississippian pools are generally considered to
be in the carbonate family, but their recovery dist- 10
ribution more closely resembles the one for clastic
pools. Average recoveries continue to increase in the
Devonian Period to the 15-34 percent range. The
Upper Devonian group has the pools with the highest 10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP)
recoveries, in particular, the Leduc (0-3) zone. Table
19.3-3 provides a more detailed breakdown by zone Figure 19.3-9 Lower Cretaceous Oil Pools
for the Upper Devonian. In the Middle Devonian,
recoveries do not get as high, but the number of pools
with recoveries in the 20-40 percent range increases similar depositional environment). Podruski et aI.,
significantly. (1988) used this approach in a Geological Survey of
Canada paper, Conventional Oil Resources of Western
19.3.8 Geological Play
Canada. They considered only light and medium pools
Perhaps the best way to group pools and recoveries is and divided them into 78 plays. Table 19.3-4, taken from
by geological play. This approach is more meaningful this report, lists average recovery factors for each play.
because it honours regional geology (e.g., pools have a The data were taken from provincial databases and

243
50,-------------~
DETERMINATION OF OIL AND GASRESERVES

50,-------;::--:-;----..,

Pools = 220 Pools = 7
OOIP (10'm 3 ) = 162 00IP(10'm 3 ) = 11
40 Mean = 11.68 40 Mean = 11.00
Weighted-Mean = 16.34 Weighted-Mean = 21.61
Median = 10.00 Median = 10.00
~30
Standard Deviation = 8.57 Standard Deviation = 6.99
~ Co-Variance = 0.73 Co-Variance = 0.64
o'"o
0.. 20

10 10

o o
o 10 20 30 40 50 60 70 80 90 100 o 10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP) Recovery (% OOIP)

Figure 19.3-10 Jurassic Oil Pools Figure 19.3-12 Permian Oil Pools

50,---------------, 50
Pools = 214 Pools = 321
OOIP (10'm 3 ) = 228 OOIP (1 0'm 3 ) = 617

Mean = 10.91 40 Mean = 7.96


Weighted-Mean = 14.48 Weighted-Mean = 13.01
Median = 10.00 Median = 6.00
Standard Deviation = 5.98 Standard Deviation = 7.16
-30
Co-Variance = 0.55 ~ Co-Variance = 0.90
o'"o
0.. 20

10 10

o
o 10 20 30 40 50 60 70 80 90 100 10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP) Recovery (% 001 P)

Figure 19.3-11 Triassic Oil Pools Figure 19.3-13 Mississippian Oil Pools

included both primary and secondary recovery; there- analogous pools may be found by comparing rock and
fore, the average recoveries will be slightly optimistic fluid properties, pool geometry, and fluid contacts. Pools
for primary recovery mechanisms. should also have a reasonable amount of performance
An acceptable way to make a preliminary recovery history before the analogy is accepted. It is important to
estimate ina new pool is by analogy. The success ofthe remember that this is only a preliminary estimate, and it
method depends on whether or not there are sufficient must be confirmed with performance. If the early
pools with reliable recovery data in the same geological performance is inconsistent with the analogous pool,
play. Once the correct play has been identified, the evaluator should suspect that a different drive

244

c
RECOVERY FACTOR STATISTICS

50 r---------::-----:---=-:-.,.--, 50r------------------,
Pools = 706 Pools = 1239
OOIP (10'm') = 2292 OOIP (1O'm') = 897
40 Mean = 19.21 40 Mean = 18.59
Weighted-Mean = 33.93 Weighted-Mean = 26.38
Median = 15.00 Median = 20.00
Standard Deviation = 16.47 ~30
Standard Deviation = 11.65
Co-Variance = 0.86 C Co-Variance = 0.63
en
(;
o
a.. 20

10

o
10 20 30 40 50 60 70 80 90 100 o 10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP) Recovery (% 001 P)

Figure 19.3-14 Upper Devonian Oil Pools Figure 19.3-15 Middle Devonian Oil Pools

Table 19.3-3 Recovery Factors for Upper Devonian Zones

Upper Devonian No. of OOIP Recovery Factor (fraction) Pay (m)


Pools (10' m3)
Avg. Min. Max. W-Avg. Avg. Min. Max. W-Avg.
Devonian System I 0.429 0.040 0.040 0.040 0.040 4.82 4.82 4.82 4.82
Wabamun (D-1) 112 44.183 0.157 0.010 0.350 0.162 33.34 0.91 108.30 40.20
Stettler I 0.053 0.200 0.200 0.200 0.200 2.80 2.80 2.80 2.80
Blueridge 5 2.432 0.096 0.010 0.200 0.125 17.12 6.43 30.20 15.27
Arcs 24 15.233 0.125 0.010 0.360 0.167 6.61 2.10 16.20 9.18
Nisku (D-2) 178 342.719 0.243 0.010 0.650 0.405 16.17 1.00 90.35 21.55
Camrose 11 1.992 0.134 0.010 0.250 0.145 7.48 3.40 10.36 7.95
Ireton 2 0.742 0.110 0.070 0.150 0.105 9.29 3.05 15.54 10.05
Leduc (D-3) 148 812.328 0.291 0.010 0.750 0.568 16.17 0.90 135.64 42.40
Cooking Lake 2 0.541 0.125 0.100 0.150 0.106 4.66 3.70 5.63 5.39
Beaverhill Lake 53 944.084 0.142 0.010 0.350 0.164 9.89 1.62 37.00 18.79
Sulphur Point 133 108.224 0.119 0.010 0.450 0.132 7.14 0.88 27.90 7.99
Totals 670 2272.960 0.198 0.010 0.750 0.343 16.18 0.88 135.64 27.46

245
DETERMINATION OFOIL AND GAS RESERVES""'" T. I

'

Table 19.3-4 Recovery Factors for Geological Plays in Western Canada

Geological Period Play Recovery Factors Geological Period Play Recovery Factors
and Plays Depth Average Small and Plays Depth Average Small
(m) Pool (m) Pool
Cretaceous Carboniferous
Cardium Sheet 1000 0.20 0.10 Midale 1400 0.36 0.20
Viking-Alberta 1800 0.19 0.10 Frobisher-Alida 1100 0.24 0.20
Lower Mannville 2100 0.15 0.10 Pekisko Edge 1650 0.13 0.07
Viking-Saskatchewan 500 0.14 0.10 Elkton Edge 1700 0.28 0.10
Upper Mannville 1000 0:15 0.10 Lodgepole 1100 0.16 0.07
Belly River Shoreline 1000 0.21 0.10 Souris Valley-Tilston 1100 0.16 0.11
Cardium Scour 2000 0.19 0.10 Banff Edge-C. Alberta 1500 0.20 0.12
Cantuar 1000 0.15 0.06 Ratcliffe Stratigraphic 1800 0.20 0.10
Dunvegan-Doe Creek 750 0.09 0.09 Ratcliffe Structure 1100 0.20 0.10
Belly River Fluvial 1500 0.21 0.10 Desan 700 0.08 0.Q3
Ostracod 2200 0.15 0.10 Carb.-Sweetgrass Arch 2000 0.10 0.10
nd
1" & 2 White Specks 2000 0.10 0.10 BanffEdge-S. Alberta 1300 0.10 0.10
Debolt-Peace River 1500 0.08 0.08

Jurassic Devonian
Shaunavon 1200 0.23 0.10 Beaverhill Lake 2950 0.42 0.10
Roseray-Success 900 0.30 0.10 Leduc-Rimbey-Meadowbrook 1700 0.61 0.30
Gilby-Medicine River 2200 0.25 0.10 Keg River 1800 0.41 0.30
Sawtooth 900 0.22 0.10 Nisku-Shelf 1700 0.55 0.25
Rock Creek 2200 0.16 0.10 Leduc-Bashaw 2000 0.61 0.20
Leduc-Deep Basin 2000 0.61 0.15
Triassic Nisku-West Pembina 2800 0.40 0.30
Boundary Lake 1300 0.27 0.10 Middle Devonian Clastics 1800 0.25 0.20
Montney 1596 0.17 0.12 Slave Point-Sawn 1600 0.20 0.10
Peejay-Milligan 1130 0.32 0.20 Zama 1600 0.17 0.17
Halfway Stratigraphic 2150 0.28 0.12 Leduc-Nisku-S. Alta 1700 0.15 0.15
Inga Structure 1600 0.15 0.10 Wabamun-Peace River 1250 0.16 0.13
Charlie Lake Sandstone 1800 0.18 0.18 Slave Point-Golden 2000 0.35 0.30
Halfway Drape 1900 0.19 0.10 Nisku-Meekwap 2000 0.40 0.15
Charlie Lake Algal 1800 0.15 0.15 Keg River-Senex 1300 0.20 0.10
Doig Structure 1900 0.08 0.05 Wabamun-Crossfield 2500 0.15 0.10
Bistcho 1600 0.15 0.07
Permian Muskeg 1600 0.20 0.20
Belloy-Peace River 1850 0.28 0.12 Wabamun-Eroded Edge 2050 0.14 0.14
Belloy-Erosional Edge 2000 0.37 0.10 Leduc-Peace River 2800 0.20 0.15

Source: Conn and Christie, 1988.


This table is reproduced with the permission of the Minister of Supply and Services Canada, 1993.

246
RECOVERY FACTOR STATISTICS

mechanism is operating and be prepared to gather or 100


re-examine data to revise the recovery estimate.
90 Pools = 5915
19.3.9 Recovery vs. Common Reservoir
Parameters 80
;
..
Ideally, recovery estimates should fall out of a simple ii:' 70
relationship between several reservoir parameters that 5 ...
. . . . . oo

0 60 ~
are readily quantifiable. Unfortunately, this relationship ...
~ 50 \,'
.:::",: .
continues to elude everyone. One possible explanation
..
~ .r., __ :"0 ... ..
is that the methods used for quantifying these param- > 40 . ..~,:-... .. ... ... .-
eters over-simplify reservoir heterogeneity. Another is
that the interplay of rock properties, fluid properties,
.ac
a: 30
''''~~''''-'.'' .
_.
..
'.
_ ~
'0 ..... .
.. ~ _ . ._ . . . . . . . . . _00

00 ....i............
: : . . .: . . : . ,. .: : .

drive mechanisms, and production strategies is too


20 ,,+::.;;f~-::,i:.:;-,:,::- r : '.
variable and dynamic for simple solution's to work
consistently. Whatever the reason, simple correlations 10
'''~'''''l;l1''''''''''''''
.~ ~~~;r;;-H1~"''::': :.:.:.,..
have yet to be found.
.1.;
.
W' -l-.......~i
....- ~j, {.
..". . .....!-.jjijjil:.:i i ...l.rj!~ r..
"[,"1 II l. '.-1,.

0
To help illustrate the problem, recovery factors were 0 4 8 12 16 20 24 28 32 36 40
plotted against three familiar reservoir parameters: Pool Average Porosity (%)
porosity, net pay, and water saturation (Figures 19.3-16
to 19.3-18, respectively). The parameters used were pool Figure 19.3-16(a) Oil Recovery vs. Porosity
average values. In each case, there is considerable scat-
ter of the data, but some general trends are evident. For
example, maximum recovery increases as porosity and 25
water saturation decrease. Intuition might suggest the
relationship between water saturation and recovery, but Pools = 5915
the one with porosity is less obvious. If the data is re- 20 Mean = 14.42
examined by rock type, clastic and carbonate, the reason Weighted-Mean = 14.16
is clear. Many of the higher recovery carbonate pools Median = 13.00
have lower average porosities and water saturations. ;g 15
Standard Deviation = 7.44
~ Co-Variance = 0.52
19.4 CONVENTIONAL GAS
The dominant natural drive mechanism that operates in
'a.8'" 10
most gas pools is fluid expansion. Recovery from a volu-
metric gas reservoir largely depends on how low a
reservoir abandonment pressure can be achieved with 5
the production facilities available. A simple correlation
is used to estimate the abandonment pressure as a func-
tion of well depth. Normally a value around 1500 kPa
per 1000 m ofdepth is used (Stoian and Telford, 1966).
o 4 8 12 16 20 24 28 32 36 40
Pool Average Porosity (%)
Two additional corrections are sometimes required to
adjust for well deliverability, and fluid invasion at the
Figure 19.3-16(b) Porosity Distribution
wellbore. This fluid invasion can be oil, but can also be
water either from an active aquifer or coning. Gas flows
through reservoir rock far more readily than oil because the water-invaded zone can lower recoveries to 50
gas viscosities are several orders of magnitude lower. percent or less.
In general, recoveries for gas pools without an active The recovery distribution for some 9000 gas pools that
water drive are expected to exceed 75 percent and can have produced in Alberta is shown in Figure 19.3-19.
reach 90 percent or more. On the other hand, if water As expected, recovery factors are in the 50 to 90 per-
invades a gas pool too quickly (e.g., with little or no cent range. It is interesting to note that, unlike oil, the
pressure depletion), the residual gas trapped behind gas recovery distribution appears to be normal (e.g.,
symmetric about a mean value of 75 percent). About

247

d
DETERMINATION OF OIL AND GASRESERVES

100 100
90 Pools ~ 5915 Pools = 5915
90
80 80
..
a:- 70 a:- 70
(5 ... .. , ..
0 60 .. (5
o 60
~
e, .. .. .. .. ;ft.
,O,::L:.::.
~ 50 50

._. '. .. .. . ~
0 .... 0 ... 0

, ~
" ._...... .
... i.. d,
-.. i" :" . ., . .-
>
a 40 . 0. : "1o; 40 ..f;:I......... . :
.-
':~:""
0 ; _ _.'!'.\O:.. ........ '_0",,",: .. -.. ... ....:;:,.:;1.:
...... .1,::,' . .
"
c: 30.
0 .' ;0 0.
. - - - - - -..- ..... - . c": 30
'.,..r___.:..:.... ':" .t: _\":.. .. .. :: ..... .. , .. 1.. .. 1....

Bllfu,;'u
0. . . . ' .' 0" ,0

20 -oo '0, ,0 .j:-=_ ,:........:..: : " 1 '0' '0' .0


20
'!!rfi-':' i '':.J~ .... :. ',1 ::.. to ' . . . . ':.

10 ~::...;~....:; l~:' ~~:!:'.:::~..;:. :.~:: :. 10


~~':O .:7::vl.r...;:'>::....... 0:: 0:
:
oL...J=iilillli!illllil==iLhlli!.li....;~~~--'
0 10 20 30 40 50 60 70 80 90 100 o 10 20 30 40 50 60 70 80 90 100
Pool Average Net Pay (m) Pool Average Water Saturation ('Yo)

Figure 19.3-17(a) Oil Recovery vs, Net Pay Figure 19.3-18(a) Oil Recovery vs. Water
Saturation

60 25
Pools ~ 5915 Pools = 5915

Mean ~ 10.20 20 Mean = 29.08


50
Weighted-Mean = 15.15 Weighted-Mean = 21.74
Median = 4.40 Median = 30.00
Standard Deviation = 15.86 Standard Deviation = 11.78
40 ~ 15 Co-Variance = 0.41
Co-Variance = 1.55 C
~
en
'0
C o
2! 30 a. 10
s
a.
20 5

10 o
o 10 20 30 40 50 60 70 80 90 100
Pool Average Water Saturation ('Yo)

10 20 30 40 50 60 70 80 90 100 Figure 19.3-18(b) Water Saturation Distribution


Pool Average Net Pay (m)
(Figure 19.3-20), unlike oil recovery distributions, which
Figure 19.3-17lb) Net Pay Distribution are skewed to the right.
The same problem encountered with the reliability of
7600 of the pools used have an original gas in place reserves for small oil pools also applies to small gas
under 300 X 106 m', A separate distribution was not in- pools. Warren (1990) discusses the impact of overly
cluded for this group, but it looks very similar to Figure optimistic area assignments for Alberta's growing
19.3-19. The remaining 1400 larger pools have a inventory ofsmall gas pools, and provides area defaults
recovery distribution that is slightly skewed to the left for use in setting the initial reserves of single-well pools.

248

____________________..iII
RECOVERY FACTOR STATISTICS

These area defaults are expected to improve aggregate often no better alternative until performance data
reserves in a geological zone, but may not significantly becomes available. The best approach is to find an analo-
improve the reliability of an individual pool's reserve. gous pool in the same geological play, preferably nearby
the pool in question. If an analogous pool cannot be
19.5 USING RECOVERY FACTOR found, it may be necessary to look at an expanded data
STATISTICS set; however, it should be understood that the reliability
It should be clear from the data presented that caution of recovery statistics decreases each time this is done.
must be exercised in the use of recovery factor statis- Recovery factor distributions will give an idea of the
tics. Nevertheless, for many new discoveries, there is range of recoveries that are possible, and the probabil-
ity ofdifferent recovery levels within the range. In cases
50 ,-----------"---,--,,..,...,-::--1 where the range of recovery is small, the use of average
Pools = 9016 recovery factors may be satisfactory. For new, light and
OGIP (10 9m' ) = 4143 medium pools that are small, a recovery of 10 percent,
Mean = 71.08 the mode, is a reasonable assumption for a solution-gas
40
Weighted-Mean = 74.74 drive mechanism. It should be less if the pool is heavy.
Median = 70.00 For a carbonate pool, there is more risk with the use of
Standard Deviation = 9.26
~30 Co-Variance = 0.13 average recovery factors because they often have a com-
~ bination drive at work, which can have a wide range of
~
so efficiencies. If aggregate reserves are being assessed,
'0
o weighted-mean recovery factors should be quite reli-
a. 20
able. The most important thing to remember is that
recovery statistics should only be used for a prelimi-
nary estimate until more detailed analyses are possible.
10
References
American Petroleum Institute. 1984. "Statistical
OL~-~~---"--
Analysis of Crude Oil Recovery and Recovery
o 10 20 30 40 50 60 70 80 90 100
Efficiency." API Bulletin, 014, 2nd ed., Apr. 30,
Recovery (% OGIP)
1984.
Figure 19.3-19 Gas Pools (Producing) Arps, J,J. 1956. "Estimation of Primary Oil
Reserves." Trans., AIME, Vol. 207, pp. 182-191.
50,------------- Conn, R.F., and Christie, J.A. 1988. Conventional Oil
Pools = 1411 Resources of Western Canada (Part II).
OGIP (10 9 m' ) = 3655 Geological Survey of Canada, Paper 87-26,
p. 131.
40 Mean = 74.89
Weighted-Mean = 75.24 Energy Resources Conservation Board. 1990.
Median = 75.00 Alberta's Reserves of Crude Oil, Oil Sands, Gas,
Standard Deviation = 12.61 Natural Gas Liquids and Sulphur. Report ST
Co-Variance = 0.17 91-18, Dec. 1990, Calgary, AB.
- - - . 1993. Catalogue - Publications, Maps and
Services. Guide G-I, Calgary, AB.
Guerrero, E.T. 1961. "How to Find Ultimate
Recovery and Performance of Oil Reservoirs."
10 O&GJ, Vol. 59, No. 35, p. 101.
McCrossan, R.G. 1969. "An Analysis of Size
Frequency Distribution of Oil and Gas Reserves
oL_~_dJi!ib" of Western Canada." Canadian Journal ofEarth
o 10 20 30 40 50 60 70 80 90 100
Sciences, Vol. 6, pp. 201-211.
Recovery (% OGIP)

Figure 19.3-20 Large Gas Pools (Producing)

249

-
DETERMINATION OFOILAND GASRESERVES
-.
Podruski, lA., Barclay, J.E., Hamblin, A.P., Lee, PoI., Stoian, E., and Telford, A.S. 1966. "Determination of
Osadetz, K.G., Procter, R.M., and Taylor, G.C. Natural Gas Recovery Factors." JCPT, Jul.-Sep.,
1988. Conventional Oil Resources of Western 1966, pp. 115-129.
Canada (Part I). Geological Survey of Canada, Warren, A. 1990. "Alberta's Small Gas Pool
Paper 87-26. Reserves." JCPT, Vol. 29, No.4, pp. 34-40.

250
PART FOUR
PRICES, ECONOMICS, AND MARKETS
a
Chapter 20

OVERVIEW OF PART FOUR

Technical principles, supplemented by empirical data, regulatory environment for the petroleum industry in
form the basis for estimates ofpetroleum resources. An Canada as an example. Reference is made to the Alberta
estimate of.reserves, on the other hand, is based on the Energy Resources Conservation Board and its role in
principle that only a portion of these resources is eco- defining production practices. Government policy ini-
nomically recoverable. Assessment of economic tiatives, including tax and royalty regulations, have a
viability requires information from areas such as finan- major influence on reserves evaluations.
cial analysis, regulatory guidelines, and market One of the most important factors in any economic
conditions. evaluation is commodity pricing. The two major com-
Part Four provides the basis for including these areas in modities involved in reserves evaluations are crude oil
the process of estimating economically recoverable re- and natural gas.
serves. The impact of these parameters on the reserves Chapter 24 provides an overview of Canadian crude oil
estimate is illustrated by an example from the Alberta markets in the context of a globally traded commodity.
oil sands. While the resource is estimated at 3800 x There is particular focus on Alberta and other western
106m3 , the reserves are only 280 x 106m3 (Energy Canadian provinces, including a description of trans-
Resources Conservation Board, 1991). Until the eco- portation networks and major markets. The basics of
nomics become more favourable through either reduced price forecasting are examined, as well as price risk
cost or increased revenue, the recognized reserves will management and some of the products that are
not increase. available to mitigate price volatility.
Reserves evaluation is based on analysis ofthe cash flow. Natural gas markets in North America are addressed in
Chapter 21 summarizes the major components ofa cash Chapter 25 with particular emphasis on the dynamics
flow analysis using the Alberta (Canada) fiscal regime imposed through changes in government regulations.
as a reference. The principal sources and uses of cash The chapter focuses primarily on the Canadian market,
are addressed, including some ofthe details ofAlberta's but its virtual integration into the United States market
provincial royalty regulations and federal corporate has effectively blurred any boundaries between the two.
income tax. Some aspects of accounting and business Important demand forces are examined as well as
finance that illustrate how these areas correlate with cash various contract options that have evolved.
flow analysis are also discussed.
The contents of reserves evaluations are available for a
In all evaluations there is a degree of uncertainty. variety ofuses and users. These range from governments
Indeed, it could be argued that every parameter involved developing resource planning policy to companies con-
in an evaluation is more accurately defined as a range templating production development or an acquisition.
of possible values. These uncertainties exist as a result Chapter 26 decribes some of the uses of reserves
of everything from physical measurement to changes in evaluations.
government regulation. Chapter 22 discusses the con-
cepts of risk and uncertainty and presents criteria for References
identifying situations where risk analyses are warranted. Energy Resources Conservation Board. 1991.
Chapter 6 in Part Two discusses stochastic modelling Alberta's Reserves ojCrude Oil, Oil Sands,
of resource estimates. Natural Gas Liquids and Sulphur.
The impact of government regulations on reserves ERCB ST 91-18, Dec. 1990, Calgary, AB.
evaluations is discussed in Chapter 23, using the

253
Chapter 21

CASH FLOW ANALYSIS

21.1 INTRODUCTION certain mineral rights to railway companies as


In any industry, accurate analysis of cash flow is an construction incentives.
essential part of investment decision-making and Royalty Interest. When a property is leased, the
optimum capital budgeting. Like all resource-based interest retained by the mineral rights holder is known
industries, the oil and gas industry depends on such as royalty interest. Freehold royalty interest would be
analysis to quantify its resource base; remaining reserves contractually defined. Crown royalty interest is defined
are actually defined in the context of economics. in legislation. The interest participant shares in the
Methodology for cash flow analysis in the energy in- revenues, but has no obligation to fund development.
dustry is consistent with the general principles of Overriding Royalty Interest. This is an economic
business finance. The purpose of this chapter is to dis- interest that is retained by a lessee when property rights
cuss the cash flow analysis in the context of individual are "farmed out" to another party. If the original lessee
property analysis as well as in the corporate context, retains the economic interest without obligation to
with particular reference to western Canada, and contribute to development costs, it is called a "gross
specifically Alberta. overriding royalty" (GORR). If the original lessee
It should be noted that the chapter is an overview. allows the lessor to deduct certain defined expenses
Parties utilizing cash flow analysis in contemplation before paying royalty, it is called a "net overriding
of making business decisions are advised to retain royalty" (NORR).
professional advice. Production Payment Interest. This is similar to an
overriding royalty but would typically be limited to
21.2 MINERAL RIGHTS OWNERSHIP either a production amount or quantity, or to a certain
Participants in the oil and gas industry lease the right to time.
develop the minerals from the holders of the mineral Working Interest. This is the most commonly held
rights. A number of different forms of property interest interest. The holder receives the net benefits after the
evolve from the leasing of these rights, with differences previously mentioned interests are realized and is
that are typically based on the sharing of risk and the responsible for development costs.
requirement to provide development capital.
Typically, there is more than one working interest
Mineral Interest. Subsurface mineral rights are owner. These owners would normally develop a prop-
usually separate from surface rights. Ownership may erty under the terms of a joint venture agreement which
be held privately, in which case it is known as a free- designates one ofthe owners as Operator. This arrange-
hold interest, or by the government, in which case it is ment is not usually considered a partnership as all
known as a Crown interest. the working interest owners are free to take their own
Most of the mineral rights in Canada reside with the production and dispose ofit on their own terms. Whether
Crown; however, some do reside with individuals un- the business arrangement is a joint venture or a partner-
der freehold rights. These rights originate from two ship can be significant from the perspective of
sources: (I) in 1869 the Hudson's Bay Company trans- calculating income tax.
ferred to Canada what was to become the provinces of Carried Interest. This results when one party "carries"
Alberta, British Columbia, and Saskatchewan, and the the development costs of another party. Working inter-
company retained some ofthe mineral rights; (2) in the ests of the carried party would differ before and after
nineteenth century, the federal government granted payout of the carry amount. When the party has opted

254

c
CASH FLOW ANALYSIS

out of a development under an existing agreement, it It is important to differentiate between production


will likely have to wait until an additional "penalty" revenue and processing revenue as the income tax treat-
amount has been earned by the other parties before ment for these two items is different. In broad terms,
reverting to a working interest position. production of crude oil stops at the exit of the battery
Net Profits Interest. The net profits referred to will be while production of gas stops at the downstream end of
calculated according to a contracted accounting pro- the inlet separator of a gas plant. Revenue Canada uses
cedure. In this case, the holder has no obligation to share the gas cost allowance calculation, from provincial
development costs. Crown royalty calculations, as the basis for determin-
Pooling and Unitization. These terms refer to arrange- ing production vs. processing revenue for tax purposes.
ments made, voluntarily or in accordance with Crude oil prices are typically posted by the buyer ofthe
government regulation, to jointly develop a resource oil on a volume basis. The price is at a specific location,
property. Pooling generally refers to agreements with- either in the field or at the refinery gate, and transporta-
in a drilling or production spacing unit, these typically tion tariffs must be deducted to bring the price to the
being one quarter section for oil and one section for wellhead. Future projections of price can be based on
gas. Unitization normally has a broader context and any number of approaches, ranging from a function
would address a development that extends beyond the of inflation to models that incorporate anticipated
standard spacing units. international supply and demand.
Individual participants can also undertake different Gas prices are, for the most part, set by buyer and seller
conventional business arrangements such as joint ven- at a price per energy unit. These prices will be set in
tures and partnerships. These structures also have tax reference to a delivery point such that a transportation
implications that must be addressed. tariff correction may be required to bring the price to
the wellhead. Forecast future pricing will vary from
21.3 PRINCIPAL SOURCES AND USES fixed escalation to an index reflecting current market
OF CASH conditions and should include an awareness of market
Ultimately, the revenue generated by the industry as a dynamics, regulatory issues, and the amount of
whole is through the sale of crude oil, natural gas, natu- contracted gas a buyer is likely to be able to purchase.
ral gas liquids (NGL) and sulphur. Estimated total Natural gas liquids is a term that includes ethane,
revenue for the Canadian oil and gas industry for 1991 propane, butanes and pentanes plus. Ethane, ifextracted
was approximately 18.4 billion dollars (Curran, 1992), at source, will usually be priced on the basis of a con-
ofwhich 61 percent was from crude oil, 27 percent from tract with the buyer. Propane and butanes (normal and
natural gas, 10 percent from NGL, and 2 percent from iso), known as liquefied petroleum gas (LPG), are nor-
sulphur. These percentages are, of course, subject to mally sold as a mixture with pentanes plus. The wellhead
change as product prices and relative volumes change. price of this mixture will be based on individual prod-
A lower average gas price in recent years has been partly uct prices with corrections applied for transportation and
responsible for the decease in the ratio of revenue fractionation. Product price forecasts would incorporate
from natural gas to crude oil from 0.54 in 1988 to an the basics employed in crude oil and natural gas
estimated 0.43 in 1991. forecasting.
Within this broader context of industry gross revenues, Processing Fees. In most cases, production will require
cash flows originate from a variety of other sources, some treatment prior to sale (in a few cases, production
including such things as overriding royalties and is sold as is at the wellhead). Oil typically requires re-
processing fees. moval ofdissolved gas and produced water. Natural gas
Most cash flows are determined with the wellhead or may require removal of water, heavier hydrocarbons,
lease as a reference point; however, there are other uses hydrogen sulphide, and carbon dioxide.
ofcash that have to be considered at the corporate level. If the producing company has its own treatment
Production Revenue. Custody transfer of product facilities, associated capital costs and ongoing operat-
usually takes place at the lease boundary where the prod- ing costs will have been recognized in the economic
uct is metered. Gross revenues are then the product of evaluation of the property. If the producing company
quantities sold and prices received. does not have the necessary facilities, it will have to
incur an expense by paying another party to provide
them.

255
DETERMINATION OFOIL AND GASRESERVES

Methods of determining fees range from "what the facilities and reclamation and restoration ofthe wellsite
market will bear" to a contractually defined fee and may should be included in cash flow analysis. While thes~
include minimum charges that must be paid irrespec- costs may be accrued Onan annual basis for accounting
tive of quantities processed. Some fees consist of two purposes, they are not actually incurred until the end of
parts: a capital recovery component, and a separate op- the economic life ofthe producing property. (Quite apart
erating component, which is a pro rata share of facility from facility decommissioning and wellsite reclamation
operating costs. and restoration costs, there may be ongoing operating
A facility owner with spare capacity can make it costs to satisfy regulatory requirements.)
available to other producers. In this case, processing fees Well abandonment costs can be estimated on the basis
become a source ofcash rather than a use ofcash. These ofpublished regulations. Decommissioning and site res-
are processing revenues and, as discussed later, should toration costs depend in part on the final condition of
be included in taxable income after the resource allow- the site and the regulations in effect at the time. As such
ance and earneddepletion deductions. (These two terms they are more difficult to estimate. '
are discussed in Section 21.5). General and Administrative. Commonly referred to
Another source of cash for one of the parties is the as G&A, these are the costs a company incurs in other
overhead fee paid by the owners of a facility to the than the direct operation of its properties, such as at a
operator of the facility. This fee will be specified in the district or head office, and they must be recognized at
operating agreement among the owners as a percentage some level in cash flow analysis.
of direct operating costs. If any G&A costs are allocated to a property that is less
Operating Costs. Field costs are typically some than 100 percent owned by the company, they will then
combination of a fixed cost, a unit cost per volume pro- be shared by the other participants in that property. The
duced, and a monthly well cost. Disposal of produced effect of charging this expense to the field will be to
water will sometimes involve off-lease disposal and an marginally reduce field economics, with a correspond-
associated cost which can be based On the volume of ing impact on company economics. While the impact
water handled or can be a fixed fee per haul. on the economics ofa particular field will likely be mi-
Facility operating costs are generally considered to be a nor, if enough costs are allocated to enough fields, the
combination of fixed and variable costs. When facility impact on company economics can be significant.
ownership is shared, operating costs are usually appor- Interest Expense. Financial charges incurred in
tioned on the basis of throughput or contracted funding investments are often not included in cash-flow
commitments. forecasts. From the perspective ofdiscounted cash flows,
Capital Costs. One of the more significant things to these charges, which include interest on debt or share-
consider about a capital expenditure is the tax treatment holder returns, have already been considered in the
of its components. This is addressed in greater detail in determination of the discount rate. If they were to be
Section 21.5. incorporated into discounted cash flow calculations,
they would effectively be counted twice.
Another consideration is funding. If a company can not
finance its capital requirements from cash flow, it has From the perspective of annual cash flow, however, the
to consider other sources, and the risk associated with amount of interest to be paid and, for that matter,
the planned development can affect both the source and principal, should be taken into account. This is particu-
cost of this funding. When debt financing is contem- larly important at the corporate level because of the
plated, the development may not on its own qualify for implications with respect to corporate liquidity.
the balance of needed funds, and additional security or One area where interest must be considered is in the
additional equity may be required. Either alternative determination of income tax. Interest is tax deductible
could restrict the company's options On further devel- and, as discussed in Section 21.5, it is deducted after
opment. resource allowance and before earned depletion.
Other avenues available include the various leasing Topgas. Derived from take-or-pay (TOP) gas, this
arrangements already mentioned. refers to two agreements that were developed to allevi-
Site Restoration and Reclamation. This aspect of oil ate problems associated with TransCanada Pipelines'
and gas operations has recently been receiving much contractual obligations to pay for natural gas which,
more attention, and costs for decommissioning of because of the absence of markets, the company could

256

_______________________11
CASH FLOWANALYSIS

not take delivery of. In exchange for reduced TOP As an example of a provincial royalty structure, a brief
commitments, producers were pre-paid in excess of $2 description of basic royalty calculations for the
billion. province of Alberta follows. This description encom-
These amounts are being repaid over a lfl-year period, passes the changes being implemented starting in
scheduled to end in 1994. A minimum of 10 percent of October, 1992.
the gas recovery is made annually in the period from Natural Gas Royalty. Royalty is basically a function
November to February, inclusive, that being the tradi- ofage, price and production rate. Age refers to the class-
tional period of highest gas deliveries. A producer's ification ofthe gas as "old" or "new," new gas effectively
annual payments consist of what is in effect a com- being gas which is discovered or brought on stream
bination of principal and interest, with the interest after January I, 1974. Price refers to the "average Alberta
netted out of its gross revenue for gas. market price" (AMP), as prescribed by the Minister and
It should be noted that the producer does not have to published in Department ofEnergy information letters.
pay royalty on this gas until it is produced, even though Price also refers now to "select price," for both old and
the producer will have already been paid for the gas. new gas, again as published in information letters. Pro-
Appropriate cash flow and accounting consideration duction rate refers to the average daily production for
must therefore be given this issue .. the month, with 16 900 m 3/das an amount below which
ro yalty is reduced.
Working Capital. Changes in working capital are not
generally considered in cash flow analysis at the field Prior to October of 1992, Alberta Regulation 246/90
level; however, it must be recognized that a company (Province of Alberta, 199Ia), as amended, was the
will have to fund any increase in its working capital basis for natural gas royalty calculations in Alberta, and
position. This is a particularly relevant item in a start- details of the application of the regulation were
up situation when funds for working capital have to be provided in Gas Royalty Guidelines (Alberta Energy,
provided. 1990). With the introduction of changes to gas royalty
calculations, these documents will require some changes
21.4 ROYALTIES AND MINERAL TAX as well.
Generally speaking, Canadian provincial governments Schedule I of the regulation formerly described the
own and administerCrown lands within the provinces. calculation of royalty for natural gas and residue gas,
The territories are the domain of the federal govern- and is presently being updated to reflect the royalty
ment, and the offshore is the domain of negotiation. changes.
Responsibility for mineral rights on aboriginal lands may Minimum royalty on natural gas, both old and new, is
lie with the aboriginal peoples. Royalties will be taken now 15 percent, the rate charged when the AMP is less
in cash or in kind and according to the regulations and than or equal to the select price. When the AMP is greater
formulae determined by the administrative authority. than the select price, the royalty rate, R%, is calculated
O'Dell et al. (1991) provides a summary of the fiscal according to Equation (I):
regimes, addressing both tax and royalty, in the Canadian
petroleum industry. The British Columbia royalty
system is described in more detail in the British
R = [(.15)(GSP) + (.4) (AMP.GSP)] x ~ (I)
AMP
Columbia Oil and Gas Royalty Handbook (British
Columbia Ministry of Energy, Mines and Petroleum where R = the Crown royalty share (%)
Resources, 1992). The Saskatchewan royalty system is GSP = the old or new gas select price
outlined in Statutes and Regulations (Saskatchewan AMP = the average Alberta market price
Energy and Mines, 1990) and in information circulars Maximum royalty on natural gas is now 35 percent for
published by the Economic and Fiscal Analysis Branch old gas and 30 percent for new gas. Table 21.41 sum-
of the Department of Energy and Mines. marizes the changes to calculation of Alberta natural
Royalty regimes are administered by provincial gas royalty as announced by the provincial government
governments and thus are subject to change at their dis- in October of 1992.
cretion. This is best exemplified by the present situation A low productivity allowance is also available. If the
in Alberta where recently announced changes have average daily production during a month is less than
significantly altered royalty calculations. 16900 m 3/d, the basic royalty is calculated according
to Equation (2):

257
DETERMINATION OF OIL ANDGASRESERVES

Table 21.4-' Summary of Alberta Natural Gas In Alberta, gas royalties are taken in cash with the
Royalty Changes producer paying from the proceeds of sale. Gas cost
Base Rate Marginal Rate Rate Cap allowance (GCA) is an amount deducted from the roy-
(%) (%) (%) alty obligationto account for the fact that Crown gas is
being processed. When the gas is processed by a third
Current New Current New Current New
party, the processingfee can be consideredthe GCA. If
New Gas 22 15 30 40 30 30 the producer is processing its own gas, the GCA is
Old Gas 22 15 40 40 40 35 calculated according to an accepted formula which in-
cludesoperatingcosts, depreciationover remaining life
Source: News release, Alberta Energy, October 21,1992.
and a 15percent return on averagecapital employed. A
good descriptionof GCA and customprocessingfees is
provided in Chapter 6 of the Gas Royalty Gn/defines
R=R _[(R,-5)(16.9-P)']
(2) (Alberta Energy, 1990).
c (16.9)'
Crude Oil Royalty. Alberta Regulation 248/90
where R., = the normal royalty payable (Province of Alberta, 1991 b), as amended, was the
P = the average daily production basis for crude oil royalty calculations in Alberta, but it
Effective January 1, 1994, calculations of Crown will have to be updated after the changes announced in
natural gas royalty share will be based on either the late 1992.
AMP or a corporate average price, the choice having Crude oil royalties are a function of age, gravity, price
beenmadeby the producer. Forpurposesofthis calcula- and production rate. "Age" refers to the classification
tion, the corporateaverageprice cannot be less than 90 of oil as old, new, or third tier. "Old oil" is basicallyoil
percent of the AMP. discovered prior to April, 1974; "new oil" dates from
From Schedule 2 of the regulation, pentanes plus after March, 1974. "Third tier oil" was introducedas of
royalties are determined accordingto Equation (3): October, 1992 and initiallydescribed as oil from"newly
discovered pools," with any further definition to be
R = ::.:22'-'.(B=c),---+---,c,-,,(F,---=."B) containedin revisions to regulations.
(3)
F "Gravity"refersto the classification of oil as eitherlight,
medium or heavy with the intention that heavy oil will
where R = the Crown royalty share (%) be subjectto a lower royalty. Price adjustmentis based
B = the select price for the month on a "par price" and a "select price," both as published
c = the royalty factor for the month in Alberta Department of Energy information letters.
F = the producer's average selling price for "Production rate" refers to monthly production rate.
the month
Crude oil royalty is calculated according to Equation
Royalties on pentanes plus are presently under review (4):
and changes are potentially forthcoming in the near
future.
R = [S + fSA-B))] x 100 (4)
From Schedule3 of the regulation, royalty payable on A Q
sulphur obtained by processing natural gas is 16'/3
percent of the sulphur. Sulphur royalties, unlike where R = the royalty rate (%)
other royalty payments, are deductible against income S = the basic royalty
in calculating federal income tax; however, sulphur f = the royalty factor
revenues also do not qualify for resource allowance, as A = the par price
discussed in Section21.5. B = the select price
Q = the monthly production rate
From Schedule 4, the percentage rate of royalty
payable on any product obtained by processing natural When the par price is less than or equal to the select
gas and to which Schedules 1,2 and 3 do not apply is price, the equation simplifies to Equation (5):
30 percent of the product. This rate is presentlyapplied
to propane and butane; however, with the royalty S
R=-xIOO (5)
review, this rate is also subject to change. Q

258

_______________________.-sft
CASH FLOW ANALYSIS

There are two kinds of basic royalty: one defined for


new and old oil and the other for third tier oil. In turn, r = (O.IB+O.4 (A-B)) x 100 (7)
the basic royalty for new and old oil is calculated by A
using one of two equations: one for production rates
It should be noted that while the same formula is used
less than or equal to 190.7 m3/month and one for pro-
for all types ofoil, there is a different maximum royalty
duction rates over that value. The basic royalty for third
intent set for each. This maximum is 35 percent for old
tier oil has three values. It is equal to zero for produc-
oil, 30 percent for new oil, and 25 percent for third tier
tion less than or equal to 20 m3/month and is calculated
oil.
using one equation for production between 20 and 190.7
m3/month and another for production over 190.7 The royalty rate, R, is price sensitive only up to the par
m3/month. Table 21.4-2 summarizes the equations used price that causes "r" to reach its cap. Above this par
to calculate basic royalty. price the royalty factor is reduced to maintain R at its
maximum. Table 21.4-3 summarizes the changes to cal-
Table 21.4-2 Summary of Equations for Basic culation of Alberta crude oil royalty as announced by
Royalty the provincial government in October of 1992.

Rateimvmon) New Oil TOld Oil ThirdTier Oil


Table 21.4-3 Summary of Alberta Crude Oil
Royalty Rate Changes
0-20 0
Q2
BaseRate Marginal Rate Rate Cap
2755.04 ('Yo) ('Yo) ('Yo)
(Q-20)'
20 - 190.7 Current New Current New Current New
2207.46
Third Tier n.a. 10 n.a. 40 n.a. 25
New Oil 212/ J 10 30 40 30 30
> 190.7 [(Q-190.7) x 0.115385] + 13.2 Old Oil 212/ J 10 40 40 40 35
Source: Newsrelease, AlbertaEnergy, October21,1992.
Source: Newsrelease,AlbertaEnergy,October21,1992.
Royalty factors, par prices and select prices are to be
The par price, A, is a representative wellhead price. listed in the Alberta Energy information letters.
There are now separate par prices for light and heavy The Operator, as Agent for the Crown, is responsible
oils for purposes of determining royalty rates. for delivering Crown royalty crude oil volumes to the
There is one select price, B, for old oil which applies to Alberta Petroleum Marketing Commission (APMC), a
both light and heavy oil. There are two select prices for government-sponsored agency. The APMC markets the
new oil with one set for new heavy and another for new crude oil and, since the buyer of the APMC crude may
light oil. Still another select price will be set for third not be the same as the buyer of the producers' crude,
tier oil. the price received for the Crown royalty volumes will
not necessarily equal the producers' sale price.
The royalty factor, f, is further identified as k for old
oil, y for new oil, and z for third tier oil. These three Royalty Tax Deduction. As discussed in more detail
factors are all calculated using Equation (6): in Section 21.5, certain Crown charges, principally roy-
alties, are not deductible in calculating federal taxable
income. Instead, the provinces of British Columbia,
k z = [(r%)(572.1) -I] / (A-B)] (6)
,y, 57.2 [A Alberta and Saskatchewan make available a royalty tax
rebate that is based on the difference between these
where r = the royalty intent (%) Crown charges and resource allowance.
The royalty intent is based on a well reference rate of Alberta taxpayers can deduct from Alberta tax payable
572.1 mvmonth and is calculated according to an amount which is essentially the product of the pro-
Equation (7): vincial tax rate and the "attributed Canadian royalty
income" (ACRI), the amount by which provincial
levies exceed resource allowance. Any unclaimed

259
deduction can be carried forward indefinitely. Ifresource Further details on the present ARTC program are
allowance exceeds the provincial charges, no royalty available from the Corporate Tax Administration groUp
tax deduction is available; however, neither is there tax of Alberta Treasury.
on the excess. Production Royalty. Production royalty is defined with
Saskatchewan has a royalty tax deduction similar to reference to the recipient. If the recipient is subject to
Alberta's; the rebate is the lesser of Saskatchewan tax Crown charges, such as Crown royalties, provincial min-
otherwise payable or the royalty tax credit. The tax credit erai taxes and road allowance levies, i.e., nondeductible
for the year is a function of the Saskatchewan tax rate Crown charges for income tax purposes, the royalty is
and the "adjusted attributed Canadian royalties and termed a production royalty. This definition is impor-
taxes" (AACRT). Unclaimed credits can be carried for- tant for tax purposes because production royalty income
ward, and any excess ofresource allowance over Crown is eligible for resource allowance (Section 21.5).
charges is not taxed. Resource Royalty. Resource royalty is royalty received
In British Columbia, a taxpayer first computes a basic by a recipient; it is not subject to Crown royalty charges
tax, using resource allowance and nondeductible Crown and is ineligible for resource allowance.
charges. A notional tax is then calculated based on no Oil Sauds Royalty. Royalty for oil sands development,
resource allowance and deductible Crown charges. The such as the Syncrude operation, is usually determined
difference between the two is the rebate, which is added according to contract terms negotiated between the de-
or subtracted as an adjustment to the total tax payable. veloper and the provincial, and sometimes the federal,
Alberta Royalty Tax Credit. As royalty is a govern- government.
ment program, there is opportunity for government to Freehold Royalty. Where mineral rights are held by a
make incentives available. One such incentive program party other than a government, they are classified as
is the "Alberta royalty tax credit" (ARTC). First imple- freehold mineral rights, and the lands are generally
mented in 1974, it was updated as of January I, 1990 to referred to as freehold lands. Royalty obligations asso-
a 5-year program providing a variable percentage tax ciated with production by other than the owner of the
credit. While there is now no specified limit on the re- rights are negotiated between the lessor and the
fund itself, there is a limit of $2,500,000 on the amount lessee.
ofroyalty base that is eligible for the credit in each year.
Mineral Tax. In the absence of ownership rights on oil
The credit is a function of the "par price" of oil and is
and gas produced from freehold lands, and the con-
set quarterly by reference to average par prices in the
comitant right to impose a Crown royalty, governments
preceding quarter. It varies from a high of 85 percent
impose a mineral tax, typically calculated on an annual
when the average par price falls below $100 per cubic
basis. To illustrate, the following is a discussion of the
metre, to a low of25 percent when the average par price
Freehold Mineral Rights Tax as levied on production
rises above $210 per cubic metre.
from nonCrown lands in Alberta. However, the mineral
A number of amendments were made to the original tax structure is presently being reviewed with a view to
program to limit the multiplication of royalty tax cred- possible updating.
its that could otherwise occur if a corporation that was
This tax is a function of both price and rate, and is
claiming the maximum credit disposed of producing
substantially lower than Crown royalty, to account for
properties to a party claiming less than the maximum.
the fact that the producer is paying royalty to the owner
Briefly, an above-limit, or restricted, corporation is one
of the freehold mineral rights. For crude oil, solution
that has a royalty obligation in excess ofthe amount on
gas and condensate, the tax formula is:
which it can eam a credit. A restricted resource prop-
erty is an interest in a producing property that was
tax=RxVxM (8)
completed before 1989 and disposed of after 1989 by a
restricted corporation. Royalties on production attrib-
uted to that interest cannot be included in the Alberta where R tax rate: 0.269 for liquids, 0.069 for
Crown royalty base for any of the holders of the inter- solution gas
est. Also, as a general rule, the maximum allowable V = price per m3 for liquids, or 103 scm for
credit under the existing program must be allocated solution gas
among corporations that are associated in a taxation year. M = annual production

260
CASH FLOW ANALYSIS

For solution gas, M is the production in thousands of Amounts in the accumulated CDE account may be
standard cubic metres. For crude oil and condensate: deducted from taxable income at rates of up to 30
percent of the remaining balance.
M ~ (0.0833Q)' Canadian Exploration Expense (CEE). Defined in
(9)
105.94 paragraph 66.1(6)(a) of the Income Tax Act, CEE is
exploration cost incurred after May 6, 1974 and includes
for annual production, Q, less than 2288.4 cubic
such things as geological, geophysical and geochemi-
metres, and:
cal expense, the drilling of exploration wells, and the
cost of dry holes. A principal business corporation, as
M ~(Q ) -228.04 (10) defined in paragraph 66(15)(h) of the Tax Act, must
4 deduct the lesser of the amount in the account and
the company's income for the year (exclusive of divi-
for Q greater than or equal to 2288.4 cubic metres.
dends from foreign and Canadian corporations'that are
For natural gas, ifaverage daily production for a year is exempt from tax, and before any amount is deducted
less than 16.9 thousand standard cubic metres: for depletion.)
For all other taxpayers, deducting the full value of their
tax s Ax Vx M (II) CEE pool against their income is an option.
Canadian Oil and Gas Property Expense (COGPE).
A ~ R _[ (R-.Ol) X (16.9-ADP)' (I 2) Defined in 66.4(5)(a) of the Income Tax Act, COGPE
is basically the cost incurred in acquiring a Canadian
(16.9)' ]
resource property after December 11, 1979. This is
where R ~ tax rate; currently 0.069 defined in paragraph 66(15)(c) of the legislation and
ADP ~ average daily production per well can include drilling and production rights and royalty
interests. Cumulative COGPE, the amount in the tax
If the average daily production for a year is greater than
account balance, may be deducted at an annual rate of
or equal to 16.9 thousand standard cubic metres, the
up to 10 percent ofthe balance in the account.
formula is the same as that for solution gas.
Nontangible portions of property sales are charged
21.5 FEDERAL CORPORATE INCOME directly to this account. If a negative balance results
TAX at year end, this balance is transferred to the CDE
Tax rules are constantly being updated, either through account. Any resulting negative balances created in the
legislative change or court interpretation, and tax CDE account must go into income.
planning is, at least in part, a function of corporate Resource Allowance. With the exception of sulphur
objectives. Consequently, planning and calculation of royalties, provincial Crown royalties are not deductible
income taxes should be done with professional advice. against federal income tax. While not explicitly identi-
With the rules of the game constantly changing, it fied as such in tax legislation, resource allowance exists
is difficult to find an up-to-date reference for the as a means of recognizing this inequity. "Resource
Canadian tax system. Nevertheless, Krukowski (1987) allowance" is a deduction against income and is calcu-
provides not only a good overview, but also some lated as 25 percent of adjusted resource profits (Table
useful background on the oil and gas industry. 21.5-1), using only production-related income and
deductions.
Canadian Development Expense (CDE). Defined in
paragraph 66.2(5)(a) of the Income Tax Act, CDE is In an ongoing debate between tax authorities and
development-related cost incurred by the taxpayer after taxpayers as to what constitutes "production-related
May 6, 1974. The cost is an intangible cost which, income and deductions," it has been Revenue Canada's
generally speaking, is expended in the drilling ofwells. position that, for principal business corporations, all
It includes the drilling, completing or converting of G&A expense is to be deducted in calculating resource
any well that does not qualify as a Canadian explor- allowance. This interpretation has now been success-
ation expense, the cost of recompleting a well after fully challenged, and the courts do not agree with
November 16, 1978, and the cost of any Canadian oil Revenue Canada's interpretation [see The Queen v .
and gas resource property acquired before December Gulf Canada Ltd., 92 DTC 6123 affirming 90 DTC
12, 1979. 6622(FCTD)].

261
Table 21.5-1 Cash Flow and Income Tax Summary

Income Earned Resource Cash


Tax Depletion Allowance Flow
Gross Revenue
Working Interest XX XX xx XX
Production Royalty XX XX XX XX
Deemed Income XX XX XX -
Expenses
Crown Royalty - - - yy
Mineral Tax
yy
- - - yy
Production Royalty yy yy yy
Lease Operating yy yy yy yy
CrownLease Rentals yy - - yy
CCA - Production yy yy yy
G&A - Production yy yy yy
-
yy
CEDOE - - yy yy
--
Adjusted Resource Profits (ARP) ZZ
Resource Allowance (25% of ARP) yy yy -
Resource RoyaltyIncome XX XX XX
Resource Royalty Expense yy yy yy
CCA-Other-Resource Profit yy
G&A-Other yy yy
- -
yy
Interest yy yy yy
COGPE yy yy -
CDE yy yy
CEE yy yy
-
-
-
Resource Profits (RP) ZZ
Earned Depletion (25% of RP) yy -
Other
ForeignIncome XX , XX
ForeignExpense yy yy
Nonproduction Income XX XX
Nonproduction Expense yy yy
- -
Net Income For Tax Purposes ZZ Cash Flow before IncomeTax ZZ

Source: University of Calgary and Canadian Petroleum Tax Society, 1991.


Notes: XX represents an added amount.
yy represents a subtracted amount.
ZZ represents a sum.

262
_____________________Fi1
, ,
CASH FLOW ANALYSIS

Table 21.5-1 is a simplified summary of the federal incurred, added back in the income calculation, and then
income tax calculation and the cash flow calculation included in either CDE or CEE.
for an oil and gas company. The four columns illustrate Successor Rules. Alterations in a corporation's status,
the calculation of income tax, eamed depletion, resource brought about by such things as mergers, acquisitions
allowance and cash flow by identifying the parameters and changes in control, receive particular treatment
which are employed in the determination of each. within the Income Tax Act. A proper understanding of
Earned Depletion. While this item has been effectively the associated rules and regulations is best left to
eliminated for oil and gas producers, some companies professional advisors.
still have an unclaimed earned depletion base that may
be utilized as a deduction against income. A taxpayer is 21.6 FINANCIAL STATEMENTS
permitted to deduct the lower of the earned depletion, Companies produce annual financial statements as an
which would have existed under prior legislation, or the accounting of their performance during the year and their
remaining base. The calculation of earned depletion is status at the end ofthe year. The information contained
illustrated in Table 21.5-1. in these statements can yield historical annual cash flow
Capital Cost Allowance (CCA). This is the tax numbers.
equivalent of accounting depreciation and in theory al- Balance Sheet. If a company follows the full cost
lows a business to recover its original tangible asset method ofaccounting, whereby all costs ofacquisition,
investment without having to pay tax on it. CCA accu- exploration for, and development ofoil and gas reserves
mulates in pools of prescribed classes which are are capitalized, the value ofthe asset identified as "Prop-
deducted, at the option of the taxpayer, on the basis ofa erty, Plant and Equipment" is limited by a "ceiling
fixed percentage of the declining balance. value." This ceiling value is effectively determined by
Tangible costs, which are grouped into CCA, should be performing a cash flow analysis on the company's re-
differentiated from intangible costs, which are grouped serves. It would include the value ofthe proved reserves
into CDE and CEE. As a first approximation, tangible plus the lower of cost and estimated value of undevel-
assets are located above ground, although they would oped properties.
also include production tubing and sucker rods. "Depletion and Depreciation," listed on the asset side
Production-related assets, which reduce resource of a balance sheet, are accounting terms and are not
allowance, must be differentiated from nonproduction equivalent to "Earned Depletion" and CCA, as used in
assets, which do not. Again, as a first approximation, the income tax calculation.
equipment which is upstream of an inlet separator is On the liability side, anticipated future costs for "Site
production-related. Production-related CCA is a de- Restoration and Reclamation" are listed. These amounts
ductible expense when calculating resource allowance, are the company's estimate of future liabilities-at
thereby reducing its effectiveness as a tax shelter for today's prices-and should be consistent with those used
resource income by 25 percent. Accordingly, a taxpayer in the cash flow analysis, although they will have to be
would be motivated to maximize not only the amount segmented into annual amounts and escalated to the
ofCCA which is deducted against nonresource income, appropriate year.
but also amounts of COGPE, CDE and CEE. Statement of Income. Revenue from petroleum and
Disposal of a tangible asset yields a credit (not to natural gas is usually net ofroyalties and includes ARTC.
exceed the original cost of the asset) for the pool into G&A, with the exception ofamounts capitalized, should
which the assets were originally grouped. If a negative be similar to that used in cash flow analysis, while, as
balance in the pool results, this balance must be included mentioned previously, depletion and depreciation are
in income. If the assets in question are production- not. Current income tax should correlate with that used
related, this income will qualify as resource profits. in cash flow. Deferred income tax is a noncash item
relating mainly to the timing difference between claims
Canadian Exploration and Development Overhead
for tax purposes of CCA, exploration and development
Expense (CEDOE). This G&A expense is not substan-
costs, and the amounts of depletion and depreciation
tially directed toward exploration and development and
listed in the financial statements.
may be completely written off in the current year,
or capitalized. If capitalized, it would be deducted in Statement of Changes in Cash Position. This
calculating resource allowance in the year it was statement can be derived from the balance sheet and the
statement of income. Typically, the amount listed

263
DETERMINATION OF OIL AND GASRESERVES
'-1
" !

as "cash flow from operations," when added to the funding costs. In this regard, the concept of "sunk costs"
interest expense listed in the statement ofincome, gives is introduced; monies that have been spent should no
the cash flow being discussed. When interpreting these longer be incorporated into the investment decision.
statements, the reader should also check to see how Weighted Average Cost of Capital (WACC). The
changes in working capital are addressed. "weighted average cost of capital" is the average after-
Investments (such as capital expenditures and tax cost to the company of all the components of its
acquisitions) listed on this statement may have exceeded capital structure. These are not just loan interest costs
the company's cash flow for the year. In that case, the but the cost of all forms of debt, including the cost of
company will have had to either borrow money or get preferred shares and common shares. Lusztig includes
an injection of equity. These investments should have internally generated funds, such as retained earnings and
each been the subject of an investment decision process depreciation, when discussing a firm's WACC.
which would have included a cash flow analysis. All components should be included at their current cost
21.7 FINANCE AND ECONOMIC since they will be used when making new investment
CONSIDERATIONS decisions. The proportions of each can be based on the
existing capital structure or a targeted new capital struc-
Cash flow analysis and investment decision-making
ture with total capitalization based on current market
have a basis in theory, and to appreciate them some
value.
understanding of this theory is important. The follow-
ing is a simplified discussion ofthe theory. For a more Discount Rate. By definition, an after-tax cash flow
in-depth review, the reader is advised to consult a busi- stream that is discounted at a firm's WACC and yields
ness finance text such as Lusztig and Schwab (1988). a positive NPV will pay for the project's funding costs
and generate a residual gain for shareholders. In most
Net Present Value (NPV) and Internal Rate of situations, therefore, the appropriate discount rate to use
Return (IRR). These are the two most widely used is the WACC.
terms in investment decision-making. "Net present
value" is the value obtained when all cash flow streams, The use of one discount rate for a firm's decision-
including the investment, are discounted to the present making presumes that all ofthe firm's projected invest-
and totalled. "Internal rate of return" is the discount rate ments carry the same degree of risk. This may not be
which will give an NPV ofzero, meaning the discounted the case. Where a project is perceived to carry a higher
cash flow stream is equal to the cost of the investment. risk, an investor would reasonably expect a higher yield.
This would result in a higher WACC and a concomitant
For investments involving initial expenditure and higher discount rate for the project.
subsequent inflows of cash, a plot of NPV against dis-
count rate yields a downward sloping curve which shows While theory suggests the derivation of a unique
steadily decreasing NPV with increasing discount rate. discount rate based on a project's WACC, other options
This curve intersects the discount rate axis (NPV equal are often employed. One common practice is to calcu-
to zero) at the IRR. The apparent drawback of using the late the discount rate by adding a risk premium to the
IRR is that it, by definition, assumes that the unrecovered firm's normal WACC. This risk premium is usually
investment can be re-invested at this rate. On the other based on intuition and is therefore, by its very nature,
hand, the NPV is expected to be positive, which nor- somewhat arbitrary. Nevertheless, it is often a practical
mally implies that the IRR exceeds the cost of capital. way around the difficulties inherent in calculating a
When NPV is used, the investment is to provide a ben- project WACC.
efit beyond the cost of funding. When IRR is used, the Apart from the problems associated with determining a
yield is to exceed the cost of funding. In that respect, risk premium, there is normally some uncertainty at-
the two methods are complementary. tached to deriving any WACC, particularly the equity
Project Abandonment. Use of NPV as a decision- portion. This is one reason why, in actuality, the
making tool should not be limited solely to the initial discount rate used is often the one that is in popular
investment decision. Rather, a project should be checked useage at the time, especially if two parties are
throughout its life to ensure that it has a positive NPV. negotiating a value.
If at any point it does not, a sponsor should seriously
consider abandoning the project since, from that point
on, the investment will be incapable of generating its

264

___.-.a
CASH FLOW ANALYSIS

References 0' Den, S., Pearse, J., Miller, c., and Tarvydas, R.
Alberta Energy. 1990. Gas Royalty Guidelines. 1991. Petroleum Fiscal Systems in Canada (rev.
Alberta Energy Report, Dec. 1990, Pub. No. 3rd ed.). Energy, Mines and Resources Canada.
T/2051990. Province of Alberta. 1991a. Mines and Minerals Act,
British Columbia Ministry of Energy, Mines and Alberta Regulation 246/90. Office Consolidation,
Petroleum Resources. 1992. British Columbia Oil Queen's Printer for Alberta (amendments to
and Gas Royalty Handbook. 33/91).
Curran, R. 1992. "Slow Out of the Gate." Oilweek, - - - . 1991b. Mines and Minerals Act, Alberta
Apr. 1992. Regulation 248/90. Office Consolidation, Queen's
Krukowski, J.V. 1987. Canadian Taxation ofOil and Printer for Alberta (amendments to
Gas Income (2nd ed.). CCH Canadian Limited, 31191).
Don Mills, ON. Saskatchewan Energy and Mines. 1990. Statutes and
Lusztig, P.A., and Schwab, B. 1988. Managerial Regulations, Release No.9 (amended Ju\. 1991
Finance in a Canadian Setting (4th ed.). and Sep. 1991).
Butterworths, Toronto, ON. University of Calgary and Canadian Petroleum Tax
Society. 1991. Taxation ofCanadian Oil and Gas
Companies: An Introduction. Calgary, AB.

265
Chapter 22

UNCERTAINTY AND RISK IN RESERVES EVALUATION

22.1 INTRODUCTION 22.2.2 Describing Uncertainty


There is always uncertainty in an estimate of the The uncertainty in a reserve estimate can be described
volume or value of oil and gas reserves because few of in a number of ways, one of which is the use of the
the factors involved are known with certainty. The tra- traditional terms, proved, probable and possible. How-
ditional deterministic approach does not make any ever, there is no ready way of quantifying the level of
allowance for uncertainty, and stochastic, or statistical, differences expressed by such "point" estimates. Stat-
methods are required to assess it. Stochastic methods istical measures such as ranges, standard deviations,
may be more time-consuming, but they make better use confidence limits, and frequency, especially when shown
of available data and can yield important information graphically, convey a large amount of information that
that cannot be obtained from a deterministic evaluation. cannot be grasped readily in other ways and that is not
The degree of uncertainty can be of critical importance given by point estimates.
to investment and planning decisions, and an inadequate Expectation is the mean of all possible outcomes of an
appreciation of it can lead to costly failures. For every event and is a commonly used single-value summary
evaluation, a decision has to be made as to whether the measure that incorporates some of the effects ofuncer-
improved understanding resulting from a stochastic tainty. It is often used as a decision criterion, but the
evaluation warrants the additional time that is required. following discussions on alternative approaches to
The high cost of failure for most petroleum ventures decision-making are worth noting: Newendorp (1975a);
suggests that stochastic methods should be used more McCray (I975a); and Tversky and Kahneman (1985).
than they are at present.
This chapter examines concepts of uncertainty in the
22.2.3 Areas of Uncertainty
estimation of oil and gas reserves and discusses the as- Uncertainties arise in the following areas of reserves
pects of statistics and decision theory that provide the evaluation (Garb, 1988; Robinson, 1990):
methods for stochastic reserve assessments. Technical Uncertainty, which can be further divided
Masters (1984) reviews the background of the into the following:
approaches discussed in this chapter and emphasizes the Geological Uncertainty, which is concerned with
need for common sense in their application. the estimation ofhydrocarbon volumes in place. Once
established, geological parameters are not usually
22.2 CONCEPTS changed significantly.
22.2.1 Definition of Risk and Uncertainty Engineering Uncertainty, which arises from the
The terms "risk" and "uncertainty" are used in many recovery process. Once engineering parameters have
different ways, and caution is required when using them. been established, significant changes usually occur
In this chapter, risk is defined as the probability ofloss only as a result of technical advances.
or failure and is relevant only in the context of deci- Economic Uncertainty, which arises f;om market
sion-making; uncertainty is defined as the spectrum of forces, and includes the major uncertainties in price,
possible outcomes of an evaluation. More complete costs, taxes, and royalties. Economic uncertainty can
definitions of various types of uncertainty are given be difficult to estimate because changes are usually less
in Section 22.2.3, and the relation of uncertainty predictable than for the more stable technical areas.
and risk to probability distributions is illustrated in Political Uncertainty, which includes political aspects
Figure 22.2-1. of local and national taxes, environmental regulations,

266
UNCERTAINTY ANDRISK INRESSRVES EVALUATION

(a) Probability Density Function (PDF) of Net Present Values (NPV)

Confidence Interval: There is about a


70% probability that the outcome will
fall within this confidence interval.
0.4
Risk: Loss will occur in about
20% of the possible outcomes.

Chance of Success = 80%

0.1

100 -50 a 50 100 150 200


Net Present Value, NPV ($ x 10')

(b) Cumulative Distribution Function (CDF) or Expectation Curve of Net Present Values
(i.e., the cumulative area below the frequency distribution curve in "greater than" form)

1 . 0 , - - - -__
~
c:
Q) 0.8
::l
0-
~
u.. 0.6
.~
1ij 0.4
:;
E
::l Loss ~--- - - - . Gain
o 0.2

a .L_ _~-~-_1_-_,_---,--__.;.::::::::O=r--
-100 -50 a 50 100 150 200
Net Present Value, NPV ($ x 10')

Notes: 1. Uncertainty is represented by the fact that an outcome could fall anywhere on the NPV
axis with differing probabilities.
2. Chance of success is 80%.
3. Risk of loss is 20%.
4. The mean outcome or expectation is $50 x 10'.

Figure 22.2-1 Risk and Uncertainty

267

DETERMINATION OFOIL AND GASRESERVES

market control, price control, and threats of national- uncertainties can be summed up by the stochastic
ization, civil unrest, and war. Because political un- reserve relation:
certainty operates ultimately through the same factors actual value of reserves = estimated value uncertainty
as economic uncertainty, political uncertainty may
where
be regarded as an aspect ofeconomic uncertainty. How-
uncertainty = error bias
ever, the unpredictability and the potential for abrupt
distortion of the market warrants the separate category. All of the factors in the relation will change with
It is very difficult to quantify, and an assessment of time and with time-dependent factors such as price
several scenarios is often the best approach. . and technology. The relation applies to all param-
eters involved in the assessment of reserves, and the
Uncertainty may also be classified as:
individual uncertainties are combined according to es-
Parameter Uncertainty, which is associated with the tablished statistical procedures to give the uncertainty
numbers used for an assessment, for example, porosity in a final result. Although it is usually not possible to
value taken as the average of core plug measurements. separate "error" and "bias," an understanding of these
Model Uncertainty, which is a consequence of the concepts is essential to improving the quality ofreserve
degree to which a model used for the evaluation of re- valuations. The effects of error and bias are shown
serves represents the real world. The effect is more likely diagrammatically in Figure 22.2-3.
to be one of "bias" rather than "error." This effect can Actual Value is never known except, perhaps, at the
be very significant, and may be difficult to assess. time of abandonment of a property, as shown in Figure
Examples of models used in reserve valuation are geo- 22.2-3(g).
logical maps drawn assuming a particular depositional
Estimated Value, as shown in Figure 22.2-3(a) and (b),
environment (e.g., beach sand or tidal channel sand?)
is determined by technical estimation procedures and
and the algorithms used for log interpretation or for an
economic evaluation and reported in reserves reports.
economic evaluation (including the discounted cash flow
Changes in technical and economic conditions result in
model). Drew's (1990) account of the evolution of meth-
changes to estimated and actual reserve volumes and
ods used for estimating undiscovered hydrocarbon
values, even if the error and bias are zero.
volumes is a good illustration of the gradual reduction
of uncertainty as progressively better models are Error, as shown in Figures 22.2-3(e) and (t), results
adopted. from the inherent uncertainty of measurement and ana-
lytical procedures, and can be positive or negative. The
The uncertainty in a reserve estimate decreases as
actual value lies at an unknown position within a confi-
production and knowledge increase until, at the time of
dence interval, the size of which is determined by the
abandonment, there is little or no uncertainty. Figure
confidence level specified as shown in Figure 22.2-3(t).
22.2-2 is an idealized schematic representation of this.
For example, "proved reserves are 250 35 x 103 rn'"
The range of reserves estimates is shown by the upper
may mean that there is a 70 percent probability that they
and lower limits of the estimates. As time passes and
lie between 215 and 285 x 103 m3 . The probability of
the well is produced, the range decreases and the limits
the actual value lying within a confidence interval of a
converge until the range becomes zero, and they meet
particular size is represented by a frequency distribu-
at the time of abandonment.
tion (an envelope of all possible confidence intervals)
In a real case, there would be: as shown in Figure 22.2-3(e). Although errors cannot
A bias in the estimates be eliminated, they can be minimized by careful techni-
An asymmetry in the range of uncertainty cal work and quantified by statistical techniques. Errors
also result from mistakes (e.g., arithmetic, clerical), but
Changes in economics and technology over the life
these are generally ofless importance and can be mini-
ofa project that would result in a curve not as smooth
mized by careful work and checking.
as this one
Bias, as shown in Figures 22.2-3(c) and (d), is a
22.2.4 Causes of Uncertainty systematic deviation from the actual value or distribu-
Reserve estimation is fundamentally a measurement tion and is a combination of two effects. Campbell
procedure, and the relationships that exist between (1986) provides excellent examples of bias and other
actual and estimated reserves and the associated factors that can affect petroleum evaluations; the

268


UNCERTAINTY ANDRISK IN RESERVES EVALUATION

-Exploratlon - . - , - - - - - - Production

Actual Reserves
<J)

~
Q)
<J)
Q)
a:

-
<:
Ql
E
<:
o
"C
<:
1l
<t:

Time

Method of Analog - - - - - - .....-


Determining - - - Volumetric - - - - - - - _ ~
Reserves - Material Balance - - - - - - - ~
- - Decline Curves - - - - -
Source: Garb, 1988.

Figure 22.2-2 Level of Uncertainty in Reserves Estimates during the Life of a Producing Property

discussion and quotation that follow are from Spetzeler The following are the origins of bias:
and Stael von Holstein (1975): Motivational Bias, which is defined as "either
Displacement Bias is a shift ofthe whole frequency conscious or subconscious adjustments in the
distribution curve to higher or lower values. This is subject's responses motivated by a perceived system
shown in Figure 22.2-3(d). of personal rewards for various responses. He may
Variability Bias is an alteration of the shape of want to bias his response because he believes that his
a frequency distribution curve. This is shown in performance will be evaluated by the outcome.
Figure 22.2-3(c). This is usually a central bias that Finally, the subject may suppress the full range of
makes a distribution narrower than is warranted (i.e., uncertainty that he actually believes to be present
represents a greater degree of certainty than is justi- because he believes that someone in his position is
fied by the state of knowledge). Capen (1976) expected to know with a high degree of certainty what
convincingly demonstrates this tendency and suggests will happen in his area of expertise" (i.e., he wishes
a method of minimizing the problem. to appear more decisive than is really warranted).

269
,'"',"'''''''''0'''''''"'_ ,

Estimated Value (May not coincide with the peak


of the frequency distribution)
(a)
Result of Deterministic Evaluation -

Positive Displacement
+ Central Variability Bias
Result of Stochastic Evaluation
(b)

/Broadening"" "
(c) / (Less common) " " Variability Bias

Negative Displacement Bias Positive Displacement Bias


, ...
~"'~

,, ,
(d)
,, - Displacement Bias

Error (Frequency Distribution)


(e)

Range of Uncertainty
Introduced by Error
(f) I I Confidence Limits

Actual Value
(g) ______t _ Reserve Volume

Figure 22.2-3 The Effect of Error and Bias on a Reserve Estimate

270

c
UNCERTAINTY AND RISK IN RESERVES EVALUATION

Cognitive Bias, which depends on an individual's I. Project evaluation, for which there would be an over-
mode ofjudgement. This arises from factors such as all improvement ifthere were a better understanding
hislher knowledge base, method ofprocessing infor- of the risks involved.
mation (e.g., a judgement may be biased to a recent 2. The comparison of projects in order to select the
piece of information because it is the most easily re- more appropriate one. For example, Figure 22.2-4
called), or the representative nature of an analog used shows the expectation curves 1 for the evaluations
to make an assessment. Cognitive bias is probably of two projects with the same median NPVs of
an important source of model uncertainty. $100,000, but with very different risk profiles.
Specific, clear procedures, quality control, experience Project A is a low-risk venture that will not lose
(i.e., a large knowledge base), competent technical work, money, but has little chance ofmaking a great profit.
the use of statistical techniques and third-party review, Project B has a 25 percent risk that it will lose
common sense, and a determined effort to maintain money, but it has a potential for a higher reward
objectivity are all required to minimize the effect ofbias (e.g., a 20 percent probability of a net present value
on reserves evaluation. (NPV) greater than $250,000). Without the addi-
tional information provided by an analysis of the
22.2.5 Magnitude of Uncertainty
uncertainties, there is no objective way to choose
The uncertainty in an evaluation ofhydrocarbon reserves between the two projects. Which of the projects is
depends on the particular property. However, for a single preferred will depend upon the risk acceptance level
property in western Canada, at the start of production, ofthe decision-maker and the budget available. This
the uncertainty in volume will typically be about approach can also be used to analyze a portfolio of
25 percent. Uncertainty generally decreases as cumu- projects in order to avoid "Gambler's Ruin.'? With
lative production increases and as more information
becomes available (Figure 22.2-2).
A feeling for the magnitude of uncertainty in volume 100
estimates can be gained from a study of the revisions in
the reported proved reserves of 70 oil and gas compa- \ _ _- Project A

nies over a period of7 years (Campbell, 1984, 1988) in ~60


which 86 percent of the companies displayed positive ~
.c 40
bias for oil (i.e., proved reserves were initially overesti- e
0.. Project B
mated, and annual reductions were needed). The average 20
annual reserve revision (mostly downwards)
for oil was as follows:
-100 -50 0 50 100 150 200 250 300
o- 10% for 72% of the companies
Net Present Value, NPV ($ x 10 )
3

10 - 50% for 26% ofthe companies


EMV' Risk
> 50% for I % of the companies 3
($ x 10 ) (%)
Companies generally displayed neutral to negative bias Project A 100 o
for proved gas reserves. Average annual reserve re- Project B 100 15
visions (almost equally up and down) for gas were as 'Expected Monetary Value
follows:
1-10% for 73% of the companies Figure 22.2-4 Expectation Curves: Comparison
10 - 34% for 27% of the companies of Results

22.2.6 Use of Uncertainty


An appreciation of uncertainty and the associated risk 1 An expectation curveis a cumulative distribution
of a reserve volume or value estimate is an important function showing the probability that a value on the
element in making decisions. Many ventures would x-axis will be exceeded.
benefit from a more thorough analysis that included 2 Gambler's Ruin is the probability that in a series of
estimates of uncertainty; for example, the elimination ventures that will be profitable in the long run, a short
of one dry hole would justify a substantial amount of run oflosses will exhaust the financial resources of tbe
time spent on risk analysis. Other applications include: participants.

271
DETERMINATION OF OIL AND GASRESERVES

Sources ~-- Debt .---~--------- Equity ---------------------


of Funds
Low Risk High Risk
Low Reward High Reward
Banker
100 Development Engineer
-; mell!
80 Development Geologist

;?
~
>. 60
.""
:0
Low-Risk Exploration
<U (Western Canada Basin)
-"
0 40
~

0- High-Risk Exploration
(Frontier)
20

-Proven Probable - - Possible - - -

Hydrocarbon Volume or Value

Figure 22.2-5 Expectation Curve: Reconciliation of Different Views of Hydrocarbon Volumes


and Values

a strong enough budget, for example, the probabil- 4. The analysis of options for risk reduction. The
ity of Gambler's Ruin may be sufficiently low that strategies for this will be varied, for example:
a series ofhigher risk ventures like Project B can be The acquisition of additional information (e.g.,
attempted in the hope of a larger reward. shooting more seismic before drilling a well)
3. The reconciliation of different views of hydrocar- Cost reduction as a result of spending more on
bon volumes or values, arising from different levels project design
of risk acceptance. This is illustrated schematically
Forward contracts at a guaranteed price for prod-
in Figure 22.2-5, which shows, for example, that
uctsales
the views of a banking organization, although dif-
ferent from that of a frontier explorer, are part of Carrying out a project in partnership, rather than
the same spectrum of possible results ofa venture. at full interest
This figure is schematic and, in reality, there will Some of these can be analyzed deterministically,
be considerably more variation, but it shows the but a stochastic analysis will yield a deeper level of
following: understanding and consequent better decisions.
The probability ranges within which development, 5. The estimation of undiscovered hydrocarbon vol-
appraisal and exploration take place umes on undeveloped lands. This is discussed
Typical levels ofactivity for various professional further in Section 22.5.
groups 6. Classification of reserves. Although there is
Risk acceptance levels for different funding considerable debate on the definitions of various
sources classes of hydrocarbon volumes, stochastic meth-
ods provide the only fully consistent approach.
Typical probability cutoffs for proved, probable, Without such an approach, there is only a limited
and possible reserves

272
UNCERTAINTY AND RISK INRESERVES EVALUATION

understanding of the probability of recovering a Institute), businesses whose purpose is the provision of
quoted volume. this information and, ofcourse, internally generated data.
Further examples ofthe uses ofuncertainty can be found Much of the data used in reserve valuation is obtained
in several of the references cited. in quantitative form (e.g., well log data, production),
22.3 ESTIMATION OF UNCERTAINTY and a wide variety of statistical techniques can be used
for the assessment of the data. Although objective quan-
22.3.1 Parameters to be Estimated titative approaches should be used as much as possible,
Most of the parameters used to estimate reserve values there will always be a major subjective component to
are derived using a combination of subjective" and ob- any assessment. For data not available directly, and
jective methods. All evaluations require ownership and especially for geological parameters, analogy is particu-
fiscal information, but the technical parameters depend larly important. The selection of appropriate analogs is
on the evaluation method being used. Volumetric evalu- a critical element of the skill of a professional involved
ations require reservoir parameters (pay thickness, in a reserve valuation.
porosity, water saturation), drainage area, and recovery
and formation volume factors. Produced volumes and 22.3.2 Empirical Classification
pressures are needed for material balance and decline Time limitations mean that, despite the availability of
curve methods. More complex evaluations will require more rigorous methods, most oil and gas volumes are
additional factors to be estimated, for example: classified as proved, probable and possible using a
High, medium and low case maps or alternative predominantly subjective empirical approach. Examples
interpretations, to estimate reservoir areas ofthis are the assignment of a one-section square drain-
age area for a gas well, or the classification as proved,
A histogram of core porosities to represent reservoir
of an undrilled spacing unit lying between two proved
porosities
units. The major problem with this approach is consis-
A price forecast, with a spread of values at any tency; what is reasonable to one person in one reservoir
particular time is not necessarily reasonable to another person, or even
Production decline curve parameters estimated by to the same person in another reservoir. An individual,
analogy with nearby wells or a group, may be consistent if clearly defined rules
Market volumes that depend on predictions of (i.e., in a "Reserves Manual") are prescribed and foll-
weather and levels of economic activity owed, but the results will almost invariably differ from
other individuals or groups. Despite the advantages of
The availability of pipeline capacity
the empirical approach, an inconsistent application of
The probability of war or embargo empirical rules is undoubtedly the source of many of
Tax levels the differences between reserve evaluations.
The sources of data used to estimate uncertainty are the When empirical methods are used, the probability
same as those for deterministic estimates although associated with their recovery is, at best, poorly known.
stochastic methods generally make better use ofthe data. As an example, it is common to visually fit a straight
The sources vary from proprietary to public. In Canada line to the pressure decline in a gas reservoir, and ex-
they include federal agencies (National Energy Board; trapolate it to an abandonment pressure in order to
Energy, Mines and Resources; Geological Survey of determine the reserves. The value obtained in this way
Canada), provincial agencies (Alberta Energy Resources is usually called proved but, if quantified, it is often
Conservation Board; Alberta Petroleum Marketing claimed to represent a 80 percent probability level (i.e.,
Commission; and their equivalents in other provinces), there is a 80 percent probability that a greater volume
business organizations (Canadian Association of will be recovered). However, by definition, a best-fit,
Petroleum Producers; Canadian Energy Research straight-line extrapolation will yield a value close to the
mean (usually near a 50 percent probability level). This
is a substantial inconsistency that is probably present
" A subjective approach is essentially an opinion basedon in many, if not most, gas reserve estimates. Similar
previous experience, whereas an objective approach relies inconsistencies occur for other empirical approaches
on the analysis of data (e.g., core data or previous well
used for both oil and gas reserves evaluation.
results).

273
DETERMINATION OFOILAND GAS RESERVES~"
~I -,
The criticism must be placed in perspective. A full-scale considered to be log-normally distributed, and the
stochastic exercise can be time-consuming and is often values estimated cover 20 percent on either side ofthe
neither practicable nor necessary. Sometimes, for in- median, then the high at 70 percent and the low at 30
stance, a reserve classification is not required, merely percent are plotted on log-normal paper). From the line
the assurance that a particular cutoff value or volume drawn through these points, the range at other levels of
will be exceeded. The empirical approach is common probability (e.g., at 90 percent to 10 percent) can be
because it is relatively easy to apply and, in many cases, read and a decision made as to whether it is reasonable'
will give an adequate answer. However, it should not ifnot, revisions can be made. Tests have shown that the
be used carelessly or uncritically, and more sophisti- range at a particular probability level is usually under-
cated methods should be used when warranted. estimated (i.e., there is usually a central bias). This
method is described by Capen (1976), whose paper
22.3.3 Quantifying Subjective Estimates should be consulted for details.
A subjective estimate is essentially the opinion of the
Qualitative expressions such as "good chance of," "low
person making the estimate. Although it depends ulti-
risk," "very unlikely," or "probable" may be adequate
mately on this person's expertise and objectivity, some
for everyday use, but the lack of a common standard
measures can be taken to improve the quality of a sub-
means that they are oflimited use for describing uncer-
jective estimate.
tainties in reserve estimation. Attempts have been made
The Delphi Method uses the consensus of a team of to interpret these terms quantitatively, and a useful sum-
"experts" to generate the required data. Estimates ofthe mary is given by Mosteller and Youtz (1990). It is
probability distributions of the parameters are made interesting to note that their study showed that different
independently and perhaps anonymously by the experts perceptions of the word "possible" are so varied that
and combined either by averaging or by consensus. the word is virtually useless.
The opinions ofthe experts can be weighted (that ofthe
A table presented by Kadane (1990) in a comment on
"expert in a related field" receiving the greatest weight the paper by Mosteller and Youtz is a useful codifica-
in some schemes), and a number of iterations can be tion of terms that can be used as.a guide to quantifying
made. The Delphi method reconciles different opinions, qualitative expressions. It is not ideal for oil and gas
including quantitative estimates, and the methods that volume estimation, and questions would have to be
the experts use can vary from entirely subjective to framed appropriately, for example, "Will the porosity
highly statistical. fall in the range of 10 to 12 percent?" This is an active
Familiarity with a problem will often allow the direct area of statistical research, and improvements may be
subjective estimation of a frequency distribution, and expected.
questions such as, "What are the maximum, minimum Verbal
Range of
possible, or most likely values?" or "Is it likely to be Probability (%) Description
log-normally or normally distributed?" are helpful. Sev-
eral types of distribution can be used, although the oto 5 Almost never
normal, log-normal and triangular distributions, histo- 5 to 15 Seldom
grams, and some discrete distributions will cover most 15 to 25 Infrequent
cases. These distributions are described in most statisti- 2'5 to 35 Sometimes
cal books and, more specifically in the context of 35 to 45 Less than an even chance
reserves evaluation, in Newendorp (1975a) and McCray 45 to 55 Even chance
(l975a). A graphical sketch of a frequency distribution 55 to 65 More often than not
can sometimes be made; interactive graphical computer 65 to 75 Often
displays are particularly useful for this purpose. 75 to 85 High probability
85 to 95 Very high probability
Subjective estimates can be "disciplined" to some
95 to 100 (Virtually) certain
extent. For instance, if the distribution is considered
to be normal or log-normal, then an estimate of the 22.3.4 Quantitative Estimation
probability confidence interval corresponding to a The quantitative determination of uncertainty us.es
particular range (or vice versa) can be made and plotted the concepts of statistics and probability. Details
on the appropriate probability paper (e.g., if data is on methods mentioned here and also on other methods

274

______________________..n 4~_~
UNCERTAINTY ANDRISK INRESERVES EVALUATION

(e.g., Bayesian statistics," time series, sampling, activity. Alternative scenarios can be used to assess the
regression) may be found in statistical texts and in effects of different price forecasts, although a prolif-
Megill (1984 and 1985), Newendorp (l975a), and eration of scenarios can make the results meaningless.
McCray (1975a), who describe their use in the
evaluation of petroleum projects, and more generally 22.4 METHODS OF ANALYSIS
in Rock (1988) and Davis (1986). 22.4.1 Carrying Out a Stochastic
Methods of determining factors such as reservoir Evaluation
volume, petrophysical parameters, reservoir volume fac- Stochastic evaluation methods use values that are ex-
tors, and production forecasts are described in other pressed by probability distributions, not by single values.
chapters in Parts Two and Three. From the point ofview The approach taken for a particular evaluation depends
of estimating uncertainty, the traditional deterministic on the magnitude of the expenditure, the data, the time
approach to these factors must be expanded to generate and expertise available, and also the environment in
the required distributions, ranges, and high-medium- which decisions are made. There are no hard and fast
low values, primarily using the methods of classical rules that prescribe the use of a particular method but,
statistics. in general, the less familiar and the more complex, ex-
Alternative maps (e.g., high, medium and low case) can pensive or risky a venture is, the more sophisticated an
be drawn to derive some of the geological parameters evaluation will need to be.
needed. Geostatistical methods that incorporate spa- At least one scenario must be established for every
tial relations have recently become available. These project, and several scenarios may have to be constructed
methods generate a weighting function that is used to to examine sensitivities or to determine the most profit-
interpolate or extrapolate reservoir parameters and also able course of action. Scenarios should be constructed
to provide an estimate ofthe uncertainty. The resulting with care as the same activities carried out under differ-
data is relatively objective and is particularly useful for ent scenarios can yield different results. For example,
applications such as unitization or building models for when several wells are to be drilled, the order of
reservoir simulation. Details can be found in Clark drilling and timing can make a difference to the prob-
(1979), Hohn (1988), and Isaaks and Srivastava (1989). able outcome, as could a decision to reduce the risk by
Estimates of uncertainties in costs rely on subjective shooting seismic.
estimates, analogy, engineering analysis, and bid Although scenarios can vary greatly, there are usually a
quotations. The type of estimate will depend on the number of common steps in an evaluation. The follow-
evaluation scenario that is adopted and, in some cases, ing steps (modified after Megill, 1984) assume that a
contingency costs and associated probabilities are re- decision has been made to assess uncertainties and carry
quired. The time that production starts or the phasing of out a stochastic evaluation:
expenditure in a major venture can affect the economic
I. Collect data. The old adage of "garbage in, garbage
viability of a project. Improved estimates may require
out" is relevant, and time spent on ensuring that
the use of techniques such as Critical Path Method
necessary data has been collected and is of good
(CPM) and Program Evaluation and Review Technique
quality is usually well spent.
(PERT). CPM is a deterministic method for which high,
medium- and low-case estimates can be generated, while 2. Isolate the key variables. Which parameters
PERT is a probabilistic technique that generates a contribute most to uncertainty? Trial runs may have
frequency distribution (McCray, 1975a). to be carried out. It is always better to spend more
time on the assessment of a critical parameter than
Product pricing is usually the most important factor in
on a less important parameter.
the valuation of an oil and gas project. The forecast-
ing of oil and gas prices is notoriously difficult, and 3. Decide on the scenario and on the types and
methods range from purely subjective "guesses" to parameters of the distributions (high-medium-low,
sophisticated, analytical probabilistic models that may triangular, log-normal) and the method to be used
include the effects of weather and levels of economic (e.g., decision tree, Monte Carlo). Several scenarios
may be evaluated and sensitivities investigated in
order to optimize a project or reduce risk.
Bayesian statistics considers the idea of conditional 4. Carry out the evaluation.
probability in whichthe probability of an eventdepends
5. Ask "Does the result make sense?" Ifnot try again.
on preceding events, as in decision tree analysis.

275
DETERMINATION OF OILANDGASRESERVES

6. Express the answer in the fonn of a cumulative The following matrix contains the calculation for the
distribution (expectation curve) or probability factor So<l>h x area:
density function although a single-value answer
(e.g., an expectation or a cut-off value) may also be Area Low Medium High
required. (m'x 103 )
A sensitivity analysis, which shows the effect of Net Oil Value 0.5 1.5 2.5
variation in individual parameters, may also be (m) Probability 0.30 0.6 0.10
appropriate. Low 50 25 75 125
22.4.2 Decision Matrices OJ 0.09 0.18 0.03
Not everyone has the capabilities for sophisticated Medium 200 100 300 500
simulation procedures, nor does every project warrant 0.5 0.15 0030 0.05
such an approach. In many cases, a simple manual or High 300 150 450 750
spreadsheet method of calculating an expectation can 0.2 0.06 0.12 0.02
be used.
Checksum: Sum of probabilities = I
A decision matrix is a simple method of combining
probabilities that can be used when a computer pro- Nine values of So<l>h x area and associated probabilities
gram is not available. The simple example given here result from the calculation. New high-medium-low case
is the calculation of an oil-in-place expectation from values are generated by combining the three lowest (25,
three parameters: net oil column (Soq,h), area, and 75, 100), the three medium (125, 150, 300), and the
recovery factor). three highest (450, 500, 750). These may not be in the
High, medium and low case estimates and their same row or column of the matrix. If preferred, reser-
associated probabilities are as follows: voir parameters and probabilities may be laid out in
Net Oil Column (Soq,h) in metres separate matrices or programmed using simple matrix
Estimate Probability algebra.
Low 0.5 0.30 Low Case
Medium 1.5 0.60
High 2.5 0.10 (25 x 0.09) + (75 x 0.18) + (100 x 0.15)

Area in square metres x 103 0.09 + 0.18 + 0.15


Estimate Probability =73.214x 10'm'
Low 50 0.30 with a probability of 0.09 + 0.18 + 0.15 = 0.42
Medium 200 0.50
High 300 0.20 Medium Case
Recovery Factor (125 x 0.03) + (150 x 0.06) + (300 x 0.30)
Estimate Probability 0.03 + 0.06 + 0.30
Low 0.10 0.30
Medium 0.20 0.40 = 263.462 x 103 m'
High 0.25 0.30 with a probability of 0.03 + 0.06 + 0.30 = 0.39
Calculations are performed using a matrix layout with
High Case
one parameter and probabilities across the top and one
parameter down the side. Each cell of the matrix con- (450 x 0.12) + (500 x 0.05) + (750 x 0.02)
tains the value of the parameter at the top left and the
0.12 + 0.05 + 0.02
probability at the bottom right. The products ofthe par-
ameters and probabilities are placed in the appropriate = 494.737 x 10' m'
cell of the matrix. This method may be used for more
than three-point (high-medium-low) estimates, but with a probability of 0.12 + 0.05 + 0.02 = 0.19
becomes more laborious. These values are entered into a matrix with recovery
factor (RF) as the other parameter:

276

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _1
UNCERTAINTY AND RISK IN RESERVES EVALUATION

Recovery Low Medium High 22.4.4 Probabilistic Simulation


Factor Probabilistic simulation (often referred to as Monte
NetOilx Value 73.214 263.462 494.737 Carlo computer simulation)' is the combination of
Area frequency distributions ofvariables in order to produce
(10' m') Probability 0.420 0.390 0.190 the frequency distribution of a final outcome. Decision
Low 0.10 7.321 26.346 49.474 matrices and most trees are relatively crude approaches
to combining distributions, and this can be done much
0.3 0.126 0.117 0.057 more thoroughly using simulations. Analytical app-
roaches have also been developed that, under the right
Medium 0.20 14.643 52.692 98.947
conditions. produce a similar result to simulation.
0.4 0.168 0.156 0.076 They depend on the transformation ofthe frequency dis-
tributions of the various parameters to normal (or
High 0.25 18.304 65.865 123.684
log-normal), the mean and variance of which can be.
0.3 0.117 0.057 easily manipulated. Care must be taken to ensure that
0.126
the transformations are valid, as significant errors can
be introduced if they are not.
Checksum: Sum of probabilities = I
For simulation, frequency distributions are generated
If the result of this calculation is to be used for further
for the significant parameters, a value is randomly sel-
calculations (e.g., for economic high-medium-low
ected from each one, and a calculation is carried out
calculations), new high-medium-low values would be
using these randomly selected values. The process is
generated:
repeated many times (typically 300 - 1000), and the re-
Low 13.545 x 10' m' Probability 0.42 sult is presented as a frequency distribution or an
Medium 42.795 x 10' m' Probability 0.33 expectation curve. The most common method of select-
High 89.105 x IO' m' Probability 0.25 ing a random value is Monte Carlo sampling; the Latin
However, if this is the end point of the exercise, an Hypercube method/ has computational advantages, but
expectation can be calculated: is less commonly used. Programs of various levels
(13.545 x 0.42) + (42.795 x 0.33) of sophistication have made simulation a much easier
+ (89.105 x 0.25) = 42.088 x 103 m 3 process.'
While this method does not have the sophistication of a
full stochastic simulation and requires some simplify- 1 "Monte Carlo" is a probabilistic simulation method.
ing assumptions, it will usually provide a reasonable Probabilitydistribution functions are prepared for the
answer. parameters in an evaluation and, using random numbers
generatedby a Monte Carlo (or similar) sampling
22.4.3 Decision Trees process, values are selected from the distributions. A
A decision tree is a graphical summary of the possible calculation is carried out using the selected values, and
outcomes and probabilities of the events that comprise the process is repeated many times (typically 300 - 1000).
a project. It is a powerful analytical tool that allows the The resulting values define a probability distribution
function from which parameters such as median, mean,
calculation of expectations and various risk-related
and mode may be determined.
parameters.
2 Latin Hypercubeis a method of sampling a probability
There are several types, varying from simple trees with distribution by a stratified random sampling process. It
the decision nodes absent, to trees with stochastic performs the same function as Monte Carlo sampling, but
decision nodes. The type chosen will depend on the par- with fewer samples required for the same result.
ticular problem being investigated; a simple tree that 3 Computerprograms are commercially available
can be solved manually will suffice for most problems. (Palisade Corporation's sophisticated stand-alone PRISM,
McCray (1975a) and Newendorp (1975a) provide a de- or spreadsheet add-on, @RISK) or can be found in the
tailed discussion ofthe construction and use ofdecision literature (McCray (1975b) p. 215, gives a program in
trees. FORTRAN: Garb (1988) presents a simple Monte Carlo
program in BASIC; Crovelli and Balay (1991) describe a
PASCAL program that is available from the USGS).

277
DETERMINATION OFOILAND GASRESERVES

The parameters being simulated must be mutually


addi~idonal informI' abtilon is available, other methods will
independent (e.g., pay thickness should not depend on provi e more re ra e results.
porosity), or results may be seriously wrong. Methods
Delphi or Subjective Consensus Assess
of handling dependent parameters include combining
M e th 0 d s, ThiIS approach iIS descnbed
" 10 Section 22.3.3.
ment
them (e.g., using tbe product <l>h rather than <I> and h sepa-
rately) or setting up dependencies as part of the Historical Performance or Behaviouristic Meth d
simulation. This facility is available in some of the These methods are based on the extrapolatio 0 Sf'
hiIston.ca
. I data, such as discovery and drilling ratesnand
0
programs.
field sl~es. The data are entered into mathematical mod-
Simulations can be carried out for different purposes,
els WhICh are then used to make extrapolations. D
(1990) gives an interesting account of their evolut~W
for both technical and financial reasons, and at differ-
ent levels of complexity. It is possible, for example, to ~
an d new wor k continues to appear.
simulate a gas field development project that, in addi-
tion to the technical aspects, includes tbe possibility of Geochemical Material Balance Methods. These
different market levels or the impact of an embargo on methods estimate the volume of hydrocarbons gener-
price. ated, the volume involved in migration and loss, and
the volumes trapped and lost. By their nature, geochemi-
A more detailed discussion of simulation for project
cal material balance methods are useable only on a
evaluation is given in Newendorp (1975b) and McCray
relatively large scale. Considerable information and an
(1975c).
appropriate model are required for this method to be
22.5 EVALUATION OF UNDEVELOPED successful, and it has had limited use (Sluijk and Parker
LANDS 1986). '
Uncertainty plays a major role in the estimation of Combined (Integrated) Methods. Combinations ofthe
undiscovered hydrocarbon volumes and their values. A above methods, often with sophisticated statistical and
variety of methods is available, many of which- mathematical models, are becoming more common. In
especially the statistical approaches-are still under general, they involve the following:
active development. Details and further references can Geological basin analysis
be found in Haun (1975); McCray (1975d); Newendorp Play or prospect analysis techniques
(1975a); Megill (1984, 1985), Masters (1984); Rice
Statistical, economic and supply projection models
(1986); Drew (1990); and Campbell (1970).
More comprehensive petroleum province analog
Estimates of undiscovered hydrocarbon volumes are
systems
required at scales ranging from poorly known basins to
single well offsets in known pools. The method adopted The Geological Survey of Canada (GSC) review
will depend on tbe scale and the information and time of petroleum potential (Podruski et a!., 1987) used two
available for making the estimate. Most estimates will approaches to the estimation ofremaining undiscovered
be for relatively small projects using a subjective volumes in western Canada.
estimate based on analogy. Larger projects will usually The discovery process model described by Lee and
warrant the use of a more sophisticated approach. Wang (1983, 1985, 1986) and also described in a less
The methods available can be summarized as follows mathematically daunting way by Drew (1990) is a
(after Miller, in Rice, 1986): statistical model that assumes that discoveries made to
date represent a biased sample of the underlying pool
Areal and Volumetric Yield Methods with Geologic
population. To understand the characteristics of the
Analogy. The area or volume of the petroliferous sedi-
population and make predictions, the discovery process
ments in an unknown area is multiplied by the volume
is modelled, using the pool size and sequence of dis-
of hydrocarbons per unit area or volume in a known
covery. Economic cutoffs can be built into the model to
analogous area. This method depends critically on the
determine the undiscovered volumes at various price
identification and the validity of an appropriate analog.
levels. Both Podruski and Drew claim this to be tbe most
It is always difficult to know how good an analog is,
reliable method.
and the result is uncertain, usually to an unknown de-
gree. Areal and volumetric methods are of the most The second approach used by the GSC was a subjective
use when there is little other information, but once probability model, using probabilistic (Monte Carlo)
simulation. This may incorporate an assumption that

278

s
UNCERTAINTY AND RISK IN RESERVES EVALUATION

the underlying pool population has a log-normal Davis, lC. 1986. Statistics and Data Analysis in
distribution. Geology (2nd ed.). Wiley, New York, NY.
A recent series of papers, in a thematic issue of the Drew, LJ. 1990. Oil and Gas Forecasting:
AAPG Bulletin in 1993, which includes papers by Reflections ofa Petroleum Geologist.
Masters (1993), Houghton et al. (1993), Drew and International Association for Mathematical
Schuenemeyer (1993), Root and Mast (1993), Root and Geology Studies in Geology, No.2, Oxford
Attanasi (1993), Attanasi et al. (1993), provides an University Press, Oxford, UK.
extensive summary ofthe current practices ofthe USGS Drew, LJ., and Schuenemeyer, lH. 1993. "The
on petroleum resource assessment. It is interesting to Evaluation and Use of Discovery Process Models
note that one of these papers (Houghton et aI., 1993) at the US Geological Survey." AAPG Bulletin,
recommends the use of a modified Pareto distribution, Vol. 77, No.3, p. 467.
as being better than the more traditional log-normal Garb, FA 1988. "Assessing Risk in Estimating
distribution for modelling pool sizes. Hydrocarbon Reserves and in Evaluating
The development ofmethods ofestimating undiscovered Hydrocarbon- Producing Properties." JPT, Jun.
reserve volumes and values is an active field, with new 1988,pp.765-778.
papers continuing to appear in the literature. Haun, J.D. (ed.) 1975. Methods ofEstimating the
Volume ofUndiscovered Oil and Gas Resources.
References
American Association of Petroleum Geologists,
Attanasi, E.D., Bird, KJ., and Mast, R.F. 1993. Studies in Geology No. I, p. 206.
"Economics and the National Oil and Gas
Hohn, M.E. 1988. Geostatistics and Petroleum
Assessment: The Case of Onshore Northern
Geology. MacMillan, New York, NY, p. 264.
Alaska." AAPG Bulletin, Vol. 77, No.3, p. 491.
Houghton, J.C., Dolton, G.L., Mast, R.F., Masters,
Campbell, A.D. 1984. "An Analysis of Bias and
C.D., and Root. D.H. 1993. US Geological
Reliability in Revisions of Previous Estimates
Survey Estimation Procedure for Accumulation
of Proved Oil and Gas Reserve Quantity
Size Distributions by Play." AAPG Bulletin, Vol.
Information: Replication and Extension."
77, No.3, p. 454.
Petroleum Accounting and Financial
Management, Summer 1984. Isaaks, E.H., and Srivastava, R.M. 1989. An
Introduction to Applied Geostatistics. Oxford
- - - . 1988. "An Analysis of Bias and Reliability in
University Press, Oxford, UK, p. 561.
Revisions of Previous Estimates of Proved Oil
and Gas Reserve Quantity Kadane, J.B. 1990. "Comment: Codifying Chance."
Information: An Update." Petroleum Accounting In: Mosteller, F., and Youtz, C., 1990.
and Financial Management, Spring 1988. Lee, PJ., and Wang, P.C.c. 1983. "Probabilistic
Campbell, J.M. (ed.) 1970. Oil and Gas Property Formulation of a Method for the Evaluation of
Evaluation and Reserve Estimates. SPE Reprint Petroleum Resources." Jour. ofthe Int. Soc.for
Series, No.3. Math. Geol., Vol. 15, pp. 163-181.
- - - . 1986. "Nontechnical Distortions in the ---.1985. "Prediction of Oil or Gas Pool Sizes
Analysis and Management of Petroleum Invest- when Discovery Record is Available." Jour. of
ments." JCPT, Dec. 1986. the Int. Soc.for Math. Geol., Vol. 17, pp. 95-113.
Capen, E.C. 1976. "The Difficulty of Assessing - - - . 1986. "Evaluations of Petroleum Resources
Uncertainty." SPE Journal, Aug. 1976, pp. 843- from Pool Size Distributions." In: Rice, D. D.,
850; also in Megill, 1985. 1986.
Clark, I. 1979. Practical Geostatistics. Applied Masters, C.D. 1993. "US Geological Survey
Science Publishers, London, UK, p. 129. Petroleum Resource Assessment Procedures."
AAPG Bulletin, Vol. 77, No.3, p. 452.
Crovelli, R.A., and Balay, R.H. 1991. "A Micro-
computer Program for Energy Assessment and - - - . (ed.) 1984. Petroleum Resource
Aggregation Using the Triangular Probability Assessment. International Union of Geological
Distribution." Computers & Geosciences, Vol. Sciences, Publication No. 17.
17., No.2, pp. 197-225.

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DETERMINATION OF OIL AND GASRESERVES

McCray, A.W. 1975a. Petroleum Evaluations and Podruski, J.A., Barclay, J.E., Hamblin, A.P., Lee, PJ.,
Economic Decisions. Prentice-Hall, Inc., Osadetz, K.G., Procter, R.M., and Taylor, G.C.
Englewood Cliffs, NJ, pp. 3-4. 1987. Conventional Oil Resources of Western
- - - . 1975b. Petroleum Evaluations and Economic Canada. Part I: Resource Endowment. Geologi_
Decisions. Prentice-Hall, Inc., Englewood Cliffs, cal Survey of Canada Paper 87-26, Minister of
NJ, p. 215. Supply and Services Canada.
- - - , . 1975c. Petroleum Evaluations and Economic Rice, D.O. (ed.). 1986. Oil and Gas Assessment:
Decisions. Prentice-Hall, Inc., Englewood Cliffs, Methods and Applications. American Association
NJ,Ch.8. of Petroleum Geologists, AAPG Studies in
- - - . 1975d. Petroleum Evaluations and Economic Geology #21.
Decisions. Prentice-Hall, Inc., Englewood Cliffs, Robinson, J.G. 1990. "Determination of Reserves and
NJ, Ch. 7. Values and Application of Risk." JCPT, Nov.
Megill, R.E. 1984. An Introduction to Risk Analysis 1990 Supplement.
(2nd ed.). PennWell Publishing Co., Tulsa, OK. Rock, N.M.S. 1988. Numerical Geology. Springer-
- - - . 1985. Evaluating and Managing Risk: A Verlag, New York, NY.
Collection ofReadings. SciData Publishing, Root, D.H., and Attanasi, E.D. 1993. "Small Fields in
Tulsa, OK. the National Oil and Gas Assessment." AAPG
Miller, B.M. "Resource Appraisal Methods: Choice Bulletin, Vol. 77, No.3, p. 485.
and Outcome." In Rice, 1986. Root, D.H., and Mast, R.F. 1993. "Future Growth of
Mosteller, F., and Youtz, C. 1990. "Quantifying Known Oil and Gas Fields." AAPG Bulletin, Vol.
Probabilistic Expressions." Statistical Science, 77, No.3, p. 479.
Vol. 5, No. I, pp. 1-34. Sluijk, D., and Parker, J.R. 1986. "Comparison of
Newendorp, P. 1975a. Decision Analysisfor Predrilling Predictions with Postdrilling Out-
Petroleum Exploration. Petroleum Publishing comes, Using Shell's Prospect Appraisal System."
Company, Tulsa, OK, Ch. 6. In Rice, D.O. (ed.), 1986.
- - - . 1975b. Decision Analysis for Petroleum Spetzeler, C., and Stael von Holstein, C. 1975.
Exploration. Petroleum Publishing Company, "Probability Encoding in Decision Analysis."
Tulsa, OK, Ch. 7 & 8. Management Science, Vol. 22, No.3, Nov. 1975,
pp.344-347.
Tversky, A., and Kahneman, D. 1985. "The Framing
of Decisions and the Psychology of Choice." In
Megill, R.E., 1985.

280
Chapter 23

THE REGULATORY ENVIRONMENT

23.1 INTRODUCTION Basic policy direction in all of the functions is


This chapter describes the regulatory environment for established by political elements of government. At
the petroleum industry in Canada. The regulatory ac- the provincial level these include the Legislature,
tivities, functions and objectives of both the provincial the Premier and Cabinet, and the Minister of Energy; at
and the federal levels of government are described, as the federal level, the Parliament, the Prime Minister
well as the necessary legislationand organizationalstruc- and Cabinet, and the Minister of Energy, Mines and
tures. The focus is on Alberta, which is Canada's largest Resources. The basic policies are embodied in the acts
producer of oil and gas. The regulatory environment in and regulations that are administered by specialized
the other producing provinces would, in general, be government agencies.
similar. In Alberta, the principal agencies are the Energy
Governments are involved in a number of different Resources Conservation Board (ERCB), the Alberta
functions that have a direct influence on the develop- Department of Energy, and the Alberta Petroleum
ment of oil and gas reserves: Marketing Commission. The principal federal agencies
Resource inventories are the Department of Energy, Mines and Resources,
the National Energy Board (NEB), and the Department
Mineral ownership of Indian and Northern Affairs. Under the accords with
Economic development policies Newfoundland and Nova Scotia, management and regu-
Conservation control lation are carried out by the Canada-Newfoundland
Development, operating, and environmental Offshore Petroleum Board and the Canada-Nova Scotia
regulation Offshore Petroleum Board, which have equal represen-
tation from the federal government and the particular
Domestic supply assurance
province.
Fiscal policies
Reserves estimates are an important factor in many
Business regulation regulatory functions and policies. The government
International policies sources of reserves estimates, how these are used, and
The provincial governments have jurisdiction over all their effect on reserves development are discussed in
aspects of the petroleum industry within provincial this chapter.
borders, except for lands under federaljurisdiction, such 23.2 RESOURCE ASSESSMENTS
as Indian reservations and national parks. The federal
government has jurisdiction over all frontier lands, Assessments of petroleum resources and reserves are
including the Yukon and Northwest Territories, needed by governments in order to carry out their func-
Hudson's Bay, and most of Canada's offshore areas. tions relating to exploration, development, and the use
of these resources.
The federal government signed accords with the gov-
ernments of Newfoundland and Nova Scotia, giving Both the provincial and federal governments conduct
these provinces joint control with the federal govern- their own assessments of ultimate potential, recover-
ment over offshore petroleum. The federal government able reserves, and supply (rate ofproduction). Alberta's
has jurisdiction over interprovincial and international assessment is done primarily by the ERCB, which car-
trade and commerce, which are of major importance to ries out continuing detailed evaluation of reserves and
the petroleum industry. periodic assessments of ultimate potential. The Alberta
Geological Survey also does some assessments.

281
DETERMINATION OF OIL ANDGAS RESERVES
-..,
The Geological Survey of Canada evaluates ultimate Government's royalty interest can be taken in-kind (the
potential for the federal government, and the NEB evalu- actual oil or gas, rather than monetary proceeds of its
ates reserves and supply. These two agencies also work sale), which results in direct involvement in marketing
with the Energy Sector of the Department of Energy, of the product. In Alberta, the marketing of Alberta's
Mines and Resources in the Petroleum Resources royalty oil is carried out by the Alberta Petroleum
Appraisal Panel. Marketing Commission (APMC), which has a mandate
Because reserves assessments are frequently quite to ensure that the greatest possible benefits are secured
subjective and interpretive, and evolve as a result of from the sale of Alberta's oil and gas. Royalty on gas
emerging technology and changing economic condi- is not taken in-kind, but the APMC closely monitors
tions, governments seek comparative estimates from all gas sales from Alberta under the Natural Gas
external sources. These sources include reserves assess- Marketing Act. The APMC also represents Alberta at
ments supporting gas removal and export licence national and international regulatory proceedings.
applications, assessments by other organizations, The Alberta government has an interest in acting to
and voluntary submissions by oil and gas companies. maintain or increase petroleum product prices because
Governments are also very interested in reserves esti- of the direct royalty income and also because of the
mates for other jurisdictions (i.e., other provinces and overall economic development benefits. In the early
other countries) with whom they compete for invest- 1970s,the Alberta government brought about an increase
ment capital and for markets. in the price of its gas, which at that time was signifi-
cantly underpriced on a heating value basis relative to
23.3 MINERAL OWNERSHIP oil. In the subsequent energy crisis, Alberta sought to
The majority of mineral rights in Canada are owned by have the price of its oil and gas follow the rapidly esca-
either the provincial or the federal Crown. The remain- lating world prices.
der are held privately by individuals or corporations Leasing of federal oil and gas rights is done under
whose ownership originated from land and mineral terms of the Canada Petroleum Resources Act. Rights
rights granted a century or more ago to certain parties, to explore are granted after competitive bidding based
notably the Canadian Pacific Railway Company and on the proposed exploration expenditure during the
the Hudson's Bay Company. The Province of Alberta initial term of the licence. The Department of Indian
owns about 80 per cent of the mineral rights within its and Northern Affairs has the responsibility of man-
borders. The federal government is responsible for min- aging these rights in frontier lands north of the 60th
eral rights in the territories (Yukon and Northwest parallel, and the Department of Energy, Mines and
Territories) and offshore (arctic, east coast, west coast, Resources has responsibility south of the 60th, except
Hudson's Bay, and St. Lawrence), as well as in federal for the east-coast offshore accord areas, which are
lands and Indian Reserves within the provinces. under the Canada-Newfoundland and Canada-Nova
Governments manage these mineral rights on behalf of Scotia Offshore Petroleum Boards. The Department of
the citizens. Indian and Northern Affairs assists in the management
The mineral rights are leased to private operators for of mineral rights in Indian Reserves.
development. Leasing is done by a competitive bidding The levels of royalties can affect whether a particular
process involving an initial acquisition cost (bonus), plus reserve is developed and becomes proven, or remains
annual rental fees and royalties (share) on production. in a less certain category of reserve. Royalty reduction
Decisions regarding initial acquisition costs usually take or royalty holidays are commonly used to promote de-
into account estimates of reserves under the tracts velopment of the petroleum industry or a particular
involved. sector of the industry. Similarly, the oil and gas price
In Alberta, the Department of Energy is responsible for levels, which can be influenced to some extent by gov-
mineral rights disposition, rentals and royalties under ernments, significantly affect the rate of development.
the Mines and Minerals Act. The department relies on When prices are restrained, the rate slows; when prices
competitive bidding in the initial disposition of rights escalate, the rate increases.
(Crown sales). Ifa well has not been drilled during the
initial term ofthe lease, under certain circumstances the 23.4 ECONOMIC DEVELOPMENT
lease may be extended if the lands are considered to be POLICIES
capable of economic production. Most governments have an interest in overall economic
development, and the governments usually concentrate

282
---I

THE REGULATORY ENVIRONMENT

on the development of industries having a large fashion. In 1985 the two levels ofgovernment agreed to
potential. Decisions regarding the promotion of petro- deregulate and allow market-responsive pricing.
leum industry development are based on estimates of
ultimate potential, including assessment of conditions 23.5 CONSERVATION CONTROLS
necessary for these to be economic viable reserves. 23.5.1 Field Development and Production
Petroleum development is very capital-intensive. The Conservation
methods used by governments to attract capital include Oil and gas reserves can be lost both in the reservoir
the following: and on the surface as a result of wasteful production
Minimizing of royalty and taxation practices. The governments of the producing provinces
Subsidization have the following kinds of legislation to minimize
wasteful practices:
Loan guarantees
Limits on excessive gas production from oil
Equity participation by government
reservoirs
Funding of infrastructure construction
Requirements to implement enhanced recovery
Funding of research schemes
Assistance with market development Production rate limits from wells or pools
Maintenance of petroleum product prices Requirements to gather and conserve solution gas
Maintenance ofpolitical, business, fiscal, and social produced with oil
stability In Alberta, conservation requirements are stipulated in
Provision of business and technical information the Oil and Gas Conservation Act and Regulations,
Publication of estimates of available resource which are administered by the ERCB. The application
potential of specific measures to individual wells and pools fre-
Industrial diversification and decentralization are two quently depends on the reserves estimates for those wells
other usual government objectives that are embodied in and pools.
many policies that affect oil industry development. Conservation controls serve to increase proved reserves
As an example of a government policy meant to in developed pools, but can slow the development of
stimulate the development ofthe Canadian oil industry, other projects that are competing for limited available
the National Oil Policy (196 I) reserved the Canadian capital. Regulation is necessary because the economic
market in Ontario and westward for Canadian oil at rate of return of a conservation project is sometimes
less than for the same project without controls.
a time when cheap offshore supplies were available.
An example of government financing support was the 23.5.2 Consumer Demand Conservation
construction of the TransCanada gas pipeline (1957) to
Particularly during the energy crisis of the 1970s, all
stimulate development of the then-fledgling gas indus-
levels of government were involved in programs to
try and provide an alternative energy source to Ontario.
reduce the demand ofpetroleum products. Many ofthese
Development of the Athabasca oil sands has been
were in the form of advertising campaigns and incen-
supported in a variety of ways including equity partici-
tive programs to reduce waste and increase efficiency
pation, loan guarantees, reduced royalties and taxation,
by the individual consumers. Development of alterna-
and the direct funding ofresearch and testing ofvarious
tive fuels was actively supported. In Alberta, the ERCB
recovery methods.
regulates manufacturing industries that use natural gas,
When world petroleum prices were rapidly escalating and requires gas useage to be efficient.
during the 1970s, Alberta and the producing provinces
sought to have their petroleum prices follow world 23.6 DEVELOPMENT, OPERATING,
levels, but the federal government, reflecting the AND ENVIRONMENTAL
interests ofthe consuming provinces, wanted to restrain REGULATIONS
the rate of price increases to domestic consumers. The provincial and federal governments impose a
Therefore, from 1975 to 1985, natural gas prices were variety of detailed regulations relating to the construc-
controlled by agreements negotiated between the tion and operation of oil and gas production facilities.
federal government and the governments of the pro- These regulations are aimed at achieving safe, orderly,
ducing provinces. Oil prices were controlled in a similar efficient, and equitable development and operation of

283
DETERMINATION OF OILAND GASRESERVES

facilities, and minimizing their social and environmental requiring NEB approval, the NEB coordinates the EARP
impacts. Some of these regulations are specific to the reviews carried out by all the federal departments that
petroleum industry while others apply to all industries. are involved.
In Alberta, the regulations specific to the petroleum Development regulations often result in increased
industry include the following acts and the regula- development costs for reserves. In particular, pollution
tions pertaining to them: the Energy Resources and environmental control requirements are becoming
Conservation Act, the Oil and Gas Conservation Act, an increasingly significant factor in the cost of
the Oil Sands Conservation Act, and the Pipelines Act. petroleum development and production.
The regulations are administered by the ERCB and ap-
ply to all oil and gas wells, pipelines, and production 23.7 DOMESTIC SUPPLY ASSURANCE
and processing facilities. The regulations cover such The provincial and federal governments both review
aspects as demonstration of need, sites and routes, siz- proposals for removal or export of certain energy prod-
ing and design, construction and operational practices, ucts from their jurisdictions, to ensure that domestic
monitoring and reporting, and ultimate decommission- long-term needs are provided for and that the export is
ing offacilities. Applications for each individual facility in the best interests of their jurisdictions.
and operation must show that all regulations and stan- In Alberta, the removal of natural gas is subject to the
dards will be met. The applications are also subject to Gas Resources Preservation Act, which is administered
scrutiny by the public, including affected landowners by the ERCB, and is subject to subsequent further ap-
and residents, special interest groups, and competing proval by the provincial government. Alberta's current
oil companies. Public hearings are held when issues dic- removal criteria requires that a IS-year supply be
tate or when the issues cannot be resolved by private reserved for the core market within the province (prin-
negotiation. When all requirements and concerns have cipally residential and commercial consumers) in the
been met, approvals, permits and licences are issued. form ofestablished reserves ("proven" plus a portion of
Further specific approvals are required from other "probable") before removals are permitted. The entire
provincial government departments. Department of amount ofgas approved for removal must be in the form
Environment authorizations are required for pollutant of established reserves and under the contractual con-
emissions and waste disposal, watercourse crossings, trol ofthe permit holder at the time the permit is issued.
and land surface disturbance and reclamation. Where This requirement causes reserves to be moved from the
public lands are involved, land use authorizations must "possible" category to "proven" and "probable." In the
be obtained from the Department ofForestry, Lands and absence of this criterion, the supply for the later stages
Wildlife. Development permits must be obtained from of some long-term supply contracts would likely rely
municipal authorities. Generic provincial regulations on "possible" reserves. Gas removal from Alberta is
regarding worker and public safety, building and con- subject to further approval by the Minister of Energy
struction standards and codes, and industrial water usage or the Provincial Cabinet, both of which consider
apply to all industries including the oil industry. such matters as gas pricing and market practices,
The ERCB, the Alberta Department of Environment, commitments, and destinations.
and other provincial agencies do regular inspections and At the federal level, the National Energy Board is
compliance monitoring during the operating lives ofoil responsible for deciding export applications. One of its
and gas facilities and operations. current criteria is that sufficient established reserves must
In federal lands, similar functions are exercised under be under contract to cover the volume licensed for ex-
the Oil and Gas Production and Conservation Act by port. In addition, gas purchasers in Canada are given an
the NEB and the Offshore Petroleum Boards. The NEB opportunity to formally complain about any proposed
is also responsible for regulation of pipelines that export if they have been unable to obtain gas on terms
cross provincial and international borders. The Federal and conditions similar to the proposed export.
Environmental Assessment and Review Process The ability to control cross-border movement of gas
(EARP) applies to projects that are on federal lands, allows some capability to control prices. Both Alberta
receive federal funding, require approvals from federal and Canada acted to ensure higher prices for exported
departments, or are undertaken directly by a federal oil and gas during the "energy crisis" ofthe 1970s when
department. For hydrocarbon development projects prices were escalating worldwide.

284

------- iiI
THE REGULATORY ENVIRONMENT

23.8 FISCAL POLICIES 23.9 BUSINESS REGULATIONS


Governments can vary taxation levels, apply special Price- or fee-setting regulation is necessary where
taxes, and grant tax incentives to achieve the objectives normal business competition is not present. This is the
of deficit or balanced budgets, and to stimulate case with many pipelines. For field gathering systems
economic growth (especially in localities, areas and and for gas processing plants in Alberta, a production
regions of lagging economies) and industries of owner may apply to the ERCB to have these facilities
specific importance. declared to be "common" and then to the Public
A number ofdifferent taxes are levied on the producing Utilities Board to have useage fees set. Tolls and tariffs
sector of the petroleum industry by municipal, provin- on interprovincial transmission lines are under the
cial and federal governments. Municipal governments jurisdiction of the National Energy Board. The prices
levy property taxes on petroleum facilities and real for natural gas distributed to end-users by local utility
estate. Both the provincial and federal government levy companies are subject to the approval by some type of
tax on all corporate income. In addition, the Alberta public utilities board in each of the provinces. These
government collects a freehold mineral tax on all free- boards protect the interests of the consumer and ensure
hold mineral leases (mineral rights not held by that rates are justified.
government), based on their production. The federal and Right-of-entry and land compensation legislation has
provincial governments both have the ability to apply been established by the provinces so that mineral own-
special taxes to the petroleum industry. ers cannot be prevented by surface owners from
The Alberta government grants a special royalty tax recovering the minerals. In Alberta, this function is
credit of up to 2.5 million dollars annually, which is a carried out by the Surface Rights Board.
significant benefit to small petroleum companies. The provinces each have some type of securities and
During the period 1972 to 1984, the Alberta govern- exchange commission that regulates corporate matters.
ment provided exploratory seismic and drilling Public corporations are required to publish annual
incentives through drilling credits and royalty holiday financial statements listing, among other things, the
programs. These were designed to promote exploration assets of the corporation. Oil and gas reserves are the
for new reserves and to maintain industry activity dur- primary assets of most petroleum companies. Con-
ing periods of economic downturn. During this same sistency in the method of estimating the volume and
period, Alberta significantly increased its royalties on value of these reserves is important.
oil and gas. The Federal Competition Act (FCA) protects and
The federal government offered tax incentives for promotes competitive processes, and is administered
frontier exploration in the 1960s and 1970s. The by Consumer and Corporate Affairs Canada. The act
National Energy Program brought in by the federal gov- has both criminal and non-criminal provisions. The
ernment in 1981 provided incentive payments for latter are prosecuted by the Attorney General ofCanada.
exploration and development expenditures (Petroleum Criminal offences include conspiracy, bid-rigging,
Incentive Program) giving particular advantage to com- price discrimination, predatory pricing, price maint-
panies of predominantly Canadian ownership. The enance, misleading advertising, and deceptive marketing
National Energy Program also significantly increased practices.
federal taxation of oil and gas production, particularly Certain other activities and practices are subject to
through the Petroleum and Gas Revenue Tax. review, but are not criminal matters. For example,
Fiscal policies affect the timing of reserves develop- companies proposing to merge must notify Consumer
ment. Governments within Canada and throughout and Corporate Affairs Canada if the companies exceed
the world are in competition to attract and retain a certain size of assets or gross revenues. If a proposed
investment capital. A high economic rent may cause merger is found to prevent or substantially lessen
exploration capital to move to other provinces or other competition, the merger may be conditioned or
countries where the economic rent is lower. Petroleum prohibited.
industry capital is quite mobile. Even small companies
23.10 INTERNATIONAL POLICIES
tend to look on a worldwide basis, and they can invest
away from their home operating area by taking a min- Petroleum is usually considered to be a strategic
ority working interest in a project sponsored by a larger commodity. Hence, countries try to protect themselves
company. from any serious supply disruptions that may result from

285
~
DETERMINATION OF OIL AND GAS RESERVES ......:,.:,.. : i

business, political, or natural events. Canada has a large This agreement will allow for relatively free movement
oil and gas potential and has followed the strategy of of oil and gas between these three countries and will
developing supply through the incentive ofallowing ex- allow the Canadian and US companies to participate in
ports to the USA. Exploration and development of supply and services ofthe Mexican petroleum industry
frontier areas could not proceed on the basis of the but not ownership of Mexican oil and gas resources. '
domestic Canadian market alone. The review of company take-overs and mergers by
Canada has exported oil and gas to the USA for Consumer and Corporate Affairs Canada described in
decades, and the US views Canada as a secure supplier. Section 23.9 applies even if foreign-owned companies
Currently, approximately one-third ofCanada's oil pro- are involved.
duction goes to the USA. Oil is being exported to the Canada is signatory to the Agreement on an
west and midwest regions of the USA at the same time International Energy Program, along with the USA and
offshore oil is imported into Quebec and the Maritimes, a number of European countries. This group has a plan
resulting in a near balance ofexports and imports. More for distribution of available oil in a supply crisis.
than 40 percent of Canada's gas production is exported
In issues of worldwide public concern, Canada seeks to
to various parts of the US including California, the
do its part. Energy conservation was such an issue dur-
midwest, and recently the northeast.
ing the energy crisis of the '70s. Environmental
The producing provinces are usually more anxious to concerns, including petroleum transport failures and
increase exports than are the consuming provinces. The atmospheric emissions, are issues at the current time.
federal government has the challenge of balancing the
In a similar vein, Canada feels obligated to provide
interests of both groups.
technical assistance to developing countries to develop
Canada's close political and economic ties to the US their petroleum industries. Canada and the producing
led to the Free Trade Agreement which came into effect provinces provide expert advisers and trainers in
in January 1989. For Canadian oil and gas producers, response to specific requests and under on-going inter-
this agreement provides access to US markets free of national aid programs. Government interfacing with
export or import taxes or duties. Except in national de- more developed countries is often in the form oftechni-
fence emergencies, export restrictions may be applied cal exchanges and discussions about business and
only under limited circumstances and in a proportion- regulatory systems. Some countries seek assistance from
ate manner. Incentives for exploration and development Canada specifically, not just because it has a high level
are still allowed. ofexpertise and technological development, but because
Recently, Canada, the USA, and Mexico negotiated the the country seeking aid wants to avoid a tie to the USA.
North American Free Trade Agreement (NAFTA) which Both the federal and provincial governments are active
is scheduled to come into effect on January I, 1994. in trade development initiatives in other countries.

286

s
Chapter 24

CRUDE OIL MARKETS

24.1 INTRODUCTION attempt to tax resources under provincial jurisdiction


This chapter provides an overview of Canadian crude was countered by very strong opposition from Alberta.
oil markets, with particular focus on Alberta and other Election of the conservative government in 1984 and
westem Canadian provinces. More detailed information the decline in oil prices paved the way for the Western
can be found in the references cited in this chapter. Accord between the federal government and the energy-
Despite the slump in activity since 1986, the Canadian producing provinces. The signing ofthe accord on June
oil industry is an important element of the domestic I, 1985 marked the dawn of crude oil deregulation and
economy in terms of direct employment, total revenue the demise of both the NEP and 12 years of adminis-
and trade surplus. Crude oil satisfies nearly 40 percent tered pricing. All NEP taxes were either phased out or
of the total domestic energy demand. According to the eliminated, and oil price controls were lifted. Canadian
Petroleum Communication Foundation (1992), the bulk producers were free to compete in the international
of crude oil was used for various modes of transporta- market place and reap the rewards of unrestricted sales
tion (65 percent), heating and electricity generation (25 opportunities through the direct negotiation ofcontracts
percent), and manufacture of oil-based products such with refiners and marketers. In the process, Alberta
as asphalt, lubricants and various petrochemicals (10 modified its prorationing program, virtually returning
percent). In the global context, Canada is a medium- control of production levels to producing companies.
size oil producer, supplying less than 3 percent ofworld In Canada, the term "conventional" crude oil usually
production. refers to light, medium and heavy crudes from the west-
The history of the Canadian oil industry dates back to ern Canadian sedimentary basin-the traditional source
1947, when the discovery ofthe Leduc field triggered a for most Canadian production. The distinction among
resurgence of exploration activity in Alberta. During these three classes ofcrudes is based mainly on gravity,
the 1950s, the industry operated in a free market en- with specific gravity cutoff rates differing regionally
vironment characterized by essentially no government in the absence of one widely recognized international
regulation. The period of the laissez-faire approach to- standard.
wards the oil industry came to an end in 1961, when the For instance, the minimum gravity for light crude ranges
National Oil Policy divided Canadian markets along the from 28API in Canada to 32API in the US and 36
Ottawa Valley line. Markets to the east of the line were API overseas. Medium oil is defined by the World
to use cheaper imported crudes, while markets to the Energy Conference as having gravity between 22 and
west were to be supplied with domestic crudes. 31API (Petroleum Communication Foundation, 1992).
The oil crisis in 1973-74 precipitated further market In Canada, generally no distinction is made between
regulation involving an oil price freeze, an export light and medium oil. Heavy oil is typically defined as
tax, reductions in exploration write-offs and depletion crude with the API gravity between 12 and 28API,
allowances, and the establishment of Petro-Canada as a although Alberta's Energy Resource Conservation
national oil company. Market intervention reached its Board (ERCB) uses a lower maximum of25API. Since
peak in 1980 when, on the heels ofthe second oil crisis, Canadian pipelines generally require oil to have a grav-
the federal government introduced the National Energy ity of at least 21API, some of the heaviest grades must
Program (NEP), which provided for oil price controls, be blended with condensate or natural gas liquids to be
several new federal taxes, Canadian ownership targets, shipped by pipeline.
and incentives for fuel switching. This first federal

287
DETERMINATION OF OIL ANDGAS RESERVES
~
"Nonconventional crude" comprises synthetic and
frontier oil. "Synthetic" oil is heavy oil and oil sands Interprovinclal
From Norman Wells
bitumen refined to make a product similar to high-qual-
ity light crude oil. "Frontier" oil includes resources off
the eastern coast or north of the 60th parallel in
the Arctic. Nonconventional crudes differ from conven-
tional in that they are more difficult to recover and
cannot be shipped to a refinery without processing or Rainbow
preparation.
Geographically, oil production is heavily concentrated
in the western Canadian sedimentary basin. In 1992,
Alberta, which is by far the largest oil producing prov-
ince, accounted for 8I percent ofthe 1.73 million barrels
per day produced in Canada. Saskatchewan accounted
for another 13 percent and the remainder came from
British Columbia, Northwest Territories, Manitoba and
Ontario and Nova Scotia. Conventional light oil domi-
nates the Canadian crude slate, representing halfoftotal
production. The other half comprises heavy oil (29 per-
cent), synthetic oil (13 percent) and pentanes (8 percent).
lnterprovlncletto
Calgary
Historically, Canadian crude oil production has Eastern Canada andU.S.

been relatively stable since 1980, hovering closely


around the 1992 level. Underlying this almost flat over-
all performance were divergent trends for conventional
and nonconventional crude oils, conventional declin- Continental
ToU.S. Rock MIn.States
ing at 5 percent per year (mainly light crude) and
nonconventional increasing by more than half since
1988.
Figure 24.2-1 Major Alberta Pipeline Systems
24.2 TRANSPORTATION NETWORK
Canadian crude reaches domestic and export markets Great Lakes region of the US Midwest. In addition,
through a vast network of pipelines. In Alberta, a IPL is linked to the Wascana system, which provides
capillary-like system of gathering lines throughout the access south to the Rocky Mountain markets of
province collects and transports field crude production Wyoming and Colorado. During 1992, average through-
to a smaller number of feeder pipelines. Trucking is a put on the IPL system was 1.45 million barrels per day,
marginal mode of transportation and is used locally in with deliveries split almost evenly between domestic
areas where batteries are not connected to the gathering and export markets.
~

lines. Most ofthe feeder pipelines conjoin at Edmonton TMPL extends over 1300 kilometres from Edmonton
(Figure 24.2-1) to serve the Alberta refining market and to delivery locations in the Vancouver area. The system
further link to two major interprovincial pipeline can transport up to 190 thousand barrels per day ofcrude
systems: Interprovincial Pipe Line (IPL) and Trans oil, partially processed oil, and petroleum products from
Mountain Pipeline (TMPL). These and most other Alberta. TMPL also receives small volumes of crude
Canadian pipelines are "common carriers", that is, pub- from northern B.C. via the West Coast Pipe Line con-
lic utilities for hire obligated by law to provide equitable nection at Kamloops. TMPL's marine terminal at
and nondiscriminatory pipeline access to all interested Westridge, B.C. is capable of loading barges serving
parties. the US West Coast and small tankers providing access
IPL operates the largest and most complex crude oil to Pacific Rim markets. TMPL also operates a lateral
pipeline system in North America, stretching over 3700 link from Sumas, B.C. to Anacortes, Washington, where
kilometres from Edmonton to Montreal (Figure four refineries are located. In 1992, the system deliv-
24.2-2). It transports up to 35 different types of liquid ered 161 thousand barrels per day to domestic locations
hydrocarbons to refineries in eastern Canada and the

288

s
CRUDE OILMARKETS

Beaufort
Sea


.
Taylor
(2860)'"
"

,
Edmonton I
\

.: (56300)
,
t-:
"
"
,
,',,' ~ ...
' .. ,
,.,.-
'b
Prince George':... r ..... Loydminster ; ,-JI
,,(3700) : <::::;:::::> Come-By-Chance
~1500)/ '\, Regina
(15100)

\},~. __ Calgary
(7200)
"
Vancouver- .. -(5180) .
(22700) -Moose

Jaw
(2110)
SaintJohn
Legend (27000)

Refinery Locations (m3/d)


Rainbow Pipeline
- - - Interprovincial Pipeline
Portland-Montreal Pipeline Wood River I
TransMountain Pipeline
Proposed Pipeline
Loop/Capline/Chicap from Gulf Coast
I
I
Source: National Energy Board. 19918.

Figure 24.2-2 Maior Crude Oil Pipelines and Refining Areas

and another 41 thousand barrels per day to export capacity and over 90 percent of Montreal's oil
destinations. requirements. Marginal volumes of US and overseas
A smaller pipeline, the Rangeland, transports oil south grades are also imported into Ontario via IPL's Lakehead
from Edmonton into the Montana market. The line has portion, which ties in at Chicago with two major US
a capacity of approximately 90 thousand barrels per pipeline routes: the Capline/Chicap system from
day and has recently operated at rates approaching that Louisiana Gulf Coast and the Arco system from Texas
capacity. Gulf Coast via Cushing, Oklahoma.
The Portland-Montreal pipeline is the main oil import Since the beginning of deregulation in 1985, pipeline
line that brings offshore crudes to the Montreal market. capacity constraints have had occasional impact on
In 1992, the line delivered 166 thousand barrels per Canadian crude oil pricing and production. Prior to
day of oil, equivalent to 67 percent of its maximum IPL's 1987 expansion, insufficient capacity of the sys-
tem necessitated diversions of Canadian crude to lower

289
DETERMINATION OFOIL AND GAS RESERVES

valued markets and even to the shut-in of wellhead Setting tolls and tariffs is a key component of
production. More recently, in March 1991, a leak on regulation and is intended to protect public interest
Lakehead's Line 9 restricted the throughput and caused against monopolistic or discriminatory practices ofpipe-
persistent prorationing of the nominated volumes. line companies. That protection is aimed at establishing
Apportionment continued through 1991 and early 1992, "just" and "reasonable" tolls, which "under substantially
as the capacity was restricted to 80 percent by an order similar circumstances are charged equally to all persons"
from the US Department of Transport and, addition- (National Energy Board Act, 1985). The main standard
ally, by line closures during hydrostatic tests. of reasonable tolls is the cost of service, meaning nec-
In the face of these unprecedented high levels of essary cost, reasonably or prudently incurred, inclUding
apportionment, producers and shippers attempted to the cost of capital. This involves consideration of the
protect their access to IPL capacity by over-estimating capital structure of a pipeline company and its operat-
crude supply. That practice led to even higher levels of ing costs and of the necessity to attract capital through a
apportionment. which, in tum, resulted in inequitable fair rate of return. The ancillary rules of cost-causality
pipeline and market access. By mid- 1991, the forecast- and user-pay imply that costs should be assigned di-
ing and nomination systems used to schedule feeder rectly to specific classes of service or customers or
pipelines and IPL broke down. Subsequently, an indus- geographic areas, and that the users bear financial re-
try working group was formed to address the problem. sponsibility for the costs caused by the delivery of their
The group developed modified procedures designed to particular commodity.
eliminate overnominations through stricter monitoring 24.3 MAJOR MARKETS
of battery production and penalties for inflated forecasts.
Crude oil must be refined to the various forms of
These procedures came into effect in March of 1992,
petroleum products before it can be utilized by the end-
reducing IPL apportionment only temporarily.
users. Thus, the refineries are essentially the only direct
Among other developments, IPL's extension from recipients of crude oil and, as such, determine the mar-
Sarnia to Montreal was re-opened in July of 1992, after ket for it. The refinery requirements are in tum driven
being mothballed for one year. The initiative came from by the level of inventories and sales of petroleum prod-
a group of Alberta producers and marketers who de- ucts to the consumers. The main product categories
cided to move 20 to 30 thousand barrels per day ofheavy include motor gasoline, middle distillates, heavy fuel
crude to Montreal. Around the same time, the Bow River oil, and petrochemical feedstock. Seasonal nature of
Pipeline completed construction of a 55-mile pipeline demand for these products dictates seasonal variations
across the US border, to ease access from the southern in refinery modes of operation and the optimal compo-
Alberta fields to the Billings market. This pipeline ex- sition offeedstock crudes.
pansion was triggered by the addition of a heavy crude
During the 1980s, Canadian refiners faced volatile
coker at Conoco's Billings refinery. The current cap-
feedstock costs, reduced oil demand, changing product
acity is around 24 thousand barrels per day, but can be
specifications and demand slate. The industry responded
expanded to about 42 thousand barrels per day.
through rationalization, which included plant closures
With the exception ofa few privately owned feeder lines and refinery upgradings. As a result, eleven refineries
that are not common carriers, Canadian pipelines are were closed and two reduced in size. Over the past few
regulated by a host of government agencies. Pipelines years, Canada's refining capacity has stabilized at around
crossing the US or provincial boundaries, such as IPL 1.9 million barrels per day, down from 2.3 million bar-
and TMPL, come under the jurisdiction ofthe NEB. As rels per day in 1980. In the process, the Canadian refining
an independent federal regulatory tribunal, the NEB is industry has become highly competitive and capital-
responsible for the issuance of export licences for oil, intensive, resulting in the gradual erosion of the profit
natural gas and electricity; the certification of margins. In 1992, the refinery utilization rate dropped
interprovincial and international pipelines and power to 80 percent, down from 85 percent in 1990, as slug-
lines; and the setting of pipeline tolls and tariffs gish demand forced refiners to trim their crude runs
(National Energy Board, 199Ib). Pipelines functioning (Energy, Mines and Resources Canada, 1993).
within provincial boundaries are generally under
Traditionally, Canadian refining centres west of
provincial jurisdiction. For example, the construction
Montreal have been supplied exclusively with western
and operation of the province's feeder pipelines are
Canadian crude oil, while those east of Montreal have
regulated by Alberta's ERCB and Public Utilities Board.

290

--------------------_.",.,
CRUDE OIL MARKETS

relied heavily on water-borne imports of mostly light Canadian crude is sold to the end-users directly by the
crude from offshore sources. The reliance of Atlantic producers, or throughthe Alberta Petroleum Marketing
refineries on imports has increased steadily, reaching Commission (APMC) and several commercial mar-
almost 100 percent in the past few years. Montreal re- keting entities. The APMC is a provincial crown
finers have obtained their feedstock crude from both corporationand the largest marketer of Canadian crude
domestic and overseas sourcesbut, most recently,have oil, supplying it to a wide base of refiners throughout
increasingly favoured cheaper overseas crudes from Canada and the northern tier of the United States. As
the North Sea,West Africa and Latin America. Overall, agent for the Alberta Crown, the APMC is responsible
Canada has been a net oil exporter, with the surplus of for gatheringand marketingcrude oil royalty taken in-
mainly heavy crudes declining gradually through the kind from provincial Crown leases. It also markets
late 1980s, before increasing to 190 thousand barrels Alberta's 16.74 percent equity share in Syncrude, and
per day in 1991 and 289 thousand barrels per day in offers contractmarketingservices to Alberta producers
1992 on the heels of sluggish domestic demand. (Alberta Petroleum Marketing Commission, 1992).
The bulk of Canadian refining capacity is located in The USRockyMountain regionis one of fivegeographi-
Ontario and the prairie provinces (Figure 24.2-2). cal districts, delineated in 1950 by the Petroleum
Consequently, these two regions are the largest domes- Administration for Defense (PAD) for the purpose of
tic markets for Canadianoil, with the receiptsreaching administration, and is often referred to as PADD IV. In
26 and 21 percent of total 1992production respective- recentyears, PADDIV has offeredthe highest netbacks
ly. British Columbia consumed another 9 percent of forAlbertacrude, butrelatively limiteddemand. Bycon-
Canadian crude in 1992 (mostly from Alberta), while trast, the US Midwest (PADD II) and Ontario markets
deliveriesto Quebec and the Atlantic provincesconsti- have been the mainrecipientsof Alberta crude, together
tuted a mere 0.3 percent (Energy,Mines and Resources accounting for over half of Albertaproduction. The US
Canada, 1993). The remaining 44 percent of Canadian EastCoast(PADD I) andparticularly the US West Coast
crude was destined for exports. The US Midwest was (PADD V) have been the marginal markets, both in
the primaryexportmarket for Canadiancrude,account- terms of relative volumes and netbacks.
ing for approximately three-quartersof all exports. The Closure of the Sarnia-Montreal extension in mid-1991
US Rocky Mountain and the US East Coast accepted and IPL's persistentcapacityconstraints sincethenhave
the bulk of the remaining export barrels. led to the development of oil surplus in the traditional
In 1992, Canadian crude oil exports were split almost markets for Canadiancrudes. This encouraged Alberta
evenlybetweenlight andheavy crudes.However, heavy producers to pursue opportunities in nontraditional
oilproducerswere substantially more dependent on for- markets in order to stabilize prices and avoid shut-in.
eign marketsthan light oil producers. Heavyoil exports Consequently, increased volumes of light crude were
amounted to three-quarters of total supply, while the moved to Wyoming, the US West Coast and the
comparable figure for lightoil was only 38percent. This PacificRim countries. For example, in its annual report
strong dependence on export markets for heavy oil is the Alberta Petroleum Marketing Commission (1992)
caused by limited demand from Canadian refineries, reported selling 900 thousand barrels of light royalty
which are designed to run predominantly light crudes. crude to the Chinese Petroleum Corporation in Taiwan
Although a large number of northern tier American during the fourth quarter of 1991.
refiners use Canadian heavycrudes,overhalfof the total 24.4 NORTH AMERICAN PRICING
exports is purchased by three large refiners: Koch at
Deregulation coincided with an eraof substantially lower
Minneapolis, and two Chicago refineries owned by
world oil prices in the aftermathofthe 1986price crash.
Mobil andAmoco (Table24.3-1). Sincelate 1980s, these
AverageOECD I import prices have fallen from an av-
and other refineries (including Newgrade at Regina)
erage of over US $26 per barrel in 1985 to US $14 per
have gone through debottlenecking, which has resulted
barrel in 1986, and fluctuated in a US $15-20 range in
in increased demand for Canadian heavy crudes. This
recentyears. TheOPEC' "basket"price-another global
growthhas been partially offset by the shutdown of the
indicator representing the average price for a basket of
Sarnia-Montreal line, and a switch by the Uno-Ven
(Union) refinery in Chicago to Venezuelan feedstock,
following a 50 percent acquisition of the refinery by 'Organization forEconomic Co-operation and
Petroleos de Venezuela SA (PDVSA). Development.
'Organization of Petroleum Exporting Countries.

291
DETERMINATION OFOIL ANDGAS RESERVES

seven OPEC crudes and one Mexican crude-moved Since the establishment of the New York Mercantile
in tandem with OECD import prices. Exchange (NYMEX), WTI has been the benchmark for
In North America, prices of West Texas Intermediate North American and overseas light crudes. WTI is the
(WTI) crude have followed the world trend, falling from deliverable grade of crude oil specified in the NYMEX
over US $30 in late 1985 to below US $12 in the sum- futures contra~t. WTI prices are quoted at Cushing,
mer of 1986, and fluctuating between US $15 and 23 Oklahoma, which IS the mam gathenng terminus for
through the summer of 1990 (Figure 24.4-1). In late pipelines shipping US domestic crudes north to
1990, WTI prices briefly soared over US $40 (on a daily Chicago and other Midwest refining centers.
basis), the highest level since 1982, on the heels of the With Chicago constituting the key export market for
Middle East tensions. Since March of 1991, WTI prices Canadian crude, WTI is also the benchmark for
have exhibited remarkable stability, hovering in a nar- Canadian light sweet oil. Since 1986, Canadian refiner
row range around US $20. WTI enjoyed price premiums postings have tracked WTI spot prices very closely. The
against major international crudes, particularly against FOB parity value for Alberta crude of equivalent qual-
heavier and more sour grades. These premiums have ity has been based on WTI price at Chicago, netted back
more than doubled since 1987, reflecting falling WTI to Edmonton. In 1992, this value fluctuated around the
output, US pipeline and refining bottlenecks, wider transportation cost differential of US $0.85 per barrel
sweet/sour differentials and higher tanker rates. below WTI (Figure 24.4-2), modified occasionally
by "market discounts" reflecting local pipeline and

Table 24.3-1 Importers of Canadian Heavy Crude

Company Location Rated Capacity (bed x 103) Canadian Heavy Crude


Crude Coking Cracking Asphalt Usage in 1991
(bed x 103)

Indiana Amoco Whiting 350.0 28.0 145.0 45.0 62.1


Laketon Laketon 8.3 - - 3.5 5.4

Illinois Clark Wood River 57.0 14.5 26.0 -. 0.0


Mobil Joliet 180.0 38.0 98.0 - 84.8
Uno-Yen Lemont 177.0 27.9 58.0 3.6 8.1
Michigan Marathan Detroit 70 - 27.0 18.0 4.0

Minnesota Koch Rosemount 218.5 58.0 55.0 35.0 157.6


Ashland St. Paul 67.1 - 23.0 14.0 3.4

Montana Cenex Laure 40.4 - 12.0 10.0 14.8


Conoco Billings 49.5 14.0 19.0 6.5 0.0
Exxon Billings 42.0 7.7 25.9 11.0 10.0
Montana
Refining Great Falls 7.0 - 2.4 1.2 2.3

Ohio BP Toledo 120.7 15.0 90.0 7.0 1.0


Ashland Canton 66.0 - 25.0 12.0 2.3

Washington US Oil Tacoma 32.8 - - 8.0 2.7

Wisconsin Murphy Supedor 32.0 - 11.0 13.5 5.6


Source: Scott, 1992.
Coker startup in 1992.

292

s
CRUDE OIL MARKETS

refining constraints. That price relationship is expected


US$Jbbl to hold in the near future, as the positive impact of the
40.00 ._----
phase-out of US import duties will be offset by rising
IPL pipeline tariffs.
30.00 ---------------. ---- .-------------------.-- - --_ -------- __ --
Unlike sweet crude prices, the Canadian postings for
sour and heavy grades have not consistently tracked their
US and international benchmarks. Canadian prices for
heavier grades have typically been lower and more
10.00 -------------------------. --_ . ------------ . -------- --_
volatile due to the limited Canadian market, seasonal-
ity of demand, aggressive competition from Mexican
0,00+---+---<----+---+-->---+--_-
JaB J87 JaB JaB a so J91 J92 J93 and Venezuelan heavy grades, and lower desirability of
Trading Month Averages heavy feedstock. In 1991, the situation was further ex-
Source:Reuters.

acerbated by increased Canadian production of heavy


Figure 24.4-1 NYMEX WTI Prices at Cushing crudes.
Lower prices for heavy crudes reflect their inferior
physical characteristics as compared to light crudes.

Tariff & loss $US 1.22


Carrying cost $US 0.06
Total $US 1.28

Tariff & loss $US 1.26


Carrying cost $US 0.07
Total $US 1.33

U.S. importfee $US 0.02


Custom user fee $US 0.02
U.S. import fees $US 0.04

CHICAGO
WTI + $US 0.52
Tariff & loss $US 0.48
Carrying cost $US 0.04
Total $US 0.52
Price used in pipeline loss
and carrying cost calculations
$US 21.74/bbl
Exchange rate 1.1917
Canadian interestrate 5.94%
U.S. interestrate 5.00%
(Prime rate =1%)

Source: Alberta Petroleum Marketing Commission, 1992.

Figure 24.4-2 Alberta Crude Oil Pricing, Chicago Market (July 1992)

293

.
Heavy crudes yield significantly higher volumes of
DETERMINATION OF OIL AND GASRESERVES

Lloydminster upgrader and the new coker at Conoco's


'-' "".".. c>

heavy components at the standard distillation cuts. Billings refinery.


Heavy components can be used either to produce low-
priced heavy oil products (i.e., residual fuel oil or 24.5 PRICE RISK MANAGEMENT
asphalt) or run through sophisticated catalytic. or With the deregulation and commoditization ofcrude oil
thermal conversion units to obtain lighter products (i.e., in Canada, the producers have been exposed to inter-
gasoline or jet fuel). Since lighter products fetch higher national price volatility, thus creating the need to
prices, but are also more expensive to produce from minimize price risks through the use of various instru_
heavy crudes, the refiners' choice ofthe feedstock crudes ments that spread the risk over a large number ofmarket
is determined by relative product values and operating participants. The reduction ofthe price risk over a speci-
costs. fic period of time is commonly referred to as hedging.
The refinery coking differentials between light and The main hedging instruments include energy futures,
heavy crudes, which represent the difference in "gross options, and swaps.
product worth" net of operating costs, constitute a floor 24.5.1 Futures
for light/heavy crude price differentials. When the ex-
Futures are developed from forward contracts, that is,
isting heavy oil conversion capacity is fully utilized and
individually negotiated contracts for the future delivery
the demand for heavy products is limited, processing of
of commodities. The uniqueness of each forward con-
incremental heavy oil requires installation of new con-
tract, limited transferability, and the lack ofa third-party
version units. The refiners will consider such an
guarantee of performance led to the creation of futures
investment ifthey can expect to recover associated costs
contracts. A "futures" contract is an agreement to buy
through low prices of heavy oil feedstock. This thresh-
or sell a standard quantity and quality ofa specific com-
old differential is more difficult to pinpoint as it is
modity at a fixed price, time and place, under the rules
contingent on the type of conversion unit and location.
of a recognized exchange, guaranteed by a third party
The National Energy Board (I991c) estimates that the
known as a clearing house (Arshi, 1992). The energy
additional cost of upgrading ranges from US $6 per
futures were established on the NYMEX in 1978. These
barrel for existing US refineries to US $10 per barrel
were followed by the gasoline futures in 1981, crude oil
for a stand-alone upgrader in Alberta.
futures in 1983 and propane futures in 1987. At present,
In summary, the price differentials for light and heavy NYMEX futures are the main short-term risk manage-
crudes are driven primarily by the supply of heavy ment vehicle for oil prices, with more than 30 million
crudes, the demand for heavy products, and the eco- contracts traded annually.
nomics of converting these crudes to lighter products.
Each NYMEX crude oil futures contract represents an
The demand for heavy products is related to economic
obligation to deliver one thousand barrels ofWTI crude
activity, weather patterns, environmental regulations,
at Cushing on a specified future date. A company wish-
competition from natural gas, and technological
ing to protect its cash flow can use the futures to pre-sell
progress. These differentials are also affected by changes
a specified portion of its annual production by taking a
in world crude slates, available conversion capacity
short position on NYMEX. The company can sell fu-
(planned vs. required), and transportation logistics.
tures contracts ifprices rise above target levels or when
The refinery posted prices are typically set for heavy prices are expected to decline. If, subsequent to sellin.g
oil blends rather than for pure heavy crudes, which of- these contracts, the prices fall, lower prices from physi-
ten require diluent to be shipped through the pipelines. cal sales are offset by profits from the futures "paper"
Differentials against the reference light crude for trade. Alternatively, if prices rise, futures losses are
Canadian heavy oil blends such as Bow River or offset by higher prices from physical sales.
Lloydminster have typically been around US $5-6
The NYMEX contract owes its popularity to relatively
per barrel. These differentials widened to US $9 per
high liquidity (the highest number of contracts traded)
barrel in early 1991, due to such factors as increased
and transparency (prices are broadly disseminated to the
supply of domestic heavy crudes, the closure of the
industry and quoted in the press). For these reasons, the
Sarnia-Montreal pipeline, warm winter weather, and
NYMEX contract is the most accepted by the buyers
natural gas substitution. By the summer of 1992, the
and sellers as the benchmark for North American and
differentials narrowed close to the typical levels, as a
international oil transactions. In particular, close corre-
result of incremental demand by the newly constructed
lation ofCanadian oil prices with NYMEX futures prices

294

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _A
CRUDE OIL MARKETS

makes the futures contract an excel1enthedging vehicle crude oil for terms of up to ten years. Although most
for Canadian producers. WTI futures contract prices are transactions are limited to less than two years. The vol-
available on a real time basis up to 36 months out and ume of swap market is difficult to estimate due to close
provide participants with the opportunity to lock in oil competition and the secrecy of swap business.
prices any time during the trading hours.
24.6 OUTLOOK AND CHALLENGES
24.5.2 Options Canada has a large resource base and enhanced access
Futures protect against unfavourable price movements to the world's largest energy-consuming market, but the
at the expense oflost opportunity to benefit from favour- industry is facing chal1enges from deteriorating geol-
able price movements. Crude oil options expand the ogy and rising production costs. There are strong
range of hedging strategies by offering limited quanti- indications that conventional oil production from the
fiable risk and the potential to gain from favourable price mature western Canadian basin may be in an irrevers-
movements as wel1. The first NYMEX option contract ible decline. Hence, future supplies will have to come
was launched in November 1986 for crude oil futures, increasingly from nonconventional sources or imports.
fol1owed in June 1987 by an option on heating oil As a result, it is expected that the quality of crude and
futures. These powerful financial instruments comple- the regional distribution of supply will shift dramati-
ment the energy futures and greatly enhance liquidity cal1y. Heavy oil will increase its share at the expense of
and trading opportunities at futures and options light oil, while conventional supplies from western
markets. Canada will be increasingly replaced by nonconven-
A "put option" buyer pays a premium for the right to tional supplies of synthetic and frontier oil. Based
sel1 at a specific price for a specific period oftime. There- on the latest projections by the National Energy Board
fore, a put option strategy can provide a guaranteed price (1991c), synthetic oil is expected to account for 18 per-
floor. A "call option" gives the holder the right to pur- cent of Canadian production by year 2000, while crude
chase a futures contract at a specified price during the oil from the East Coast offshore (mainly Hibernia) is
life of the option which, in effect, provides a guaran- expected to provide about 12 percent. Consequently,
teed price ceiling. The simplest hedging strategy is to the share of western Canadian conventional light oil in
purchase put options to be exercised if WTI futures total supply may fal1 from over three-quarters in 1991
prices fal1 below a predetermined strike price. This strat- to only one-third by year 2010.
egy establishes a guaranteed floor price without Growing supplies of heavy oil will require equivalent
sacrificing potential upward price gains. A more soph- growth in easily accessible markets, posing serious
isticated strategy cal1ed a "fence option" involves chal1enges for Alberta producers in the areas of trans-
establishing both a floor and a ceiling price. portation (reduced pipeline space, increased demand for
24.5.3 Swaps diluent), marketing and refining (limited upgrading fa-
cilities and environmental concerns). There is some
"Swaps" are over-the-counter financial transactions that opportunity to increase sales to the established major
allow producers and consumers to transfer price risk to export markets. New capacity could also be added in
a financial intermediary. Liquidity problems associated these markets, but this would require substantial up-front
with the purchase or sale offutures contracts in the more investment. Optimization of current available capacity,
distant months have led to the development ofthese so- fol1owed by conversion of current light refining capac-
cal1edoil price swaps. The intermediary can either hold ity to handle heavy crudes, seems to offer the lower cost
the unbalanced risk portion, match the position to an solution to expected heavy oil refining bottlenecks.
opposite counterpart, or use futures and options to Some additional "grass roots" upgraders may also be
balance the risk. The provider of swaps offers custom- required early in the next decade.
tailored price insurance in a variety of crudes and
The outlook for world oil prices is rather bleak. There
products, with guaranteed maximum or minimum prices,
is growing consensus that future world capacity addi-
according to the need, and protection from other
tions will be more than sufficient to satisfy the world's
market uncertainties.
sluggish demand for oil, which will be increasingly
Oil swaps took off in 1988 when oil prices were falling constrained by environmental regulations. As a conse-
and oil producers wanted a guaranteed revenue. The quence, real oil prices are general1y expected to show
swaps market is now wel1-developed with brokerage little, if any, growth over the next decade. Low oil prices
companies and banks providing forward pricing in

295

-
DETERMINATION OFOIL AND GASRESERVES

will have a detrimental impact on the size of established National Energy Board. 1991a. Canadian Energy.
reserves, as well as on future production and industry Supply and Demand 1990-2010. Minister of
cash flows. Supply and Services Canada, Calgary, AB, June
To survive in the continued soft price environment, 1991, Cat. No. NE 23-15/199IE, ISBN 0-662-
Canadian producers will be hard-pressed to minimize 18956-6, p. 232.
production costs by employing leading edge technol- - - - . 1991b. Annual Report. Minister of Supply
ogy and focusing on narrower areas of expertise. As and Services Canada (1992), Cat. No. NE 1-
well, vast amounts of capital will be required both up- 1991E, ISBN 0-662-19372-5.
stream and downstream to meet increasingly stringent - - - . 1991c. Canadian Energy. Supply and
environmental standards. Marketing efforts will likely Demand 1990-2010. Minister of
continue to be frustrated by growing refining and pipe-
Supply and Services Canada (1991), Cat. No. NE
line constraints, while governments will be faced with 23-15/1991E, ISBN 0-662-18956-6, p. 228.
shrinking attainable economic rents and growing
pressure to soften their crude oil royalty terms. National Energy Board Act. R.S. 1985. c.N-?, Cat.
No. YX76-N7/1992, ISBN 0-662-58945-9, Part
References IV, par. 62, p. 37.
Alberta Petroleum Marketing Commission. 1992. Petroleum Communication Foundation. 1992. "Crude
Annual Report (1991). Calgary, AB, p. 8. Oil." The Backgrounder Series, Calgary, AB.
Arshi, A.A. 1992. "Energy Swaps as Profit Motive Scott, G.R. 1992. "Canadian Heavy Oil and
Instruments in Oil Markets". OPEC Review, Bitumen-Some New and Old Ideas." Paper
Summer 1992, pp. 201-212. presented at AOSTRA-Heavy Oil Assoc.
Energy, Mines and Resources Canada. 1993. The conference, Calgary, AB, Jun. 1992.
Canadian Oil Market. Vol. IX, No.1. Minister
of Supply and Services Canada (1993), ISSN
0829-3732, p. II.

296
Chapter 25

NATURAL GAS MARKETS

25.1 INTRODUCTION distribution companies (LDCs), who in turn supplied


Since the deregulation of gas markets in 1986, a very the core and noncore markets. "Core markets" are
rapid evolution has occurred in the marketing, trans- defined for purposes of this discussion as "the group of
portation, and government regulation ofnatural gas. The consumers who have no ability to use alternative
environment of gas markets has developed from that of energy sources, primarily use gas for space heating, and
a virtual monopoly held by a very small number of have a high security requirement." In addition, the
aggregators into a large spectrum of sales opportunities aggregators performed all of the intermediate steps be-
for producers falling into three general categories: tween producer purchase and burner tip including
direct purchases, aggregator purchases, and hedging op- transporting the gas from gas plant to end user and ob-
portunities such as storage purchases and participation taining governmental regulatory approvals (such as
in futures markets. Alberta Energy Resources Conservation Board (ERCB)
Similarly the role of reserves estimates has changed removal permits, National Energy Board (NEB) export
considerably. No longer do the reserves provide the sole licences, and US import authorizations). Most impor-
underpinning ofa contractual arrangement between the tantly, the aggregator provided the contractual link that
joined producer and end user. This contractual link
buyer and the seller; reserves are now frequently only
one of the supply characteristics providing the buyer coupled with the regulatory permits provided security
with assurance that his requirements will be met. of supply for the end user and for the exporting and
importing geographical regions.
Production forecasting is the synthesis of all of the
The producer was given the assurance that the take
factors and variables that drive the producer activities
of exploring, developing, and selling natural gas. levels and prices under his purchase contract would be
maintained, often through some sort of "take-or-pay"
The market factors that affect production forecasting or "take-or-release" mechanism. The end user was pro-
will be defined and discussed in this chapter by review- vided with assurances as to security of supply through
ing the Canadian and US market environment during the reserves pool that the aggregator had under contract.
the following periods: (I) the pre-deregulation era, The exporting provincial and federal governments were
before November, 1986 in Canada and before the provided with assurances ofsupply security through the
mid-1980s in the United States, (2) the current era, and surplus test mechanisms.
(3) the (expected) future. Demand forces exerted by
This arrangement worked well enough considering the
various types of markets and buyers will be described
followed by a discussion of production forecasting. overall philosophy of the end users and regulators at
the time who regarded the gas reserves of western
25.2 THE MARKET ENVIRONMENT Canada and the United States as a finite resource, lim-
25.2.1 Review of Pre-Deregulation Era ited entirely by the technology then currently available.
The issue of supply security was paramount and was
Market demand forces had a very strong, but somewhat
met entirely by the known reserves inventory. Accord-
indirect, role during the years prior to deregulation. Gas
ingly, producers' contracts with aggregators were
was purchased from producers by a small number of
usually long term and had a daily contract quantity based
aggregators in the United States and Canada, and these
on a 15 to 20 year reserve life. The end user did not deal
aggregators were usually affiliates of pipeline com-
directly with the producer, but the aggregator's purchase
panies or utilities. The aggregators pooled the producers'
and sales contracts and regulatory mechanisms acted as
volumes and then resold them to utilities and local
a buffer that filtered market signals. This regulatory

297
DETERMINATION OF OIL AND GASRESERVES
~ i'i'.".... ','

mechanism has now been viewed as partially June, 1986. FERC Order 451, which adminis_
responsible for creating the large productive capacity tratively commenced deregulation ofinterstate gas
surpluses during the last two decades, otherwise known as defined in the NGPA.
as the infamous "gas bubble."
December, 1986. FERC Opinion 256, which
This era came to an end with the following changes to addressed the problem of different pipeline rate
regulatory approvals: calculations utilized by US and Canadian pipe-
Canada lines. Most Canadian pipelines use the "full fixed
variable" rate design whereby all fixed costs
I. NEB amendments to export licences in 1984, which namely, operating, maintenance, depreciation'
allowed US purchasers to negotiate prices subject debt costs, income taxes, and return on equity are
to the Toronto City Gate Price as a floor included in the demand charge, and variable costs
2. The federal - provincial agreement on "Natural Gas are included in the commodity charge. Most US
Markets and Prices" ofMarch, 1985, which dropped pipelines utilize the "modified fixed variable" rate .
price tests in favour of a price monitoring mecha- design whereby income taxes and the retum on
nism equity are included in the commodity charge
rather than in the demand charge. This FERC
United States
opinion attempted to solve this problem by dis-
1. The enactment of the Natural Gas Policy Act allowing the pass-through of Canadian pipeline
(NGPA) of 1978, which commenced a phased charges except for the ''prebuild'' portions of the
decontrol of wellhead gas prices Alaska Natural Gas Transmission System (i.e., the
2. Various amendments by the US Federal Energy Foothills Pipeline System).
Regulatory Commission (FERC) to the Natural Gas August, 1987. FERC Order 500, which
Act (NGA) in the form ofFERC orders. The inten- addressed the take-or-pay implications in pipe-
tion of these orders was as follows: line company-producer contracts that were
To ensure that producing states would regulate unresolved in FERC Order 436. Open access
the physical production of gas and control pipelines were ordered to offer volumetric take-
intrastate marketing matters or-pay credits to shippers on their pipelines. The
To protect overall public interest where gas pro- entire gas producing and transmission industry
duction transportation sales to end users involves had to absorb the large take-or-pay liabilities
two or more states which had been incurred from 1987 onwards as
market forces forced the process ofreforming gas
To establish a framework for contract demand
purchase contracts.
conversions by merchant pipelines and for the
creation ofgas inventory charges that would ulti- 1991. Proposed Mega-NOPR (Notice of
mately allow customers to purchase gas in a Proposed Rulemaking), which forces mandatory
reliable and competitive fashion from as many unbundling on all pipeline companies, thus
suppliers as they wished requiring them to offer transportation, storage,
and balancing services on an individual basis to
The more important FERC orders that furthered the
shippers.
process were as follows:
1992. FERC Order 636A, which implements
May, 1984. FERC Order 380, which outlawed
the unbundling process by specifying the steps
the collection ofminimum commodity bills, leav-
pipelines can go through to offer transportation,
ing LDCs free to reduce their minimum purchase
storage or merchant services to customers as well
obligations from the merchant interstate pipelines.
as offering rights on upstream pipelines.
October, 1985. FERC Order 436, which intro-
duced a voluntary open access program allowing 25.2.2 Review of Current Era
LDCs to convert their service from sales to trans- Deregulation in Canada commenced officially on
portation, but ignored any resulting take-or-pay November 1, 1986, and pent-up market forces were
implications. unleashed that caused structural changes to supply con-
tracts, markets, transportation, and government
regulatory requirements. The most obvious change

298
NATURALGAS MARKETS

occurred with prices: export prices from Canada were volumesare purchased through short-term contracts (less
no longer set by the federal govermnent, but rather re- than one year). Thus a significant number of sales ar-
flected competitive market forces. The customers and rangements are not based on traditional reserve-based
producers were now to be closely linked, without the contracts; instead, term, interruptible or deliverability
artificial buffers that blurred market forces. types of contracts may be used. This reserves-to-
Deregulation has progressed at different rates in the production philosophy, coupled with the clear reliance
areas of marketing, supply, and transportation and in a by end-userson short-term "spot market" price contracts,
different fashion in the US as compared to Canada. demonstrates the deregulated nature of the end-user
segment of the industry. However, a significant num-
United States Deregulation ber of merchant pipelines are not yet deregulated. The
Deregulation in the US is occurring at a somewhat pace of this deregulation will be a function of the
uneven pace. The end users themselves have adopted implementation speed of the Mega-NOPR and the
deregulation fairly quickly; for several years various progress of individual states-the most visible being
end-users have purchased volumes directly from California-towards full deregulation. This will not be
producers. However, transportation deregulation has a straightforward process; literally thousands of LDC-
been much slower than in Canada, and a number of US merchant contracts will be ultimately replaced with the
pipelines still retain their merchant function while a following:
number of others are not yet open-access carriers. This Direct LDC-producer sales contracts
appears largely due to the industry responses to FERC LDC or producer transportation service contracts
Orders 380 and 436, which gave LDCs and shippers
LDC or balancing service contracts
options as to purchases and transportation.
Combinations of all of these
Another significant factor is, of course, that Canada has
only one interprovincial carrier, TransCanada Pipelines, Canadian Deregulation
whereas a large number of pipelines exist in the US. The market environment in Canada is significantly
One of the more significant events taking place in the different than in the US. Intraprovincial transportation
US during 1991 was the California Public Utilities is virtually fully open access from a contractual sense.
Commission's (Cpuq move to dismantle the Pacific The same is true of interprovincial pipelines; however,
Gas and Electric (PG&E) monopoly in northern there is less physical access due to the fact that only one
California. This is an example of an individual state pipeline services markets east ofthe Alberta border, and
commission overturning freely negotiated contracts bet- a small number of pipeline systems carry volumes into
ween two parties: PG&E with its affiliated purchasing the US market areas. Domestic markets, with the ex-
arm Alberta and Southern, on the one hand, and the ception of some restrictions on core markets, are fully
Alberta producer group on the other. It appears that this open to all producers, but there is limited access due to
action is being taken by the CPUC in order to expedite the magnitude ofthe long-term purchase contracts cur-
the transition of Pacific Gas Transmission (PGT) to a rently in place between the LDCs and their suppliers.
competitive open access carrier.
A further restriction on open access is political: Alberta
The same process is occurring with other US pipelines; has not yet developed a policy of allowing producers to
however, the process was much more disruptive in the directly sell to eastern Canadian core markets on terms
case of PGT due to the unique northern California gas of less than 10 years. The intention is to maintain secu-
system, where a large dedicated Alberta supply is rity of supply and prevent further erosion ofthe historic
connected to a single pipeline owned by an end user core sales arrangements by only allowing long-term
with a complete sales and distribution monopoly. contracted supplies to sell to the eastern Canadian core
Historically the US domestic supply-demand balance market. However, the net effect has been market dis-
has reflected more of a market approach than in Canada placement via the acquisition of direct short-term
where a mandatory surplus test created an artificial purchase supplies from Saskatchewan (and to a certain
supply-demand ratio. The current US reserves-to- extent from B.C.) by eastern Canadian end users.
production ratio, RIP, is approximately 8 to 10; the The mix of markets now available covers a full
Canadian equivalent RIP is approximately 15 to 20. spectrum ranging from short-term with no reserves
Approximately 40 to 60 percent of US sales volumes dedication, to long-term underpinned by corporate warr-
and approximately 20 to 40 percent of Canadian sales anty (with or without reserves dedication). The trend

299
DETERMINATION OFOIL AND GAS RESERVES

towards shorter term sales and faster pool depletions 25.2.3 Preview of Future Era
has caused Canada's RIP to steadily decline during the The current era in Canada and the US appears to be a
last decade from approximately 25 to just below 20. This transition phase. The role ofthe traditional marketers is
phenomenon will likely continue during the 1990s, changing rapidly; market types are becoming less
approaching a stable value in the range of 8 to 10 by definable; and producers are reacting in different ways
the tum of the century. to this changing environment.
Many events currently underway will ultimately playa It is expected that the next era of gas markets will
role in determining the market demand forces discussed. commence when the following occur:
These events need to be viewed in the context of the
Canadian core markets can purchase supplies from
preceding discussions.
any source under freely negotiated terms, as opposed
I. US storage continues to mask the true daily supply- to terms set by regulatory bodies.
demand relationships. The actual US deliverability
US pipelines become mostly open access carriers
capability is still difficult to determine'.
which allow capacity brokering.
2. Canada and US statistics show sizeable replace-
Sufficient export pipelines are constructed out of
ments of production during the last 3 to 4 years, in
Alberta to reduce the excess deliverability inside the
spite of dropping prices and oversupply signals.
province.
3. The phenomenon of "overmarketing," i.e.,
Buyers and sellers in the US and Canada can effect
producers being very aggressive in marketing has
gas sales arrangements, and pipeline systems can pro-
led to:
vide transportation arrangements on a com-mercial
NOVA excess receipt capacity basis only without regulatory impediments.
Over-subscription of NOVA export capacity An equilibrium phase may then be in place, to the
4. Supply distortions such as the US subsidy of coal extent that any market can be accessed by any source of
seam gas development result in producer netbacks supply, subject only to "ordinary" economic supply-
currently higher than current spot prices for natural demand relationships.
gas. As a result of the experience of the last three decades,
5. Futures markets monthly closing prices are the remaining reserves in Canada and the US may be
correlating consistently with actual monthly spot viewed as an inventory that is continuously being
prices. a
replaced rather than as fixed entity.
6. The political and regulatory "out of sync" 25.3 MARKET MECHANISMS AND
phenomenon; the Alberta government is still
MARKET FORCES
proceeding slowly to establish a core market
definition with Ontario. This section discusses market forces in the context of
a North American reserves base dependent only upon
7. Producer price expectations vs. marketplace price
economics.
expectations. Very recently cogeneration projects
have been proposed with fixed-price, 20-year 25.3.1 Market Types and Market
contracts, i.e., no formulae, no "openers." Mechanisms
8. The FERC Mega-NOPR and subsequent implemen- Markets are generally of two types: core and noncore.
tation orders are an attempt to complete the full Various Canadian provinces and US states have yet to
deregulation of gas from wellhead to burner tip by establish formal definitions for core markets although
forcing pipelines to completely unbundle their sales they have been attempting to do so for several years.
and transportation services. The definition of core markets developed in Section
9. The "prorationing experiment" being tested by the 25.2.1 will be used throughout this discussion.
states ofTexas and Oklahoma is an attempt to force Market mechanisms are illustrated in Figure 25.3-1,
gas supply and demand into a closer balance. This which illustrates the basic steps that a producer must go
is an interesting attempt at re-introducing govern- through to place gas onstream to an ex-Alberta market.
ment regulation at the same time as the effort The following are the fundamental requirements:
towards complete deregulation is still continuing. 1. Establish reserve deliverability; in other words,
define the volume to be sold.

300

______________________1
NATURAL GASMARKETS

Short-
NOVA Alberta-ERCB Eastern
Producer Term Ex-Alberta Pipeline
Removal Canadian
(Alberta) Pipeline (Less than Permit Market
2 Years) I
Ex-cana~ Pipeline

(Federal) US DOE
US
NEB Short-Term f-- Short-Term Import f- Market
Export Licence Authorization
Long-Term
Ex-Alberta ,,
Pipeline ,, Consuming Eastern
,, Province Canadian
,, Import Review Market

Ex-Canada Pipeline

I.
2.
Basic Requirements
Transportation in Alberta
ERCB Removal Permit
L NEB
Long-Term
Export Licence
US DOE
Import
Authorization
FERC
Review
If facilities
US
Market
3. Transportation Ex-Alberta required
4. NEB Export Licence
5. DOE Import Authorization
6. FERC Review
7. US Transportation
8. Markets

Figure 25.3-1 Commercial and Regulatory Mechanisms for Ex-Alberta Markets

2. Identify a market and negotiate a purchase contract. long-term, which requires identification of the
3. Procure transportation in Alberta to move the gas market and specifics of the sales contract.
from the production point to the Alberta border. 8. Obtain FERC approval if interstate transportation
4. Obtain an ERCB removal permit, either short-term facilities are required.
(less than 2 years) or long-term, which requires a The foregoing very briefly outlines the mechanics
demonstration of reserves, market details, trans- involved in selling volumes to an ex-Alberta market.
portation arrangements, and an analysis ofthe social The degree of complexity of regulatory approval appli-
and economic impact on the province. cations, will obviously be a function of the size of the
5. Obtain transportation outside of Alberta, either to market and the amount, if any, of new transportation
eastern Canada or to the United States. facilities required in Canada or the US.
6. Obtainan NEB export licence, either short-term(less The marketing options are illustrated in Figure 25.3-2,
than 2 years) or long-term, which requires demon- which shows some of the options available to a pro-
strationofmarkets, transportation arrangements,and ducer. Most important from a reserves point of view is
reserves and an assessment ofthe impact (optional) the degree to which liabilities are passed through to the
on the effect on Canadian energy markets of this producer and whether the liability is satisfied by reserves
export plus an estimate of project revenues. dedication alone or whether a corporate guarantee must
be made as to supply make-up should a shortfall occur.
7. Obtain Department of Energy (DOE) import
authorization, either short-term (2 years or less) or The manner in which reserves and markets are linked
is shown in the simple examples of Figure 25.3-3. In

301
DETERMINATION OF OIL AND GAS RESERVES

Aggregator End-User
Residential
Pro ducer Takes title
Commercial
Pooled supply & markets
I Market swings levelled out
Industrial
Electrical utilities
Regulatory permits
Cogenerators
Transportation
May hold transportation

Broker / Agent Markets


Prod ucer Pass-through title
Obtains permits in Core or non core
I producer's name may hold
Mayor may not hold transportation
transportion

Figure 25.3-2 Gas Marketing Options

Figure 25.3-3a, the reserves of an individual producer Established more direct control over the value of his
(or producers) provide the underpinning or supply reserves.
security to the customer either directly or through Reduced the "aggregated pool" effect, i.e., the
an aggregator, broker or agent. This supply security individual producer's particular reserve entity will
mechanism can be one of two main types: a reserves not be rolled into a pool where it would share in the
underpinning or a financial warranty. The reserves com- take level and price characteristics of a basket of
fort is based upon the pooling procedure ofan aggregator markets which the aggregator has. Thus the specific
or, if long-term (greater than 2 years in Alberta's case) reserve entity will enjoy a unique price-and/or-take
export licences are required, then the appropriate level market.
regulatory bodies will be "inserted." The effect of a
Placed a portion of his assets, either from a reserves
regulatory "screen" in the sales arrangement is to
value or other financial asset point of view, at risk
provide a second security blanket for the customer.
for the market. Failure to deliver either on a daily or
Regardless of the particular mechanism in place, the
contract term basis will make a producer liable and
producer's reserves still provide the overall supply
directly impact the producer's financial situation.
assurances.
Thus the upside of direct marketing vis-a-vis take level
In Figure 25.3-3b, the customer is provided not with a
and price must be balanced off against the downside,
reserves base for security but rather with a financial
namely, corporate warranty costs and demand c~arge
guarantee on the part of the supplier to pay for replace-
payments to pipelines, all of which impact negatIvely
ment volumes in the event of a supply failure. In this
on the value of the producer's reserves.
case, the assumption is that sufficient gas supplies are
available and the question ofobtaining replacement vol- 25.3.2 Market Demand Forces
umes is simply a matter of paying for them. Therefore, The foregoing discussion has laid the groundwork for a
provided that there is overall comfort as to the reserves discussion of market demand forces and their specific
stock, and total daily delivery capability, there is no effect on reserves and reserves value. From a global
apparent need for a direct connection between the perspective, the North American reserves-market
producer's reserves and the customer. connection takes on a "chicken and egg" charactenstIc
By choosing a more direct contractual link to the end (as indicated also in the diagram that follows):
user, the producer has done several things:

302
_____________________c.
NATURAL GASMARKETS

(a) Reserves Underpinning

Individual Volumes Directly Dedicated Customer


Producer Reserves (Individual
or via Broker or Agent
or Pool)

Aggregator Customer
Producer Volumes Volumes
Pooled (Individual
Reserves
Reserves or Pool)

Volumes Aggregator Volumes Regulatory Customer


Producer Volumes
Pooled Body (Individual
Reserves
Reserves Licences, Permits or Pool)

(b) Deliverability Warranty or Corporate Warranty Underpinning

Deliverability Warranty
Producer Customer
(Payment For Replacement Deliveries)

Figure 25.3-3 Reserves Connection to Markets

The market actions establish the value of the reserves, has not been quantified here, but amounts to a sizeable
and affect exploration, development, and acquisitions. dollar figure.
The reserves characteristics provide the quality It is reasonable to assume that reserves in remote
assurances that will support a high quality (meaning geographical locations, such as Canada's arctic regions,
high price) contract. have likely been discounted severely during the last
The size of the reserves stock pushes on the market, 5 years. This loss in value translates directly into a
creating the forces that re-establish the value of the real loss of proven reserves. In other words, reserves
reserves. formerly classified as potential and probable and any
quantities of proven reserves burdened with a high de-
velopment cost have been removed from the reserves
~ Price and Price Trends : - I stock.
I Demand and Demand Trends I During this same period of time, however, significant
Producer Actions Market Actions cost reductions and technological improvements in ex-
- Technology ~ ploration and development have resulted in new reserves
- Cost rationalization additions and reserves appreciation to existing pools;
these have mitigated and perhaps even outweighed
Reserves Stock and the discounting effect of decreasing market prices. The
' - - - - - Delivery Capability
net effect has been a virtual replacement of gas prod-
uction each year in the United States (which is evidenced
Commencing with Canadian deregulation in 1986, and by the static RiP ratio during the 1980s), and replace-
continuing with the issuance of key FERC orders from ment of a significant fraction of Canadian production
1984 onwards, the market forces have triggered a series each year during the 1980s. Therefore, the quantum of
of continuous downward revisions to asset values the ultimate stock of North America's remaining proven
throughout North America. This overall loss of value

303

!. ..
plus probable plus possible reserves acts as an overall
"".,""'"" osOL ' " ' "
overall producing sector responses to changes i
",,::-;III'
dampener. demand and price. n
This apparently endless supply reduces the quality and Developing a production forecast on an individual_
hence the degree of force that an individual producer or producer-of-individual-field basis is somewhat more
group ofproducers can exert on the market, resulting in straightforward. A producer would have to consider the
stronger market forces and forcing the seesaw in the following variables in developing a production forecast:
market's favour. I. Gas purchase contract conditions
25.3.3 Production Forecasting Price expectations
Production forecasting is the act of reconciling the Take level expectations
expected market demand environment with the expected Daily volume nomination levels and modifica_
supply environment. The market demand scenario has tions to this level (i.e., restoration ofvolume levels
already been developed in this chapter on the assump- previously reduced by deliverability testing)
tion that the North American gas supply base is large
Some expectation ofthe purchaser's performance
enough to be considered unlimited. Thus production in view of all of the global market demand and
forecasting, from a global point ofview, appears to be a regulatory items
reasonably simple task. One need only assimilate and
2. Existing field conditions
accurately forecast the interactive effects of all of the
regulatory and political market demand phenomena Reserve and deliverability information
described in this chapter, and then match production Drilling, completion, and well tie-in costs
capability to this complex model! Operating costs
A simplistic total North American production forecast 3. Undeveloped field conditions
would be based upon the following:
Capital and operating cost expectations
An established forecast ofrequirements and expected
4. Producer corporate objections
market price
Financial health and corporate economic guide-
An estimate of established reserves and productive
lines
capability
Type of reserves available to produce, e.g., raw
An estimate of supply costs
land, which requires "full cycle" costs, including
An estimate of future finding rates-perhaps best land; geophysical drilling, including risk; and
derived by statistical analysis ofdrilling activity, dis- surface facilities costs or acquired reserves, which
covery rates per well, drilling costs-all modified by may have been purchased at a discount from the
gas market prices full cycle costs and thus may be connected at
It follows that a supply-demand curve can then be relatively less cost
drawn as the intersection of consumer gas demand with The field forecast can then be prepared by matching
supply capability. individual well or field physical capability and market
A more sophisticated forecasting model would incor- demand with corporate economic criteria. The producer
porate such variables as: can then use this forecast to make the appropriate drill-
Pipeline restrictions ing and other capital expenditure decisions.
Political decisions or government edicts that set 25.4 THE ROLE OF RESERVES
prices, production rates, or fuel substitution The foregoing discussion of market forces and produc-
Complex demand forecasts for each type of gas user tion forecasting has provided at least a "thumbnail"
Individual forecasts for major pools or producing sketch of the process. It is worth noting what has hap-
regions pened to the role ofreserves since deregulation. Reserves
Regardless of the degree of sophistication of the are one of the cornerstones, directly or implied, of a
production forecast mode, simplifying assumptions must sales contract between a buyer and a seller. Any user of
be made regarding price, consumer demand, and gas must have some degree of assurance as to supply
continuity. Reserves can take on different roles in the
marketplace, as follows:

304

c
NATURALGAS MARKETS

Negotiating Tool. A large reserves stock owned by a a producer's needs for economic turnover of his
producer or controlled by a broker or aggregator carries inventory ofreserves. Currently, most producers have a
a significant weight in sales contract negotiations. need to sell reserves at approximately a 7 to 12 year
Supply Indicator. A buyer would naturally be turnover rate, or a I :3000 to I :4500 RIP ratio.
interested in the seller's reserves supply, but the abso- Sellers, on the other hand, can have a need for 20 or
lute size of the reserve base may be ofless importance even 30 years of dedicated reserves. Thus, sales arrange-
than the seller's replacement ability. ments need to satisfy both these needs.
Security. An adequate reserves supply, or adequate
25.5 CONCLUSIONS
assurance of replacement ability, provides support for
financing the construction of facilities such as pipelines Market demand forces are obviously the very basis for
and end user equipment. the gas industry; markets are simply the demand for the
commodity the gas producers are trying to sell. The
Reserves-to-Production Ratio Yardstick. The
demand forces are not necessarily in balance, from a
reserves-to-production ratio, RIP, of a seller provides
classical textbook supply-demand law consideration,
an indication of efficiency, longevity, and marketing
with either the customers' or the producers' needs.
strength as well as perhaps relative financial health. The
RIP ratio for a region or country gives a picture ofover- Production forecasting is becoming an increasingly
all security of supply, as well as an indication of difficult task. A forecaster needs to consider all of the
emerging trends such as oversupply or undersupply following: regulatory and political uncertainties, mer-
problems. chant pipeline deregulation, government jurisdictional
disputes over market deregulation, market price uncer-
An understanding by buyers of the RIP for producers
tainties, and changing relationships between finding
and aggregators or brokers and countries as a whole is costs, technology, and producers' corporate objectives.
crucial to establishing sound contractual arrangements. The complexities of the physical characteristics of the
A buyer's needs for supply security need to fit
reservoir may be ultimately less difficult to forecast than
the market factors.

305
Chapter 26

USES OF RESERVES EVALUATIONS

26.1 INTRODUCTION The sizing of equipment, from the diameter of the well
The estimates of reserves and forecasts of production drilled to the size of the plant required to process the
from those reserves are widely used within the oil and production stream, and everything in between, depends
gas industry and by organizations working with upon the level of reserves and the resulting production.
the industry. The users fall into two well-defined It is important that the estimates be as realistic as poss-
groups: the first uses only the volumes resulting from ible, as over-enthusiastic estimates result in unneeded
the process (Section 26.2); the second uses the values capacity and expense, while low estimates result in
derived from the cash flows generated from the fore- bottlenecks that limit production and are costly to over-
casts ofproduction and other variables (Section 26.3). come. It is important to use reserves estimates based on
The development of various economic yardsticks is detailed engineeering studies.
explained in Section 26.4. 26.2.2 Transporters
26.2 USERS OF RESERVES VOLUMES Companies (either producing or pipeline) that transport
AND PRODUCTION FORECASTS oil and gas to their final markets need to know both the
A wide range of users requires only estimates of current level of reserves and the production their facili-
reserves and forecasts of production to operate their ties will handle, and also the ultimate reserves and
businesses and make their decisions. The users with production their facilities may be required to move.
this requirement would include the following: Pipeline companies need reserves and production data
Producers, who use the forecasts of production and not only for their own planning and development, but
life of facilities to size the equipment put in place also for supporting government applications to build new
to produce the reserves and to deliver them to their pipelines or expand existing ones.
market The building ofpipelines requires government approval
Pipeline companies, who require estimates of both to prevent their unnecessary proliferation and, as a con-
current and potential reserves, together with forecasts sequence, their tariffs are set by the government in
of current and potential maximum future production, dollars, recognizing their operating costs, the recovery
to decide whether new or extended pipelines could be of capital, and a return on any unrecovered capital costs.
justified and, if so, the sizes needed Projections of future tariffs require forecasts ofproduc-
tion to estimate the amount ofproductthat will be moved
Governments, who need information on reserves and
through the facilities; from this, charges per unit ofprod-
production to implement and modify legislation and
uct moved can be predicted. Pipelines that are under- or
policy on resource development and security of
over-sized may result from inadequate estimates of
energy supply
current and future reserves and production.
Gas marketers, who need to know how much gas
they have under contract and the physical limits on 26.2.3 Governments
the way in which their contracted gas can be produced Governments must have detailed knowledge of the
currently developed resource base and also the ultimate
26.2.1 Producers resource that is available for development in order to
Producers of oil and gas must have realistic estimates plan the best legislation and policies for resource
of recoverable reserves and forecasts ofproduction to developments.
plan the development of hydrocarbon discoveries.

306

s
USES OF RESERVES EVALUATIONS

A knowledge of both present and future reserves is In corporate investment decision-making, the most
necessary for the best resource development legislation common internal investment decisions involve the drill-
and policies, and also for the development oflong-range ing ofdevelopment wells and the building ofproduction
energy policy. Identifying sources of supply to meet facilities. While risk may exist with these investments,
future demands is dependent upon realistic forecasts of it is usually not addressed explicitly, but the minimum
current and potential reserves. value used to accept or reject an opportunity is set to be
sufficiently conservative to allow for the risk. In this
26.2.4 Gas Marketers
way, the targeted rate of return can be achieved on a
Brokers of natural gas must know with the greatest corporate basis.
precision possible the reserves they have under contract
and the changing rate at which the reserves can be pro- 26.3.1 Profitability Indices
duced, so that they can match these reserves with the The following are some ofthe profitability indices used
markets they are servicing. in Canada (but certainly not the only ones):
Marketers also need estimates ofreserves and forecasts Payout period
ofproduction for government approvals ofexports from Return on investment
the producing provinces and also of exports to other
countries. Rate of return
Discounted return on investment
The use of unrealistic estimates of reserves can lead to
either excessive reserves with no markets or a shortage Net present value
of supply, so that markets are lost. The use and limitations of each index are described in
the following subsections.
26.2.5 Other Users
Many other groups benefit from estimates of hydro- Payout Period
carbon volumes, including stockholders, the investment Payout period is the time required to recover the
community in general, and consumer groups. investment in a project. It can be calculated on a dis-
counted or undiscounted basis. In some cases discounted
26.3 DEVELOPING VALUES FROM
payouts are used in the evaluations.
RESERVES ESTIMATES
It is important to note that payout is measured from the
The cash flows that result from estimating reserves and
time ofthe first significant investment, not from the time
forecasting production, prices, royalties, costs, and taxes
at which production starts. Payout period is usually one
are discounted to provide a range of net present values.
of the indices used in the selection of investment op-
This provides a very powerful tool for investment deci-
portunities. A commonly used index is a payout period
sions, whether they are internal capital investment
that is a maximum of 3 years for a development project
decisions regarding land, drilling, or production facili-
(where there is some risk) orno more than 4 to 4Y2 years
ties; decisions to buy or sell producing properties;
for fully developed producing properties (where the risk
decisions to acquire or merge with other corporations;
is considered to be minimal). The choice of payout
or decisions to lend money using future production as
period, however, varies from investor to investor.
the security.
Ifthe payout period for a development project is greater
If realistic discounted forecasts offuture cash flows are
than 3 years, it should not necessarily cause the project
not included in the information on which investment
to be rejected, but should be a warning that the project
decisions are made, the investments are not likely to be
must be better than average to overcome the longer
intelligent or successful. The Canadian oil and gas in-
period required to recover the investment.
dustry runs on discounted dollars. This situation is not
unique to the Canadian oil and gas industry. It must A useful rule of thumb is that projects with payout
always be remembered that the estimation of reserves periods ofgreater than 3 years should not represent more
should never be considered as the end of the evaluation than 10 percent, or at a maximum 20 percent, of the
process. Unless the resulting economics are understood, total investment budget in anyone year. The company
reserves may be incorrectly estimated, and the risks and has to be able to stay in business until payout is
uncertainties may not be fully understood. The result complete.
may be reserves that are incorrectly classified as proved,
probable or possible.

307
~I
'~, I
,
DETERMINATION OF OIL AND GAS RESERVES

Only those investments required prior to payout are becomes the rate of return at which the cash flow must I

included in the calculation of payout period. It is be discounted to give a present worth value of zero.
usually calculated using the before-tax cash flow. This index takes the time value of money into account ,
Return on Investment but suffers from two serious deficiencies. First, the rates
of return can be very high (in the order of 30 to 70 per-
Return on investment (ROI) is also known as the cent) with the result that little weight is given to any
undiscounted profit-to-investment ratio. It is simply cash flow after 10 years. This causes projects with high
defined as the undiscounted net revenue (also called cash cash flows in the short term to appear to be more desir-
flow) divided by the initial investment. It has the seri- able and may cause long-life projects to appear to be
ous disadvantage of ignoring the time value of money, less desirable, with the result that the wrong investment
but is still used by some in selecting suitable invest- decisions may be made.
ments. It can draw attention to projects with short lives
Second, each project has a different ROR, so that
or unusual cash flow profiles if it yields a value that is
different weights (discounted values) are given to dol-
not in keeping with the other indices calculated.
lars earned at the same time in the future. Projects being
The ROI may be calculated for a project requiring compared also have different lives so it becomes a prob-
investment on either a gross basis (the investment is not lem to decide if a project with a ROR of 50 percent and
included in the cash flow) or a net basis (the investment a IS-year life is better or worse than a project with a
is included in the cash flow). The normal procedure is ROR of 40 percent and a 25-year life. Assumptions on
to calculate the net ROI, but the gross ROI will be ex- re-investment can be made for the project with the short-
actly 1.0 more than the net ROJ. A hurdle of $4.00 per er life to try to solve the problem; however, a better
$1.00 invested (ROI =4.0) is often used for the net ROI, measure of the relative desirability of investment op-
but this may vary between companies. A net ROI of portunities is to calculate the discounted return on
less than 3.0 should raise questions about the desirabil- investment (DROl), as described in the next subsection,
ity of an investment project. in which a constant discount rate is used.
The reason that the ROI is not recommended as a limit- The ROR is a good and commonly used hurdle for
ing index is that the cash flow profiles for oil industry culling projects that are to be rejected from those that
investments usually vary significantly over their lives; are acceptable. In Canada, the minimum RORnormally
consequently, the relationships between cash flow in required would be in the range of 15 to 20 percent, us-
each year vary widely. In industries where the annual ing the after-tax cash flow, the most common minimum
cash flow relationships from various projects remain being 18 percent after taxes. The rate ofreturn required
relatively constant, the time value of money may be is a function of the cost of capital and the overall risk
downplayed. This is not the case in the oil industry. involved in investing in oil and gas.
The ROI can be calculated using the gross cash flow
(without deducting the investment), or the net cash flow Discounted Return on Investment
(after deducting the investment), or the total investment The discounted return on investment (DROl) is defined
required, or only the initial investment, but there is no as the present worth value ofthe future income using an
one "correct" way. The important thing is to calculate externally- derived discount rate, divided by the
all ROIs in a particular company in the same way. investment, or:

Rate of Return present worth


DROI= .
In recent years, rate of return has been one of the more mvestment
widely used profitability indices and has been called by
This index is also known by many names including the
many different names, including internal rate of return,
internal yield, discounted rate ofreturn, discounted cash discounted profit-to-investment ratio (DPR), the present
flow rate ofreturn, profitability index, and marginal ef- worth ratio (PWR), and capital productivity index (CPI).
ficiency ofcapital. In this chapter, the term rate ofreturn The discount rate that should be used is whatever the
(ROR) will be used, and it is defined as the rate at which marketplace is using to determine the value of oil
the future cash flow must be discounted to give a present and gas assets. This rate is currently in the order of 12
worth value that is equal to the investment. If the in- to 15 percent, applied to the after-tax cash flow stream;
vestment is included in the cash flow, then the definition however, the rate will change as the following change:

308
USES OFRESERVES EVALUATIONS

the cost of capital, the perception of risk in forecasting The value in the numerator is the asset value and,
prices, and the supply of and demand for properties. therefore, all future investments must be included in the
The DROI is a very powerful index for the ranking of cash flow; however, there is some argument as to
investment opportunities. If the current marketplace- whether the investments used in the denominator should
derived discount rate is used, then the value of the be only those required to start the project or the total of
numerator in the DROI ratio represents the market value the investments (suitably discounted) required during
of the investment being considered. The denominator its life. The DROI is used as a ranking tool and is used
is the investment required to generate this value. to select projects for inclusion in the current budget and,
Consequently, the index is the number of dollars of for this reason, it can be argued that only the funds to be
asset value to be added per dollar of investment. budgeted to the star! of production should be used in
the denominator. Ifthis is correct, then the use ofall the
The DROI overcomes the problems inherent in the ROR
investments (discounted, of course) in the denominator
as a ranking tool since the same discount rate is used for
could cause the rejection ofdesirable projects. This could
all projects, and the discount rate is realistic.
be a serious problem with the use of the DROI.
If the investment is included in the cash flow stream
It should be remembered that the DROI is the value of
(from which the value in the numerator is derived), then
the asset added divided by the cost required to add that
a value of zero indicates a rate of return equal to that
asset. If the "DROI plus \.0" is used, then none of the
used to discount the cash flow. Any positive value indi-
investment in the denominator is included in the nu-
cates a rate ofreturn greater than the discount rate used.
merator, if only the investment to the start ofproduction
Conversely, a negative value indicates a rate of return
is used as the divisor.
that is less than the discount rate used and does not
necessarily indicate a loss. Net Present Value
Sometimes, the DROI is increased by \.0 ("DROI plus The present value equation compares income and costs
1.0") to calculate the index when the investment has at time zero. Net present value (NPV) is equal to the
been included in the cash flow stream. In this way, the present value calculated at a selected discount rate
investment is removed from the cash flow stream, which minus the investment.
in effect is adding an amount equal to the denominator
(the investment) to the numerator (the value). It is mea- Using Cash Flow Forecasts in Investment
suring the value of the asset after the investment has Decision-Making
been made as a function ofthe investment required. The When the value of an investment opportunity is being
"DROI plus 1.0" index is the multiplier to be applied to determined, sunk costs are never taken into account. If
the investment to give the value of the asset expected to they are, the wrong investment decision may be made.
be developed as a result of the investment. An example ofthis would be the decision to complete a
Ifthe "DROI plus \.0" index is used, then a result of \.0 well uphole when the lower target is found to be dry.
means that $\.00 of value is being added for each $\.00 The well may have cost $1,000,000 to drill, but the
spent. Ifthe value is greater than 1.0, then an asset with completion of an uphole zone for $100,000 would add
more value than the investment being made is expected. an asset worth $200,000. Ifthe sunk costs are included,
Because there is some risk with most investments in the a request to spend $1,I00,000 for a $200,000 asset would
oil business, a DROI that is considerably greater than be rejected. The correct request would be for $100,000
zero ("DROI plus \.0" considerably greater than \.0) to develop the $200,000 asset. At the end of the day, if
would usually be required before an investment would the $100,000 is approved, the net out-of-pocket cost
rank above other investment opportunities. Capital would be $900,000 ($1,000,000 plus $100,000 less
availabillity certainly sets the minimum DROI, but the $200,000), but if the additional $100,000 is not spent
usual range would be from \.0 to 3.0 (2.0 to 4.0 for then the cost would be $1,000,000.
"DROI plus \.0"). A low risk opportunity, such as the Sunk costs cannot be recovered so they are never
purchase of producing reserves, would usually have a included. Only future revenue and costs should be
DROI of \.0, if the investment is not included in the included in the basis for an investment decision.
numerator; that is, the value ofthe asset acquired is equal
An interesting down-side check on an investment
to the investment.
opportunity is to use trial and error to determine, using
constant prices and costs, the minimum product price

309
DETERMINAnON OF OIL AND GASRESERVES

that will yield an acceptable rate of return, usually 10 How should the incremental effect of the additi I
percent after taxes, because ofthe use ofconstant prices .
investment bd ined?.
e etermine ona
and costs. This test will give an indication of the sensi-
The procedure is simple. A forecast of cash flow'
tivity of a project to price variations. If a project cannot e
prepare d lor the project
. 1if no mvestment
. IS
is made (pri-
tolerate much reduction in price, it may be too risky to
mary case). A cash flow forecast is then prepared fo
pursue.
the project ifthe investment is made (waterflood case)f
Most cash flow forecasts used to justify an investment with the investment being included in the cash flow fore~
opportunity consider the incremental effect that the new cast. In the next step, the cash flow for the primary case
project will have on the total corporation. For this rea- is subtracted from the cash flow for the waterflood case.
son, only those incremental costs and revenues that result The resulting incremental cash flow provides the basis
from the project are included in the cash flow forecast. for making the investment decision. Because the invest-
General and administrative expenses (G&A) usually will ment is included in the incremental cash flow forecast,
not increase as a result of the addition of the incremen- the rate of' return is the discount rate which gives a
tal charges created by a new project (such as a well or present worth value of zero.
gas plant) and, therefore, no G&A costs are included. Incremental investment opportunities often yield high
However, if the incremental charge being considered rates of return.
will result in increased or even decreased G&A charges, The incremental annual cash flow determined by
then these charges should be included in the cash flow subtracting one cash flow from the other will usually be
forecasts. negative for some of the life ofthe incremental project.
There is an argument that some G&A should be This does not mean that the project is losing money and
included, ifnot in the first year, certainly after that time. should be discontinued, but that the upgraded project,
While the current wells (excluding the incremental in- after the investment, has lower cash flows in later years
crease being contemplated) will meet the current G&A, than would have been the case had the incremental
the new project will be charged with its share in the investment not been made.
future. Of course, those entities currently meeting the
G&A cost will disappear with time and only the new 26.3.3 Acceleration Projects
investments will be available to meet the G&A. This An acceleration project is one in which an investment
point should be considered, as ignoring future G&A is made, not to get any additional revenue, but merely
costs could present a more optimistic basis for a new to get the same, or even a reduced, cash flow sooner:
incremental investment than is really justified. then on a discounted cash flow basis, the investment
It is important to note that charges for depreciation, has the potential to earn a rate of return.
depletion and amortization (DD&A), which are included The big problem is that true acceleration projects
in financial statements, are noncash items and are, there- usually have at least two rates ofreturn. The investment
fore, not included in the cash flow forecast. DD&A is made only brings the cash flow ahead. It does not add
an accounting means of charging the revenue stream any extra cash flow and, in fact, the cash flow may be
with a share of the capital required to generate the rev- less through lower prices and higher costs. Coupled
enue stream. Any capital costs are included in the cash with the'Tnvestment, this will result in a negative
flow forecast in full at the time at which they are undiscounted cash flow for the incremental accelera-
incurred. tion investment. The investment required for the
acceleration project is evaluated in the same way as any
26.3.2 Incremental Economics incremental investment; the cash flow forecast for the
This section does not refer to the incremental nature of project without the investment is subtracted from the
most investment opportunities analyzed from a cor- cash flow for the project if the investment is made.
porate perspective, but deals with the method that should As the discount rate is increased, the present worth value
be used to evaluate an additional investment that may goes from negative to positive. Experience has shown
enhance the performance of an existing project. For that this usually occurs at discount rates of 5 to IS per-
instance, a waterflood will increase the recovery from cent. As the discount rate is further increased, the present
an existing pool as the result of additional investment worth value continues to increase (the opposite of the
in injection wells and water-injection facilities. normal effect of discounting) until the discount rate
generally gets to the range of 35 to 50 percent, at which

310
USES OF RESERVES EVALUATIONS

point the present worth value begins to decline. It result from the total project when the infill wells are
returns to zero at a discount rate usually in the order of drilled. This incremental cash flow is the way in which
100 to 300 percent. These general ranges do not apply the investment should be analyzed.
to all projects.
26.4 USES OF THE VALUES DERIVED
By definition, the rate of return is the discount rate
FROM RESERVES ESTIMATES
required to give a present worth value of zero, which
occurs usually between 5 and 15 percent and between 26.4.1 Valuing Oil and Gas Companies
100 and 300 percent; that is, there are two rates of re- The assets of an oil company consist of its inventory of
turn. Which is the "correct" rate ofreturn? Well, no one reserves of oil, gas and related products and its land
has answered that question yet. One appears to be too holdings. The balance sheet of an oil company records
low and the other too high. the value of the reserves and lands as the price paid to
The only practical way to check an acceleration project acquire or develop those assets. However, the price paid
appears to be to determine its sensitivity to price reduc- to develop reserves or purchase unexplored lands is
tions. If a small reduction in price results in no positive unlikely to be an indication of their current value.
values for the discounted cash flow, then the project To overcome this problem, the value carried under
may not be worthwhile. "Property, Plant and Equipment" on the asset side of
The problem is to make sure that an acceleration project the balance sheet should be replaced with the going con-
is recognized as such by the people making the analysis cern value of the remaining reserves and lands.
and the investment decision. If a present worth value at Goingconcern value (GCV) is the value assigned to an
a selected discount rate is used as the ranking index (such asset that is already owned and that will be kept for fu-
as a DROI at a 15 percent discount rate), an accelera- ture exploitation. It is not the value to be expected ifthe
tion project might not qualify, but if a higher discount asset is sold directly.
rate is used, the DROI would increase and the project The determination of the GCV of reserves would be
could become acceptable. For this reason, all projects based on a projection of future cash flow, using esti-
(whether acceleration or not) should have a profile of mates of reserves and forecasts of production, costs,
present worth values calculated for a range of discount prices and royalties for each separate interest. These cash
rates (usually from 0 to 50 percent), so that multiple flows would then be summed and an after-tax calcula-
rates of return and increasing present worth values with tion made, using not only future investments to protect
increasing discount rates can be recognized. income from taxes, but also any unused tax pools held
Most acceleration projects are masked by the inclusion by the company such as:
of additional cash flow with the accelerated cash flow; Canadian exploration expense (CEE)
in fact, most incremental projects include an element of
Canadian development expense (CDE)
acceleration. A waterflood project includes increased
rates of production (that is, acceleration) as well as Canadian oil and gas property expense (COGPE)
additional recovery of reserves, Tangibles subject to capital cost allowance (CCA)
The most common acceleration project in Canada is one Any prepayments to be repaid in the future, and all
in which infill wells are drilled. Such an opportunity abandonment and reclamation costs, would also be in-
could be a true acceleration project if it only results in cluded in the cash flow forecasts. The after-tax cash flow
getting the same reserves sooner with the increased well discounted at an acceptable rate, currently between 12
count. Normally, there is also an increase in the reserves and 15 percent, would give the value to replace the re-
to be recovered and this will mask the acceleration as- maining undepreciated investment carried under
pects of the project. The main thing to remember is that "Property, Plant and Equipment."
the new wells will affect the production performance All future taxes and costs are included in the cash flow
and reserves to be recovered from the existing wells. forecast, as well as any repayments of prepayments
For this reason, the economics of the new infill wells received, so the amounts carried as "Deferred Taxes,"
should never be looked at on a stand-alone basis. The "Site Restoration Costs" and "Deferred Revenues" on
project should be evaluated by looking at the perfor- the liability side ofthe balance sheet should be removed.
mance ofthe total project without any infill drilling and The value of any unexplored lands would then be
subtracting that cash flow from the cash flow that will determined and added to the value of the reserves. No

311
value would be assigned separately to the production
facilities, such as gas plants and treating facilities, as F= I
the value of these facilities is included in the value as- 0)
1-(WRxTR)x (I +i)'"'
signed to the reserves. The only time that a facility would WR+i
be valued separately would be when the interest in the
facility is not the same as the interest in the reserves where WR fractional write-off rate
being processed through it. TR = fractional tax rate
The sum of all the assets less all the liabilities would = fractional discount rate
then give the GCV of the corporation. The value per Thus MV GCVxF
share would be this value divided by the number of
(2)
shares outstanding. This would be the basis used to make where MV market value ($)
an offer to acquire an oil and gas company. GCV = going concern value ($)
F = multiplier
26.4.2 Sale of Resource Properties In Alberta, where the current total tax rate is 44.34
The Canadian definition of resource properties for percent, the multipliers would be:
income tax purposes includes oil and gas reserves (and
1.2711 for a 12 percent discount rate
the wells to produce them) and unexplored lands. The
direct purchase of resource properties (but not the pur- 1.2349 for a 15 percent discount rate
chase of the shares of a company that owns resource With the value of the COGPE adding 23 to 27 percent
properties) creates a tax advantage for the buyer in the to the value of the reserves (or lands), it is too big to be
form of the Canadian oil and gas property expense ignored. Similarly, if a COGPE is not created because
(COGPE). This is equal to the price paid and may be the corporation, not the resource property, is purchased,
written off at the rate of 10 percent ofthe declining bal- a value that includes the COGPE will be far too high.
ance each year against all taxable income from any These distinctions must be understood if the correct
source. values are to be assigned.
The creation of the COGPE by the act of buying the The seller of properties that create a COGPE for the
resource property means that a buyer is acquiring two buyer is required to take the total proceeds of the sale
income streams, one from the production and sale of (not just the gain in value) into income for the purpose
the oil or gas, and the other from the tax savings gener- of calculating the taxable income in the year in which
ated by the write-off of the COGPE. Because of the the sale occurs, and it is income that is not eligible for
competitive nature of the marketplace, the buyer must the resource allowance; however, up to 100 percent of
be prepared to pay the full value ofboth the reserves (or any unused Canadian development expense or COGPE
potential reserves in the case of unexplored lands) and balances may be used to offset the proceeds ofthe sale,
the COGPE, ifhe expects to acquire the property. This in addition to 100 percent of any unused CEE balances.
value would be described as the market value (MV) of Often a seller ofproperties will buy properties with app-
the asset. roximately the same value before or in the same year as
the sale. Ip this way, he has a COGPE balance that he
A term often used is fair market value (FMV) which is
can use to render the sale a tax-free event.
defined as the price that a willing buyer would pay to a
willing seller, ifneither is under any compulsion to buy A complicating factor in the determination of MV is
or sell and both are competent and have reasonable the fact that part of the price paid is classified as the
knowledge ofthe facts. Because all of these limitations price of the tangible assets (generally, the production
are seldom met, the term market value (MY), rather than facilities) acquired with the resource properties. These
fair market value, has been used. tangible assets can usually be written off at the rate of
12.5 percent of the value in the year of acquisition and
The value of the COGPE is a function of the value of
at 25 percent ofthe declining balance each yearthereaf-
the reserves (or lands) and the write-off rate, tax rate
ter. Some tangible assets are written off at other rates.
and discount rate. Equation (I) gives the multiplier, F,
The multiplier for this higher write-offrate would be in
to be applied to the value of the reserves (or lands) to
the order of 1.32 to 1.38 for discount rates ofl5 and 12
determine the value of both income streams (using mid-
percent. The fraction of the total price considered to be
period discounting):

312
USES OFRESERVES EVALUATIONS

for the purchase of tangible assets is negotiated by the hole, after taking into account the value of any
buyer and the seller, but the fraction must be reasonable tax advantages resulting from the expenditure.
to be acceptable to the taxman. The values of unproved properties are based on after-
Because of the different tax consequences of a direct tax values and costs. Consequently, the value ofany tax
purchase and a purchase of a company owning oil and advantages to be gained by exploring for and develop-
gas assets, it is not recommended that GCV and MV be ing reserves in the future is either included in the values
determined from before-tax cash flows. The MV for oil assigned to the lands presently held or will be included
reserves in Alberta is generally found to be equal to a in the prices paid for lands that are acquired in the fu-
before-tax cash flow discounted at 20 percent (this is ture. If the values assigned to the reserves ofa company
the same value that would normally be determined by are based on the assumption that future investments in
discounting the after-tax cash flow at 12 percent). In exploration and development will eliminate any tax pay-
Saskatchewan, a cash flow before taxes from an oil prop- ments on income from the production of the reserves,
erty would have to be discounted at 25 to 30 percent, then the value of these future tax advantages will have
depending on whether the Crown royalty is new or old, been taken twice.
to give a 12 percent after-tax rate of return. Similarly, When unexplored lands are purchased, the price paid
the cash flow before taxes for gas properties in both not only represents the risk-weighted value these lands
Alberta and Saskatchewan should be discounted at 18 are expected to contribute, but also includes the value
percent to give a value equal to the after-tax cash flow of the COGPE created by the acquisition. Consequent-
discounted at 12 percent. ly, iflands already held are being evaluated, their value
If GCVs are to be based on before-tax cash flows, the will be equal to the price currently set in the market-
discount rate would range from 22 to 34 percent, de- place less the value of the COGPE, which can be
pending on the province and royalty classification. It is determined using the formula set out in Section 26.4.2
dangerous to ignore taxes when determining the values on the sale of resource properties. If the price paid in
of Canadian resource properties. Alberta is $100 per acre, it would represent $78.70 for
the land and $21.30 for the COGPE if a 12 percent dis-
26.4.3 Evaluation of Unexplored Lands count rate were used. These values would change to
and Exploration Wells $81.00 and $19.00, respectively, with a 15 percent
The procedure for estimating the value of interests held discount rate.
in unexplored lands by oil and gas companies starts by Exploratory wells would be evaluated in the same
determining the value of discoveries of oil or gas re- manner. The value and probability of success would be
serves that could be made on each spread oflands. After determined and the cost offailure, after taxes, estimated.
this value is determined, the probability of success is Then, the EMV would be calculated as the difference
determined. Then, the cost of failure is estimated; the between the product ofthe value and probability ofsuc-
probability of failure is equal to one minus the prob- cess and the product ofthe cost and probability offailure
ability of success. The difference between the product (i.e., one minus the probability of success), The EMV
of the value and probability of success and the product is the risk-weighted contribution the exploration well
of the cost and probability of failure gives the risk- could be expected to make to the assets of the corpora-
weighted value, or expected monetary value (EMV) of tion, in excess ofthe investment required. If the exercise
the land on which oil or gas may be found. It must al- is repeated frequently .and the probabilities of success
ways be recognized that the prices at which lands that are assessed realistically, then the sum of all the EMVs
are close to those being evaluated have traded may dif- for a year should be the level ofvalue ofthe assets added
fer greatly from the value determined using this by exploration in the year, in excess of the investment
procedure because of variations in the geological required.
prospects under the lands.
A possible index for ranking exploration wells would
The value of success would be determined in the same be to divide the EMV by the after-tax dry hole cost.
way that reserves are valued. The size of the reserves This is similar to the DROI (Section 26.3.1) and is
that can be expected to be discovered would be esti- commonly referred to as the profit/risk capital ratio.
mated, the production forecast, and an after-tax cash
Another index that can be used for project ranking, the
flow forecast prepared and discounted as previously
profitability index (P/I), is calculated by dividing the
described. The cost of failure would be the cost of a dry
EMV by the maximum capital exposure (present worth

313

c
DETERMINATION OFOIL AND GAS RESERVES

value of total capital, after taxes), which indicates the estimate of the price to be received under distr d
expected net dollar value to be received for each conditi
itions. esse
after-tax dollar of capital expended.
Lenders may ignore income taxes in determin'
26.4.4 Lending and Borrowing Iendimg I"irmts unIess the company is fully taxablea mg
d
.
Iarge portion fi n a
0 Itstotal cash flow is being dedicated t
Financial institutions are permitted by law to take a
loanrepayments. Underthese circumstances, the tax ~
pledge of reserves and assignment of production pro-
ligations of the company will be forecast, recogniz~ng
ceeds as security for funds advanced to the production
owner. that all interest payments would reduce the taxable i _
come. It is realistic to assume that only the cash flo:
The following discussion effectively assumes that a term after taxes would be available to repay principal.
loan is made available for a particular reserve. (In the
The actualloan size is negotiatedbetweenthe borrower
case of a company with diverse production interests,
and the lender, using the foregoing calculations as a
annual principal payments may not be required.)
guide.
To assess the maximum loan that can be secured by
production, the lender may look at a series of values to 26.4.5 Auditing Evaluations
determinethe amount of the loan.A lendermay require For manyyears,the industryhas attempted to introduce
the production offered as security to come from more auditing techniques as the basis for an independent
than one well, each of which has a production history. evaluatorto offer an opinion ofthe reservesdetermined
Forecasts of reserves, production, and cash flow, usu- internally by a company. In the auditing of financial
ally supplementedby an independent engineer's report, statements, procedures are established and thenchecked
are used by the lender. to see if they are being followed by reviewing random
The loan life is normally limited to no more than the and material samples of the various financial transac-
periodrequiredto recoverhalf the reserves (the reserves tions. If the samples show that the procedures are being
half-life), with the loan amount as a percentage of the followed, then the financial statements, after adjust-
discounted value of production. ments, are considered to reflect the finances of the
Loans secured by production would normallybe based company.
on reserveshalf-life witha maximum term that is estab- The lack of the development of an equivalent system
lishedby the lendingpolicy of the financial institutions. for reserves reportssuggests that the auditing procedures
Reasons for including the reserves half-life are (I) to used for financial accounts may not be applicable to
ensure that when the loan is repaid, the property will reserves reports. Procedurescan certainlybe established
still have sufficient value that the borrower will look and checked,but because of the need for interpretation
after it while repaying the loan, and (2) to ensure that ofthe data in the estimationof reserves,the checking of
the loan will still be repaid if the reserves estimate is a sample could lead to an erroneous conclusion con-
not accurate. If there is little value left when the loan is cerningthe accuracyofthe reserves estimates. It would
repaid, the lender cannot expect the borrower to have be very easy for a comparisonof a sampleto lead to the
much interest in the property. conclusion that the reserves should be half or double
When the amount and the term of the loan have been those determined by the companybecauseeach evalua-
determined, the annual minimumprincipaland interest tor could interpret the available data differently.
payments are determined under different repayment Of course, it would also be possible to agree after
optionsandpossiblyunderdifferent priceforecasts. Due reviewing a sample, but disagree significantly after
to the risk of changes in legislationand tax, any Alberta reviewing the total reserve base.
royalty tax credit is calculatedseparately. Because of this problem of interpretation leading to
The price to be expected from a distressed sale of the different answers using the same data by different
engineers who are both knowledgeable and objective,
properties may be estimated by the lender in a number
it is common for external evaluators, when asked to
of ways. It may range from using 80 percent of the
offeran objectiveopinionofthe reservesof a company,
after-tax cash flow discounted at 15 percent, with the
to independently evaluate the reserves which represent
COGPEadded in, to taking 50 percentof the before-tax
70 to 80 percent of the total reserves (or value) of the
cash flow discounted at 15 percent. Whatever method
company. This would normally require 20 to 30
is used, the end result is a reasonably consistent
percent of the properties in which the company has

314
USES OFRESERVES EVALUATIONS

interests to be evaluated. The ratio of external to the opening and closing net proved reserves volumes,
internal reserves determined for the 70 to 80 percent of together with an analysis of the change broken into the
the reserves is then applied to the internal total to give following:
the order ofmagnitude ofreserves that the auditor would Revisions
expect to determine if he carried out a complete, inde-
Discoveries and extensions
pendent evaluation. The anticipated difference should
not be more than plus or minus 10 percent, with a de- Purchases
sired difference of less than plus or minus 5 percent. Sales
These are the differences that can be expected as the Production
result of interpretation by different evaluators. Differ-
Net proved developed reserves are also to be disclosed.
ences in the total of greater than 10 percent would
normally require review and explanation. Form 10K also requires disclosure of the discounted
future net cash flows, which are based on a forecast of
No two evaluators will agree on the reserves for all of
production from the proved reserves with constant prices
the properties of a company, but the differences will be
and constant costs and after deducting income taxes,
higher for some properties and lower for others so that
using any remaining tax pools and all future investments
the sum of all the estimates by each evaluator will usu-
required to produce the proved reserves. The discount
ally be within the 10 percent range suggested. Two
rate used is 10 percent.
evaluators will seldom estimate the same reserves for a
given property. The best opinion that can be expected A quarterly report is also submitted to the SEC on Form
from an audit is that any differences would be within an 10Q, but this report does not require reserves to be dis-
acceptable range. closed or the basis for the ceiling test, even though one
is required in the preparation ofthe financial statements
Attempts are still being made for external evaluators to
reported in Fonn I OQ.
use samples to develop an opinion ofthe "correctness"
of the reserves estimates by company staff. This does Recently, the SEC has agreed to accept the disclosure
not appear to have a statistically sound basis for draw- made to the Canadian equivalent ofthe SEC (generally,
ing such a conclusion due to the need for data the OSC), instead ofFonn 10K, for companies listed in
interpretation. both Canada and the US. The Canadian disclosure does
not include a discounted cash flow; however, reconcili-
It is a reality that no one can accurately predict the
ation to US accounting principles, including the ceiling
reserves that will be recovered from a well until it has
test, will be required at least to the end of 1993.
been abandoned. This lack ofprecision appears to limit
the use of audits based on small samples to arrive at In a prospectus issued by an oil and gas company listed
a soundly based opinion of the accuracy of reserves on a US exchange, net remaining proved reserves at a
estimates. date generally within 12 months ofthe date of the pros-
pectus must be included. Any material changes in
26.4.6 Securities Reporting reserves since their determination must be disclosed. A
The agencies regulating public companies in both the discounted cash flow, using constant prices and costs,
US and Canada require annual reporting ofreserves and after taxes, and at a discount rate of 10 percent, must be
may require additional information on the future cash included.
flows expected from those reserves. The US agency is The reserves reported in the prospectus must be
the Securities and Exchange Commission (SEC), and supported by a detailed report on the determination of
the most important agency in Canada is the Ontario those reserves. The SEC does not require an indepen-
Securities Commission (OSC), which regulates the dent reserve report; however, in practice, except for the
Toronto Stock Exchange on which a number of major companies, underwriters usually insist on an
Canadian companies are listed. independent report.

US Securities and Exchange Commission Ontario Securities Commission


The SEC requires companies listed on a US stock The OSC requires an annual report in which the gross
exchange to submit annual reports that include a recon- (before royalties) remaining proved reserves must be
ciliation of the changes in the net (after royalties) included. It includes the opening and closing balances
remaining proved reserves of the company. This and a reconciliation that breaks the change in reserves
information is reported on SEC Form 10K and includes

315
~I
DETERMINATION OF OIL AND GASRESERVES
:"""
.
':

into the same five categories used for the report to the the value of the reserves added or are even greater th
SEC. the total net income to be earned by producing the ::
A prospectus for an oil and gas company listed on the serves. To ensure that the balance sheet does t
OSC must include a statement ofgross remaining proved include highly overstated values for the company'sn~1
and probable reserves at a date generally within 12 and gas reserves, a "ceiling test" must be performed
months of the date of issue of the prospectus. Material quarterly for US registered companies and at least
changes in reserves, since their determination, must be annually for Canadian registered companies. This test
disclosed. The OSC also requires a discounted cash flow, determines the maximum value that can be carried
after taxes, using constant prices and costs and a dis- for the net cost of reserves under "Property, Plant and
count rate of 10 percent. A cash flow, after taxes, using Equipment" on the balance sheet and, ifthe actual value
escalated prices and costs and higher discount rates may carried is in excess of the ceiling test value, then the
also be included, at the choice of the issuer. actual value must be written down to the ceiling test
value. This is a one-way street, so that ifthe ceiling test
The reserves reported in the prospectus must be
value is greater, there is no change to the value carried.
supported by a detailed report on the determination of
those reserves. The report must be prepared by a regis- In Canada, a company using full-cost accounting is
tered professional engineer, or a registered professional subject to a ceiling test with a value based on a cash
geologist, who is independent of the issuer of the pro- flow forecast prepared from the forecasts ofproduction
spectus, but in-house reports may be acceptable from from the proved reserves, using constant prices and costs.
large, well-established companies at the discretion of The company's estimated future interest and adminis-
the OSC. trative costs and income taxes are deducted. Income
taxes take into account the remaining tax pools and any
26.4.7 Accounting Requirements future investments. The resulting undiscounted cash
Accountants use reserve estimations and subsequent flow is then compared with the value of the net cost of
evaluations in preparing financial reports and audits. The the reserves carried on the balance sheet (less deferred
main uses of evaluations by accountants are for the income taxes) and, ifthe cash flow is lower, then a write-
purposes of ceiling tests and depletion calculations. down to the lower amount must be made. This ceiling
test is a cost-recovery test, as it limits the value
Ceiling Tests of the reserves on the balance sheet to no more than
Two methods ofreporting the costs ofexploring for and the net estimated cash flow to be recovered from the
developing oil and gas reserves are available to cor- production of those reserves.
porations: "full-cost" accounting and "successful The constant price used may be either the price at the
efforts" accounting. In full-cost accounting, all costs as- end of the reporting period or the average price for the
sociated with exploration and development are period.
capitalized and written off over the life of all the re- In the US, the ceiling test is a value comparison test for
serves in each country. With successful-efforts companies using full-cost accounting. The ceiling test
accounting, only those investments in exploration and value for a full-cost company is determined by taking
development that are successful in finding reserves are the estimates of proved reserves and forecasts of pro-
capitalized and written off over the life of the reserves duction for the company and preparing a cash flow
on a property-by-property basis; all costs ofunsuccess- forecast using constant prices and costs. This cash flow,
ful wells are expensed in the year in which they occur. after taxes, is then discounted at 10 percent per annum
Full-Cost Accounting and, ifthe value carried for the net costs of the reserves
on the balance sheet (less deferred income taxes) is more
Full-cost accounting, presents a less conservative, but than this present worth value, a write-down to this value
perhaps more accurate, picture of the financial results must be made.
of a company. It is justified by the argument that all
It is a rough estimate of the value of the reserves, and
investments, both successful and unsuccessful, lead to
this constant price and cost-based cash flow, discounted
the development of the company's total "inventory" of
at 10 percent, must be reported in the annual report sub-
oil and gas reserves.
mitted to the SEC. The 10 percent discount rate used
The users of full-cost accounting could experience a run recognizes that inflation is not included in the cash flow
of bad luck that results in costs which are greater than forecast because constant prices and constant costs are

316
USES OFRESERVES EVALUATIONS

used. The price used is that in effect on the last day of 26.4.8 Establishing Finding and
the reporting period. Replacement Costs
The volatility of oil and gas prices over the last five One of the important uses of estimates of reserves is in
years has resulted in significant write-downs, especially determining the average cost of replacing reserves. It
in the US where the price to be used must be the price must be determined whether the exploration and devel-
on the last day of the reporting period and the ceiling opment expenditures are adding reserves for a cost that
test must be applied quarterly. A very low price at the is less than or equal to their value. Ifthe cost ofreserves
end ofone period can cause an extreme write-down that additions is in excess of their value, then the company
can never be recovered even if prices bounce back in will not be making a rate of return that is equal to or
future quarters. greater than the discount rate used to determine value.
Successful-Efforts Accounting The finding cost that is often calculated as a measure of
exploration success is determined by dividing the ex-
Canadian and US companies using successful efforts ploration costs by the proved reserves discovered. A
accounting are subject to a ceiling test, but the constant calculation that only includes exploration costs gives a
price, constant cost cash flow used is not discounted or completely useless (and possibly misleading) result as
reduced by any interest, administrative, or income tax discovered reserves are of no use until they are fully
costs. developed. The cost ofa fully developed unit of reserves
In both Canada and the US, unproven properties are ranges from 1.3 to 3.0 times the cost of finding the re-
included in the ceiling test value. The value included is serves. For this reason, a low finding cost could lead to
the cost, reduced by any impairment of value due to the mistaken conclusion that the exploration program
either exploration on the lands or to declines in market was successful even though the fully developed cost was
values. in excess of the value of the reserves added. The oppo-
site is also true, where high exploration costs might
Depletion Calculations
indicate an apparent lack of success, but low develop-
Accountants also employ estimates of proved reserves ment costs, in fact, develop reserves with a cost that is
as the most commonly used method of amortizing less than their value.
or writing off the cost of capital investments. Only replacement costs give a useful measure of
This "depletion" calculation divides the remaining success. They are calculated by dividing the total
undepleted or undepreciated capital costs by the remain- of all exploration and development costs (including all
ing reserves to determine a depletion rate. These net plants and production facilities) by the proved reserves
capital costs are depleted (that is, reduced) by the prod- added. The reserves other than oil would be converted
uct of the production during the depletion period and to barrels of oil equivalent (BOE) to make this calcula-
the depletion rate. In this way, all the capital costs are tion. This conversion is discussed in Section 26.4.9.
written off by the time the last production is received. Replacement costs are calculated on before-tax costs,
To calculate the depletion rate and charge, all the but values are based on after-tax calculations. Using a
reserves and production must be converted to the same mix of tax write-offs for an average program of explo-
units, usually barrels of oil equivalent (BOE), which ration and development, the after-tax cost ofreplacement
must be based on either heating values (6 x 103 cf per would be in the order of 65 percent of the before-tax
BOE) or relative selling prices. Having determined the cost for a company that can use all the tax write-offs.
rate per BOE, then the rate per barrel of oil and per The current average going concern values of oil and
thousand cubic feet of gas can be back-calculated. gas reserves in Alberta are approximately $7.00 per
The depletion charge is calculated at the end of the barrel and $0.35 per thousand cubic feet. This means
period, using the remaining net investment, and before that the before-tax replacement cost ofreserves must be
the current period charge for depletion and remaining less than $10.00 per barrel and $0.55 per thousand
proved reserves plus production for the period are calcu- cubic feet if a rate of return of 12 percent is to be earned,
lated. Depletion is usually calculated on a quarterlybasis, after taxes. In recent years, only 60 percent of the
and the annual charge is the sum of the quarters. The companies developing reserves in Canada have been able.
depletion calculation must be updated whenever there to add reserves at costs that are this low.
is a material change to the rate, as a result of either new Proved reserves may be added before all the costs of
investment or changes in reserves quantities. development have been incurred or may be added after

317

7
DETERMINATION OF OIL AND GASRESERVES

the investments are made, such as with enhanced energy as gas from the well.head to the burner tip as it
recovery schemes. Because costs and reserves additions costs to move the same unit of energy as oil. Conse_
may be out of synchronization, it is preferable to calcu- quently, the value at the wellhead (or in the ground) is
late replacement costs on a three- to five-year rolling in no way related to energy content.
average.
The energy equivalent often (but incorrectly) used is
Studies have shown that annual replacement costs for a 6 x 103 cf per BOE, but it actually ranges from about
company can range from $4.00 per barrel one year to 5.8 x 103 cf per BOE for light oil to approximately
$280.00 per barrel the next year, while on a five-year 6.3 x 103 cfper ~OE for hea~ oil. The.use of energy
rolling average, the costs are $10.00 per barrel, which content as the basis for conversion can give misleading
means that the company is earning an acceptable rate of results which, in turn, could lead to wrong decisions
return. If replacement costs are higher than values for about success and value. It is recommended that
an extended period, it is an indication that serious fin- this BOE never be used for the purpose of value
ancial problems will probably develop for the company conversion.
some time in the future. Because most conversions to BOE are for the purpose
The average values set out in the foregoing discussion of value comparison, the values of oil and gas reserves
may not be applicable to reserves added by particular should be used to calculate the conversion ratio.
companies; consequently, the actual value ofthe reserves Currently, "average" values for fully developed res-
added by a company should be determined in detail for erves of oil and gas in Alberta are in the order of $7.00
comparison with the replacement cost. per barrel and $0.35 per thousand cubic feet. This
gives a conversion ratio of 20 x 103 cf per BOE. The
26.4.9 Estimating Barrels of Oil equivalent barrel of oil is a barrel oflight oil.
Equivalent
The value-based conversion rates have varied as shown
From time to time, it becomes necessary to divide costs
in Table 26.4-1 over the last eight years for "average"
among reserves of oil, gas and related products, or to
reserves. No company owns average reserves, so that
report reserves ofoil, gas and related products asa com-
the conversion rate for a particular company could be
mon unit. This is done by converting reserves that are
higher or lower, depending on the actual reserves owned.
not oil to barrels of oil equivalent (BOE).
Often the reason for the conversion is not understood Table 26.4-1 Conversion Rates
and, therefore, the conversion is made incorrectly.
Year BOE
Conversions to BOE are. usually made for one of the
(103 cf/stb)
following reasons:
1984 20
1. To calculate the depletion charges used to write off
1985 17
the investment in reserves
1986 17
2. To report reserves volumes using a common unit 1987 18
3. To calculate the replacement cost per unit ofreserves 1988 16
added ~
1989 14
4. To calculate the acquisition cost per unit ofreserves 1990 16
purchased 1991 20
The conversion for the first reason must use either
Price is not the most desirable basis for determining
heating value (6 x 103 cf per BOE) or relative selling
conversion to BOE, as the cost of producing energy in
prices, as established by accounting principles. Each of
the form of gas is usually different per dollar of income
the other three reasons is for the purpose of making a
than the cost of producing oil. Therefore, value, which
value comparison and, therefore, conversions based on
is the difference between price and cost, will usually
the relative values of the reserves to be converted com-
yield conversion rates that are different from those based
pared to the value of oil reserves should be used, if
solely on price. If values are available, they are to be
possible. Energy equivalence should not be used for
preferred; however, values are not generally available
the purpose of value conversion, as energy equivalence
for related plant products and, therefore, price provides
is only of significance at the burner tip. It costs
the only useful way to convert reserves of ethane,
approximately five times as much to move a unit of
propane, butanes, pentanes plus and sulphur to BOE.

318
USES OF RESERVES EVALUAnONS

Example Conversion Factors


Reserves ofcrude oil, gas and related products as shown
Wellhead Conversion to BOE
in the following table were purchased several years ago Product Price Value-Equivalence
for $197.8 million.
(Crude Oil Price
Reserves Purchases IProduct Price)
Crude oil $19.70/bbl
Company Interest Ethane 7.00/bbl 2.81
Product Gross Reserves Propane 7.50/bbl 2.63
(before deducting royalties) Butanes 11.50/bbl 1.71
Crude oil 8,200,000 bbl Pentanes plus 19.50/bbl 1.01
Naturalgas 165,400 X 10' cf Sulphur 75.00/1t 0.26
Ethane 740,000 bbl
Propane 610,000 bbl equivalent were calculated. These are shown in the
Butanes 370,000 bbl following table.
Pentanesplus 670,000 bbl By using the BOE at 23,966,233 barrels and the
Sulphur 670,000 It purchase price at $197.8 million, the value paid per BOE
What did this price represent in the way of value per was $8.25 per BOE. The purchase price can be allo-
unit of reserves? At the time, the conversion of gas to cated to each product to determine the respective value
BOE on a value-equivalence basis was 14 x 103 cf of per unit of reserves. The table on the next page shows
gas for each barrel of oil. No value data was available the value per unit of reserves.
for the related gas products, so the wellhead price had The assignment of value is extremely sensitive to the
to be used to determine the conversion ratios. At the conversion ofother products to BOE. Ifthe price equiva-
time, the prices shown in the table ofconversion factors lence for gas had been used instead of the value
were in effect. equivalence to convert to BOE, the conversion factor
would have been 12 x 103 cf per BOE and the price
Using these conversion factors, with the conversion
paid for the crude oil reserves would be reduced from
factor of 14 x 103 cfper BOE for gas and the reserves
$8.25 per barrel to $7.65 per barrel, but the price paid
set out earlier, the total reserves in barrels of oil
for the gas reserves would be increased from $0.59 to
$0.64 per thousand cubic feet.

Total Reserves in Barrels of Oil Equivalent

(1) (2) Barrels of Oil


Product Company Conversion Equivalent
Interest toBOE (BOE)
Reserves Col (1) + Col (2)
Crude oil 8,200,000 bbl 1.00 8,200,000
Natural gas 165,400,000 x 10' cf 14.00 x 10' ef/BOE 11,814,286
Ethane 740,000 bbl 2.81 bbl/BOE 263,345
Propane 610,000 bbl 2.63 bbl/BOE 231,939
Butanes 370,000 bbl 1.71 bbllBOE 216,374
Pentanes plus 670,000 bbl 1.01 bbl/BOE 663,366
Sulphur 670,000 It 0.26 It/BOE 2,576,923
Total 23,966,233

319

iM
il'1
DETERMINATION OF OIL ANDGAS RESERVES

Value per Unit of Reserves

Product ROE Purchase Company Value


Price Interest Per Unit
of Reserves Reserves
Crude oil 8,200,000 $67,676,885 8,200,000 bbl 8.25/bbl
Natural gas 11,814,286 97,506,595 165,499,000 x 10' cf 0.59/10' cf
Ethane 263,345 2,173,460 740,000 bbl 2.94/bbl
Propane 231,939 1,914,257 610,000 bbl 3.14/bbl
Butanes 216,374 1,785,795 370,000 bbl 4.83/bbl
Pentanes plus 663,366 5,474,944 670,000 bbl 8.17/bbl
Sulphur 2,576,923 21,268,064 670,000 It 31.74/lt
Total 23,966,233 $197,800,000

Although it has no relevance except at the burner tip, heavy oil have values which may be only 25 percent (or
the energy equivalence is used from time to time to con- less) of the value of a barrel of light oil, it is perhaps
vert reserves of gas to BOE. The equivalence used is time for the industry to break out oil reserves into light,
usually 6 x 10' cfper BOE. Ifthis had been used in this medium and heavy categories, or convert medium and
case, the price paid for the oil reserves would be heavy oil reserves to "barrels oflight oil equivalent," as
reduced from $8.25 per barrel to $5.00 per barrel, but a better indication of the real value of the inventory of
the price paid for the gas reserves would be increased oil and gas reserves.
from $0.59 to $0.83 per thousand cubic feet. This is
quite an unrealistic assignment of the price paid to the 26.4.10 Estimating Net-Back Calculations
different reserves. A calculation used from time to time takes the price
received for a unit ofproduction at a particular time and
If the values for related products were included with
deducts from it all production costs, royalties, and taxes
the value of the natural gas, then the value of the gas
to give the net-back to the producer from each barrel or
and related products at $130,123, 115 ($197,800,000 less
thousand cubic feet. This net-back calculation is a dan-
the value of oil at $67,676,885) divided by the natural
gerous way to identify value or to determine the effect
gas reserves of 165,400,000 x I OJ cfwould yield a unit
of changes in price, costs, royalties or taxes.
value of$0.79 per thousand cubic feet.
A net-back calculation only looks at the situation at one
These values are market values, not going concern
time and ignores anything that may occur at some other
values, as the value ofthe COGPE created by the direct
time. It is also difficult, if not impossible, to make real-
purchase was included in the price paid.
istic tax calculations because the write-off of tax pools
It is easy to understand why reserves quoted in BOE is not a function of a unit of production. Net-back
that are calculated using a conversion of 6 x 10J cf per calculations ignore changes in the future in production
BOE would vastly overstate the apparent reserves of rates, royalties and operating costs and also ignore any
the company, when the conversion should have been
capital costs.
based on a conversion rate of 20 x 10J cf per BOE.
A net-back calculation merely looks at the revenue per
Reserves are usually used as a proxy for value and the
unit of production at a particular time and some of the
use of a 6 to I conversion ratio, instead of a 20 to I
costs at that time. For this reason, the results can be
conversion ratio, will yield gas reserves in BOE that are
manipulated to give the answer being sought. It is a poor
more than three times what they should be.
measure of what is likely to happen over a period of
Conversions to BOE are really being made to barrels of time and, consequently, is not recommended as a useful
light oil equivalent. Because reserves of medium and basis for making investment decisions.

320
BIOGRAPHIES OF AUTHORS

Complete names of technical societies are given in the Acronyms.

Dr. Roberto Aguilera Barry R. Ashton


- B.Sc., Petroleum Engineering, Universidad de - B.Sc., Chemical Engineering, University of
America, Bogota, Colombia; M.Eng. and Ph.D., Alberta, Edmonton, AB
Colorado School of Mines, Golden, CO - Currently, SeniorPartner, Ashton Jenkins and
- Currently, President, Servipetrol Ltd. Associates Ltd., which specializes in reservoir
- Authorof Naturally FracturedReservoirs and studies and reserve evaluations
co-author of The Technology ofArtificialLifl - Experience includes Chairman of Reserve
Methods and Horizontal Wells, and papers in Evaluation Committee of Encor Inc. as part of
technical journals the $1 billion property rationalization agreement
- International lectureron naturallyfractured reached between Encor, Amoco Canada, and
reservoirs Maligne Resources in 1992
- Memberof AAPG, ACIPET, APEGGA, CWLS, - Member of APEGGA, SPE, Petroleum Society
Petroleum Society of CIM, SPE, SPWLA; past ofCIM
Directorof Petroleum Society, Calgary Section
Dr. Anthony D. Au
Dr. Soheil Asgarpour - Ph.D., ComputerScience, University of Utah,
- B.Sc., Mechanical Engineering, Tehran Salt Lake City, UT
University, Tehran, Iran; Ph.D., Rice University, - Currently, Vice-President, Servipetrol Ltd.
Houston, TX _ Specialties include fractured reservoirs and
- Currently, Technical Leader of Northern Alberta reservoir simulation
and BritishColumbia Group, Gulf Canada - Co-author of over 20 technicalpapers on
Resources Limited reservoir simulation technology
- Authorof over 35 technicalpapers on heat - Memberof APEGGA, Petroleum Societyof
transfer, solar energy, reservoirengineering, CIM, SPE; Directorof Petroleum Societyof CIM
enhanced oil recovery, production engineering,
and risk analysis C. BrentAustin
- Memberof APEGGA, Petroleum Society of - B.E., Mining Engineering, Technical University
CIM, PNA, SPE; National Directorof of Nova Scotia, Halifax, NS
Petroleum Societyof CIM since 1990; Chairman - Currently, Advisor, Petrophysics, PanCanadian
of Editorial Board of JCPT 1991-1993 Petroleum Limited
_ Experience includes international consulting in
areasofformation evaluation and economic
analysis
- Memberof APEGGA, CanadianInstitute
of Management, Petroleum Society of CIM,
SPWLA

321
l
DETERMINAnON OFOILANDGASRESERVES
'''-1 I
N. Guy Berndtsson Keith M. Braaten
B.Sc., Chemical Engineering, University of B.Sc., Mechanical Engineering
Alberta, Edmonton, AB (Distinction), University of Saskatchewan,
Currently, Board Member, Energy Resources Saskatoon, SK
Conservation Board Currently, Technical Consultant and Partner
- Experience includes formation evaluation and oil Coles Gilbert Associates Ltd. '
and gas reserves determination Specialties include reservoir engineering and
Co-author and presenter of technical papers on economic studies of secondary and tertiary
crude oil reserves, enhanced recovery techniques enhanced oil recovery schemes, fractured
and economics, water and waste disposal wells, reservoirs, gas cycling schemes, heavy oil
and well servicing reservoirs, and shallow gas reserves
Member of APEGGA, Petroleum Society of Member of APEGGA, Petroleum Society of
CIM, Technical Advisory Committee for the CIM, SPE
Petroleum Recovery Institute
Keith D. Brown
Robin G. Bertram B. Chern. Eng., Technical University of Nova
- B.Sc., Petroleum Engineering, University of Scotia, Halifax, NS
Alberta, Edmonton, AB Currently, Manager, Oil and Gas Evaluations,
Currently, Operations Engineer, Talisman Royal Bank of Canada, directing the technical
Energy Inc. evaluation of the bank's energy portfolio
Experience includes formation evaluation, oil Experience includes gas processing, construction,
and gas reserves determination, and project and economic evaluations
management Member of APEGGA
- Member of APEGGA, Petroleum Society of
Mike J. Brusset
CIM, SPE
B.Sc., Geological Engineering, University of
Janusz Bielecki Oklahoma, Norman, OK
Masters Degrees in Energy Economics, Currently, President, Brusset Consultants Ltd.
University of Calgary, Calgary, AB, and Specialties include formation evaluation, oil and
International Law, University of Warsaw, Poland gas reservoir performance studies, and economic
Currently, evaluator of supply costs and the evaluations of oil and gas reserves
impact of new technologies (i.e., horizontal Lecturer for 13 years on economic evaluations
drilling) on petroleum reserves and supply, in petroleum exploration and engineering at
National Energy Board U ofC
Experience in economic evaluation, market Member of APEGGA, Petroleum Society of CIM
analysis, price and supply forecasting, energy
regulation and strategic planning
- Member of International Association of Energy
Economists

322

s
- B.Sc., Geology, University of Alberta, - B.Sc., Mineral Engineering (Petroleum) and
Edmonton, AB MBA, University of Alberta, Edmonton, AB
- Currently, Executive Vice-President, Sproule - Currently, Director, Natural Gas Business
Associates Limited Centre, Shell Canada Limited, responsible for
- Specialties include geological interpretation of natural gas marketing and business development
oil and gas reservoirs, reserves estimates, and activity
analysis of exploration prospects based on - Experience includes technical and managerial
assessmant of geological risk and economic positions in petroleum engineering, as well as
evaluation assignments in economics and corporate
- Co-author of papers and course notes on strategies
subsurface mapping of oil and gas reservoirs, - Member of APEGGA, Petroleum Society of
potential oil and gas resources, economic CIM, SPE
evaluation and risk analysis of Canadian oil and
gas G.J. (Gerry) DeSorcy
properties - B.Sc., Petroleum Engineering, University of
- Member of APEGGA, CSPG, Petroleum Society Alberta, Edmonton, AB
ofCIM - Currently, Energy Consultant
Graham R. Campbell - Formerly, first Chairman of Alberta Natural
Resources Conservation Board, and previously,
- B.Sc., Physics, University of Waterloo, Manager of Gas Department, Board Member,
Waterloo, ON; M.Sc., University of British and Chairman, Alberta Energy Resources
Columbia, Vancouver, BC Conservation Board
- Currently, Director-General, Energy Resources, - Member of APEGGA, Petroleum Society of CIM
National Energy Board, responsible for assess-
ment of Canada's oil and gas supply, monitoring John Drury
of upstream industry activity and new resource - B.A., Honours Science, University of Toronto,
extraction technologies, and regulation of Toronto, ON
geological and geophysical activities in the north
- Currently, independent consultant and technical
- Member of AAPG, APEGGA consultant to the Ontario Securities Commission
Noel A. Cleland - Experience includes mining geology and the
regulatory industry
- B.E. (Honours), Mining Engineering, University
of Sydney, Australia - Member of APEO, CSEG, GAC; Life Member of
CIM
- Currently, Senior Engineering Consultant and
Director, Sproule Associates Limited Dr. David C. Elliott
- Author of papers on petroleum economics and - B.Sc. and Ph.D., Geology, University of
the Canadian petroleum industry and lecturer on Birmingham, U.K.; B.Math., University of
petroleum economics at U. of C. Waterloo, Waterloo, ON
- Member of APEGGA, Austro-Asian Institute of - Currently, Consultant, Geosgil Consulting
Mining and Metallurgy, Petroleum Society of
- Experience includes oil and gas field develop-
CIM, SPEE; Past President of APEGGA
ment in Canada and overseas; statistical,
- Recipient of Frank Spragins Award from geostatistical and mathematical applications
APEGGA in 1990, and Petroleum Society's
- Member of AAPG, APEGGA, CSPG, Geological
Distinguished Service Award in 1984; CIM
Society (UK), IAMG, Petroleum Society of CIM
Distinguished Lecturer in 1974

323
Robert V. Etcheverry Mam Chand Gupta
- B.Sc., Mechanical Engineering, University of B.Sc. and M:Sc., Physical Chemistry, University
Saskatchewan, Saskatoon, SK of Agra, India; D.LC., all Technology and
- Currently, General Manager, Production and M.Sc., Petroleum Reservoir Engineering,
Engineering, CN Exploration Inc. Imperial College, University of London, London
UK '
- Experience includes technical, research, super-
visory, and managerial positions in the oil and - Currently, President and Consultant, GM
gas industry in Canada and the US International Oil and Gas Consulting
- Member of Petroleum Society ofCIM, PNA, Corporation
SPE; Director, Calgary Section, Petroleum - Experience includes supervisory, advisory and
Society of CIM technical positions in reserves determination
formation evaluation, oil and gas well testing, oil
Merlin B. Field and gas field development, enhanced oil and gas
- B.Sc., Petroleum Engineering, Oklahoma recovery studies, economic evaluation, oil and
University, Norman, OK gas property evaluation
- Currently, Consulting Reservoir Engineer Instructor of drilling and production engineering
- Specialties include petroleum property courses at SAlT and U. of C.
optimization, project evaluations, numerical Co-author of one technical paper
simulation, computer applications, and - Member of APEGGA, Petroleum Society of CIM
enhanced recovery
- Member of APEGGA, SPE Dave Hemphill
- B.Sc., Mining Engineering, University of
RonM. Fish Alberta, Edmonton, AB
- B.Sc., Geological Engineering, University of - Currently, Petroleum Engineering, Shell Canada
Manitoba, Winnipeg, MB Limited
- Currently, Reservoir Engineering Advisor, New - Experience includes uranium mining industry,
Pool Development Group, Imperial Oil Limited, development geology, oil and gas reserves
Resources Division definition, and field development optirriization
- Experience includes reservoir engineering, - Member of APEGGA, CSPG, SPE
production engineering, development, operations,
research and oil sands John M. Hewitt
- Member of APEGGA - M.A., Mechanical Science, Queens' College,
Cambridge University, UK
J.D. (Joe) Giegerich Currently, Consulting Partner, Martin Petroleum
- B.Sc., Mining Engineering, University of British & Associates
Columbia, Vancouver, BC Experience includes oil and gas property and
- Currently, retired from Chevron Canada company evaluations, reserves determination,
Resources reservoir engineering and enhanced recovery
- Experience includes drilling, production, and studies, royalty and regulatory problems, govern-
reservoir engineering, and estimating hydro- ment presentations, and acquisition analysis
carbon reserves - Member of APEGGA
- Member of APEGGA, Petroleum Society of
CIM; past Chairman, Edmonton Section and
two-term Director, Petroleum Society of CIM

324
BIOGRAPHIES OFAUTHORS

William E. (Bill) Kerr Craig F. Lamb


- B.Sc. (Honors), Petroleum Engineering, - B.Sc. and M.Sc., Geology, University of
University of Wyoming, Laramie, WY Manitoba, Winnipeg, MB; M.B.A., University of
Currently, Operations Manager, Joss Energy Calgary, Calgary, AB
Experience includes production, operations, - Currently, President of Lonach Consulting Ltd.
drilling, reservoir, evaluations, and enhanced - Specialities include core analysis, fractured
recovery reservoir studies, design of technical training
- Member of APEGGA, Petroleum Society of programs, and geoscience management
CIM, SPE - Author of nine publications
- Member of AAPG, APEGGA, CSPG, Petroleum
Harold R. Keushnig Society of CIM, SCA
- B.Sc., Chemical Engineering, University of
Alberta, Edmonton, AB R.V. (Bob) Lang
- Currently, Manager, Gas Department, Alberta - B.Sc., Chemical Engineering, University of
Energy Resources Conservation Board, res- Alberta, Edmonton, AB
ponsible for well spacing, reservoir recovery and - Currently, independent petroleum consultant
recovery estimation, conservation, processing,
- Specialties include reserves determination and
and removal of gas from the province reserves reporting
Member of APEGGA, CGPA, Canadian
- Member of APEGGA, Petroleum Society of
Potential Gas Committee, Petroleum Society of CIM, SPE
CIM
- Recipient of two merit awards from CPA, one
Gobi Kular service award from AGA
- B.Sc., Petroleum Engineering, University of
Dana B. Laustsen
Montana, Missoula, MT; course work toward
- B.Sc. (Distinction), Mechanical Engineering,
M.Sc., University of Calgary, Calgary, AB
University of Calgary, Calgary, AB
- Currently, President, Advanced Petroleum
- Currently, Consultant and Director, Coles Gilbert
Technologies
Associates Ltd.
- Experience includes international consulting on
- Specialties include economic analyses and
major reservoir studies in Canada, North Africa
reservoir engineering studies of waterflood
and the Middle East
optimization, miscible flood performance, gas
- Author and presenter of several technical papers storage, and tight gas deliverability models
on pressure transient well-test design and analy-
- Member of APEGGA, Petroleum Society of CIM
sis, fracture design, project monitoring, and
enhanced oil recovery William V. Mandolidis
- Member of APEGGA, Petroleum Society of - B. Applied Science and Chemical Engineering,
CIM, SPE University of Toronto, Toronto, ON
- Currently, Coordinator, Corporate Planning and
Business Development, Saskatchewan Oil and
Gas Corp.
- Experience includes surface and subsurface
petroleum engineering, reserves evaluation and
reporting, economic and business analysis, and
corporate strategy development
- Member of APEGGA, Petroleum Society of CIM

325
Michael E. McCormack David C. Poon
- B.Sc., Chemical Engineering, University of - M.Sc., Chemical Engineering, University of
Calgary, Calgary, AB Calgary, Calgary, AB
- Currently, Founder and Consultant, Fractical Currently, Engineering Consultant, D.C. Poon
Solutions Inc. Consulting Inc.
- Specialties include the application of fractal Specialities include geostatistics, reservoir
mathematics and computer solutions to pet- simulation, well testing, and horizontal wells
roleum engineering problems, fluid dynamics, International lecturer on enhanced oil recovery,
heat transfer, well design, and surface facilities thermal well testing, and water management
optimization - Member of APEGGA, CHOA, CSChE,
- Author and presenter of several papers on well Petroleum Society of CIM, SPE
engineering - Recipient of best paper award in 1990 from
Member of APEGGA, Petroleum Society of Petroleum Society of CIM
CIM, SPE
Dr. Ross A. Purvis
Raymond A. Mireault B.Sc., University of Oklahoma, Norman, OK;
- B.Sc., Agricultural Engineering, University of M.Sc., University of Wyoming, Laramie, WY;
Manitoba, Winnipeg, MB Ph.D., University of Alberta, Edmonton, AB
Currently, Senior Engineer, Southern Business - Currently, Manager, Oil Department, Energy
Unit, Reserves Additions Team, Gulf Canada Resources Conservation Board
Resources Limited - Experience includes production engineering and
Experience includes conventional oil and gas the development of technical software for phase
exploration, development and production, coal behavior, petrophysics, decline curve, and other
bed methane, horizontal drilling, and super sour reservoir engineering applications, and teaching
gas - Member of APEGGA, Petroleum Society of
Member of APEGGA, CSEG, CSPG, Petroleum CIM, SPE
Society of CIM
Tim J. Reimer
Margaret Nielsen B.Sc., Chemical Engineering, University of
- B.sc., Mechanical Engineering, University of Calgary, Calgary, AB
Alberta, Edmonton, AB - Currently, Manager, Gas Contracts and Supply,
Currently, Business Planning and Performance, Pan Alberta Gas Ltd.
Petro-Canada Experience includes gas plant design and
Experience includes evaluating and developing operations, joint interest, economic evaluations,
gas, oil and heavy oil reserves under primary exploitation and development.
recovery, waterfloods, cycling schemes, miscible - Member of APEGGA, CGPA, Petroleum Society
floods, and fire floods. ofCIM,PNA
Member of APEGGA
W.D. (Bill) Robertson
_ B.Comm., University of Alberta, Edmonton, AB
_ Currently, Co-Chairman and Partner, Oil and Gas
Industry Specialist Group, Price Waterhouse
Specialty is oil and gas accounting
- Member of Petroleum Society of CIM; past
Director and Officer, Petroleum Accountants'
Society; Council Member, Institute of Chartered
Accountants of Alberta

326
BIOGRAPHIES OFAUTHORS

J. Glenn Robinson Dr. Ashok K. Singhal


- B.Sc. (Honours), Civil Engineering, Queen's - Ph.D., Petroleum Engineering, University of
University, Kingston, ON California, Berkley, CA
- Currently, President, Sproule Associates Limited - Currently, Group Leader, Gas Flooding,
- Experience includes exploitation engineering, Petroleum Recovery Institute, Calgary, AB
production geology, petrophysical engineering, - Experience includes horizontal well applications,
reservoir engineering, mathematical reservoir enhanced oil recovery, and reservoir engineering
simulation, economic evaluations, and risk - Member of APEGGA, Petroleum Society of
analysis CIM, SPE
- Lecturer on evaluation and risk analysis of
Canadian oil and gas properties David W. Turt
- Member of APEGGA, CWLS, Petroleum Society - B. App. Sc., Civil Engineering, University of
of CIM, SPE, SPEE, SPWLA Toronto, Toronto, ON .
- Currently, Vice-President, Engineering, Oil and
Darlene A. Sheldon Gas Department, Bank of Montreal, responsible
- M.Sc., Statistics and M.Eng., Chemical for assessment of large domestic and inter-
Engineering, University of Calgary, Calgary, AB national oil and gas project loan packages
- Currently, Manager, Strategic Action Planning, - Member of APEGGA, Petroleum Society of
Petro-Canada CIM, SPE, SPEE
- Experience includes reservoir engineering, oil
George A. Warne
and gas development and evaluations,
information systems, economics, and asset - B.Sc., Electrical Engineering, University of
rationalization Alberta, Edmonton, AB
- Author ofthree technical papers - Currently, Energy Resource Consultant and
Secretary-Treasurer of the Canadian Association
Member of AWES, Petroleum Society of CIM,
of the World Petroleum Congresses
SPE
- Experience includes energy resource regulation
Dr. Phillip M. Sigmund and management, and reservoir engineering
- B.A.Sc., Chemical Engineering, University of - Lecturer on energy resource regulation and
Waterloo, Waterloo, ON; Ph.D., Chemical management
Engineering, University of Texas, Austin, TX - Member of APEGGA, Petroleum Society of
- Currently, designing specialty oil extraction CIM, SPE
processes and building associated research
equipment Andy Warren
- Experience includes contract research and - B.Sc., Civil Engineering, Queen's University,
consulting projects related to improved reservoir Kingston, ON
management and fluid extraction processes Currently, Assistant Manager of Engineering,
- Author of several technical papers Oil Department, Alberta Energy Resources
Conservation Board
- Member of AIChE, APEGGA, Petroleum
Society of CIM - Experience includes tight gas, shallow gas, small
gas pools, oil pool reserves, well testing, and
pool depletion strategies
- Member of APEGGA, Petroleum Society of
CIM,SPE

327

d
ACRONYMS

Acronyms for technical terms used in the monograph are listed first, followed by the acronyms for technical journals
and societies, then for universities and colleges, and last, for countries, provinces and states.

AACRT adjusted attributed Canadian royalties and EARP Environmental Assessment and Review
taxes Process
ACRI attributed Canadian royalty income EMV expected monetary value
ADP average daily production EOR enhanced oil recovery
AMP .Alberta market price FCA Federal Competition Act (US)
APMC Alberta Petroleum Marketing Commission FDC compensated formation density
AOF absolute open flow FERC Federal Energy Regulatory Commission
AOS Alberta oil sands (US)
AARTC adjusted Alberta royalty tax credit FOB freight on board
BHT bottom-hole temperature FVF formation volume factor
BOE barrels of oil equivalent G&A general and administrative (costs)
BTR break-through ratio GCA gas cost allowance
CAL caliper GCV going concern value
CCA capital cost allowance GOR gas-oil ratio
CDE Canadian development expense GORR gross overriding royalty
CEC cation exchange capacity GPSA Gas Processors Suppliers Association
CEDOE Canadian exploration and development GR gamma ray (API)
overhead expense GSC Geological Survey of Canada
CEE Canadian exploration expense GSP gas select price
CDF cumulative distribution function HClP hydrocarbon in place
CGR condensate-gas ratio HPV hydrocarbon pore volume
CGL conglomerate 1FT interfacial tension
CNL compensated neutron log lLd deep induction resistivity
COGPE Canadian oil and gas property expense lLm medium induction resistivity
CPI capital productivity index IMPES Implicit Pressure Explicit Saturation
CPM Critical path method Method
CPUC California Public Utilities Commission IPL Interprovincial Pipe Line
CSU cyber service unit IRR internal rate of return
DD&A depreciation, depletion and amortization K.B kelly bushing
DNPBI discounted net profit before investment LDC local distribution company
DOE Department of Energy (US) LGR liquid-gas ratio
DPHI density porosity LPG liquefied petroleum gas
DPR discounted profit-to-investment ratio MCM multiple-contact miscibility
DROI discounted return on investment MMP minimum miscibility pressure
DST drillstem test MV market value

329

t
DETERMINATION OFOILANDGASRESERVES
,.1
NAFTA North American Free Trade Agreement RIP reserves-to-production ratio
NEP National Energy Program SACROC a carbonate unit on the Kelly-Snyder field
NGL natural gas liquids in Texas
NGPA Natural Gas Policy Act (US) SEC Securities and Exchange Commission
(US)
NML nuclear magnetic log
SFL spherically focused laterolog
NOPR Notice of Proposed Rulemaking
SG specific gravity
NORR net overriding royalty
SNP sidewall neutron porosity
NOVA an Alberta corporation
SP spontaneous potential
NPHI neutron porosity
TMPL Trans Mountain Pipeline
NPV net present value
TOP take-or-pay (gas)
NYMEX New York Mercantile Exchange
TVD true vertical depth
OECD Organization for Economic Co-operation
and Development TWP township
OGIP original gas in place USBM United States Bureau of Mines
OOIP original oil in place VGR viscous gravity ratio
OPEC Organization of Petroleum Exporting WACC weighted average cost of capital
Countries WAG water alternating gas injection
OSLO a consortium of companies WAR water-air ratio
OSC Ontario Securities Commission WFT wire line formation test
PAD Petroleum Administration for Defense WGR water-gas ratio
(US) WOR water-oil ratio
PADD Petroleum Administration for Defense WTI West Texas Intermediate
District (US)
PERT Program Evaluation and Review
Technical Journals, Societies, and Institutions
Technique
AAPG American Association of Petroleum
PDF probability distribution function
Gologists
PDVSA Petroleos de Venezuela S.A.
ACIPET Association of Colombian Petroleum
PG&E Pacific Gas and Electric Engineers
PGRT petroleum and gas revenue tax AGA American Gas Association
PGT Pacific Gas Transmission AIChE American Institute of Chemical
PII profitability index Engineering
PV pore volume AlME American Institute of Mechanical
PVT pressure-volume-temperature Engineering
PWR present worth ratio APEGGA Association of Professional Engineers,
Geologists and Geophysicists of Alberta
P-X pressure composition diagram
APEO Association of Professional Engineers of
RBA rising bubble apparatus
Ontario
RF recovery factor
American Petroleum Institute
API
RFT repeat formation tester
Association of Women in Engineering and
AWES
RGE range Science
ROI return on investment CHOA Canadian Heavy Oil Association
RP resource profits CIM Canadian Institute of Mining, Metallurgy
and Petroleum

330
ACRONYMS

CSChE Canadian Society of Chemical Universities and Colleges


Engineering U of A University of Alberta
CGPA Canadian Gas Processors Association U of C University of Calgary
CSPG Canadian Society of Petroleum Geologists SAlT Southern Alberta Institute of Technology
CSEG Canadian Society of Exploration
Geophysicists
Countries, Canadian Provinces, American States
CWLS Canadian Well Logging Society
AB Alberta
GAC Geological Association of Canada
AZ Arizona
GPSA Gas Processors Suppliers Association
CA California
IAMG International Association for
CO Colorado
Mathematical Geology
MB Manitoba
IHRDC International Human Resource
Development Corporation MT Montana
JCPT Journal of Canadian Petroleum SK Saskatchewan
Technology NS Nova Scotia
JPT Journal of Petroleum Technology OK Oklahoma
O&GJ Oil and Gas Journal ON Ontario
OGCI Oil and Gas Consultants International TX Texas
PNA Petroleum Joint Venture Association UK United Kingdom
SCA Society of Core Analysts US, USA United States of America
SPE Society of Petroleum Engineers WY Wyoming
SPEE Society of Petroleum Evaluation
Engineers
SPEJ Society of Petroleum Engineers Journal
SPWLA Society of Professional Well Log Analysts

331

t
GLOSSARY

Acidizing. A method of well stimulation using acid (to Bottom-hole pressure. The pressure in a well at a point
increase productivity); conducted mostly in opposite the producing formation as recorded by a
carbonates. bottom-hole pressure recorder.
Acoustic log. A measurement ofthe interval transittime Bottom-hole temperature. The temperature in a well
of compressional seismic waves in rocks near the at a point opposite the producing formation.
wellbore of a liquid-filled borehole; used chiefly Bottom water. Sand layers at the bottom of a forma-
for estimating porosity and lithology; also referred .tion which contain mobile water that appreciably
to as sonic log. affects reservoir performance; water in strata
Analogous fields. Fields having similar properties that underlying an oil- or gas-bearing formation.
are at a more advanced stage of development or Bourdon tube. A mechanical pressure-measuring
production history than the field of specific inter- instrument employing as its sensing element a
est, and that may provide concepts or patterns to curved or twisted metal tube, flattened in cross
assist in the interpretation of more limited data. section and closed.
Anhydrite. A granular, white or light-colored evapor- Bubble point. In a solution oftwo or more components,
ite mineral (CaSO.), often found together with rock the pressure at which the first bubbles of gas
salt. appear; same as saturation pressure.
Annulus. The space around the tubing in a wellbore, Bulk deusity. Density of the combined pore volume
the outer wall of which may be the wall of either and rock volume; measured, for example, by a
the borehole or the casing. density log.
Aquifer. A stratum or zone below the surface of the Bulk volume. Total volume of a formation including
earth capable of producing water. the pore volume and the rock volume.
Arithmetic mean. The average obtained by dividing Butanes. In addition to its normal scientific meaning of
the sum of a distribution by the number of its C.H IO (a mixture of two gaseous paraffins, normal
addends. butane and isobutane), a mixture mainly ofbutanes
Asphaltene. Any ofthe dark solid constituents ofcrude that ordinarily may contain some propane or
oils and other bitumens that are soluble in carbon pentanes.
disulphide but insoluble in paraffin naphthas. Capillarity. The effect of surface attraction forces
Beta model. A numerical simulator used to model black among oil, gas, water, and rock in retaining fluid
oil systems; also referred to as black oil model. saturations within the pore structure of a porous
Bias. A systematic deviation from the actual value medium. Refer to Capillary pressure.
or distribution; a combination of two effects: Capillary pressure. A force per unit area resulting
displacement bias and variability bias. from surface forces at the interface between two
Bitumen. Refer to Crude bitumen. immiscible fluids.
Black oil. Refers to a system in which the volume of Carbonates. Sedimentary rocks primarily composed
fluid is primarily a function of reservoir pressure of calcium carbonate (limestone) or calcium
and constant temperature. A system that is not a magnesium carbonate (dolomite), which form many
black oil system includes compositional variables. petroleum reservoirs.
Black oil model. Refer to Beta model. Carbon dioxide flooding. A recovery process
in which carbon dioxide is injected into an oil
Bomb. A thick-walled container, usually steel, used to
reservoir to improve recovery.
hold samples of oil or gas under pressure.

333

...
Cementation. The process of precipitation or growth Conventional natural gas. Natural gas that occurs
of a binding material around grains or fragments of in a normal, porous, permeable reservoir rock and
rock. that, at a particular time, can be technically and
Chase gas. Gas used to displace another phase in an economically produced using normal production
enhanced recovery process. practices.
Chemical flooding. A recovery process in which Cricondentherm. Maximum temperature at which two
chemicals added to water are injected into an oil phases (for example, liquid and vapour) can exist.
reservoir to improve recovery. Critical gas saturation. Saturation at which free gas in
Choke. An orifice installed in a line to restrict the flow a reservoir becomes mobile.
and control the rate of production. Critical pressure. The pressure required to condense
Clastics. Sedimentary rocks composed of fragments of a gas at the critical temperature, above which
. pre-existing rocks; sandstone is a clastic rock. regardless of pressure, the gas cannot be liquefied:
Clay lattice. A three-dimensional pattern of clay parts Critical temperature. That temperature above which
in space. a substance can exist only in the gaseous state, no
Compaction. A decrease in volume of sediments as a matter what pressure is exerted.
result of compressive stress, usually resulting from Crude bitumen. A naturally occurring viscous
continued depositional loading by accumulation of mixture consisting mainly of pentanes and heavier
overlying sediments. hydrocarbons. Its viscosity is greater than 10 000
Compressibility. The rate of change in volume of rock ml'a-s measured at original temperature in the
and fluids with decrease in pressure. Compressibil- reservoir and atmospheric pressure, on a gas-free
ity is a major contributor to recovery efficiency and basis. Crude bitumen may contain sulphur and other
a cornerstone of reservoir performance. nonhydrocarbon compounds and in its natural
viscous state is not normally recoverable at a
Condensate. A mixture of pentanes and heavier
commercial rate through a well.
hydrocarbons recovered as a liquid from field sepa-
rators, scrubbers or other gathering facilities, or Crude oil. A mixture, consisting mainly of pentanes
at the inlet of a processing plant before the gas is and heavier hydrocarbons, that exists in the liquid
processed. phase in reservoirs and remains liquid at atmospheric
pressure and temperature. Crude oil may contain
Conductivity. A property of an electrical conductor
small amounts of sulphur and other nonhydrocarbon
defined as the electrical current per unit area divided compounds, but does not include liquids obtained
by the voltage drop per unit length.
from the processing ofnatural gas. Classes ofcrude
Conformance efficiency. The fraction of total oil are often reported on the basis of density, some-
reservoir volume that is contacted by injected fluid times with different meanings. Acceptable ranges
as a result of discontinuities in the reservoir; also are as follows:
referred to as continuity factor.
Light: less than 870 kg/m' (greater
Conglomerate. A sedimentary rock composed of than 31.1 0 API)
coarse-grained rock fragments, pebbles or cobbles
Medium: 870 to 920 kg/m'' (31.1 to 22.3
cemented together in a fine-grained matrix.
API)
Coning. A cone of gas or water that forms in the
Heavy: 920 to 1000 kg/rrr' (22.3 to 10
reservoir due to pressure drawdown at the API)
perforations.
Extra-heavy: greater than 1000 kg/rrr' (less than
Connate water. The original water ofdeposition trapped 10 API)
in the interstices of the reservoir rock.
Heavy or extra-heavy crude oils, as defined by
Conventional crude oil. Crude oil that, at a particular the density ranges given, but with viscosities
time, can be technically and economically produced greater than 10 000 ml'a-s measured at original
through a well using normal production practices temperature in the reservoir and atmospheric
and without altering the natural viscous state ofthe pressure, on a gas-free basis, would generally be
oil.
classified as crude bitumen.

334

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _1
GLOSSARY

D' Arcy's Law. The basic law of fluid flow through Drillstem test. The procedure used to gather data on a
a porous medium that expresses how easily a fluid formation to determine its potential productivity
of a certain viscosity flows through a rock under a before installing casing in a well. In the drillstem
pressure gradient. testing tool are a packer, valves or ports that may
Decision tree. A graphical summary of the possible be opened and closed from the surface, a sample
outcomes and probabilities of the events that chamber and a pressure-recording device. The tool
comprise a project. is lowered in the wellbore on a string of drill pipe
and the packer set, isolating the formation to be
Density. The ratio of the mass of an object to its
tested from the formations above and below and
volume.
supporting the fluid column above the packer. A
Density log. A radioactivity log for open-hole survey- port on the tool is opened to allow the trapped press-
ing that responds to variations in the specific gravity ure below the packer to bleed off into the drill pipe,
of formations; an excellent porosity-measuring gradually exposing the formation to atroospheric
device, especially for shaly sands. It is a contact log pressure and allowing the well to produce to the
(i.e., a detector held against the wall of the hole). surface, where the well fluids may be sampled and
The tool emits neutrons and then measures the sec- inspected. From a record ofthe pressure readings, a
ondary gamma radiation that is scattered back to number offacts about the formation may be inferred.
the detector.
Efflux. Quantities of hydrocarbons, water or other
Depositional environment. The conditions under which fluids that leave a reservoir or zone of interest via
sediments were laid down. permeable formation boundaries.
Differential liberation. The liberation of gas from oil Electrical conductivity. Used for estimating reservoir
as pressure is reduced wherein the evolved gas is properties; reciprocal ofelectrical resistivity. Refer
separated from its associated oil; usually the physi- to Conductivity.
cal model related to transport ofoil and gas through
Electrical resistivity. The reciprocal of electrical
the formation during the majority of the primary
conductivity; used for estimating properties such
depletion life.
as water saturation and fracture porosity. It is
Dip. The angle at which a stratum is inclined from the one of the most useful measurements in borehole
horizontal. geophysics.
Discounted cash flow. Future cash converted to present Enhanced oil recovery. Refer to Recovery-
conditions using an appropriate discount rate. enhanced.
Displacement bias. A shift of the whole frequency Established reserves. Those reserves recoverable
distribution curve to higher or lower values. under current technology and present and antici-
Displacement efficiency. The fraction of initial oil pated economic conditions, specifically proved by
saturation that is displaceable by a given injection drilling, testing or production, plus that judgement
fluid. portion of contiguous recoverable reserves that is
Displacement process. The process by which oil is interpreted, from geological, geophysical or simi-
displaced by water, gas, or another fluid. lar information, to exist with reasonable certainty.
This is a term that has been used historically in
Disposal well. A well used for the disposal of salt
Canada, particularly by regulatory agencies, and
water. The water is pumped into a subsurface forma-
typically comprises proved reserves plus one-half
tion sealed offfrom other formations by impervious
probable reserves.
strata of rock.
Ethane. In addition to its normal scientific meaning
Dolomite (CaMg(CO J)2)' A common rock-forming
of C2H6 (a colourless, odourless gas of the alkane
mineral.
series), a mixture mainly of ethane that may
Dolomitization. The process whereby limestone is contain some methane or propane.
altered to dolomite by the substitution of magne-
Evaporite. Deposits of mineral salts from sea water or
sium carbonate for a portion ofthe original calcium
salt lakes due to evaporation of the water.
carbonate.
Expectation. The mean of all possible outcomes of an
event.

335

..
DETERMINATION OF OIL AND GAS RESERVES

Facies. Part of a bed of sedimentary rock of similar Free-water I~vel. The level or depth at which capillary
depositional environment, composition, appearance pressure IS equal to zero and which, in rocks ofvari_
and properties.
able pore structure, is the only truly level referenc
Fault. A break in subsurface strata. Often strata on one line between hydrocarbons and water. e
side of the fault line have been displaced (upward, Friable. Describes a substance that is easily rubbed,.
downward, or laterally) relative to their original crumbled, or pulverized into powder.
position.
Gamma ray detector. A device that is capable
Fault plane. A surface along which faulting has of sensing and measuring the amount of gamma
occurred.
particles emitted by certain radioactive substances.
Filtrate. A fluid that has been passed through a filter. Gas. Refer to Natural gas.
Fines migration. The dislocation and movement of fine Gas chromatography. The process of separating
particles within a reservoir. Fines migration can constituents of a mixture by permitting a solution
cause damage or impair permeability by blocking of the mixture to flow through a column ofadsorb-
pore throats. ent on which the different substances arc selectively
Flash liberation. The liberation of gas from oil as separated into distinct bands or spots.
pressure is reduced wherein the evolved gas remains Gas compressibility factor. A factor used to correct
in contact with the liquid phase. the Ideal Gas Law (pv = nRT) to actual measure-
Flow test. A test of the ability of a well to produce flu- ments.
ids usually at a constant rate. Gas-oil ratio. The ratio of gllll in solulion to the 011
Fluid saturation. The fraction of the pore volume volume in which it is dissolved, u.ually expretled
occupied by fluid. in cubic feet of gas per barrel of liquid It 101.325
Fluid viscosity. Internal friction of a fluid, caused kPa (14.65 psia) and 15.6'C (60F).
by molecular interactions, that makes it resist a Genetic sand unit. Formation consisling ofsand. from
tendency to flow. the same origin.
Fold. A flexure of rock strata into arches and troughs, Geostatistlcs. A specific statistical technique (based on
produced by earth movements. the statistics of regionalized variables) that uses the
Formation heterogeneity. Variation both laterally position as well as the magnitude of a parameter;
and vertically of properties such as porosity, classical statistics' docs not generally use position,
permeability, and formation thickness. Other spatial statistics methods also exist.
Formation imaging. Logs that generate images (or Gravity drainage. The movement of oil in a reservoir
"pictures") of the borehole from various sources toward a wellbore resulting from the force of
including sonic and resistivity devices. gravity.
Formation pressure. The pressure in a formation at a Gravity override. Preferential movement of one fluid
defined depth. over another due to density differences.
Formation temperature. The temperature at a given Gross pay. The gross economically productive thick-
point within a formation. Temperature usually ness of a formation containing hydrocarbons.
increases with depth. . Gross swept volume. The reservoir rock volume that
Formation volume. The volume of fluid, at formation is swept by injected fluid.
pressure and temperature, that results in one barrel Heterogeneity. A lack ofuniformity in formation prop-
of stock tank oil. erties such as permeability, porosity and thickness.
Fractional flow. Phase flow rate as a fraction of total Homogeneity. Uniformity ofreservoir properties in all
flow rate. directions.
Fracturing. A stimulation to increase productivity that Horizontal sweep efficiency. The areal fraction of a
results in the formation ofa fracture in the wellbore pattern contacted by the injected fluid; also referred
area; conducted mostly in clastics. to as areal sweep efficiency.

336
GLOSSARY

Horizontal waterflood scheme. The injection ofwater Initial volumes in place. The gross volume of crude
in a pattern of wells with oil production from wells oil, natural gas and related substances estimated,
completed between injectors. at a particular time, to be initially contained in a
Hybrid sand unit. A formation with sands from reservoir before any volume has been produced
different origins. and without regard for the extent to which such
Hydrate. A hydrocarbon and water compound that volumes will be recovered.
forms under reduced pressure and temperature in Injection. The pumping of fluids into the reservoir via
gathering, compression, and transmission facilities wellbores, for wellbore conditioning or stimulation
for gas; flakes of hydrate resemble snow or ice and or for improved recovery operations.
impede fluid flow. In situ recovery. A term that is used, when referring
Hydrocarbon pore volume. The pore volume in a to oil sands, for the process of recovering crude
reservoir containing hydrocarbons; the product of bitumen from oil sands other than by surface
hydrocarbon-filled thickness, porosity, and hydro- mmmg.
carbon saturation usually expressed for a unit area. Intercalation. Insertion of a bed or stratum of one
May be represented on a contour map as a type of material between layers of another material.
volumetric map. Interfacial tension. The force per unit length existing
Hydrodynamic flow. The motion and action of water at the interface between two immiscible fluids.
and other liquids in the subsurface. Irreducible water saturation. The minimum water
Hydrodynamic trap. An oil or gas reservoir trapped saturation that can be obtained in a reservoir under
by surrounding water movement; usually leads to normal operations.
tilted water-oil contacts. Isochrone. A line on a chart connecting all points
Hydrodynamics. The study of the motion of a fluid having the same time of occurrence of particular
and of the interactions of the fluid with its bound- phenomena or of a particular value of a quantity.
aries, especially in the incompressible ideal Isolating packers. Devices used for isolating an
(frictionless) case. interval in a well.
Hydrostatic head. The pressure exerted by a body of Isopach map. A geological map of subsurface strata
water at rest. showing contours of the thickness of a given for-
Hysteresis. A change in process path in successive mation underlying an area; one type of volumetric
experimental tests. map.
Ideal Gas Law. The volume occupied by an ideal gas Isotherm. A line connecting points of equal
depends only upon temperature, pressure, and the temperature.
number of molecules (moles) present (pv = nRT). Isothermal. Having constant temperature; at constant
Imbibition. The increase in saturation of the wetting temperature.
phase in a porous medium with time. J function. A dimensionless grouping of the physical
Improved recovery. Refer to Recovery- properties of a rock and its saturating fluids pro-
improved. posed by Leverett.
Influx. Quantities of hydrocarbons, water or other Kerogen. A solid bituminous substance occurring in
fluids that enter a reservoir or a designated portion certain shales that decomposes to oil and natural
ofa reservoir through permeable formation bound- gas when heated.
anes. Klinkenberg. Mathematical correction oflaboratory air
Initial reserves. A term often used to refer to reserves permeability measurements (made on formation
prior to deduction of any production. Alternatively, material) into equivalent liquid permeability values,
initial reserves can be described as the sum of necessitated by gas slippage in pores.
remainingreserves and cumulative productionat the Laterolog. A resistivity measuring device using
time of the estimate. electrodes in which a current is forced through the
formation in a sheet ofpredetermined thickness, so
that the measurement involves a limited vertical
extent.

337

.
DETERMINATION OFOIL AND GASRESERVES
ii\f.
.",~,~ ,"

Liquefied petroleum gases. A term commonly used Methane. In addition to its normal scientific mean-
to refer to hydrocarbon mixtures consisting pre- ing of CH. (a light, odourless, colourless gaseous
dominantly of propane and butanes. In Canada, hydrocarbon), a mixture mainly of methane that
ethane is also frequently included. ordinarily may contain some ethane, nitrogen
Lithification. The conversion of unconsolidated helium or carbon dioxide.
deposits into solid rock by compaction and cement- Miscibility. The tendency or capacity of two or more
ing together of the individual rock grains. liquids to form a uniform blend, that is, to dissolve
Lithology. The description ofthe physical character of in each other; degrees are total miscibility, partial
a rock as determined by eye or with a low-power miscibility, and immiscibility.
magnifier; based on color, structures, mineralogic Miscible flooding. A recovery process in which a fluid
components, and grain size. (a "solvent") that is capable of dissolving into the
Mandrel. A cylindrical bar, spindle, or shaft around crude oil it contacts is injected into an oil reservoir
which other parts are arranged or attached, or that to improve recovery.
fits inside a cylinder or tube. Micellar flooding. The addition of surfactants to
Marketable natural gas. Natural gas that meets injected water to reduce interfacial tension.
specifications for its end use, whether it occurs Micro-fractures. Fractures not easily seen by
naturally or results from the processing of raw the naked eye; might be seen in thin sections. They
natural gas. Field and plant fuel and losses are usually feed macro-fractures.
excluded, excepting those related to downstream re- Microlog. A wellbore resistivity log recorded with
processing plants. The heating value of marketable electrodes mounted at short distances from each
natural gas may vary considerably, depending upon other in the face ofa rubber-padded microresistivity
its composition, and therefore quantities are usu- sonde and with different depths of investigation.
ally expressed not only in volumes, but also in terms Comparison of the two curves identifies mudcake
of energy content. which indirectly identifies the presence of perme-
Material balance method. An engineering method of able formation.
defining project performance wherein expansion of Microporosity. Porosity that is visible only at high
in situ rock and fluids is related to influx-efflux and magnification and that is generally not effective.
production-injection streams; may be arranged to
Mobility. The ratio ofthe permeability ofa given phase
determine fluids in place or production performance.
to the viscosity of that phase. Phase mobility is an
Matrix. The continuous, fine-grained material in which indication of how easily that phase moves in the
large grains of a sediment or sedimentary rock are reservoir.
embedded.
Mobility ratio. The ratio of the mobility of the
Mean. The most commonly used measure of central displacing phase behind the flood front to the
tendency; the average value of repeated trials. The displaced phase ahead of the flood front.
mean represents the most probable value of an
Mode. A measure of central tendency; the most
estimate of reserve volume or value.
commonly occurring value of a set of numbers.
Median. A measure of central tendency; the middle
Mole. An amount of substance of a system which
value or the arithmetic mean of the two middle
contains as many elementary units as there are
values of a list of numbers, for a list containing an
atoms of carbon in 0.012 kilogram of the pure
odd or even number of members, respectively.
nuclide carbon-12; the elementary unit must be
Geometrically, the value that divides a histogram
specified and may be an atom, a molecule, an ion,
or frequency distribution into two parts of equal
an electron, a photon, or even a specified group of
area; also the 50 percent probability level on a
such units.
cumulative distribution function or expectation
curve. Morphology. The observation of the form oflands.

338
GLOSSARY

Mudcake. The residue that forms on the wall of the Nuclear magnetism inject log. A tool that uses a pulsed
borehole as the drilling mud loses filtrate into nuclear magnetic resonance analyzed to determine
porous and permeable formations; also called well fluid content, total and free fluid porosity, and
cake or filter cake. permeability.
Mud-gas log. The recording of information derived Oil sands. Deposits of sand or sandstone or other
from examination and analysis offonnation cuttings sedimentary rocks that contain crude bitumen.
made by the bit and mud circulated out of the hole. Oolite. A spherical to ellipsoidal body, 0.25 to 2.00 mm
A portion of the mud is diverted through a gas- in diameter, which mayor may not have a nucleus,
detecting device and examined under ultraviolet and has concentric or radial structure or both; usu-
light to detect the presence of oil or gas. Often ally calcareous, but may be hematitic or of other
carried out in a portable laboratory set up at the well. composition.
Natural fracture. A discontinuity in rock caused by Pentanes plus. A mixture mainly of pentanes and
diastrophism, deep erosion of the overburden, or heavier hydrocarbons, which ordinarily may con-
volume shrinkage. Examples would include shales tain some butanes, and which is obtained from the
that lose water, the cooling of igneous rock, and the processing of raw gas condensate or crude oil.
desiccation of sedimentary rock.
Permeameter. A device for measuring permeability by
Natural gas. A mixture of lighter hydrocarbons that measuring the flow of fluid through a sample across
exist either in the gaseous phase or in solution in which there is a pressure drop.
crude oil in reservoirs but are gaseous at atmospheric
Petroleum. A naturally occurring mixture consisting
conditions. Natural gas may contain sulphur or other
predominantly of hydrocarbons in the gaseous,
nonhydrocarbon compounds.
liquid or solid phase.
Natural gas liquids. Those hydrocarbon components
Petroleum reservoir (pool). A porous and penne-
that can be recovered from natural gas as liquids
able underground rock formation that contains a
including, but not limited to, ethane, propane,
natural accumulation ofcrude oil or natural gas and
butanes, pentanes plus, condensate, and small quan-
related substances, or combinations ofthem, that is
tities of nonhydrocarbons.
confined by impermeable rock or water barriers, and
Net present value. The value obtained when all cash that is individual and separate from other reservoirs.
flow streams, including the investment, are
Phase behaviour. The equilibrium relationships
discounted to the present and totalled.
between water, liquid hydrocarbons, and dissolved
Neutron log. A radioactive device that emits high or free gas, either in reservoirs or as separated
energy neutrons and records a curve which responds aboveground in gas-oil production facilities.
primarily to the amount of hydrogen in the forma-
Polymer flooding. The addition ofpolymers to injected
tion. Thus, in clean formation where the pores are
water to improve mobility ratios and increase oil
filled with water or oil, the neutron log measures
recovery.
the amount of liquid-filled porosity.
Pore volume. The pores in a rock considered collec-
Nonconventional crude oil. Crude oil that is not
tively; the product of porous thickness times
classified as conventional crude oil. An example
porosity. May be represented on a contour map, a
would be kerogen contained in oil shale deposits.
type of volumetric map.
Bitumen is also generally included in the non-
conventional crude oil category as a matter of Porosimetry. The measurement of the porosity of
practice, although some wells may produce at reservoir rocks.
commercial rates without steam injection. Also Porosity. The volume of the pore space expressed as a
referred to as unconventional crude oil. percentage of the total volume of the rock mass.
Nonconventional natural gas. Natural gas that is not Pressure depletion. Pressure decline in a reservoir due
classified as conventional natural gas. An example to oil or gas production.
would be coal-bed methane. Also referred to as Pressure transient analysis. The estimation ofreservoir
unconventional natural gas. properties from measurements offlow, buildup and
drawdown pressures.

339
DETERMINATION OFOILANDGASRESERVES

Primary recovery. Refer to Recovery - primary. Recovery - improved. The extraction of addif al
'1 Ion
Production tests. Tests conducted to determine the cru de 01 , natural gas and related substances fr
productivity of a given reservoir. . hr h om
reservoirs t oug a production process other th
Propane. In addition to its normal scientific meaning nat~ral depletion. Includes both secondary a :
of C,H. (a heavy, colourless hydrocarbon of the tertiary recovery processes such as pressure main-
paraffin series), a mixture mainly of propane that tenance, cycling, waterflooding, thermal methods
ordinarily may contain some ethane or butanes. ~he~ic~1 flo?ding, and the use of miscible and
immiscihls displacement fluids.
Pseudo-critical and pseudo-reduced properties
(temperature and pressure). Properties of pure Recovery - primary. The extraction of crude oil
hydrocarbons are often the same when expressed in natural gas and related substances from reservoirs
terms oftheir reduced properties. The same reduced- utilizing only the natural energy available in the
state relationships often apply to multicomponent reservoirs.
systems if "pseudo" critical temperatures and pres- Recovery - secondary. A term frequently used to
sures are used rather than the true critical properties describe the extraction of additional crude oil
of the systems. The ratios of the temperature and natural gas and related substances from reservoirs
pressure of interest to the pseudo-critical tempera- through pressure maintenance schemes such as
ture and pressure are called the pseudo-reduced waterflooding or gas injection.
temperature and pressure respectively. Recovery - tertiary. A term frequently used to
Pulsed neutron log. A special cased-hole logging tool describe the extraction of additional crude oil.
that uses radioactivity reaction time to obtain mea- natural gas and related substances from reservoirs
surements ofwater saturation, residual oil saturation, using recovery methods other than natural deple-
and fluid contents in the formation outside the cas- tion or pressure maintenance. A tertiary proeClllcan
ing of an oil well. be implemented without a precedinll prinwy or
PVT data. Information describing the physical secondary recovery scheme.
inter-relationship ofpressure, volume, and tempera- Remaining reserves. Initial reserves less cumulative
ture of reservoir fluids and various production and production at the time of the estimate.
injection streams. Reservoir. Refer to Petroleum reservoir.
Pyrobitumen. Any of various dark-colored, relatively Reservoir continuity. No interruption of a reservoir
hard, nonvolatile hydrocarbon substances often by faults, facies changes. or any other type of
associated with mineral matter, which decompose heterogeneity.
upon heating to yield bitumens. Residual 011 saturation. Following a recovery process,
Pyrolysis. The breaking apart of complex molecules the oil saturation at which oil will no longer flow in
into simpler units by the use ofheat, as in obtaining a normal immiscible water-oil system.
gasoline from heavy oil. Resin. Any of a class of solid or semisolid organic
Raw natural gas. Natural gas as it is produced from products of natural or synthetic origin with no
the reservoir prior to processing. It is gaseous at the definite melting point, generally of high molecular
conditions under which its volume is measured or weight; most resins are polymers.
estimated and may include varying amounts of Resistivity. The electrical resistance offered to the
heavier hydrocarbons (that may liquefy at atmos- passage of current; the inverse of conductivity.
pheric conditions) and water vapour. May also
Resistivity log. The measurement of subsurface
contain sulphur and other nonhydrocarbon com-
electrical resistivity accomplished either by send-
pounds. Raw natural gas is generally not suitable
ing current into the formation and measuring the
for end use.
ease of electrical flow or by inducing an electrical
Recovery - enhanced. A term that, in Canada, is current into the formation and measuring how large
equivalent to improved recovery. it is.
Risk. The probability ofloss or failure.

340
GLOSSARY

Salt dome intrusive. A subsurface mound or dome of Sonic log. A device that measures the time required for
salt. a sound wave to travel through a definite length of
Sandwich loss. The volume of oil remaining unswept formation. Refer to Acoustic log.
at the top of a reservoir after water flooding or at Sour gas. Natural gas that contains corrosive, sulphur-
the bottom of the reservoir after gas or miscible bearing compounds such as hydrogen sulphide,
flooding. sulphur dioxide, and mercaptans.
Saturation. Refer to Fluid Saturation. Specific gravity. The ratio of the density of a material
Saturated oil. Oil that contains all the gas that is to the density of some standard material, such
capable of dissolving given the compositions of as water at a specified temperature, 4'C or 60'F or
that oil and gas at the particular temperature and (for gases) air at standard conditions ofpressure and
pressure. temperature.
Saturation pressure. Also known as bubble-point Spontaneous potential. A recording of the difference
pressure; the pressure at which the first bubble of between the electrical potential of a movable elec-
gas comes out of solution. trode in the borehole and the electrical potential of
a fixed surface electrode.
Secondary recovery. Refer to Recovery-
secondary. Stock tank cubic metre. One cubic metre of oil at
standard temperature and atmospheric pressure.
Seismic. The measurement of the response to energy
waves travelling through rock layers. The energy Static gradient. Pressure measured in a wellbore at
waves may be created by earthquakes, explosives various depths while a well is shut in.
or by dropping or vibrating a heavy weight. Some Stratification. A structure produced by deposition of
energy is reflected whenever the waves cross an sediments in beds or layers (strata), laminae, lenses,
interface ofrock layers of distinctly different prop- wedges, and other essentially tabular units.
erties. Measurements can be made at the surface of Stratigraphic trap. A type of reservoir capable of
travel time, which may be related to depth, and wave holding oil or gas, in which the trap is formed by a
amplitude variations, which may relate to changes change in the characteristics of the formation-
in rock properties (porosity, etc.). which could be loss ofporosity and permeability or
Separator. An oilfield vessel or series of vessels in a break in its continuity.
which pressure is reduced so that the dissolved gas Stringer. A narrow vein or irregular filament of
associated with reservoir oil is flashed off or re- mineral traversing a rock mass of different
moved as a separate phase. Also known as gas materials.
separator, oilfield separator, oil-gas separator, and Structure map. A map showing contour lines drawn
oil separator. through points of equal elevation on a stratum, key
Shrinkage. The decrease in volume of a liquid phase bed, or horizon, in order to depict the attitude ofthe
caused by the release of solution gas or by the rocks.
thermal contraction of the liquid; the reciprocal of Structural trap. A type ofreservoir containing oil and!
formation volume factor. or gas, formed by deformation of the earth's crust
Shrinkage factor. The reciprocal of the formation that seals off the oil and gas accumulation in the
volume factor expressed as barrels of stock tank oil reservoir, forming a trap. Anticlines, salt domes, and
per barrel of reservoir oil. faulting of different kinds form structural traps.
Solution gas. Natural gas that is dissolved in crude Sulphur. As used in the petroleum industry, the
oil in the reservoir at original reservoir conditions elemental sulphur recovered by conversion of
and that is normally produced with the crude oil; hydrogen sulphide and other sulphur compounds
also known as dissolved gas. extracted from crude oil, natural gas or crude
Solvent flooding. Refer to Miscible flooding. bitumen.
Sonde. A logging tool assembly, especially the device Surface loss. The quantity of natural gas removed
at field processing plants as a result ofthe recovery
in the logging assembly, that senses and transmits
of liquids and related products and the removal of
formation data.
nonhydrocarbon compounds, plus the gas used for
fuel; also referred to as shrinkage.

341

-
DETERMINATION OFOILAND GASRESERVES

Surfactant. A soluble compound that reduces the Unconsolidated sand. A sand formation in who h
surface tension of liquids, or reduces interfacial individual grains are not cemented together. I/~
tension between two liquids or a liquid and a solid. unconsolidated sandstone produces oil or g
Sweep efficiency. The volume swept by a displacing it will produce sand if not controlled or correcte~'
fluid divided by the total volume being flooded. Undersaturated oil. Oil that is capable of absorbin
Sweet gas. A petroleum natural gas containing no more gas thanan is
IS nresenr g
present lin the reservoir. Under-
corrosive components, such as hydrogen sulphide, saturated ~i~ typically displays relatively low
sulphur dioxide, and mercaptans. compressibility and hence a rapid pressure decline
Synthetic crude oil. A mixture of hydrocarbons with production.
derived by upgrading crude bitumen from oil sands, Undersaturated oil reservoir. A reservoir that is above
and kerogen from oil shales or other substances the bubble-point pressure.
such as coal. May contain sulphur or other non- Ultimate potential recovery. A term sometimes used
hydrocarbon compounds and has many similarities to refer to an estimate at a particular time of the
to crude oil. initial reserves that will have become developed in
Tertiary recovery. Refer to Recovery - tertiary. an area by the time all exploratory and development
Thermal conductivity. The heat flow across a surface activity has ceased, having regard for the geologi-
per unit area per unit time, divided by the negative cal prospects of the area, the known technology,
of the rate of change of temperature with distance and the anticipated economic conditions. It includes
in a direction perpendicular to the surface. cumulative production; remaining proved, probable
and possible reserves; and future additions to re-
Tilts. Blocks that have received a marked tilt in regions
serves through extensions and revisions to existing
of block faulting. Regional tilts occur on the mar-
pools and the discovery of new pools. It may also
gins of basins of subsidence in the earth's crust.
be described as initial reserves plus those other re-
Tool resolution. The precision of a tool to investigate a sources that may be recoverable in the future.
given property.
Unitization. A term denoting the joint operation of
Transition zone. The interval directly above the free separately owned producing leases in a pool or
water level in a reservoir where capillary effects reservoir.
result in significant changes in water and hydro-
Upgrading. The process ofconverting crude bitumen
carbon saturations in response to pore structure
or heavy crude oil into synthetic crude oil.
variations and elevation.
Utilization rate. In an enhanced oil recovery process,
Transmissibility. The ability of a reservoir to conduct
the amount of gas or fluid injected per incremental
fluids spatially in response to pressure differentials. oil recovered.
Depends upon permeability and formation flow ge-
ometry. Production potential depends heavily upon Variability bias. An alteration in the shape of a
reservoir transmissibility. frequency distribution curve.
Trap. A mass of porous, permeable rock that is sealed Vertical sweep efficiency. The vertical fraction of
on top and down both flanks by nonporous, imper- reservoir swept by injected fluid.
meable rock that prevents the free migration of Vertical waterflood scheme. The injection of water at
hydrocarbons and concentrates them in a limited wells completed at the bottom of the formation; oil
space. production is from wells completed at the top ofthe
Uncertainty. The spectrum ofpossible outcomes of an formation.
evaluation. Vesicle. A cavity in lava formed by entrapment of a gas
Unconformity. Lack of continuity in deposition bubble during solidification.
between rock strata in contact with one another Viscous fingering. Faster advance ofa displacing phase
corresponding to a gap in the stratigraphic record; as compared to the displaced phase due to an
the surface of contact between rock beds in which unfavorable mobility ratio.
there is a discontinuity in the ages of the rocks.

342
GLOSSARY

Volumetric estimation. An estimate of hydrocarbon Water channelling. Preferential movement of water


or water volume based on a combination of volu- towards a wellbore due to unfavourable mobility
metric maps and other data which in total must ratio and pressure drawdown at the wellbore or due
account for the reservoir area, thickness, porosity, to the presence of higher permeability streaks.
and hydrocarbon and water saturation.
Waterflooding. An improved recovery process in which
Volumetric mapping. A contour map of a parameter water is injected into a reservoir to increase oil
or combination of parameters that relate to recovery.
reservoir volume.
Water injector. A well in which water has been
Voidage. The reservoir volume of hydrocarbons and injected into an underground stratum to increase
water removed from the formation via wellbores reservoir pressure.
during a term of producing operations.
Water saturation. Portion of the pore volume
Voidage replacement. The volume at reservoir occupied by water. .
conditions of fluids injected into a producing pool
Weighted-mean. The number obtained by multiplying
to offset fluid withdrawals during depletion.
each value of x by the probability (or probability
Voidage replacement ratio. The quotient of voidage density) ofx and then summing (orintegrating) over
replacement divided by reservoir voidage. the range of x.
Vugs. Pore spaces that are larger than would be expected Well density. The intensity of drilling in a given area.
from the normal fitting together of the grains that
Wetting phase. The liquid phase (oil, gas or water) that
compose the rock framework. Vugs are often formed "wets" reservoir rock.
during dolomitization.
Wire line. A rope composed of steel wires twisted into
strands that are in turn twisted around a central core
of hemp or other fiber to create a rope of great
strength and considerable flexibility; used as
drilling, coring, servicing, and winch lines.

343
BIBLIOGRAPHY

The following are additional recommended references that have not been cited in the text.

Determination of In-Place Resources Dullien, F.A.L. Porous Media Fluid Transport and
Alexander, L.G. "Theory and Practice ofthe Closed- Pore Structure. Academic Press, New York, NY,
Chamber Drillstem Test Method." 51st Annual 1979.
SPE Fall Technical Conference, New Orleans, Enderlin, M.B., Hansen, D.K.T., and Hoyt, B.R.
LA, SPE Paper No. 6024, 1976. ''The Role of Rock Volumes in Log to Core
AmericanPetroleum Institute. "Sampling Petroleum Integration." Paper presented at CWLS 12th
Reservoir Fluids." API RP 44, Washington, DC, Formation Evaluation Symposium, Calgary, AB,
1966. Sep. 1989.
Amyx, 1.W.,Bass, D.M., and Whiting, R.L. EnergyResources ConservationBoard. Gas Well
Petroleum Reservoir Engineering. McGraw-Hill, Testing Theory and Practice. Guide G-3,
New York, NY, 1960. Calgary, AB, 1979.
Archer,1.S. "Reservoir Volumetrics and Recovery - - - . Pressure and Deliverability Testing Oil and
Factors." In Developments in Petroleum Gas Wells. Guide G-40, Calgary, AB, 1990.
Engineering, Elsevier Science PublishingCo., Fatt, 1. "Effect of Overburden and Reservoir Pressure
NewYork,NY,1985. on Electrical Logging Formation Factor." AAPG
Bankhead, C.C., Jr. Processing of Geological and Bulletin, Vol. 41, No. II, 1957.
EngineeringData in Multipay Fields for Gatlin, C. Petroleum Engineering - Drilling and Well
Evaluation. Trans., AIME, Reprint Series #3, Completions. Prentice-Hall, Inc., Englewood
1970. Cliffs, NJ, 1969.
Bujnowicz, R. "PVT Data Generation, Reportingand Hensel, W.M. Jr., Honarpour, M.M., Sprunt, E.S., and
General Use." 39th Annual Tech. Meeting, York, C.E. "Compilation of Electrical Resistivity
Petroleum Society ofCIM, Calgary, AB, Paper Measurements Performed by Twenty-Five
No. 88-39-66, 1988. Laboratories." The Log Analyst, Jan.-Feb. 1988.
Calhoun,1.e., Jr. Fundamentals ofReservoir Hitchon, B. "Geothermal Gradients, Hydrodynamics
Engineering. University of OklahomaPress, and Hydrocarbon Occurrences,Alberta, Canada."
Norman, OK, 1947. AAPG Bull., Vol. 68. 1984.
Campbell, J.M., and Holander, D.P. "The Effect of International Human Resource DevelopmentCorp.
Pore Configuration,Pressure and Temperature on Video Library for Exploration & Production
Rock Resistivity." Paper presented at 7th Annual Specialists: Cranquist, C. "Reserves Estimation,"
SPWLA Logging Symposium, May 1966. PE508; Fowler, P.T., Hepburn, J.R., and Morrill,
Celbuliak, N., Hamp, T., Mayder, A., Shaw, 1., and D.C. "Subsurface Mapping," GLZ02; Bradley,
Vokey, G. "Coring for Connate Water Saturation M.E., and Anstey, H.A. "Seismic Contouring,"
- Utikuma Keg River Sandstone." JCPT, Nov. GP502; Boston, MA.
1990. James, S.C. "A Rapid Accurate Unsteady State
Core Laboratories. "Applications of Core Data in Klinkenberg Permeameter." SPEJ, No. 12, 1972.
Integrated Reservoir Description and Keelan, D.K. "A Critical Review of Core Analysis
Exploitation." Version 1.2, Calgary, AB, 1990. Techniques." Paper presented at 22nd Annual
Craft, B.C., and Hawkins, M.F. Petroleum Reservoir TechnicalMeeting of Petroleum Society ofCIM,
Engineering. Prentice-Hall, Inc., New York, NY, Banff, AB, Jun. 1971.
1959.

345
q

DETERMINATION OF Oil AND GASRESERVES

Link, P.K. Basic Petroleum Geology. OGCI Carbon Dioxide Flooding


Publications, Tulsa, OK, 1982.
Holm, L.W. "CO, Flooding: Its Time Has Come."
Maier, L.F. "Recent Developments in the JPT, Dec. 1982.
Interpretation and Application of DST Data."
Klins, M.A. Carbon Dioxide Flooding - Basic
JPT, Nov. 1962.
Mechanisms and Project Design. International
Majorowicz, J.A., Jones, F.W., and Jessop, A.M. Human Resource Development Corporation,
"Preliminary Geothermics ofthe Sedimentary Boston, MA, 1984.
Basins in the Yukon and Northwest Territories-
Mungan, N. "Carbon Dioxide Flooding _
Estimates from Petroleum Bottom-hole
Fundamentals." JCPT, Jan. - Mar., 1981.
Temperature Data." Bull. ofCan. Pet. Geol., Vol.
36,1988. - - - . "Carbon Dioxide Flooding - Applications."
JCPT, Nov. - Dec. 1982.
Majorowicz, J.A., Jones, F.W., Lam, H.L. and Jessop,
A.M. "The Variability of Heat Flow Both Stalkup, F.1. "Carbon Dioxide Miscible Flooding:
Regional and With Depth in Southern Alberta, Past, Present, and Outlook for the Future." JPT,
Canada: Effect of Groundwater Flow?" Aug. 1978.
Tectonophysics, Vol. 106, 1984. Crude Oil Markets
Mitchell-Tapping, H.J. "Porosity and Permeability Canadian Petroleum Association. 1991 Statistical
Relationship to Cleaning Effectiveness in Whole Handbook. Calgary, AB, 1992.
Core Analyses." Log Analyst, May-Jun. 1982.
Energy Resources Conservation Board. Alberta
Murphy, R.P., and Owens, W.W. "The Use of Special Energy Resource Industries. Monthly Statistics,
Coring and Logging Procedures for Defining Calgary, AB.
Reservoir Residual Oil Saturations." JPT, 1973.
- - - . Selected Statistics and Forecasts. Calgary,
Ruth, D.W., and Kenny, J. "The Unsteady State Gas AB,1991.
Permeameter." 38th Annual Technical Meeting,
Petroleum Monitoring Agency Canada. Canadian
Petroleum Society of CIM, Calgary, AB, Paper
Petroleum Industry. 1991 Monitoring Report.
87-38-52, Jun. 1987.
Minister of Supply and Services Canada, Cat. No.
Scheidegger, A.E. The Physics ofFlow Through M2722/1991-2E, ISBN 0-662-19847-6, 1992.
Porous Media (3rd ed.). University of Toronto,
Statistics Canada. The Crude Petroleum and Natural
Toronto, ON, 1960.
Gas Industry. Minister of Industry, Science and
Schlumberger. "Roundtable: Strategies for Thin-Bed Technology, Cat. No.26-213 Annual, ISSN
Formation Evaluation." Oilfield Review, Jul. 0068-7103,1992.
1991.
Scholle, P.A., Bebout, D.G., and Moore, C.H. (ed.). Hydrocarbon Miscible Flooding
"Carbonate Depositional Environments." AAPG, Blackwell, R.J., Wall, T., Rayna, J.R., Lindley, D.C.,
Memoir 33, 1983. and Anderson, J.R. "Recovery of Oil by
Schowalter, T.T. "Mechanics of Secondary Displacement with Water Solvent Mixtures."
Trans., AIME, Vol. 21,1960.
Hydrocarbon Migration and Entrapment." AAPG
Bulletin, Vol. 63, No.5, May 1979. Brigham, W.E., Reed, P.W., and Dew, J.N.
Scientific Software. Reservoir Engineering Manual. "Experiments on Mixing During Miscible
Displacement in Porous Media." Trans., AIME,
NTIS PB - 247-806. 1975.
Vol. 222; SPEJ, Mar. 1961.
Walker, R.G. (ed.). "Facies Models." Geoscience
Canada. Reprint Series I, 1979. Claridge, E.L. "Prediction of Recovery in Unstable
Miscible Flooding." SPEJ, Apr. 1972.
Worthington, P.F. "Effective Integration of Core and
- - - . "Design of Graded Viscosity Banks
Log Data." SCA Conference, Paper No. 9102,
for Enhanced Recovery Processes." Ph. D.
1991.
Dissertation, University of Houston, Houston,
TX, Jul. 1979.

346

r
BIBLIOGRAPHY

Craig, F.E. Jr. "A Laboratory Study of Gravity Pozzi, A.C., and Blackwell, R.J. "Design of
Segregation in Frontal Drives." Trans., AIME. Laboratory Models for Study of Miscible
Vol. 210,1957. Displacement." SPEJ, Mar. 1963.
Gardner, A.a., Jr., Peaceman, D.W. and Pozzi, A.L. Shelton, J.L. and Yarborough, L. "Multiple Phase
Jr. "Numerical Calculation of Multiple Behaviour in Porous Media During CO, or Rich
Dimensional Miscible Displacement by the Gas Flooding." JPT, Sep. 1977.
Method of Characteristics." SPEJ, Mar. 1964.
Koval, E.J. "A Method for Predicting the Thermal Stimulation
Performance of Unstable Miscible Displacement Edmunds, N.R. "An Analytical Model of the Steam
in Heterogeneous Media." Trans., AIME, Vol. Drag Affecting Oil Sands." Paper presented at the
228; SPEJ, Jun. 1963. 34th Annual CIM Technical Meeting, Banff, AB,
May 1983.
Peaceman, D.W., and Rachford, H.H., Jr. "Numerical
Calculation of Multi-dimensional Miscible
Displacement." Trans., AIME, Vol. 225; SPEJ,
Dec. 1962.

347
-
AUTHOR INDEX

Abdassah,D., 234, 235 Bowers, B., 205, 209,212 Conn, R.F., 243, 246, 249
Abramowitz, M., t93, 196 Boyd, W.E., 153 Cook, A.B., 96, 100
Adamache, I., 179, 180 Bozac, P.G., 176, 181 Coonibie, D., 188-190, 198
Adams, R.H., 188, 196 Brigham, W.E., 346 Cooper, H.E., 176, 181
Agbi, B., 227, 235 British Columbia Ministry of Energy, Mines CoreLaboratories, 345
Aguilera, R. 214, 220 andPetroleum Resources, 257.265 Cornelius, A.J., 139, 144
Aitcheson, 1,107,119,232,235 Broomhall,R.W., 179, 181 Cornell, D., 146, 153
Alberta Energy,257-259, 265 Brown, J.A.C., 107, 119,232,235 Cornish, R.G., 179, 182
Alberta Petroleum Marketing Commission, Brown, S.L., 188, 199 Craft, B.C., 97, '100, 125, 127, 147, 153,
291,293,296 Bruskotter, J.F. 152, 153 345
Alexander, L.G., 345 Buckles, R.S., 102,105, 188, 197 Craig, F.E., Jr., 347
Ali, S.M., 190, 196 Bujnowicz, R., 345 Craig, F.F., 138, 144, 155-161, 164, 169,
Amaefule, J.O., 48, 52 Burger,D.H., 179,181 176,180,185
American Petroleum Institute, 53, 54, 55, Burns, lA., 188, 197 Crawford, P.B., 168, 169, 188, 197
64,78,80,237,249,345 Bursell, C.G., 190, 197 Crawly, A., 177, 180
Amyx, J.W., 96, 100, 345 Buskirk, D.L., t79, 180 Crichlow, H.B., 214, 220
Anderson,J.H., 179, 180 Butler,R.M., t88, 189,191, 194, 197,207, Cronquist, C., 83, 85
Anderson,J.R., 346 208,212 Crovelli, R.A., 277, 279
Anderson,W.G., 161, 169 Butler, S., 179, t80 Curran, R., 255, 265
Archer,J.S., 345
Archie,G.E., 66, 74 Calhoun, i.c, Jr., 345 Dalton, R.L., 214, 221
Aronofsky,lS., 167-169 Campbell, A.D., 271, 279 Danielsen, C.L., 153
Arps, J,J., 224, 225, 235, 238, 249 Campbell,J.M., 268, 278, 279, 345 Dardaganian, S.G., 161, 169
Arshi, A.A., 294, 296 Canadian Petroleum Association, 346 Davis, J.C., 275, 279
Asgarpour, S.S., 177-180,206,213 Canadian Well Logging Society,79, 80 Davis, M.I., 228, 236
Attanasi, E.D., 279, 280 Cao, S., 85 Davis, R., 179, 180
Au, A.D.K., 215, 220 Capen,E.C., 108, It9, 274, 279 Dawson,A.G., 179, 180
Aziz, K., 92, 95,187,188, t92, 197,214, Card, C., t78, 180 de Swaan, A., 167, 169
215,220 Cardwell, W.T., 188, 197 Deans, H.A., 175, 181
Carter, R.D., 125, 127, 138, 144, 153, 164, Deeds, C.T., 188, 190, 199
Babu, D.K., 207, 212 169,170,176,181,185 Deming, D., 82, 83, 85
Balay, R.H., 277, 279 Celbuliak,N., 345 Dempsey,J.R., 217, 220
Bankhead, C.C., Jr., 345 Chaney, P.E., 139, 144 Denbina, E.S., 188, 197
Barclay,J.E., 232, 236, 243, 246, 250, 278, Chaperon.L, 207, 212 Derocco, M., 188, 189, 198
280 Chapman, D.S., 82, 83, 85 Des Brisay, e.L., 139, 144
Bass, D.M., 96, 100, 345 Chase, C.A., 214, 220, 221 Dew, J.N., 346
Bebout, D.G., 346 Chen, S.M., 178, 180 Dietz, D.N., 138, 140, 144
Beeler, P.F., 179, 180 ChevronCanada Resources, 94, 96, 97 Dillabough,lA., 189, 197
Behie, A., 215, 220 Chierici, G.L., 139, t44 Dolton, G.L., 279
Belvins,T.R., 188, 190, 197, 198 Chin, T., 96, 100 Dore, T.L., 195, 198
Belyea, H.R., 188, 197 Chinna, H., 190, 198 Doscher, T.M., 188, 197
Bennett, F.. 179, 180 Christian,L.D., 153 Dranchuk, P.M., 92, 95
Bielecki,1, 205, 209, 212 Christie, D.S., 212, 213 Drew, L.J., 268, 278, 279
Bilozer, D.E., 179, 180 Christie,J.A., 243, 246, 249 Duerkson,J.H., 188, 189, 198
Bird, K.I., 279 Chu, C., 190, 197 Dugdale, P.I., 194, 197
Blackwell,R.I., 235, 236, 346, 347 Ciucci, G.M., 139, 144 Duggan, J.O., 148, 153
Bloy, G., 179,180 Claridge,E.L., 176, 180,346 Dullien, F.A.L., 345
Boberg, T.C., 188, 197 Clark, I., 275, 279 Durrant, A.I., 187, 197
Bobrowski, F.P., 96, 100 Clark, N.I., 145, 153 Dyes, A.B., 168, 170, 176, 181, 185
Bodily, S.E., 108, 119 Closmann,P.J., 188, 190, 199 Dykstra, H., 188, 197
Bokhari,S.W., 179, 181 Coats, K.H., 188, 198,214,217,220
Bournazel, C., 139, 144 Collins, R.E., 168, 169 Edmunds, N.R., 347
Bousaid, 1., 195, 198 ComputalogGearhartLtd., 49, 52 Elenbass, r.a., 146, 153
Elfrink, E.B., 137, 144

349
DETERMINATION OF OIL AND GAS RESERVES

Ellis, H.E., 137, 144 Hitchon, B., 345 Lantz, R.B., 188, 197
Enderlin, M.B., 345 Hahn, M.E., 275, 279 Laurie, R.A., 179, 180
Energy Resources Conservation Board, 82, Holander, D.P., 345 Lee, P.J., 232, 236, 243, 246, 250, 278, 279
85,102,105,152,153,161,170,237, Holm, L.W., 204, 346 280 '
240,241,249,253,345,346 Honarpour, M.M., 345 Leighton, AJ., 164, 170
Energy, MinesandResources Canada, 290, Home, A.L., 179, 181 Lerche, I., 85
291,296 Home, J.S., 195, 198 Leverett, M.C., 69, 74
Enger, S.R., 179, 181 Homer, D.R., 87, 90 Lewis, D., 179, 180
Erikson, R.A., 176, 181, 185 Houghton, J.e., 279 Lindley, D.C., 346
Ershagi, 1., 234, 235 Howe, G.R., 176, 181 Link, P.K., 346
Espiritu, R., 208, 212 Hoyt, B.P., 345 La, H.Y., 188, 191, 194, 197, 198
Hurst, W., 125, 127, 138, 144 Loder, W.R., 179, 180
Fabes, L., 194, 197 Hutchinson, C.A., 124, 127 Lohec, R.E., 234, 236
Farouq Ali, S.M., 187, 188, 197 Hutchinson, T.S. 138, 144 Long, D.R., 228,236
Farquharson, R.G., 194, 197
Longstaff, WJ., 178, 182,214,221
Fatt, 1., 345 ' International Human Resource Lowe, K., 188-190, 198
Fetkovich, MJ., 230, 235 Development Corp., 345 Lusztig, P.A., 264, 265
Flach, P.O., 209, 212, 213 Isaaks, E.H., 275, 279
Fang, O.K., 179, 181 Ivory, J., 188, 189, 198 Ma, T.D., 179, 181
Fontanilla, J.P., 187, 197 MacDonald, A.J., 207, 212
Freeborn, R., 207, 212 Jack, H.H., 215, 221 Mahaffey, J.L., 176, 181
Frydl, P.M., 179, 180 Jackson, D.D., 179, 180 Maier, L.F., 346
James, S.G., 345 Mainland, G.G., 188, 198
Garb, FA, 266, 269, 277, 279 Jeanson, B., 139, 144 Majoros,S., 175, 181
Gardner, A.a., Jr., 347 Jenkins, G.R., 194, 196, 198 Majorowicz, J.A., 82, 83, 85, 346
Gas Processors Suppliers Association, 91, Jenkins, M.K., 176, 181 Mallimes, R.M., 179, 181
95,151,153 Jessop, A.M., 346 Marschall, D.M., 48, 52
Gates, C.F., 194, 197 Johnson, W.M., 188, 198 Marshal, D., 138, 144
Gatlin, C., 345 Jones, F.W., 82-85, 346 Martinsen, R., 207, 212
Geffen, T.M., 185 Joshi, S.D., 206-209, 212 Marx, J.W., 191, 198
Gentry, R.W., 224, 225, 227, 235 Jung, K.D., 194, 197 Masse, L., 167-169
Geoghegan, J.G., 179, 180 Mast, R.F., 279, 280
Geotechnical Resources Ltd., 56, 64 Kadane, K.B., 274, 279
Masters, C., 278, 279
Gilman, J.R., 215, 221 Kahneman, D., 266, 280
Katz, D.L., 96, 100, 146, 153 Mathews, C.W., 176, 181
Gontijo, J.E., 188, 192, 197 Mattax, c.c., 167, 170,214,215,221
Goodrich, J.H., 152, 153 Kazemi, H., 215, 221
Mayder, A., 345
Gould, T.L., 160, 170 Keefer, D.L., 108, 119
McCord, D.R., 96, 100
Griffith, J.D., 179, 181 Keelan, D.K., 48, 52, 345
McCray, AW., 266, 274-278, 280
Guerrero, E.T., 150, 153,238,249 Kemp, C.E., 138, 144, 168, 170
McCrossan, R.G., 239, 249
Kennedy,P., 179, 180
Habermann, B., 176, 181 Kenny, J., 346 Mcintyre, FJ., 171, 180, 181
Hamblin, A.P., 232, 236, 243, 246, 250, McKibbon, J.H., 126, 127, 194, 196, 198
Kersey, D.G., 48, 52
278,280 McNab, G.S., 188, 191, 194, 197
Khallad, A., 188, 194, 197, 199
Hamp, T., 345 Mead, N.H., 224, 235
Khan, A.M., 188, 196
Hamilton, J.M., 62, 64 Khan, A.R. 138, 144 Megill, R.E., 275, 278, 280
Hankinson, R.W., 92, 95 Kimbler, O.K., 176, 181 Mehra, R.K., 194, 198
Hanna, M., 194, 198 Meisingset, K.K., 85
Kirkpatrick, J.W., 194, 196, 198
Hanson, O.K.T., 345 Meldau, R.F., 190, 196, 198
Klins, M.A., 204, 346
Merrick, RJ., 153
Haun, J.D., 278, 279 Kobayashi, R., 146, 153
Metwally, M., 194, 198
Havlena, D., 126. 127 Koval, EJ., 176, 181,347
Miller, B.M., 278, 280
Hawkins, M.F., 97,100,125,127,147, Krukowski, J.V., 261, 265
Miller, C., 257, 265
153,345 Kuhme, A., 179, 180
Mitchel-Tapping, HJ., 346
Henderson, J.H., 217,220 Kular, G. 188-190, 198
Mollins, L.D., 137, 144
Henley, D., 138, 144 Kuo, M.C.T., 139, 144, 161, 170,208,212
Moore, C.H., 346
Hensel, W.M., Jr., 345 Kyte,J.R., 167,170
Moore, D.W., 185
Henson, W.L., 139, 144
Lai, F.S.Y., 179, 181 Morse, RA, 185
Hermanrud, C., 85
Lake, J.W., 214, 221 Mosteller, F., 274, 280
Herring, T.R., 207, 212
La1, F.S., 179, 182 Mukherjee, D., 180, 181
Heseldin, G.M., 68, 74
Lam, H.L., 82-85, 346 Mungan, N., 204, 346
Heyse1, M., 208, 212
Langenheim, R.W., 191, 198 Murphy, R.P., 346
Higgins, R.V., 164, 170

350
AUTHOR INDEX

Muskat, M., 137, 139, 144 Ramey, H.J., 188, 199 Slider, H.C., 158, 160, 170, 226, 236
Mutalik, P., 206, 207, 213 Rawlins, E.L., 151, 153 Sluijk, D., 278, 280
Myhill, N.A., 190, 191, 198 Rayna, J.R., 346 Smith, L.B., 195, 198
Reed, P.W., 346 Smith, L.R., 152, 153
Nagel, R.G., 179, 181 Reinbold, E.W., 179, 181 Smith, O.J.E., 215, 221
Natanson, S.G., 167-169 Reisz, M.R., 211, 212 Smits, L.J.M., 72, 74
National Energy Board, 289, 290, 294-296 Renke, S.M., 179, 181 Sobocinski, D.P., 139, 144
National Energy Board Act, 290, 296 Rice, D.D., 278, 280 Sorensen, L.E., 179, 181
Newendorp, P., 266, 274-278, 280 Rice, T.D., 139, 144 Spencer, G.B., 96,100
Ng, M.C., 227, 235 Richardson, J.G., 235, 236 Spetzeler, c., 269, 280
Nieman, R.E., 179, 181 Roberts, T.G., 137, 144 Springer, S.J., 178, 180,206,209,213
Noble, M.D., 139, 144 Robertson, S., 228, 236 Sprinkle, T.L., 153
Nolen, J.S., 214, 221 Robinson, D.B., 92, 95 Sprunt, E.S., 345
Robinson, J.G., 266, 280 Srivastava, R.M., 275, 279
Odeh, A.S., 126, 127,207,212
Oglesby, KD.,,188, 198
Rock, N.M.S., 275, 280 Stael von Holstein, c., 269, 280
Roebuck, LF., 185 Stalkup, F.L, 175, 181,204,346
Okazawa, T., 176, 179, 181
Rogers, E.E., 188, 198 Standing, M.B., 92, 93, 95, 96, 100
Olynyk, J., 178, 180
Osadetz, KG., 232, 236, 243, 246, 250,
Romney, G.A., 194, 196, 198 Statistics Canada. 346
Root, D.H., 279, 280 Stegeimeier, G.L., 190, 191, 198
278,280
Root, P.J., 214, 221 Stegun, LA., 193, 196
Owens, W.W., 138, 144,346
Rotter, M.B., 188, 197 Stewart, J.M., 62, 64
O'Dell, S., 257, 265
Rubin, 8., 215, 220 Stiff, H.A., 79, 80
PanCanadian Petroleum Ltd., 59, 60, 68, 70 Russell, B., 207, 208, 213 Stiles, W.E., 186
Papatzcos, P., 207, 212 Russell, D.G., 152, 153 Stoian, E., 247, 250
Papst, W., 178, 180 Ruth, D.W., 346 Stokes, D.D., 190, 198
Parker, J.R., 278, 280 Rutherford, W.M., 176, 181 Stone, H,L., 176, 181,216,221
Parson, R.L., 188, 197 Suffridge, F.E., 189, 196
Saizew, H., 194, 197 Suprunowicz, R., 208, 212
Patel, R.S., 179, 181
Sander, P.R., 189, 190, 198 Surface, R.A., 194, 197
Patzek, T.W., 189, 198
Sanderlin,J.L., 185
Paxman, D.S., 126, 127
Sarern, A.M.S., 160, 170 Tarvydas, R., 257, 265
Pearse, J., 257, 265
Saskatchewan Energy and Mines, 257, 265 Taylor, o.c, 232, 236, 243, 246, 250, 278,
Peggs, J.K., 179, 181
Scheidegger, A.E., 346 280
Perry, G.E., 152, 153
Schellhardt, M.A., 151, 153 Taylor, H.G., 179, 182
Petroleum Communication Foundation,
Schilthuis, R.J., 125, 127, 137, 138, 144 Telford, A.S., 247, 250
287,296
Schlumberger of Canada, 44, 52 Thambynayagam, C., 187, 197
Petroleum Monitoring AgencyCanada, 346
Schlumberger, 64, 67, 72, 74, 346 Thele, K.J., 214, 221
Phillips, K.A., 92, 95
Schoemaker, R.P., 225, 226, 235 Thomas, H.K., 92, 95
Pirson, S.J., 137, 144, 185
Schoeppel, R.I., 165, 170 Thornton, R.W., 194, 197
Pittman, G.M., 190, 197
Scholle, P.A., 346 Tiffin, D.L., 178, 181
Pizzi, G., 139, 144
Schowalter, T.T., 346 Todd, M.R., 177, 178, 180, 182,214,220,
Ploeg,J.F., 188, 189, 198
Schuenemeyer, J.H., 279 221
Podruski, J.A., 232, 236, 243, 246, 250,
Schwab, B., 264, 265 Towson, D., 186, 199
278,280
Scientific Software, 346 Tracy, G.W., 125, 127, 137, 144
Poettman,F.H., 146, 153
Scott, G.C., 212, 213 Trimble, A.E., 190, 197
Poon, D.C., 207, 212
Scott, G.R., 292, 296 Tsang, P.W., 179, 181
Pope, J.A., 178, 180
Scott, K., 188, 189, 198 Tversky, A., 266, 280
Porter, KE., 212, 213
See,D.L., 179, 181
Pow, M., 179, 180 University of Calgary and Canadian
Sepehrnoori, K., 214, 221
Powell, J.D., 48,52 Petroleum Tax Society, 262, 265
Seto, A.C., 176, 181
Pozzi, A.L., 347
Settari, A., 214, 215, 220
Prats, M.A., 188, 189, 193, 197, 198 Valencia, L.E., 48, 52
Shaw, J., 345 Van Dijk, c., 190, 199
Pritchard, D.W.L., 179, 181
Shell Development Company, 51, 52, 71, 74
Procter, R.M., 232, 236, 243, 246, 250, 278, Van Everdingen, A. F., 125, 127
Shepherd, D.W., 188, 198
280 Van Regan, N., 179, 180
Shelton, J.L., 347 Vary, J.A., 146, 153
Province of Alberta, 257, 258, 265
Shipley, R.G., 188, 198 Vinsome, P.K.W., 215, 220
Pursley, S.A., 188, 198
Shreve, D.R., 185, 186
Purvis, R.A., 92, 95, 229, 231, 236 Vogel, J.V., 190, 191, 199
Silberberg, LH., 138, 144 Vokey, G., 345
Rachford, H.H., Jr., 347 Singhal, A.K., 178, 180,206,213
Railroad Commission of Texas, 152, 153 Skjaeveland, S.M., 207, 212 Wahl, W.L., 137, 144

351
c

Walker, R,G" 346 Welge, H,J., 138, 140, 144, 185, 186 Wood, K.N., 179, 182
Wall, T., 346 Whiting, R.L., 96, 100, 345 Woodford, R.B., 179, 182
Wang, P.C.C., 278, 279 Wichert, E., 92, 95 Worthington, P.F., 346
Warren, A., 248, 250 Willhite, G.P., ISS, 158, 170, 187, 199 Wuckoff, R.D., 139, 144
Warren, I.E., 107, 116, 119,214,221 Williams, R.L., 188, 199
Wattenburger, R.A., 207, 208, 213 Witte, M.D., 164, 169 Yang, W., 207, 208, 213
Waxman, M.H., 72, 74,188,190,199 Wong, A., 194, 196, 198 Yarborough, L., 152, 153,347
Weinaug, C.F., 146, 153 Wong, F.Y., 179, 181 York, C.E., 345
Weinmeister, M., 42, 43 Wong, T., 178, 180 Youngren, G.K., 214, 221
Welch, L.W., 185, 186 Youtz, c, 274, 280
SUBJECT INDEX

abandonment, 264 approach bottom-hole


abandonmentpressure, 148, 247 absolute minimum/maximum pressure, 49
absolute minimum/maximum value value, 107 temperature, 49, 81
approach, 107 single-value, 106 bottom-water drive, 239
absolnteopen flow test, 77 aquifers, 124 break-through
absolute permeability, 216 Archie equation, 66, 69 carbon dioxide flooding, 203
acceleration project, 310 area-weighted average, 90 ratio, 177
accounting areal extent, 112 bubblepoint, 97
full-cost, 316 areal sweep efficiencies, 167-168 Butler model, 194
successful-efforts, 317 areal yield methods, 278 by-product. See related product.
accounting requirements, 316 arithmeticaverage, 90
acoustic log, 57 arithmetic method, 8 calculation
acquisition asphaltenes in carbon dioxide of initial solution gas in place, 29
of data, 46, 55, 96 flooding, 203 of oil in place, 28
acquisition of data, 35 associated gas, 29, 145 calendar-day rate
actual value, 268 associated gas reserves, 150 definition of, 223
additives, 189 assumptions, 120 caliper method, 57
adjustedattributedCanadianroyalties constant reservoir volume, 121 call option, 295
and taxes, 260 constant temperature, 121 Canadian
age, 258 material balance, 121 crude oil exports, 291
aggregators, 297 pressure equilibrium, 121 development expense, 261
Alberta agencies, 281 reliableproduction data, 121 exploration anddevelopment overhead
Albertaroyalty tax credit, 260 representative PVT data, 121 expense, 263
allocationfactors, 223 attributedCanadianroyaltyincome, 259 exploration expense, 261
analogous auditing evaluations, 314 oil andgas property expense, 261
fields, 36 average refining, 290
pool, 249 Albertamarketprice, 257 capillaryeffects, 37
pools, 163 area-weighted, 90 capillarypressure, 27, 67
reservoir, 22 arithmetic, 90 data, 216
analogous reservoirs, 17 porosity, 216 capital cost allowance, 263
analogy, 132, 244 recovery factors, 240 capital costs, 256
geologic, 278 reservoir pressure, 89 carbon dioxide
analysis volume-weighted, 90 availability and cost, 202
compositional, 77. 80 flooding, 200, 202
decline, 132, 136, 137, 139, 162 backpressure testing, 152 carbonate
Homer, 88 balancesheet, 263 plugging in carbon dioxide
of data, 36, 82, 96 barrelsof oil equivalent, 318 flooding, 203
pressure transient, 36 best estimate, 11 pools, 242
PVT, 77 bias, 268 carried interest, 254
statistical, 107 central, 269 cash flow, 253, 255
volumetric, 158 cognitive, 271 causesof failure
Warren's probability, 107 displacement, 269 in situcombustion process, 196
analytical motivational, 269 ceiling tests, 316
methods, 137, 138, 140, 156 variability, 269 central tendency, 240
performance predictions, 164 bitumen, 46, 72, 103, 187 characteristics
transient type curves, 230 black oil flow, 75
water influx models, 124 simulation, 177 hydrocarbon, 131
apparatus simulators, 214 of natural gas, 145
Dean Stark, 65, 66 borehole environments, 49 reservoir, 131
rising bubble, 174 borrowing, 314 chasegas slug size, 178
bottom water, 190 chemicalmethod, 65-66

353

DETERMINATION OF OIL AND GASRESERVES

classification permeabilityfrom, 101 daily rates, 222


empirical, 273 porosity data. 58 D' Arcy's Law, 53
of cumulative production, 7 porosity from. 101 data
of miscible hydrocarbon reserves, 179 saturations from, 102 acquisition of. 35, 46
of reserves, 4 coring analysis of, 36, 58, 82
of resources, 4 oil-base, 65 capillary pressure. 216
clastic pools, 242 correlation of log and coreporosity, 62 coreporosity, 58
clay corrosion interpretation of, 48
Dual Water Model, 72 in carbon dioxide flooding, 203 pressure buildup, 86
presence of, 72 costs production and well, 216-217
swelling, 54 capital, 256 PVT, 120
closed-chamberdrillstem tests, 75 facility operating, 256 quality of, 85
combination field, 256 reliability of, 31, 63, 101, 121,
drive, 134, 135, 140 finding, 317 136, 157, 237
of forward combustion and general andadministrative, 256 rock compressibility, 216
waterflooding, 195 intangible, 263 seismic, 35
combined operating. 256 source of, 31, 81
methods, 278 replacement, 317 data acquisition. 58
thermal drive, 195 sunk. 309 database, 57, 168, 237
combustion process tangible, 263 Energy Resources Conservation
enriched air, 195 well abandonment. 256 Board, 58
in situ, 194 Craig-Geffen-Morse Method, 164 Dean Stark
commodity pricing, 253 cresting apparatus, 56, 65, 66
compaction drive, 134 coning and, 207 technique, 65
company loss, 207 decision matrices, 276
grossremaining reserves. 7 cross-contouring, 39 decision trees, 277
netremaining reserves, 7 cross-plot decline
compositional neutron-density. 58 analysis, 136, 137, 139, 162
analysis, 77, 80 Crown exponential, 20, 225-226
simulator, 177, 214 interest, 254 harmonic, 20, 229
compressibility factor, 28 royalty, 7-8 hyperbolic, 226-229
fornatural gases. 93 crude oil declinecurve
computer mapping, 42 conventional, 287 analysis, 18, 132
computer simulation density of conventional, 241 definition of, 223
Monte Carlo, 107, 206 exports methods for a group of wells, 231
computer solutions, 127 Canadian, 291 methods for a single well, 224
conditions light, 287 source of data for, 222
in situ, 63 markets, 253, 287 deficiencies, 308
confidence level. 9 nonconventional, 288 defining net pay, 45
conformance efficiency, 160, 163 oxidation of, 195 degree of uncertainty, 266
conical steam zone model, 191 prices, 255 Delphi Method, 274, 278
coningand cresting, 207 production, 288 density
connate water saturation, 65 royalty, 258 log, 57
conservation controls, 283 cumulative production. 7 of conventional crude oil. 241
Conservation of Mass curve depletion
Law of, 149 relative frequency, 30 calculations, 317
Conservation of Matter curves immature, 157
Law of, 120 analyticaltransienttype, 230 mechanism, 206
constant empirical depletiontype, 230 depletion strategy, 131
reservoir volume. 121 cutcurves planning, 132
temperature, 121 definition of, 223 purpose, 131
constant andvariable rate test, 77 cutoff values, 28 depositional environments, 36, 242
contacts cutoffs deregulation, 291, 298
fluid, 48 permeability, 46 Canadian, 299
tilted oil-water, 38 porosity, 45 United States, 299
conventional crude oil, 287 cutoffs, 102 deterministic procedure, 8, J(}-II, 30
core, 45, 47. 50 cyclic steam stimulation, 187 developed
analysis. 55 cycling nonproducing reserves, 6
markets, 297 of gas condensate reservoirs, 152 producing reserves, 6
oil-base, 102 reserves, 6

354
SUBJECT INDEX

dew-point reservoirs, 146 sensitivity cases, 8 errors


diagenesis, 37 uncertainty, 266 in logs andcore analysis, 64
diagram economic conditions, 8 in material balance method, 123
multi-contact ternary, 174 economically recoverable reserves, 253 sources of, 123, 268
P-X, 173 economics, 206 estimate
ternary, 173 edge water drive, 239 best, 11
Dietz Method, 138, 140 effect single, 11
differentialliberation, 97 Forcheimer, 53 single-value, 107
process, 97 K1inkenberg, 53 volumetric, 106
test, 79 effective estimated value, 268
dimensionless solutions, 230 net pay, 102 estimates
dippingfaults, 39 permeability, 53 material balance, 30
discount porous zone, 102 refinement of volumetric, 43
rate, 264 porous zones, 103 uses of resource, 31
discounted efficiencies volumetric 27
net profit before investment areal sweep, 167-168 estimation of uncertainties, 178
distribution, 116 displacement, 167, 201 evaluation
return on investment, 308 vertical sweep, 167-168 of explorationwells, 313
discovered resources, 5 efficiency of undeveloped lands, 278
displacement areal sweep, 202 of unexploredlands, 313
efficiency, 167, 175, 201 conformance, 160, 163 evaluators, 11, 31, 34, 315
process, 154 displacement, 175, 201 expansion drive, 239
domestic needs, 284 recovery, 203 expectation, 266
drainage volume, 72 vertical sweep, 202 experimental methods
drawdown test, 77 volumetric sweep, 177, 202 miscibility, 173
drilling electrical exponential decline, 20, 225-226
incentives, 285 conductivity, 27 exports
rotary, 75 method, 65-66 to the USA, 286
drillstemtest, 75, 104 electromagnetic heating, 196 extraction, 201
closed-chamber, 75 empiricalclassification, 273
open-hole, 72 empiricaldepletion type curves, 230 facility
drive energy equivalence, 9 operating costs, 256
bottom-water, 239 energyequivalent, 318 sizing, 142
combination, 134, 135, 140 Energy Resources Conservation factor
combinedthermal, 195 Board, 58, 281 average recovery, 240
compaction, 134 coreand cuttings storage, 58 compressibility, 28
dissolvedgas, 201 reserve database, 237 formation, 66
edge water, 239 engineering uncertainty, 266 formation volume, 28, 105, 122
expansion, 239 enhanced gas compressibility, 28, 91, 105
gas cap, 134, 140, 239 gas recovery, 153 gas deviation, 91, 113
gravitysegregation, 238 oil recovery, 131, 171 gas formation volume, 91, 94
solutiongas, 133, 207, 238 oil recovery simulators, 214 oil formation volume, 96
steam, 195 enriched aircombustion process, 195 oil recovery, 239
water, 134, 137 environment recovery, 17, 31, 168, 210
drive mechanism, 147 regulatory, 253 shrinkage, 96
natural, 247 environments failure
drive mechanisms borehole, 49 cyclic steam stimulation andsteam flood
natural, 238 depositional, 36, 242 process, 190, 196
primary, 238 equation fair market value, 312
dry gas, 152 Archie, 66, 69 faults
reservoirs, 145 material balance, 17, 120, 122 dipping, 39
Dual Water Model, 72 of state, 178 FederalCompetition Act, 285
dual-porosity formulation, 214 volumetric, 108, 158, 175 federal government, 281
dynamic implicitmethod, 215 WylieTime-Average, 58 fence option, 295
equivalent field
earned depletion, 263 barrels of oil, 318 costs, 256
economic energy, 318 examples, 188
development, 282 gas, 9 field performance
evaluations, 119 oil, 9 of miscible floods, 179
limit, 142 financial statements, 263

355
a

DETERMINATION OFOILAND GASRESERVES

finding costs, 317 future play, 243


fines migration, 53 initial volumes in place, 5 uncertainty, 266
finite-difference method, 215 unrecoverable volumes, 5 Geological Surveyof Canada, 282
first-contact miscible process, 172 future initial reserves, 5 geophysicallog method, 65
fiscal policies, 285 futures, 294-295 glaze, 101
flash liberation process, 97 going concern value, 311
flash liberation test, 79 gas
government agencies, 32
flood analyses, 78
governments, 306
oil saturation at the start of, 160 associated, 29, 145 federal, 281
flooding compressibility factor, 28, 91, 105 " provincial, 281
carbon dioxide, 200, 202 cost allowance, 258 gravity, 258, 287
hydrocarbon miscible, 171 cresting, 208 gravity override, 195
micellar, 154, 168 deliverability forecasting, 151 gravity segregation drive, 238
polyroer, 154, 168 deviation factor, 91, 113 grid
floods dry, 145, 152 block orientation, 166
horizontal, 162 equivalent, 9
block sizing, 166
horizontal miscible, 172 expansion method, 57 design, 217
vertical miscible, 171 flow rate, 151 gross
flow formation volume factor, 91, 94
overridingroyalty, 254
characteristics, 75 marketers, 306, 307 pay, 44
distribution, 206 new, 257 remaining reserves, 7
regimes, 72 nonassociated, 29, 145 reservoir, 44
tests, 36, 46, 70 old, 257 swept volume, 160
fluid permeabilities, 53
contacts, 48 permeability, 53 half-life
expansion, 133 prices, 255 reserves, 314
interface, 37 recovery, 147 harmonicdecline, 20, 229
invasion, 247 reserves, 148 heavy oil, 187, 287
properties, 216 reservoirs, 123 heterogeneous reservoir, 209
saturation, 27 samples, 78 Higgins-Leighton Method, 164
fluid expansion, saturation, 113 historical performance, 278
gas pools, 247 secondary recovery of, 153 history match, 166
Forcheimer effect, 53 solution, 28, 145 history matching, 219
forecasting sour, 92, 145 history-matched simulation, 22
gas de1iverability, 151 sweet, 145 horizontal floods schemes, 162
models, 191 wet, 145 horizontalmiscible floods, 172
reserves and production, 132 gas cap, 124, 145, 190 horizontal sweep efficiency, 159
reservoir performance, 219 drive, 134, 140, 239 horizontal waterflood schemes, 156, 159
formation secondary, 145 horizontalwells, 205
factor, 66 gas drive critical rates for, 207
fluid saturation, 216 dissolved, 201 performance projection, 206
heterogeneity, 50 gas in place producibility, 206
resistivity index, 67 calculation of initial solution, 29 uses of, 205
thin, 190 gas in place, 113 yield from, 205
volume factor, 28, 105 gas-oilcontact, 38 Horner analysis, 88
volume factors, 122 gas-oil interface, 37 HumbleMethod, 137
water resistivities, 79, 103 - gas-water injection hydrocarbon
forward combustion andwaterflooding alternate, 202 characteristics, 131
combination of, 195 gas-water interface, 37 miscible flooding, 171
fractional flow, 155 gauge pore volume maps, 39
fracture permeability, 63 electronic, 86 hydrocarbons
fractured reservoirs, 63 mechanical, 86 in place, 28, 118
fractures, 55 general and administrativecosts, 256 presence of, 14
Free Trade Agreement, 286 geochemical material balance hydrodynamic flow trapping, 38
freehold methods, 278 hydrodynamics, 84
interest, 254 geologicanalogy, 278 hyperbolicdecline, 226-229
royalty, 7-8, 260 geological
mapping, 39 Ideal Gas Law, 28, 91
frontal displacement model, 191
model, 177 imbibition, 167
frontieroil, 288
period, 243 immature depletion, 157
fully implicitmethod, 215

356
SUBJECT INDEX

immiscible lessor royalty. 7 maximum royalty, 257


carbon dioxide flooding, 200 light crude, 287 mean, 11
gas injection, 183 liquidpermeability, 53 mechanisms
Implicit Pressure Explicit Saturation liquids recovery, 188
Method, 215 naturalgas, 22, 29 median, 11
in situ combustion process, 194 lithology, 242 medium oil, 287
in situ conditions, 63 log MercuryArchimedes Method, 57
income tax, 261 acoustic, 57 Method
incremental economics, 310 density, 57 Craig-Geffen-Morse, 164
industry databases, 57, 168, 237 neutron, 57 Delphi, 274, 278
initial resistivity, 63 Dietz, 138, 140
reserves, 5 log analysis, 57 Higgins-Leighton, 164
solution gas in place, 29 logs, 46 Humble, 137
volumes in place, 5 petrophysical well, 16 Latin Hypercube, 277
injection resistivity, 69 Marshal, 138
alternate gas-water, 202 wireline, 45 Mercury Archimedes, 57
rates, 189 loss ModifiedHurst, 138
injection schemes sandwich, 161 MonteCarlo, 11, 30, 212
dispersed gas, 183, 185 low productivityallowance, 257 Musknt, 137
external, 183, 185 Pirson, 137
injectivity mapping, 38 Robertsand Ellis, 137
lack of, 190 computer, 42 Schilthuis, 138
intangible costs, 263 geological, 39 Tracy or Tamer, 137
interest volumetric, 35 VVarren, 107, 118
carried, 254 maps VVedge, 138
Crown, 254 hydrocarbon pore volume, 39 VVelge, 140
expense, 256 isopach, 13, 38 method. See procedure.
freehold, 254 mechanically contoured, 39 arithmetic, 8
net profits, 255 porosity-thickness, 38 caliper, 57
overriding royalty, 254 structure, 38 chemical, 65-66
production payment, 254 thermal gradient, 81 dynamic implicit, 215
royalty, 254 market electrical, 65-66
working, 254 demand forces, 297, 302 finite-difference, 215
interface mechanisms, 300 fully implicit, 215
fluid, 37 value, 312 gas expansion, 57
gas-oil, 37 marketing options, 301 geophysical log, 65
gas-water, 37 markets, 290 historical performance, 278
oil-water, 37, 39 core, 297, 300 implicit pressure explicit
interfacial tension, 69, 154 crude oil, 287 saturation, 215
reduction in. 201 crude oil, 253 material balance, 17, 121, 123, 149
interference test, 77 naturalgas, 297 reservoir simulation, 22
internal rate of return, 264 naturalgas, 253 semi-implicit, 215
International EnergyProgram, 286 noncore, 300 statistical, 9, 231-233
inventory. 7 noncore, 300 straight-line, 126, 127, 136
isnpach maps, 13, 38 types of, 300 summation-of-fluids, 57
Marshal Method, 138 volumerric, 12, 148, 163, 175,
J function, 69 Marxand Langenheim model, 191 205, 209
material halance, 35, 105, 126,136, methods
Klinkenberg effect, 53 139, 140 analytical, 137
assumptions, 121 areal yield, 278
laboratory analysis
determination of hydrocarbons combined, 278
of fluidproperties, 96
in place, 120 experimental, 173
landcompensation, 285
equation, 17, 120, 122 geochemical materialbalance, 278
Latin Hypercube Method, 277
estimates, 30 of achieving miscibility, 172
Law
method, 17, 149 of analysis, 275
D'Arcy's, 53
materialbalance equation theoretical, 234-235
Ideal Gas, 28, 91
special cases of, 122 volumetric yield, 278
of Conservation of Mass, 149
material halance method, 121, 123 waterflood prediction, 165
of Conservation of Malter, 120
mathematical functions, 215 micellar flooding, 154, 168
leasing, 282
marrix permeability, 63 mineral rights
lending, 314
maturewaterflood, 158

357
c

DETERMINATION OFOILANDGASRESERVES

ownership of, 254, 282 fracture system, 214 Ontario Securities Commission. 315
subsurface, 254 matrix system, 214 open-hole drillstem test, 72
mineral tax, 260 near-miscible open-hole wireline tools, 86
minimum royalty, 257 carbon dioxide flooding, 200 operated-dayrate
miscibility negotiatingtool, 305 definition of, 223
methods of achieving, 172 net operating costs, 256
vapourizing multiple-contact, 173 overridingroyalty, 254 Operator, 259
miscible flooding pay, 44, 103, 112 options, 295
carbon dioxide, 200 effective, 102 call, 295
residual oil saturation after, 175 present value, 264, 309 fence, 295
miscible floods profits interest, 255 put, 295
areal sweep efficiency for reservoir, 44 over-pressured reservoirs, 148
horizontal, 175 net-back calculation, 320 overhead fee, 256
field performanceof, 179 neutron log, 57 overriding
vertical sweep efficiency for neutron-density cross-plot, 58 royalty, 7-8
horizontal, 176 new gas, 257 royalty interest, 254
miscibleprocess new oil, 258 ownership
first-contact, 172 New York Mercantile Exchange, 292 mineral rights, 254
multiple-contact, 172 nonassociatedgas, 29, 145 of reserves. 7
mobility ratio, 154, 175 nonassociated gas reserves, 148 oxidation of crude, 195
mode, 11, 240 nonconventional crude, 288
model North American Free Trade P-X diagram, 173
Butler, 194 Agreement, 286 par price, 258
conical steam zone, 191 numerical simulation, 132, 137, 166 parameter uncertainty. 268
dimensions, 166 NYMEX, 292, 294 parameters
frontal displacement, 191 reservoir, 16
geological, 177 oil pay
Marx andLangenheim, 191 age, 258 defining net, 45
Myhill and Stegeimeier, 193 equivalent, 9 gross, 44
phases, 166 formation volume factor, 96 net, 44
sensitivityanalysis, 218 frontier, 288 payout period, 307
steam overlay, 191 heavy, 287 pentanes plus royalty, 258
uncertainty, 268 medium, 287 performance prediction 184
Vogel, 194 new, 258 analytical, 164
models old, 258 performance prediction, 183
!D, 217 quality, 141 permeability, 27, 53, 72
2D areal, 217 rate, 206 absolute, 216
2D radial, 217 recovery factors, 239 effective, 53
2D vertical, 217 samples, 79 fracture, 63
3D, 218 synthetic, 288 from core, 53
forecasting, 191 third tier, 258 gas, 53
Modified Hurst Method, 138 viscosity, 141 horizontal, 101
Monte Carlo oil in place liquid, 53
computer simulation, 30,107, 206, calculationof, 28 low, 190
212, 277 oil recovery matrix, 63
multi-well pools, 13 factors affecting, 140 relative, 53, 54, 216
multiple-contact miscible process, 172 primary, 237 specific, 53
Muskat Method, 137 oil sands permeability cutoffs, 46
Myhill and Stegeimeiermodel, 193 deposits, 189 permeability from cores, 101
royalty, 260 permeameter. 54
National Energy Board, 281 oil saturation petrophysicalwell logs, 16
natural depletion mechanisms, 131, 133 at the start of flood, 160 phase
natural drive mechanisms, 238, 247 oil-base behaviour, 148, 201
natural gas, 28 cores, 102 diagrams, 146
characteristics of, 145 coring, 65 pipeline
liquids, 22, 29, 151, 255 oil-steamratio, 193 companies, 306
markets, 253, 297 oil-water interface, 37, 39 gas reserves, 150
royalty, 257 oil-wet, 74 major interprovincial systems, 288
naturally fracturedreservoirs, 167 old gas, 257 pipelines
old oil, 258 feeder, 288

358
SUBJECTINDEX

PirsonMethod, 137 outlook for world oil, 295 put option, 295
political uncertainty, 266 pricing, 291 PVT
polymer flooding, 154, 168 primary analysis, 77
pool depletion, 131 data, 120
area, 12 drive mechanisms, 238 samples, 79
discovery, 157 oil recovery, 237 pyrobitumen, 72, 103
parameter, 112 porosity, 37, 55
size, 240 probabilistic quantitative estimation, 274
pooling, 255 procedure, 8, 11, 30
ranges, 108
pools simulation, 277
rate of return, 308
analogous, 163 probability, 11, 17
rate-cumulative graphs, 223
carbonate, 242 analysis, 166
rate-time graphs, 223
clastic, 242 degree of, 10
ratio
multi-well, 13 increase, 11
break-through, 177
single-well, 12 probable
mobility, 154, 175
porevolume compressibility tests, 63 developed reserves, 5
oil-steam, 193
porosity, 27, 48, 55, 72, 113, 159 reserves, 5, 17, 180
viscous-gravity, 176
average, 216 undeveloped reserves, 5
ratio curves
correlation of log andcore, 62 procedure. See method.
definition of, 223
cutoffs, 45 deterministic, 8, 10-11, 30
ratioyardstick
from cores, 101 probabilistic, 8, II, 30
reserves-to-production, 305
from well logs, 103 stochastic, 11 recombination sampling, 77
low, 190 process recover, 189
primary, 37, 55 differential liberation, 97 recoverable gas, 148
secondary, 55 displacement, 154 recovery
porosity-thickness maps, 38 enriched air combustion, 195 carbon dioxide flooding efficiency, 203
porpoising, 210 flash liberation, 97 estimates, 135
possible steam flood, 189 factor, 17, 31, 168, 210
developedreserves, 6 thermal wave, 195 carbon dioxide flooding, 203
reserves, 5, 17, 179 variations, 195 distributions, 249
undeveloped reserves, 6 processes for large pools, 238
post-injection startup, 158 in situ combustion, 194 statistics, 237
post-waterflood response, 158 thermal recovery, 187 mechanisms, 188, 195
presence of hydrocarbons, 14 processing fees, 255 parameters, 247
pressure, 75, 113 producers, 306 secondary, 171
abandonment, 148 production tertiary, 154, 171
average reservoir, 89 cumulative, 7 refinement of volumetric estimates, 43
bottom-hole, 49 data, 216 refineries, 290
buildup data, 86 forecasting, 132, 304 refining
buildup test, 77 paymentinterest, 254 Canadian, 290
capillary, 67 rate, 140 regulations, 283,284
equilibrium, 121 revenue, 255 regulatory approvals
gradients, 86 royalty, 260 changes to, 298
pseudo-critical, 91-92 tests, 75, 104 regulatory constraints, 143
recorders, 75, 86 production performance charts regulatory environment, 253
reservoir, 86, 104 definition of, 223 related products, 22-23,29, 151
stabilized bottom-hole, 86 production rates relative frequency curve, 30
threshold, 67 carbon dioxide flooding, 203 relative permeability, 53, 54, 216
transient analysis, 36 productivity allowance, 257 measurement of, 54
pressure-depth plots, 37,38 products reliability of data, 31, 63, 101, 121,
pressure-volume test, 79 related, 29 136, 157, 237
price profitability indices, 307 reliability of results, 162, 163, 164, 166
average Alberta market, 257 properties remaining
select, 257 reservoir rock, 101 proveddevelopedreserves. 5
wellhead, 255 rock and fluid, 27 proved reserves, 5
pricedifferentials proved reserves, 17, 180 provedundeveloped reserves. 5
for light and heavy crude, 294 provincial governments, 281 reserves, 5
price risk, 294 pseudo-critical replacement costs, 317
prices pressure, 91 reserve
crude oil, 255 properties, 91-92
gas, 255 temperature, 91

359

DETERMINATION OFOIL ANDGASRESERVES

distribution, 116 heterogeneity, 63, 74 risk premium, 264


gas losses, 150 limits, 39 risk-weighting of reserves estimates
parameters, 211 modelgrid design, 217 aggregation, 8
reserves, 3, 253 model initialization, 218 Robertsand Ellis Method, 137
associated gas, 150 net, 44 rock compressibility, 63
company grossremaining, 7 parameters, 16, 247 data, 216
companynet remaining, 7 performance charts rock properties, 216
confldencelevelo~ 9 definition of, 223 rotary drilling, 75
determinations, performance forecasting, 219 royalties
steps involvedin, 211 poor, 190 levels of, 282
developed, 6 pressure, 86, 104 royalty
developed nonproducing, 6 quality, 238 Crown, 7-8
developed producing, 6 rock properties, 101 crude oil, 258
economically recoverable, 253 saturated oil, 123 factor, 259
forecasting, 132 shallow, 190 freehold, 7-8, 260
from improved recovery projects, 22 simulation, 137, 140 gross overriding, 254
future initial, 5 simulation data requirements, 216 intent, 259
gas, 148 simulation method, 22 interest, 254
grossremaining, 7 simulators, 214 lessor, 7
half-life, 314 single-phase gas, 146 maximum, 257
initial, 5 temperature, 81, 104 minimum, 257
nonassociated gas, 148 two-phase, 146 natural gas, 257
ownership, 7 undersaturated, 80 net ovetriding, 254
company gross remaining undersaturated oil, 122, 133 oil sands, 260
reserves, 7 voidage terms, 121 overriding, 7-8
pipelinegas, 150 volume, 27 pentanes plus, 258
possible,S, 17 reservoirs production, 260
possible developed, 6 analogous, 17 rate, 259
possible undeveloped, 6 cycling of gas condensate. 152 resource, 260
probable,S, 17 dew-point, 146 sulphur, 258
probabledeveloped, 5 dry gas, 145 tax deduction, 259
probable undeveloped, 5 fractured, 63 rugosity, 49
proved, 17 gas, 123
remaining, 5 naturally fractured, 167, 214 sales, 7
remaining proved. 5 over-pressured, 148 samples
remaining proved developed, 5 retrograde gas condensate, 146 oil, 79
remaining proved undeveloped, 5 residual PVT, 79
risk-weighting of estimates, 8 gas saturation, 148 reservoir fluid, 104
role of, 304 oil saturation, 161, 175 surface, 79
solutiongas, 150 resistivities surface crude oil, 79
sulphur, 23 formation water, 79, 103 water, 78
undeveloped, 6 resistivity logs, 63, 69 sampling, 77
users of volumes, 306 resource subsurface, 77
uses of estimates, 311 allowance, 261 surface recombination, 78
uses of evaluations, 253 assessments, 281 sandwicheffect, 135
working interest share of, 7 properties, 312 sandwichloss, 161, 207
reserves-to-production ratio, 305 royalty, 260 saturatedoil reservoir, 123
reservoir uses of estimates, 31 saturation, 65
analogous, 22 resources, 3, 4, 253 connate water, 65
area and volume, 35 discovered, 5 formation fluid, 216
characteristics. 131 undiscovered, 5 gas, 113
continuity, 37 results residual oil, 161,175
deep, 190 reliability of, 162, 163, 164, 166 water, 69
expansion terms, 122 retrograde gas condensate reservoirs, 146 saturations from cores, 102
fluid samples, 104 return on investment, 308 schemes
fluids, 77 revenue, 255 dispersed gas injection, 183, 185
forecasts of performance, 220 production, 255 external injection, 183, 185
geometry, 141, 216 right-of-entry, 285 horizontalwaterllood, 156, 159
gross, 44 risingbubbleapparatus, 174 vertical waterllood, 156, 161, 163
heterogeneities, 141 risk, 266 SchilthuisMethod, 138

360
-I
SUBJECT INDEX

screening and feasibility studies, 174 standardconditions, 30


screening guidelines, 188 Standing Committee on Reserves tangible costs, 263
secondary Definitions, 3, 10 tariffs, 285, 290
gas cap, 145 startup tax credit, 285
porosity, 55 post-injection, 158 taxation levels, 285
recovery, 171 state technical assistance, 286
recovery of gas, 153 steady, 54, 125 technical uncertainty, 266
securities commissions, 8 unsteady, 54, 125 techniques
securities reporting, 315 statement statistical, 58
security, 305 of changes in cashposition, 263 temperature, 113
seismic of income, 263 bottom-hole, 49, 81
3-D, 36 statistical analysis, 107 pseudo-critical, 91
data, 35 statistical method, 9, 231-233 reservoir, 81, 104
select price, 257,258 statistical techniques, 58 temperature gradient, 82, 85
semi-implicit method, 215 statistics ternary diagram, 173
sensitivity cases, 8 recovery factor, 237 multi-contact, 174
separator tests, 79 steady state, 54, 125 tertiaryrecovery, 154, 171
shale, 190 steady-state conditions, 206 test
content. 63 steam absolute open flow, 77
presenceof, 72 distillation, 195 constant andvariable rate, 77
shalysand interpretation process, 73 drive, 195 differential liberation, 79
shrinkage factor, 96 floodprocess, 189 drawdown, 77
shut-in period, 104 overlaymodel, 191 drillstem, 75, 104
steam confinement flash liberation, 79
simulation
black oil, 177 lack of, 190 interference, 77
steam stimulation pressure buildup, 77
history-matched, 22
followed by wet combustion, 195 pressure-volume, 79
Monte Carlo, 277
Stiff diagram, 79 production, 75, 104
numerical, 137, 166
stochastic evaluation, 275 separator, 79
probabilistic, 277
reservoir, 137, 140 stochastic procedure, 11 slim tube, 174
studies, 177 stock tank cubicmetre, 96 vapourization, 79
straight-line method, 126, 127, 136 testing
simulators
stratigraphic traps, 39 back pressure, 152
blackoil, 214
structure maps, 38 theoretical methods, 234,235
compositional, 214
subjective estimate, 274 thermal
enhanced oil recovery. 214
subsurface sampling, 77 conductivity, 84
reservoir, 214
successorrules, 263 cracking, 195
types of, 178
sulphur, 23, 29, 151 efficiency term, 193
single estimate, 11
royalty, 258 expansion, 195
single-phase gas reservoir, 146
summation-of-fluids method, 57 gradient maps, 81
single-value
sunkcosts, 309 recovery processes, 187
approach, 106
superposition theorem, 125 wave process, 195
estimate, 107
supplemental calculations third tier oil, 258
single-well pools, 12
aquifers, 124 threshold pressure, 67
siterestoration and reclamation, 256
gas caps, 124 tiltedoil-water contacts, 38
slimtube test, 174
water influx, 124 timestep sizing, 166
slug size
supplyindicator, 305 tolls, 285, 290
chasegas, 178
surface crude oil samples, 79 tool resolution, 63
solvent, 178
surface recombination sampling, 78 topgas, 256-257
slug sizing, 202
Tracy or TamerMethod, 137
solution gas, 28, 145 surface samples, 79
transition zones, 48
drive, 133, 207, 238 surfactants, 189
trap, 37
reserves, 150 sweep efficiency, 162
areal, 202 trapping
solvent slug size, 178
hydrodynamic flow, 38
sour gas, 92, 145 horizontal, 159
total, 159 traps
sourceof data, 31, 81
stratigraphic, 39
sources of errors, 64, 123, 268 vertical, 160,202
two-phase reservoir, 146
sparecapacity, 256 volumetric, 202
type-curve matching, 230
specific permeability, 53 sweet gas, 145
stabilized bottom-hole pressure, 86 swelling, 201 uncertainties, 206, 212
stand-off, 207 synthetic oil, 288 estimation of, 178

361
2Q

DETERMINATION OF OILAND GASRESERVES

uncertainty, 10, 30, 253, 266 gross swept, 160 Welge Method, 138, 140
causes of, 268 volume-weighted average, 90 well
degreeof, 266 volumes abandonment costs, 256
economic, 266 currently uneconomic, 5 conditioning, 78
engineering, 266 future unrecoverable, 5 data, 216
estimation of, 273 residual unrecoverable, 5 horizontal, 205
geological, 266 unrecoverable, 5 patterns, 188, 195-196
magnitude of, 271 unswept, 161 porosity from logs, 103
model, 268 volumes in place spacing, 142, 152, 196
parameter, 268 future initial, 5 test analysis, 70
political, 266 initial, 5 testing, 48
technical, 266 volumetric tests, 222
use of, 271 analysis, 158 water saturations from logs, 103
undersaturated oil reservoir, 80, 122, 133 calculation, 28 wellhead price, 255
undeveloped reserves, 6 eqnation, 108, 158, 175 wet combustion
undiscovered estimate, 106 steam stimulation followed by, 195
hydrocarbon volumes, 278 estimates, 27 wet gas, 145
resources, 5 mapping, 35 wettability, 69, 74, 102
unitization, 255 method, 12, 148, 163, 175, 205, 209 wireline logs, 45
unrecoverable volumes, 5 sweepefficiency, 177, 202 wireline tools
currently uneconomic volumes, 5 yield methods, 278 open-hole, 86
residual unrecoverable volumes, 5 vugs, 55 working capital, 257
unsteadystate, 54, 125 working interest, 254
unswept volumes, 161 WarrenMethod, 107, 118 working interest share, 7
US Securities and Exchange theory, 107 Wylie Time-Average Equation, 58
Commission, 315 nse of, 118
useage fees, 285 water, 190 zones
uses of resource estimates, 31 analyses, 79 transition, 48
channelling, 209
valuing oil and gas companies, 311 drive, 134, 137
vapourization, 201 influx, 121, 124
test, 79 samples, 78
vapourizing multiple-contact saturation, 48, 69
miscibility, 173 saturations from well logs, 103
vertical water-wet, 74
miscible floods, 171 waterflood
resolution, 64 horizontal schemes, 156
sweep efficiencies, 167-168 mature, 158
sweep efficiency, 160 prediction methods, 165
waterflood schemes, 156, 161, 163 reserves drainedfrom, 208
viscosity. 79 verticalschemes, 156, 163
oil, 141 waterflooding, 154
reduction, 195, 20 I combination of forward combustion
viscous-gravity ratio, 176 and, 195
Vogel model, 194 wedge zones, 39
volume weightedaverage cost of capital, 264
drainage, 72 weighted-mean, 240

362
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I

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