INSTRUCTOR

© 2017, John R. Fanchi

All rights reserved. No part of this manual may be reproduced in

any form without the express written permission of the author.
 To the Instructor

The set of files here are designed to help you prepare lectures
for your own course using the text Introduction to Petroleum
Engineering, J.R. Fanchi and R.L. Christiansen (Wiley, 2017)

File format is kept simple so that you can customize the files
with relative ease using your own style. You will need to
supplement the files to complete the presentation topics.
 RESERVOIR MANAGEMENT

© 2017, John R. Fanchi

All rights reserved. No part of this manual may be reproduced in

any form without the express written permission of the author.
 Outline

 Recovery Management
 Reservoir Efficiency
 Project Analysis
 Economic Criteria
 Crude Oil Prices
 Reservoir Management and the Environment
 Anthropogenic Climate Change
RESERVOIR MANAGEMENT
 What is Reservoir Management?

 Primary Objective
 Determine the optimum operating conditions needed to
maximize the economic recovery of hydrocarbon
 Marshall accessible resources to
 optimize recovery from a reservoir, and
 minimize capital investments and operating expenses
 Example of Competing Interests
 International Oil Company (IOC)
 Focus on maximizing profit for shareholders
 National Oil Company (NOC)
 Secure energy supply for host nation
 VALUE

 Scope for enhancing value of project greatest

during early phases of development
 Value comes from application of technology
 Add value by
 Increasing reserves and production
 Decreasing CAPEX and OPEX
 Minimizing risk
RECOVERY EFFICIENCY
Areal Sweep Efficiency
swept area
EA 
total area
Volumetric Sweep Efficiency

Vertical Sweep Efficiency

swept net thickness
EV 
total net thickness

Volumetric Sweep Efficiency

E vol  E A  E V
Recovery Efficiency
Displacement Efficiency
Soi Soa

B Boa Soi  Soa
E D  oi 
Soi Soi
Boi

Recovery Efficiency

RE  E D  E Vol
 Recovery Factor
 Percentage of oil or gas produced from a reservoir
 Contributing factors:
Soi  Soa
Displacement efficiency: ED 
Soi

swept area
Areal Sweep Efficiency: EA 
total area

swept net thickness

Vertical Sweep Efficiency: EV 
total net thickness

Volumetric Sweep Efficiency: E vol  E A  E V

Recovery Efficiency: RE  E D  E Vol

Recovery Factor for Oil Fields

 Typically ranges from 5% to

80%
 averages 30%
 Recovery factor depends on
several factors, e.g.
 Permeability of reservoir
 PVT of oil (°API, viscosity)
 Reservoir pressure
system
 Drive mechanisms
 Recovery Factor for Gas Fields

 Typically 80% for gas fields

 Try to minimize producing water with gas
PROJECT ANALYSIS
 Typical Project Workflow

 Identify project opportunities

 Generate and evaluate alternatives
 Select and design the desired alternative
 Implement the alternative
 Operate the alternative
 Over the life of the project
 Include abandonment
 Evaluate the success of the project
 Learn lessons
 Apply lessons to future projects
 Tasks in Project Economic Analysis

 Set an economic objective based on specified

criteria
 Formulate scenarios for project development
 Gather data
 Make economic calculations
 Analyze risk and select optimum project

After Satter and Thakur, Integrated Petroleum Reservoir Management [PennWell, 1994]
 Typical Cost Curve

CAPEX

Decommission
OPEX
ECONOMIC CRITERIA
 Time Value of Money

$1,000 $2,594
10% Interest Rate
(1  0.10)10  2,594
Year 0 Year 10

$1,000 10% Discount Rate $2,594

 1 
 (1  0.10)10   2,594
Year 0   Year 10

Note direction of arrows:

Interest rate applies to value from present to future
Discount rate applies to value from future to present
 Typical Economic Measures

Discount Rate Factor to adjust the value of

money to a base year.
Net Present Value Value of cash flow at a specified
(NPV) discount rate.
DCFROI or IRR Discount rate at which NPV = 0.

Payout Time Time when NPV = 0.

DCFROI = Discount cash flow return on investment

 NET PRESENT VALUE

NPV  Revenue  Expenses

N P q P q N
CAPEX n  OPEX n  TAX n
 
on on gn gn

n 1 1  r n
n 1 1  r n

N Number of years
Pon Oil price during year n
Qon Oil production during year n
Pgn Gas price during year n
Qgn Gas production during year n
CAPEXn Capital expenses during year n
OPEXn Operating expenses during year n
TAXn Taxes during year n
r Discount rate
 Illustration of NPV and DCFROI*

*Satter and Thakur, Integrated Petroleum Reservoir

Management [PennWell, Tulsa], see Table 7-2
 Additional Cash Flow Parameters

ROI (income – investment) / investment

(Return on investment)
Income-to-investment Income / investment
PWNP Discounted cash flow at DF**
(Present worth net profit)

**Discount factor (DF) with discount rate r (fraction)

once a year at midpoint of year t (1, 2, 3, …):
𝟏
𝑫𝑭 = 𝒕−𝟎.𝟓
𝟏+𝒓

Note: These definitions may change from one company to another.

 Illustrative Project “Hurdle” Rates

 Payout < 2 to 3 years onshore

 Payout can be longer for offshore, waterfloods, etc.
 Income-to-Investment Ratio > 3.0
 Return on Investment > 2.0
 Rate of Return > 15%
 ECONOMIC VARIABLES

 Variables that can be directly influenced by

operator include
 Production during year
 Capital expenses
 Operating Expenses
 Rate (seek most favorable investors)
 Price (megamajors and national companies)
 Taxes (lobbying, campaigns, etc.)
 Life Cycle Costs of an Energy System

Capital equipment costs

Acquisition costs
Operating costs for fuels, etc.
Interest charges for borrowed capital
Maintenance, insurance, and miscellaneous charges
Taxes (local, state, federal)
Other recurring or one-time costs associated with the system
Salvage value (usually a cost) or abandonment cost
Source: Goswami, et al., 2000, page 528
CRUDE OIL PRICES
 World Crude Oil Prices
Source: Monthly average, nominal; EIA (JPT, Aug. 2016)
World Oil Production Rate
(thousand bopd)
Source: EIA (JPT, Aug. 2015)
 Global Oil Rate
Supply and Demand

Excess
Supply

Excess
Demand
National Break-even Oil Price ($/bbl)

Oil price needed to

meet national budgets
 Crude Oil Locations

United States-Mars is an offshore drilling site in the Gulf of Mexico. WTI = West Texas
Intermediate; LLS = Louisiana Light Sweet; FSU = Former Soviet Union; UAE = United Arab
Emirates.

Source: http://www.eia.gov/todayinenergy/detail.cfm?id=7110#, 7-16-13

(accessed Feb 2015)
 Crude Oil Characteristics

United States-Mars is an offshore drilling site in the Gulf of Mexico. WTI = West Texas
Intermediate; LLS = Louisiana Light Sweet; FSU = Former Soviet Union; UAE = United Arab
Emirates.

Source: http://www.eia.gov/todayinenergy/detail.cfm?id=7110#, 7-16-13

(accessed Feb 2015)
 Exchanges for Commodities Trading
 Leading commodity markets
 e.g. Trade crude oil futures contracts
 NYMEX – New York Mercantile Exchange (e.g. WTI Crude)
 Trading unit: 1000 US barrels (42,000 gallons)
 Price quotation: US currency (US$) per bbl
 TOCOM – Tokyo Commodity Exchange
 Trading unit: 50 kiloliters
 Price quotation: Japanese yen (JPY) per kiloliter
 ICE – Intercontinental Exchange (e.g Brent Crude)
 HQ in Atlanta, GA (ca. 2014)

* Ch. 8, pg. 231 ff, The New Energy Crisis, D. Lautier & T. Simon, edited by J-M
Chevalier (2009)
 Example: American Light Sweet Crude Oil

 Standardize crude oil futures contract

 Financial instruments only
 Trading unit and price depend on the exchange
 e.g. 1000 bbl at US$ / bbl on NYMEX
 e.g. 50 kL at JPY / kL on TOCOM
 Delivery: F.O.B. to several sites, e.g.
 seller’s facility
 Cushing, OK
 Deliverable grades
 Specific domestic crudes with < 0.42% sulphur by wt
 37 < API < 42

* Box 8.1, pg. 236, The New Energy Crisis, D. Lautier & T. Simon, edited by J-M
Chevalier (2009)
 CVX Long-Range Oil Price Model ca. 1998

1998 $/Bbl and Million B/D

70
World Oil
60 Demand
Alternative
50 Fuels
Oil Price
40 WTI equivalent Extra
Heavy
30 EOR Oil

20

10
Conventional Oil
0
1875 1900 1925 1950 1975 2000 2025 2050 2075 2100 2125
 Summary of Oil Price Sensitivity

Oil Price
Oil Recovery Technology
(US$ per barrel in year 2015 US$)
Inflation Rate 5% 10%
Conventional 36 – 60 83 – 139
Enhanced Oil Recovery (EOR) 48 – 96 111 – 222
Extra Heavy Oil (e.g. tar sands) 60 – 108 139– 250
Alternative Energy Sources 96 – 144 222 – 334
RESERVOIR MANAGEMENT AND THE
ENVIRONMENT
 Rock Oil Saves the Whales in late 1800s

Vanity Fair, 1861

“Grand ball given by the whales in honor of the discovery of the oil
wells in Pennsylvania”
ANTHROPOGENIC CLIMATE CHANGE
Greenhouse Effect
 Greenhouse Gases

 Common greenhouse gases: H2O, CO2, CH4, NOx

 Emissions as % of tonnes of carbon or carbon equivalent
 Carbon dioxide  83%
 Methane  9%
 Nitrous oxide  6%
 Other  2%
 e.g. volatile organic compounds such as hydrofluorocarbons
 Source: U.S. EIA for 1998, OGJ, 14 Feb 2000
 Global Warming
CO2 and CH4 – A Thousand Year History

Atmospheric concentration CH4 (ppb)

1750
Methane
1500
Global Temperature Change
(1861 – 1996) 1250

1000

750

1000 1200 1400 1600 1800 2000

Atmospheric concentration CO2 (ppm)

360
Carbon Dioxide
340

320

300

280

260

1000 1200 1400 1600 1800 2000

Source: IPCC Third Assessment Report (2001)
Temperature Change from 1850 - present
Greenhouse Gas Concentrations in Atmosphere

Source: IPCC, 2007

 Video
Ice Coring
Scientists conducting a range of experiments on samples
at the National Ice Core Laboratory (NICL) in Denver, Colo.,
are shedding new light on the dimly understood history of
Earth's climate.

Vostok, Antarctica
https://video.search.yahoo.com/search/video;_ylt=A0LEVx
dJan5TQFMApb9XNyoA;_ylu=X3oDMTByaHEyNGMxBHNl
YwNzYwRjb2xvA2JmMQR2dGlkA1VJQzFfMQ--
?p=vostok+national+ice+core+laboratory

Cambridge Univ
http://www.youtube.com/watch?v=Kr02VF3ralc

Univ Rochester
http://www.youtube.com/watch?v=teoxnHkcULA
 A.
Data from Vostok ice core

A. change in temperature
B. methane and carbon dioxide
C. dust concentration
B.

Higher dust levels are believed to be caused by

cold, dry periods.

SUGGESTED DATA CITATION: Petit, J.R., et al., C.

2001, Vostok Ice Core Data for 420,000 Years, IGBP
PAGES/World Data Center for Paleoclimatology
Data Contribution Series #2001-076. NOAA/NGDC
Paleoclimatology Program, Boulder CO, USA

Ice Age = age of ice

Gas Age = age of gas from isotope concentrations
 Milanković Cycles

 Milanković cycles (3 cycles)

 Explains long-term climate changes on Earth, e.g.
ice ages
 Climate changes caused by changes in the position
of the Earth relative to the Sun

Milutin Milanković
(1879 – 1958)
Serbian geophysicist,
climatologist

Source: H. Pollack, A World Without Ice (Penguin, 2009)

 What causes Ice Ages?

 Principal cause: Eccentricity

 Secondary causes
 Axial tilt
 Precession

Cycle Duration
(yrs)
Eccentricity 100,000
(distance)
Obliquity 41,000
(tilt)
Precession 23,000
(wobble)
∆Trange 5 Major Ice Ages
~13°C

Current
Ice Age

Ice Age # 1 2 3 4 5

# Ice Age MYA

5 Current Ice Age ~ 3 to now
(aka Quaternary Glaciation)
4 Karoo Ice Age ~ 350 to 260
3 Andean-Saharan glaciation ~ 460 to 430
2 Sturtian/Marinoan glaciation ~ 850 to 630
1 Huronian glaciation ~ 2400 to 2100
http://geology.utah.gov/surveynotes/gladasked/gladice_ages.htm
Historical Atmospheric Composition
during past 800,000 yrs
CH4 CO2

http://www.iceandclimate.nbi.ku.dk/research
/past_atmos/composition_greenhouse/
 The Keeling Curve

Source: https://scripps.ucsd.edu/programs/keelingcurve/wp-
content/plugins/sio-bluemoon/graphs/mlo_full_record.png
 Another View: Population and
Temperature Change

Source: US Census, 2010; US EIA website, 2010

Population, Temperature Change and
CO2 Emission
End of WWII

Source: US Census, 2010; US EIA website, 2010

 Video
Climate Change

See climate change videos at

https://www.youtube.com/channel/UC30_mHx-1wqR--Ua-Ey1Iww
QUESTIONS?
SUPPLEMENT