Economic indicators

  • project payout
  • Rate of return
  • Return of investment, for long life projects
  • NPV (important)
  • Profitability Index, which is NPV/ investment. It is the most important!
    Sensitivity Analysis (risk assessment):
  • Varying one parameter at a time (reserve, oil price, .. etc) to see what impact this parameter dose on the economics of the project.
  • Creating a tornedo chart with each parameter included, the one on the top of the chart has the most impact on the economy. This parameter is what we need to focus on and make a plan to reduce its negative impact once it occurs.
    What causes projects to fail?
  • Being too optimistic in schedule
  • Repeating mistakes that often occurs on other projects
  • Not understanding the risks and opportunities that the reservoir has
  • Making wrong assumptions on what the reservoir can produce will hurt our economic
  • Being overly optimistic about oil price
  • (black swan events) which are totally unanticipated things, like covid -19
  • Not considering all the alternatives
    .. other are listed on canvas lecture
    How to improve performance?
  • Companies must use multi-Disciplinary project teams (petroleum engineers, facility engineers, operations, drilling, health, and environment safety)
  • On top of that team is the decision review board (senior technical and commercial specialist).
  • The team would work on 5 phases, after each phase to the project team send their plan to the decision review board to get a yes or no on whether they should move forward to the next phase or not.
  • The early phase is the most critical: In the early phases if the team has a good project definition (the team understand the reservoir, opportunities, costs) then they are on a good path. That is because even if the execution of the project wasn’t so great on the later phases they would still be in a good shape since they invested time and effort in defining the project.
    Poor project definition would lead to a bad path even if the execution of the project was great.

How companies select which projects to fund in the current environment?

  • Executive committee is the one that approve major projects (projects over $50 M).
  • Projects should stay on the budget that the company set.
  • The companies rank project based on certain criteria, the most important one is project economics.

Environmental and societal impact of E&P.
Community engagement:

  • it is critical to identify risks on the community
  • engaging in community help us to understand their needs and design social investment programs that has the highest impact
    Social license to operate:
  • Created to build a trust with a community it takes a long time to build this trust, so companies need to be seen doing the right thing in the company.
  • If the company did a wrong thing to the community like oil spill environmental or safety incident, they would lose their social license to operate.
    Environmental impact:
    Goal: minimize environmental footprint
  • Do environmental review of the area to find out what environmental contamination that already exists there, (like quality of water in streams). This way no body would blame the company of contamination that already exists.
  • Have a program to prevent unplanned releases of petroleum and chemicals
  • Efficiency of energy use and green house gasses emission is an important thing to look for in our project in California !
  • Use of water would impact nearby agriculture in California ! , competing with water resources is competing with nearby companies on their drinking water or agriculture water.
  • Make a program that says this how we will return the site to its original state once the operation is finished (Decommissioning and reclamation and remediation).
    Climate Change:
  • Minimizing fugitive emission from operations (methane leaks from tank batteries)
  • Carbon capture and storge is one of the most critical methods to reduce carbon footprint
  • investment in low carbon options (solar energy, decarbonizing oil and gas production, green hydrogen).

California and thermal project.
California oil industry history:

  • California has a long and troubled relationship with the oil industry. That is why maintaining social license to operate will be critical to the success of our project.
    Major issues in California:
  • emission and air quality
  • issue in beakers field: Competition over water between agriculture and thermal operations
    Heat management:
  • To maximize project economics, we need to apply some concepts of heat management in order to keep our costs in control and maximize our recovery.
  • we want to inject the proper amount of steam; improper amount of steam would lead to several outcomes.
  • To optimize steam placement, we look for:
  • data collection (production logs to track the movement of the heat chest looking at drilling observation wells and monitor the progress of steam flood)
    *look for SPE papers.
    Consideration/risks for steam floods:
  • It is better to pursue steam injection project when oil price is high.
  • Water source for steam in CA? work with regulatory authorities to sustainably manage ground water.
  • Produced water? Recycle and reuse or clean it up to the point it can be used for agriculture
  • Fuel for steam generation: steam is very expensive (about %70 of operating costs), we need to find a low-cost fuel. Cogeneration power plant is a good method to fuel steam.
  • Report GHG emission to California air resources board, they would expect us to a program to reduce GHG every year.
  • Over pressurizing the reservoir with too much steam would cause surface expression. This would cause oil, steam and produced water eruption in the surface. This is dangerous and fatal.
  • Too much steam could cause case failure which would lead to aquifer contamination. This issue would only occur if we did not use an appropriate thermal casing.
    Community engagement plan for CA project:
  • To maintain social license to operate in Bakersfield and kern county look for employment opportunities (direct and indirect), support education (STEM in high schools, fund program in community colleges in Bakersfield where they would train people to be operators that we could employ). Make donations to food banks.
    Suggestion: looking at Public websites of other operators in the Bakersfield area is a good source of best social practices in this area. Websites are: Chevron, Berry, Area energy (shell/OXM).
    Environmental management plan on CA:
    Look at berry corporation website – they have a layout of wildlife protection. It is important to identify endangered animals and plants.

Covid-19 and the impact on oil and gas.

  • Oil price has dropped significantly in 2020.
    What will 2021 bring?
  • There are signs of optimistic price, us shale production is expected to start recovering in the 2nd half of this year. Companies did cut-off staff to the minimum in 2020, but they can’t function appropriately with minimum staff so the 2nd half 2021 will bring staffing.
  • There are still some concerns about this since it depends on the vaccine effectiveness.
    Will lack of investment into E&P (34% in 2020) means that we will be having supply shortfall in the future?
    It’s possible since it happened before in the 1990’s but it all depends on supply and demand.

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