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From Fossil To Fuel™
From Fossil To Fuel™

Episode 20 · 2 years ago

Episode 19 - Production

ABOUT THIS EPISODE

Oil and gas production is the most important part of the whole business. Why?

My name is Brennan McDougall and I'm a professional engineer. Or the last decade I've worked in many different facets of the oil and gas industry. While I have a pretty solid technical background in oil and gas, I don't really know a whole lot about the other non technical departments that help run an oiling gas company. Recently I took a course to help develop my business acumen and better understand how the financial side of the business works. What a novel concept to educate the technical people on the business and financial side. I thought it would be a really cool idea to return the favor and educate the non technical people on the technical side. This is how the concept from fossil to fuel was born. Through these twenty four episodes, we will take a journey from how oil and gas was formed millions of years ago how it is refined into the fuel that runs our cars and keeps our homes. Come join me on this adventure as we learn how the oiling gas industry operates from fossil to you.

Last episode we talked about reserves and how important they are to investors and shareholders, but the number one thing that is king above all other numbers is production. Whether you're talking to the CEO, the general manager or the lowly engineer, the one thing that becomes the light at the end of the tunnel and the absolute driving force is production. Reserves are theoretical numbers. Production numbers are real and the primary source of revenue in any oil and gas company. Therefore,...

...production becomes the main focus of any oil and gas company. Higher production generally means larger cash flow, revenue and profits. We're always talking about how many barrels of oil per day a company or country produces. Google oil production and you'll see what I'm talking about. If you want to see how much an oil producing country likes flexing its muscles, you'll hear them quote how much oil they produce. Because oil production is tied to revenue and money is tied to power. Oil production becomes not just and IM Orton number two companies and CEOS, it becomes a fundamental component of any oil producing country and their government. Contrary to popular belief, producing oil isn't as simple as opening the tap on your Kinchin sink, although you'll hear a lot of people using that term...

...or expression. Opening or closing the town. Oil production is a fine balance between many variables. Producing Oil requires people to operate the wells and maintain and replace broken equipment. So there's a cost to producing oil, and that cost is known as the operating expense, or Oppex for short. As OPEX increases and oil prices decrease, so as the cost to operate goes up and the revenue from that comes down, it may no longer be economic for oil producers to produce oil and at times wells may even be shut off because the cost to produce them exceeds the revenue that a well can generate. This is why you'll always hear about an oil company's plan to reduce operating costs. They can't necessarily control the price of oil, but they can control opex to a certain...

...extent. On the other hand, even when oil prices are high and revenue is high, you might not want to produce the maximum that your wells can output, even if your off x is low. Tell you why producing oil on the higher end of its potential can potentially have long term negative effects on the reservoir and therefore the future of the well or future production rates. Production engineers need to have a good understanding of the reservoir that they're producing the oil from, so that they can understand the long term consequences and determine the optimum production rates. Think of it like this. You've got a bottle of soda that you've shaken up so there's a lot of pressure inside of it. You can open the cap right off and the soda will just come gushing out, but you're going to lose all the pressure behind it in an instant. You...

...can also open the bottle cap really slow and the pressure will bleed off slowly over time, as it takes longer to dissipate in an oil reservoir. It's this pressure inside the reservoir that's drive, that's driving production and pushing the oil up the well to surface. The more we produce from the well, the more we're open in the cap on the bottle and consequently reducing the driving force of the reservoir, which is the pressure. If oil prices are high and there's potential for a lot of revenue and management is pushing you for more production and you just fully open the tabs, so to speak, the rapid pressure draw down can actually damage the reservoir. So try and picture in your head the explosive force of that shaken up bottle of Soda or pop, but on a much, much larger scale. Because of this lowering of pressure, or...

...draw down as it's more commonly known, there will be an optimal draw down flow rate at which the well can be produced. This will constantly be changing as the reservoir pressure gets lower and lower over time, and it's one of the main responsibilities of a production engineer to manage. In their day to day duties, the production engineer will work closely with reservoir engineers to fully understand the reservoir in order to determine that optimal production rate. Eventually, the pressure in the reservoir will get to a low enough point that it no longer has the strength to push the oil out of the reservoir. At this point we need to give the reservoir bit of a helping hand to lift the oil out of the well, because there's not enough pressure left to do it. So this is when artificial lift technology can be implemented, but will save the details on...

...artificial lift for next episode. I will tell you, though, artificial lift is known as secondary recovery, which means that everything we produce until that point is known as primary recovery. There is a thing such as tertiary recovery, and that's basically the last ditch effort to get whatever we can out of the reservoir and maximize the recovery factor, which we talked about last episode. Remember, the recovery factor is basically how much of that original oil in place that you can actually produce from the well, which really is all about maximizing the amount of reserves that we can produce or bring to production. An example of this enhanced recovery is a technique called flooding, usually with water or gas or some fort of chemical. If we're using water, you would call it water...

...flooding, which is maybe a term that you've heard before. That would be the most common one or the most common type of flooding. So flooding involves injecting a fluid that several points around a well or around a field of wells to basically artificially increase the reservoir pressure so as the water, as the fluid, is being pumped or injected down into the reservoir around the oil well or wells, the fluid that's being injected into the reservoir will actually start to push the oil that already hadn't been produced towards the center or towards the oil well where you want to produce it from. So, in essence, the fluid that we're injecting floods the reservoir and, in doing so, disploics the oil...

...as it travels across the reservoir. So the injection points for the flooding fluid have to be strategically determined in order to get the best enhanced recovery. It's kind of like, if you've ever seen war movies from centuries ago, it's all about flanking and surrounding your target so that you can enclose it, and that's kind of where we're trying to do here, is we're trying to in and close the well that we want to produce from and we're ejecting fluid so that it's pushing the oil closer and closer towards the well and by flooding the reservoir, effectively you're pushing all of that remaining oil well, probably not all of it, but a good portion of it, back towards that oil well that's typically in the middle, so that you can produce the tertiary part of...

...the reservoir or the last piece of the oil that's there. So there are all kinds of different geometric configurations that you can use for your injection wells, but it really just depends on the area as to which one will work best. Some other common types of tertiary recovery can use gas injection, or there are thermal methods that use steam. Whether you're using primary, secondary or tertiary production methods, it's all about recovering the most possible barrels from a given reservoir. This theoretical ultimate maximum amount of barrels that you can recover is called the estimated ultimate recovery, or e you are for short, and this is a very common term when talking in production in reservoir engineering circles, because it forms the basis for economic assumptions. When a company is looking at whether or not...

...to invest in a specific project or oil well, they're not just looking at how much production the well can make rate away, they're looking at the ultimate recovery from the resource. Much like I don't necessarily care how much money I can make in a given day. I care more about what my annual salary is. It's all about the big picture and the EU are will help dictate whether a certain area is economic or not, because reservoir pressure declines as we produce the well, remember the soda bottle example. The production rates will decline as well. If we can guess what the initial production rates are and we can make a decent assumption about what the production decline rate looks like, we can do some calculus with these numbers to come up with an estimate about what the total recoverable oil or the EU are is. The key part of this...

...analysis is figuring out the production decline rates. This is accomplished by what's called decline curve analysis. If we know the production history of a well or the wells around it, we can then use mathematical methods to estimate how we think that well will behave and therefore how it will produce in the future. Engineers can develop computer based models to forecast oil and gas production, and then we can use these future predictions to further update calculations for reserves. It's an ongoing cycle of tweaking and updating the model, but at the end of the day this is the key part. This is the heart of operations and its production.

Hey, guys, if you like today's episode, make sure you subscribe to the podcast. Unlike most podcasts that release an episode every week or two, I did all twenty four at once, Netflix style, so you can listen to them all right now if you just hit subscribe. If you like today's episode, make sure you leave me a comment or thumbs up, or you can email me at from fossil to fuel at GMAILCOM, or look me up on Linkedin. I'm Brendan McDougall.

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