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Undeveloped reserves are expected to be recovered: (1) from new wells on undrilled acreage, (2) from deepening existing wells to a different reservoir, or (3) where a relatively large expenditure is required to (a) recomplete an existing well or (b) install production or transportation facilities for primary or improved recovery projects (SPE).
This chapter describes the use of a reserves estimate to prepare an economic evaluation and perhaps then place a value on the reserves. This chapter often refers to a document titled Perspectives on the Fair Market Value of Oil and Gas Interests published by the Society of Petroleum Evaluation Engineers (SPEE) in the spring of 2002. In this chapter, that document is referred to as the SPEE FMV document. To value reserves, the nature of the ownership must be considered. Reserves ownership is usually derived from contractual agreements that specify the obligations of the parties to those agreements for the payment of costs and the sharing of revenues. These agreements often include specific commitment obligations such as the drilling of wells. A common arrangement for such contracts is the oil and gas lease. Another common contractual structure is the production-sharing arrangement. Appendix A, which describes common types of oil and gas property interests, is from the SPEE FMV ...
This field produces from a structure that lies above a deep-seated salt dome (salt has been penetrated at 9,000 ft) and has moderate fault density. A large north/south trending fault divides the field into east and west areas. There is hydraulic communication across the fault. Sands were deposited in aeolian, fluvial, and deltaic environments made up primarily of a meandering, distributary flood plain. Reservoirs are moderate to well sorted; grains are fine to very fine with some interbedded shales. There are 21 mapped producing zones separated by shales within the field but in pressure communication outside the productive limits of the field. The original oil column was 400 ft thick and had an associated gas cap one-third the size of the original oil column. Porosity averages 30%, and permeability varies from 10 to 1500 md.
Economics drives the entire oil/gas producing industry. Almost every decision is made on the basis of an economic evaluation. Economic evaluations are also performed to determine reserves and the "standardized measure of value" for reporting purposes for publicly held companies. In many cases, the goal of the company is to make decisions that have the best chance of maximizing the present day profit. First, techniques that assume we know the future parameters with certainty are discussed. Later, methods of handling the inherent uncertainty involved in oil/gas operations are discussed. Having stated a company goal in terms of profit, it behooves us to examine the definition of profit. There are at least three ways to calculate profit, each with its own set of assumptions and rules and each leading to a different answer. The three models are the net cash flow model, the financial net income model, and the tax model. In the simplest analysis, profit for a period is the revenue received during the period less the costs incurred during the period. Note that profit is defined for some time period, which can be arbitrarily long. In the oil/gas business the period is usually one month or one year. The amount of revenue received during the period is usually similar for all three models, especially for yearly periods. There might be some timing differences in revenue recognition, but they are usually relatively minor.
Although reserves estimates for known accumulations historically have used deterministic calculation procedures, the 1997 SPE/WPC definitions allow either deterministic or probabilistic procedures. Each of these is discussed briefly in the next two sections. Thereafter--except for another section on probabilistic procedures near the end--the chapter will focus on deterministic procedures because they still are more widely used. Both procedures need the same basic data and equations. Deterministic calculations of oil and/or gas initially in place (O/GIP) and reserves are based on best estimates of the true values of pertinent parameters, although it is recognized that there may be considerable uncertainty in such values.
This glossary was created through discussions among the steering committee for the SPE Global Integrated Workshop Series (GIWS) on Production Forecasting. Some definitions were not contested at all, others generated fierce discussions. The contract quantity is the contractually agreed volumes and limits: predefined (annual) volume of natural gas on contract level. A factor applied to forecasts to take into account the fact that a Production System will not always operate at 100% of its capacity. Available But Not Required, that part of the IPSC that is available for production but not produced because of low off-take demand.
The oil and gas industry invests significant money and other resources in projects with highly uncertain outcomes. We drill complex wells and build gas plants, refineries, platforms, and pipelines where costly problems can occur and where associated revenues might be disappointing. We may lose our investment; we may make a handsome profit. We are in a risky business. Assessing the outcomes, assigning probabilities of occurrence and associated values, is how we analyze and prepare to manage risk.
The resource triangle, Figure 1, describes the distribution of original gas in place (OGIP) in a typical basin. At the top of the triangle are the high permeability reservoirs. These reservoirs are small, and, once discovered, as much as 80 to 90% of the OGIP can be produced using conventional drilling and completion methods. As we go deeper into the resource triangle, the permeability decreases, but the size of the resource increases. Higher gas prices and better technology are required to produce significant volumes of gas from these tight gas reservoirs.
CHOPS is not suitable for all heavy unconsolidated sandstone (UCSS) reservoirs. Recovery factors greater than 20% of OOIP are unusual; values of 10 to 16% are more common. However, combining CHOPS with other production technologies may increase ultimate recovery factors. Through yield, dilation and liquefaction, and perhaps through channeling, CHOPS creates a large region of greatly enhanced permeability. Is it possible to exploit this with other technologies?
Natural gas reserves are plentiful around the world, but many are too small or too remote from sizable population centers to be developed economically. Stranded gas is essentially gas that is wasted or unused. Estimates of remote or stranded gas reserves range from 40 to 60% of the world's proven gas reserves. The local market for gas is usually too small, or the gas field is too far from the industrialized markets. Sometimes excess gas reserves can be classified as stranded because they may result in oversupply of the market.