Insight: Finding more UKCS oil.....

Friday, June 22, 2012

Now diving into the website of the Bank of England is not a normal activity for me, you understand, but I was searching for a copy of their latest Quarterly Bulletin in which, according to the Times this week, they attribute part of the UK’s drop in productivity to the decline in output from the North Sea; and sure enough I read:

“Norway is similar to the United Kingdom; both have seen falls in energy and utilities productivity over both the recession and recovery periods. This is not a surprise as they extract oil from common waters — the North Sea. The absolute fall at the aggregate level is larger in Norway, as extraction and utilities are a larger share of GDP (Table A).(4) As the decrease in oil production from the North Sea is likely to be structural rather than cyclical in nature, this evidence points to a fall in the level and growth rate of aggregate underlying labour productivity
(Chart 8).”

For a moment there, I thought The Old Lady of Threadneedle Street was getting into exploration geology and was perhaps suggesting we should pursue more stratigraphic traps or perhaps even fractured basement! However, ‘structural’ here means – I take it – that the decline is inevitable (actually driven by the rocks) and there’s nothing we can do about it.

Oh really!

To repeat myself, there is an old adage that runs "The best place to find oil is in an oil field!"

As global exploration gets more difficult, there is a major prize to be gained by increasing flow rates and improving recovery factors in existing fields. In any petroleum province which is very mature in exploration terms, such as the North Sea, it would be better for companies to stop ‘wildcat’ exploring and focus on enhancing production in and around existing oil & gas fields.

Increasing recovery factors depends on a range of technologies – surveillance, ‘smart’ wells, EOR etc. Nevertheless, worldwide, just a 1% increase in the global recovery factor represents almost 90 billion barrels of oil, equivalent to replacing roughly 3 years of production at current levels.

Wherever serious studies have been undertaken, truly astonishing volumes of oil can be contemplated from increasing recovery factors using technologies that are known today.

Certainly, it seems reasonable to believe that the current ~10% of all existing discovery volumes that has actually made it to production is very much a lower limit. In many instances, a rising oil price will ensure that primary/secondary/tertiary recovery projects are economic although in some instances it may be necessary for governments to give tax incentives to help improved recovery projects, for example those based on CO₂-EOR, to bring them into existence.

As an example, Gluyas has estimated, by comparing the UKCS with West Texas, that an additional 2.7 – 8 billion barrels of technical reserves could result from CO₂ injection, corresponding to an increase of recovery factor in the range of 4 to 12%. In addition there are long term, indeed historic, estimates that improved reservoir modeling – and monitoring – could add 10% or more to recovery factors.

I’m for a bit of ‘cyclicity’ where we push the recovery factor for every UKCS oil field up to 70%!

We know how to do these things!

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