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The Essential Guide
to Oil and Gas
Gain an overview of the oil and gas industry
Understand the energy value chain from prospect to
the burner tip
Evaluate the major costs, risks and uncertainties in oil
and gas activities
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Introducing Mr M. A. Mian
Mr M. A. Mian (BSc Mechanical Engineering, MSc Petroleum Engineering, MSc Mineral Economics) is
a Petroleum Engineering Consultant at Saudi Aramco and best-selling author. He has over 30 years of
experience in petroleum engineering, project economics and decision analysis and has been involved in
evaluating multibillion dollar projects in the oil, gas, LNG, GTL and petrochemicals industries. Mr Mian is
also the author of four books, two on Petroleum Engineering and two best sellers on Project Economics
and Decision Analysis.
Mr Mian says Oil and gas industry operations involve diverse activities and require personnel with diverse
academic backgrounds and experience. It is a highly capital intensive industry with highly risky operations but the rewards
are also high if successful.
There are many industry specic jargons used in day to day communications, meetings, and presentations etc. Besides
the technical personnel many other non-technical personnel such as lawyers, human resources, accounting, marketing,
environmental and safety, bankers, transportation, stock brokers, security, insurance and so on are involved. The irony is
that most personnel either directly working in the oil and gas companies or providing services to them are not familiar with
the overall operations, magnitude of investments required and associated risks.
This e-book, the 12 Hour MBA in Oil and Gas and the 3 day MBA in Oil and Gas are all specically designed to help
the non-technical personnel working in the oil and gas industry. It is also designed to help those who are dealing or wish to
deal with the industry, to become familiar with the overall operations of the industry. The e-book and courses are designed
and presented in simple language to make the concepts easy to understand and remember. It will help you understand the
overall operations, speak the industry jargon, identify the nancial and risk aspects of the business and evaluate business
opportunities. Click here to nd out more.
The essential guide
to Oil and Gas
In this essential guide to oil and gas you will:
1. Learn about the diverse activities of the oil and gas industry
2. Understand the meaning of petroleum and the typical objectives and activities of the industry
3. Look at the importance of reserves replacement ratio
4. Discover how oil and gas was formed
5. Take a look at the different types of hydrocarbons
6. Discover how we nd the oil and gas prospects
7. Explore the stages of drilling
8. Understand how to evaluate and complete a well for production
9. Review expected oil recovery from different types of reservoirs
10. Gain an understanding of what we do with oil and gas when it comes to the surface
11. Discover how to calculate the amount of oil and gas in the ground and recoverable
12. Get to grips with the types of renery congurations
13. Evaluate the benets of international agreements
14. Explore the different types of investment decisions
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Contents
Module 1: Oil and Gas Overview
Module 2: Industry Activities
Module 3: Global Reserves Situation
Module 4: Formation of Oil and Gas
Module 5: Classication of Oil and Gas
Module 6: Exploration of Oil and Gas
Module 7: Drilling of Oil and Gas Wells
Module 8: Well Evaluation and Completion
Module 9: Reservoir Drive Mechanisms
Module 10: Surface Facilities
Module 11: Reserves Evaluation
Module 12: Crude Oil Rening
Module 13: International Agreements
Module 14: Project Economics
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Module One: Oil and Gas Overview
Highly capital intensive
Risky operations &
investments
Diverse value chains
Complex operations
Diverse activities of the oil
and gas industry
High rewards
Workforce Diversity
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Marketing companies
Stock traders
Financial institutions
Legal rms
The oil and gas industry
deals with many other
business sectors
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Module Two: Industry Activities
The meaning of petroleum
The word petroleum comes from the Latin word Petra meaning rock and the
Greek word Oleum meaning oil. So petroleum means rock oil or oil from the
rocks, i.e. oil and gas comes from rocks.
What is oil and gas largely composed of?
Oil and gas is made up of two main elements - Hydrogen and Carbon, otherwise
known as hydrocarbons. Crude oil is made up of roughly 84% Hydrogen and 14%
Carbon and some impurities.
"Crude oil is made up of roughly 84%
hydrogen and 14% Carbon"
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Industry activities
Industry activities include:
1. Exploration
2. Drilling
3. Field activities
4. Recovery 3 stages (primary, secondary and enhanced oil recovery). The three stages of recovery may take 30 to 40
years to complete
5. Water disposal
6. Rening and marketing
7. Transportation
8. Expansion and contraction of plants, buildings and equipment
9. Preventive maintenance and safety
10. Major renovations, upgrading and replacement of facilities
"The three stages of recovery may take
30 to 40 years to complete"
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Industry Streams
There are three stages in the process of making oil and gas a consumable commodity. These are known as streams:
Upstream - exploration and production
Midstream - processing, storage and transportation
Downstream - rening, petrochemical industries, LNG and marketing
Did you know...Petroleum provides nearly half the worlds energy!
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Module Three: Global Reserves Situation
Oil reserves are oil and gas quantities that can be technically and economically produced if they cannot be produced
economically then they are classied as resources.
At the end of 2010, 67% of the 1.383 trillion barrels of oil reserves were in the OPEC countries. At the end of 2010, 65%
of the 6.609 TSCF of gas reserves were in the Middle East and Russian Federation.
A Key Performance Indicator (KPI) in the oil and gas industry is the reserves replacement ratio. This shows whether the
amount of oil/gas produced per year is matched by the amount of new oil/gas we nd to replace this. If the reserves
replacement ratio is equal to one this means whatever is produced in the given year has been replaced by nding new
reserves.
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Module Four: Formation of Oil and Gas
Oil and gas was formed millions of years ago
Most of the land we now live on was water. There were animals and plants
living on this water that subsequently died and were deposited under the water.
Clay, rocks and mud transported from rivers and canals were deposited on top
Organisms under the clay and mud decayed due to oxygen in the water,
temperature and pressure
The decay transformed them from animals and plants into oil and gas.
This is why it is also known as fossil fuels
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Module Five: Classification of Oil and Gas
Types of Hydrocarbons
Crude Oil Condensate
Natural Gas (Conventional
(Unconventional)
Retrograde Condensate Natural Gas
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Geological prospecting this is how we nd the location of oil and gas and is conducted
by geologists. There are several steps:
Surface geology topography
Aerial geography pictures of the surface
Field geological assessment
Surveys
There is no tool available today that tells us whether there is oil and gas under the ground. The only way to tell is to drill a well.
The geologist provides the science they will identify a large area of possible oil and gas traps
The geophysicists will then enhance this science to nd the traps
The drilling engineers will then come in to conrm whether there is oil and gas in the traps identied by geophysicists
Module Six: Exploration of Oil and Gas
"There is no tool available today that tells
us whether there is oil and gas under the
ground. The only way to tell is to drill a
well."
Did you know... a British Thermal Unit (BTU) is the amount of heat energy needed to raise the temperature of one pound of water by
one degree F. BTU is the standard measurement used to state the amount of energy that a fuel has,
as well as the amount of output of any heat generating device.
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What are the stages of drilling?
Exploration drilling this veries the presence/absence of oil and gas
Appraisal drilling this identies how big the discovery is
Development plan and drilling this is the number of wells to be drilled straight away to arrive at a certain production rate
Maintain potential and inll drilling maintaining the plateau rate for as long as possible by drilling more wells over time
Delineation and/or step-out drilling drilling will continue until you nd the oil-water or gas-water contact. Once you have found oil and water contact
there will be no more oil and gas beyond this point in this particular reservoir
What are the routine drilling operations?
Prepare the well site
Rigging up and rigging down
Spudding the well this is an important date in the drilling of wells. It is the rst time the drill bit touches the ground to start drilling. All operations
beyond this point are referred to the spud date
Drilling the surface hole
Running and cementing surface casing
Continue drilling
Running and cementing intermediate casing
Drilling to Target Depth (TD)
Running and cementing production casing
Trip or Running-in Hole (RIH)
Well evaluation
Non-routine Operations such as shing, stuck pipe or killing a well
The cost of drilling varies depending on the type of well, the depth and orientation
Module Seven: Drilling of Oil and Gas Wells
"Spudding the well is an important date
in the drilling of wells...All operations
beyond this point are referred to the spud
date"
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Well evaluation
While drilling is taking place there needs to be constant evaluation of the well to identify whether there are any hydrocarbon shows in
the well or not. This is done using logs such as sample or mud logs, open hole logs, drill stem tests and coring etc.
Well Completions
Once the well is ready to produce it must be completed for production. Factors to consider in completion design include the type of
reservoir and drive mechanism, rock and uid properties, the need for articial lift and future needs such as Enhanced Oil Recovery
(EOR) methods.
Module Eight: Well Evaluation and
Completion
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Module Nine: Reservoir Drive Mechanisms
Type of reservoir Description of reservoir Expected oil recovery
Solution gas drive reservoir
This is the most common.
Gas is dissolved in solution
5 30% of original oil in place
Gas cap drive reservoir
Gas formation on top of the
oil formation and both are
in communication
20 40% of original oil in place
Water drive reservoir
Water aquifer underneath
the oil and both are in
communication
35 75% of original oil in place
There are also combination drive (gas cap at the top and water drive at the bottom) reservoirs but these are very rare.
Different types of reservoir
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What do we do with the oil and gas when it comes to the surface?
Firstly the oil and gas will undergo processing in the eld this means the oil, gas and water are separated (to make the oil safe for
handling and storage and because gas is a valuable resource), salt and water is removed and the gas is compressed, refrigerated
and transported. Natural gas is also processed in the eld to separate condensate and water from it. The water goes to water
disposal and condensate to renery. The remaining gas goes through gas processing plant to remove any impurities and then
through NGL (natural gas liquids) recovery plant if economical.
Articial lift systems are installed to pull oil/water out of the well to the surface when the reservoir does not have enough energy to
push the oil/water to the surface. Different methods of articial lift methods have to be technical and economically evaluated before
one is installed.
Module Ten: Surface Facilities
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Key terminology explained
Well servicing and workover whenever a well is visited for any type of maintenance it is called workover. Maintenance could
include part replacement, cleanout and sand control, tubing and packer leak repair, re-stimulation and remedial cementing.
Reserves estimating methods and classication this is how we calculate how much oil and gas there is in the ground and
how much of this can be produced. We are unable to produce 100% of the oil and gas in the ground. As discussed earlier in the
e-book, reserves are only those quantities of oil and gas that can be economically produced. Anything else is classied as resources.
Rate-time decline curve analysis this is where you plot actual production rate of the well vs. time. This gives a trend which is
used to forecast reserves and periodic production rates.
Reserves Replacement Ratio this is an important measure of upstream performance. For every barrel produced this must be
matched by what is found in the ground...otherwise we will run out! The reserves replacement ratio has to be maintained at 1 or
above.
Module Eleven: Reserves Evaluation
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Crude oil renery is one large production unit. It is referred to as a renery and it alters the state of crude oil. The greater the number
of processes, the more sophisticated the renery.
There are three types of renery congurations:
Skimming renery - the most basic and cheapest form of renery
Catalytic cracking renery - the products that come out of the skinning renery process are fed into this renery to be further
rened
Thermal cracking renery - thermal cracking of the heavy crude cuts that come from skimming renery
The lighter the crude oil, the more expensive the products you will get from the renery. The heavier the crude oil, the lower in value it
will be.
Module Twelve: Crude Oil Refining
Did you know...in the USA reneries are predominantly catalytic cracking because they produce the most gasoline and there is a high
demand for this in the USA. However, in Europe the reneries are predominately thermal cracking as there is a high demand for diesel.
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Module Thirteen: International Agreements
What are the benets of
International Agreements?
Technological expertise, which
the NOC might lack
Manpower to execute a
project
Opportunities to expand into
new markets
Availability of nancing Sharing of risk
Use of patented technology
The agreements are between two parties the host government (represented by the Ministry of Petroleum or Gas from that country)
and the International Oil Company/a group of IOCs (the contractor). The National Oil Companies will oversee the contractual
obligations.
There are two main types of contractual agreements. These are the concessionary system and the production sharing system.
The bottom line of the agreements is how much the government and the contractors get. Government take is the amount of
money received by the government over the life of the project and it is typically a percent of the total net cash-ow or percent of the
total NPV.
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Module Fourteen: Project Economics
The following data is required for project economics:
Product forecast
Costs
Product prices and pricing assumptions
Project implementation schedule
Appropriate discount rate and rate of interest on loan (if project is nanced)
Protability criteria
This data has to be transformed into cash ow projections.
There are ve decision yardsticks to be calculated for every project
Discounted Payback Period
Net Present Value (NPV)
Internal Rate of Return (IRR)
Protability Index (PI) or Present Value Ratio
Long-Run Marginal Cost (LRMC) or Unit Technical Cost (UTC)
There are two main types of investment - service producing investments and revenue producing investments.
There are three types of investment decisions - screening economics, mutually exclusive alternatives and non-mutually exclusive alternatives.
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Wondering if you know
all there is to know
about Oil and Gas?
Why not try our 12 Hour MBA in Oil and Gas.
The 12 Hour MBA in Oil and Gas will take you through the 14 modules covered in this E-Book in much more
depth. Mr Mian will walk you through the fundamentals of oil and gas in an easy to manage online training
course.
For more information contact Evon Wong on: +44 (0) 207 608 7028
Or visit: http://www.terrapinntraining.com/training/12-Hour-MBA-in-Oil-&-Gas
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We also run a 3 day MBA in Oil and Gas in various locations across the globe.
Alternatively, we can come to you. We can tailor the course to your needs and deliver
the course for you and your team.
For more information contact Evon Wong on: +44 (0) 207 608 7028
Or visit: http://www.terrapinntraining.com/training/3-Day-MBA-in-Oil-&-Gas/
Wed love to meet
you too...