Determination of Oil and Gas Reserves

Determination of Oil and Gas Reserves
Petroleum Society Monograph No.1

THE PETROLEUM SOCIETY
OF THE CANADIAN INSTITUTE OF MINING, METALLURGY AND PETROLEUM
Determination of
Oil and Gas Reserves
Petroleum Society Monograph No.1
1994 by The Petroleum Society of the Canadian Institute of Mining, Metallurgy and
Petroleum, Calgary Section.
All rights reserved. First edition published 1994.
Printed in Canada.
10 9 8 7 6 5 4 3 2
Permission is granted for individuals to make single copies for their personal use in
research, study, or teaching and to use figures, tables and short quotes from this
monograph for republication in scientific books and journals. There is no charge for
any of these uses. The publisher requests that the source be cited appropriately.
Canadian Cataloguing in Publication Data
Main entry under title:
Determination of oil and gas reserves.
(Petroleum Society monograph; no. I)
Includes bibliographical references and index.
ISBN 0-9697990-0-4
I. Petroleum reserves. I. Petroleum Society of CIM. II. Series.
TN871.D47 1994 622' .1828 C94-910092-7
Edited by Virginia MacKay.
Cover design by Guy Parsons.
Typesetting and graphic design by lA. (Sandy) Irvine, By Design Services.
Printed and bound in Canada by D.W. Friesen Ltd., Altona, ME.
CONTENTS
Figures xiv
Tables xvii
Foreword xix
Preface xxi
Acknowledgements xxiii
Authors .' xxiv
PART ONE: DEFINITIONS AND GUIDELINES
FOR CLASSIFICATION OF OIL AND GAS RESERVES
1. OVERVIEW OF PART ONE 3
2. DEFINITIONS 4
2.1 Introduction 4
2.2 Resources 4
2.2.1 Discovered Resources or Initial Volumes in Place 5
2.2.2 Undiscovered Resources or Future Initial Volumes in Place 5
2.3 Remaining Reserves 5
2.3.1 Remaining Proved Reserves 5
2.3.2 Probable Reserves 5
2.3.3 Possible Reserves 5
2.3.4 Development and Production Status 6
2.4 Cumulative Production 7
2.4.1 Sales 7
2.4.2 Inventory 7
2.5 Reserves Ownership 7
2.6 Specified Economic Conditions 8
2.7 Reporting of Reserves Estimates 8
2.7.1 Risk-Weighting of Reserves Estimates 8
2.7.2 Aggregation of Reserves Estimates 8
2.7.3 Barrels of Oil Equivalent 9
3. GUIDELINES FOR ESTIMATION OF OIL AND GAS RESERVES 10
3.1 Introduction 10
3.2 Methods ofCaiculating Reserves 10
3.2.1 Deterministic Procedure 10
3.2.2 Probabilistic Procedure II
3.3 Guidelines for Specific Methods 12
3.3.1 Volumetric Method 12
3.3.2 Material Balance Method 17
3.3.3 Decline Curve Analysis 18
3.3.4 Reservoir Simulation Method 22
3.3.5 Reserves from Improved Recovery Projects 22
3.3.6 Related Products 22
v
vi
PART TWO: DETERMINATION OF IN-PLACE RESOURCES
4. OVERVIEWOF PARTTWO 27
4.1 Introduction 27
4.2 ResourceEstimates 27
4.2.1 Volumetric Estimates 27
4.2.2 Material BalanceEstimates 30
4.3 Procedures for EstimatingIn-PlaceResources 30
4.4 Sources and Reliabilityof Data 31
4.5 Interrelationship of Parameters 31
4.6 Uses of ResourceEstimates 31
4.7 Backgroundand Experience of Evaluators 34
5. ESTIMATION OF VOLUMES OF HYDROCARBONS INPLACE 35
5.1 Reservoir Area and Volume 35
5.1.1 Introduction 35
5.1.2 Acquisitionof Data 35
5.1.3 Data Analysis 36
5.1.4 Mapping 38
5.1.5 Refinement of Volumetric Estimates 43
5.2 Thickness 44
5.2.2 DefiningNet Pay 45
5.2.3 Data Acquisition Programs 46
5.2.4 Data Interpretation 48
5.2.5 Factors AffectingData Quality 49
5.3 Permeability 53
5.3.2 PermeabilityfromCore 53
5.3.3 RelativePermeability Measurement 54
5.4 Porosity 55
5.4.2 Sources and Acquisition of Data 55
5.4.3 Analysis of Data 58
5.5 HydrocarbonSaturation 65
5.5.2 SaturationDetermination FromCore 65
5.5.3 SaturationDetermination FromLogs 69
5.5.4 FlowTest Procedures for Gas and Oil Saturation 70
5.6 Testing and Sampling 75
5.6.2 DrillstemTests 75
5.6.3 ProductionTests 75
5.6.4 Sampling 77
5.7 Reservoir Temperature 81
5.7.2 Data Sources 81
5.7.4 Data Analysison a Regional Basis 82
5.7.5 Data Quality 85
5.8 Reservoir Pressure 86
5.9 Gas Formation Volume Factor 91
5.9.2 Ideal Gas Law 91
5.9.3 Gas Compressibility Factor 91
5.9.4 Sour Gas 92
5.9.5 Derivationof Gas FormationVolumeFactor 94
5.10 Oil Formation VolumeFactor 96
5.10.1 Introduction '" 96
5.10.3 Data Acquisition 96
5.10.5 Data Adjustment 98
5.10.6 Summary '" 100
5.11 Quality and Reliabilityof Data and Results 101
5.11.2 PermeabilityfromCores 101
5.11.3 Porosity fromCores 101
5.11.4 Saturations fromCores 102
5.11.5 Effective PorousZone and Net Pay fromCores 102
5.11.6 Porosity fromWell Logs 103
5.11.7 Water Saturations fromWell Logs '" 103
5.11.8 EffectivePorous Zone and Net Pay fromWell Logs 103
5.11.9 DrillstemTests 104
5.11.10 ProductionTests 104
5.11.11 Reservoir Fluid Samples 104
5.11.12 Reservoir Temperature 104
5.11.13 Reservoir Pressure 104
5.11.14 GasCompressibilityFactor 105
5.11.15 FormationVolume Factor 105
5.11.16 Material Balance 105
5.11.17 Interrelationships 105
6. PROBABILITYANALYSIS FORESTIMATES OF HYDROCARBONS IN PLACE 106
6.1 Introduction 106
6.2 Warren Method Theory 107
6.3 Application 108
6.4 Typical Situation: Conventional Gas 110
7. MATERIALBALANCEDETERMINATION OF HYDROCARBONS IN PLACE 120
7.2 UnderlyingAssumptions 120
7.3 Explanationof Terms 121
7.4 General Material BalanceEquation ..................................... 122
7.5 Special Cases of the Material Balance Equation 122
7.5.1 Undersaturated Oil Reservoirs 122
7.5.2 SaturatedOil Reservoirs 123
7.5.3 Gas Reservoirs 123
vii
viii
7.6 Limitations of Material Balance Methods 123
7.7 Supplemental Calculations 124
7.7.1 Gas Caps and Aquifers 124
7.7.2 Water Influx Measurements 124
7.7.3 Analytical Water Influx Models 124
7.8 Multiple UnknownMaterial Balance Situations 125
7.9 Computer Solutions 127
PART THREE: ESTIMATION OF RECOVERY FACTORS AND
FORECASTING OF RECOVERABLE HYDROCARBONS
8. OVERVIEWOF PARTTHREE 131
8.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 131
8.2 Purpose of Depletion Strategy 131
8.3 Techniques for Reserves and ProductionForecasting 132
9. NATURALDEPLETIONMECHANISMS FOROIL RESERVOIRS 133
9.1.1 Fluid Expansion 133
9.1.2 Solution Gas Drive 133
9.1.3 WaterDrive 134
9.1.4 Gas Cap Drive , 134
9.1.5 CompactionDrive 134
9.1.6 CombinationDrive 135
9.2 Forecasting of RecoverableOil 135
9.2.1 SolutionGas Drive 137
9.2.2 Water Drive 137
9.2.3 Gas Cap Drive 140
9.2.4 CombinationDrive 140
9.3 Factors Affecting Oil Recovery 140
9.3.1 ProductionRate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
9.3.2 Oil Quality 141
9.3.3 Reservoir Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 141
9.3.4 Reservoir Geometry 141
9.3.5 Effects of Economic Limit 142
10. DEPLETIONMECHANISMS FORNATURALGAS RESERVOIRS 145
10.2 Characteristicsof Natural Gas 145
10.3 Definition of Reservoir Types fromPhase Diagrams 146
10.4 Gas Recovery 147
10.5 Gas Reserves 148
10.5.1 NonassociatedGas Reserves Determination .. , 148
10.5.2 SolutionGas Reserves Determination 150
10.5.3 Associated Gas Reserves Determination 150
10.6 Pipeline Gas Reserves 150
10.7 Reserves of RelatedProducts 151
10.7.1 Natural Gas Liquids 151
10.7.2 Sulphur 151
10.8 Gas DeliverabilityForecasting 151
10.9 Well Spacing 152
10.10 Cycling of Gas Condensate Reservoirswith Dry Gas 152
10.11 Secondary Recovery of Gas 153
10.12 EnhancedGasRecovery 153
II. ENHANCEDRECOVERYBY WATERFLOODING 154
11.2 Displacement Process 154
11.2.1 Mobility Ratio 154
11.2.2 Interfacial Tension 154
11.2.3 Fractional Flow 155
11.3 Types of Waterfloods 156
11.4 Analysis Methods and When to Apply Them 156
11.4.1 Pool Discovery 157
11.4.2 Delineated Pool: Immature Depletion 157
11.4.3 Post-Injection Startup 158
11.4.4 Post-Watertlood Response 158
11.4.5 Mature Watertlood 158
U.s Volumetric Analysis 158
11.5.1 Overviewof Method 158
11.5.2 Parameters and Factors Affecting Analysis 158
11.5.3 Reliability of Results 162
11.6 Decline Performance Analysis 162
11.6.2 Factors Affecting Analysis 162
11.7 Comparison to Analogous Pools 163
11.7.2 Procedure and Factors Affecting Analysis 163
11.8 Analytical Performance Prediction 164
11.8.1 Overview of Methods 164
11.9 Numerical Simulation 166
11.9.2 Parameters and Factors Affecting Analysis 166
11.10 Waterflooding Variations 167
11.10.1 Naturally FracturedReservoirs 167
11.10.2 Polymer Flooding 168
11.10.3 Micellar Flooding 168
11.11 Statistical Watertlood Analysis Survey 168
11.11.1 Overviewof Database 168
11.11.2 Discussion of Results 168
12. ENHANCEDRECOVERYBYHYDROCARBON MISCIBLEFLOODING 171
12.2 Types of Hydrocarbon Miscible Floods 171
12.2.1 Vertical Miscible Floods 171
12.2.2 Horizontal Miscible Floods 172
12.3 Methods of Achieving Miscibility 172
12.3.1 First-Contact Miscible Process 172
12.3.2 MUltiple-Contact Miscible Process 172
12.3.3 Vapourizing Multiple-Contact Miscibility 173
ix
x
12.4 Experimental Methods to Determine Miscibility 173
12.4.1 P-X Diagram 173
12.4.2 Multi-Contact Ternary Diagram 174
12.4,3 SlimTube Test 174
12.4.4 Rising Bubble Apparatus 174
12.5 Screening and Feasibility Studies 174
12.5.2 Break-ThroughRatio Method 177
12.5.3 Geological Model 177
12.5.4 Simulation Studies 177
12.5.5 Estimation of Uncertainties 178
12.5.6 Determination of Solvent and Chase Gas Slug Size 178
12.5.7 Field Performance of Miscible Floods 179
12.6 Classification of Miscible HydrocarbonReserves 179
12.6.1 Possible Reserves 179
12.6.2 Probable Reserves 180
12.6,3 Proved Reserves 180
13. ENHANCEDRECOVERYBY IMMISCIBLE GAS INJECTION 183
13.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 183
13.2 Types of Floods 183
13,3 Performance Prediction 184
13.3.1 External Injection Schemes 185
13,3.2 Dispersed Gas Injection Schemes 185
14. ENHANCEDRECOVERYBY THERMALSTIMULATION 187
14.2 Cyclic Steam Stimulation 187
14.2.1 Process Variation 187
14.2.2 Field Examples 188
14.2.3 Recovery Mechanisms 188
14.2.4 Design Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 188
14.3 SteamFlooding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 189
14.3.1 Process Variation 189
14,3.2 Design Considerations 189
14.4 Causes of Failure for Cyclic SteamStimulationand SteamFlood Processes 190
14.5 Forecasting Models 191
14.5.1 Marx and LangenheimModel 191
14.5.2 Myhill and Stegeimeier Model 193
14.5,3. Vogel Model 194
14.5.4 ButierModel 194
14.6 In Situ Combustion Processes 194
14.6.1 Recovery Mechanisms 195
14.6.2 Process Variations 195
14.6.3 Design Considerations 195
14.6.4 Causes of Failure , , 196
14.7 Electromagnetic Heating 196
15. ENHANCEDRECOVERYBY CARBONDIOXIDEFLOODING 200
15.1 Introduction , 200
15.2 Process Review , 200
15.3 Recovery Mechanisms 201
15.4 Design Considerations 201
15.4.1 Phase Behaviour 201
15.4.2 Displacement Efficiency 201
15.4.3 Volumetric Sweep Efficiency 202
15.4.4 Slug Sizing 202
15.5 Reserve Evaluation 202
15.6 Field Applications 203
16. RESERVES ESTIMATIONFOR HORIZONTAL WELLS 205
16.2 Reserves Determination Techniques 206
16.2.1 Performance Projection 206
16.2.3 Role of Heterogeneities ; 209
16.2.4 Importance of Channellingin Reserves Performance 209
16.2.5 Recovery Factors 210
16.3 Determination of Reserves 211
16.3.1 Determination of Reserves Parameters 211
16.3.2 Key Elements 211
16.3.3 Steps Involved in Reserves Determinations 211
17. NUMERICAL SIMULATION 214
17.2 Types of Reservoir Simulators 214
17.3 Mathematical Formulation 215
17.4 Anatomy of Reservoir Simulation 216
17.5 Data Requirements 216
17.5.1 ReservoirGeometry 216
17.5.2 Rock and Fluid Properties 216
17.5.3 ProductionandWellData 216
17.6 Reservoir Model Grid Design 217
17.7 Reservoir Model Initialization 218
17.8 Model Sensitivity Analysis 218
17.9 History Matching 219
17.10 Forecasting Reservoir Performance 219
17.11 Use and Misuse of Reservoir Simulation 220
17.12 Summary 220
18. DECLINE CURVE METHODS 222
18.2 Source and Accuracy of ProductionData 222
18.3 Terminology 223
18.4 Single-Well vs. Aggregated-Well Methods 223
18.5 Decline Curve Methods for a Single Well 224
18.5.1 Exponential Decline 225
18.5.2 Hyperbolic Decline 226
18.5.3 Harmonic Decline 229
18.5.4 Dimensionless Solutions and Type-Curve Matching 230
18.6 Decline Curve Methods for a Group of Wells 231
18.6.1 Statistical Method 231
18.6.2 Theoretical Methods 234
18.7 Summary 235
Xl
xii
19. RECOVERYFACTOR STATISTICS , 237
19.2 Data Source and Reliability 237
19.3 Conventional Crude Oil 238
19.3.1 Natural or Primary Drive Mechanisms 238
19.3.2 Oil Recovery Factor Distributions 239
19.3.3 Average Recovery Factors 240
19.3.4 Pool Size 240
19.3.5 Fluid Type: Light and Mediumvs. Heavy 241
19.3.6 Lithology: Clastics vs. Carbonates " 242
19.3.7 Geological Period 243
19.3.8 Geological Play '" . 243
19.3.9 Recovery vs, Common Reservoir Parameters 247
19.4 Conventional Gas 247
19.5 Using Recovery Factor Statistics 249
PART FOUR: PRICES, ECONOMICS, AND MARKETS
20. OVERVIEWOF PART FOUR 253
21. CASH FLOW ANALySIS 254
21.2 Mineral Rights Ownership 254
21.3 Principal Sources and Uses of Cash 255
21.4 Royalties and Mineral Tax 257
21.5 Federal Corporate Income Tax 261
21.6 Financial Statements 263
21.7 Finance and Economic Considerations 264
22. UNCERTAINTYAND RISK IN RESERVES EVALUATION 266
22.2 Concepts 266
22.2.1 Definition of Risk and Uncertainty 266
22.2.2 Describing Uncertainty 266
22.2.3 Areas of Uncertainty 266
22.2.4 Causes of Uncertainty 268
22.2.5 Magnitude of Uncertainty 271
22.2.6 Use of Uncertainty 271
22.3 Estimation of Uncertainty 273
22.3.1 Parameters to be Estimated 273
22.3.2 Empirical Classification 273
22.3.3 Quantifying Subjective Estimates 274
22.3.4 Quantitative Estimation 274
22.4 Methods of Analysis 275
22.4.1 Carrying Out a StochasticEvaluation 275
22.4.2 Decision Matrices 276
22.4.3 Decision Trees 277
22.4.4 Probabilistic Simulation 277
22.5 Evaluation of Undeveloped Lands 278
23. THE REGULATORYENVIRONMENT 281
23.2 Resource Assessments 281
23.3 Mineral Ownership 282
23.4 Economic Development Policies 282
23.5 Conservation Controls 283
23.5.1 Field Development and Production Conservation 283
23.5.2 Consumer Demand Conservation 283
23.6 Development, Operating, and Environmental Regulations 283
23.7 Domestic Supply Assurance 284
23.8 Fiscal Policies 285
23.9 Business Regulations 285
23.10 International Policies 285
24. CRUDE OIL MARKETS 287
24.2 Transportation Network 288
24.3 Major Markets 290
24.4 North American Pricing 291
24.5 Price Risk Management 294
24.5.1 Futures 294
24.5.2 Options 295
24.5.3 Swaps 295
24.6 Outlook and Challenges 295
25. NATURAL GAS MARKETS 297
25.2 The Market Environment 297
25.2.1 Reviewof Pre-DeregulationEra 297
25.2.2 Reviewof Current Era 298
25.2.3 Previewof Future Era 300
25.3 Market Mechanisms and Market Forces 300
25.3.1 Market Types and Market Mechanisms 300
25.3.2 Market Demand Forces 302
25.3.3 Production Forecasting 304
25.4 The Role of Reserves 304
25.5 Conclusions 305
26. USES OF RESERVES EVALUATIONS 306
26.2 Users of Reserves Volumes and ProductionForecasts 306
26.2.1 Producers 306
26.2.2 Transporters 306
26.2.3 Governments 306
26.2.4 Gas Marketers 307
26.2.5 Other Users 307
26.3 Developing Values fromReserves Estimates 307
26.3.1 Profitability Indices 307
26.3.2 Incremental Economics 310
26.3.3 Acceleration Projects 310
26.4 Uses of the Values Derived fromReserves Estimates 311
26.4.1 Valuing Oil and Gas Companies 311
xiii
26.4.2
26.4.3
26.4.4
26.4.5
26.4.6
26.4.7
26.4.8
26.4.9
26.4.10
Sale of ResourceProperties 312
Evaluationof UnexploredLands and ExplorationWells 313
Lending and Borrowing 314
Auditing Evaluations 314
SecuritiesReporting 315
Accounting Requirements 316
EstablishingFindingand Replacement Costs 317
EstimatingBarrels of Oil Equivalent 318
EstimatingNet-BackCalculations 320
Biographies ofAuthors 32i
Acronyms 329
Glossary 333
Bibliography 345
Author index 349
Subject index 353
FIGURES
xiv
2.1-1
2.1-2
2.5-1
3.3-1
3.3-2
3.3-3
3.3-4
3.3-5
3.3-6
3.3-7
3.3-8
3.3-9
3.3-10
3.3-11
5.1-1
5.1-2
5.1-3
5.1-4
5.2-1
5.2-2
5.2-3
5.2-4
5.2-5
5.4-1
5.4-2
5.4-3
Resources 4
Reserves 6
Reserves Ownership 7
Single Well Oil Pool with Good Geological Control 13
Conventional Gas Pool, Zero Limit of Net Pay Map 14
Conventional Gas Pool, Zero Limit of Net Pay Map
with Individual Well Assignments 15
with Area of ProvedReserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 15
with Area of ProvedPlus ProbableReserves 16
Material Balance(Gas Reservoir) 18
Material Balance (Scattered Data) 19
Material Balance(ReservoirDrive and DepletionMechanism) 19
Decline Curve, ProvedReserves ., 20
Decline Curve, Cumulative Gas Production 21
Decline Curve, Cumulative Oil Production 21
Pressure-Depth Plot for Free Water Level Determination 38
Cross Contouring 40
Series of RelatedMaps (zeroedge fromseismic,
computer-contoured) (ZYCORSoftware) 41
Examples of Mechanical and Interpretive Mapping 42
Reservoir Interval Terminology 44
Air Permeabilityvs. Porosity 46
FlowChart for a Core AnalysisProgram 47
Hydrocarbon Fluid Contact Identification fromPressure Gradients 49
Sand Unit ShapeDiagram 51
Porosity of Cubic-Packed Spheres 55
Typical Core Analysis Report 59
Porosity vs. Horizontal Permeability 60
5.4-4
5.4-5
5.4-6
5.4-7
5.4-8
5.4-9
5.5-1
5.5-2
5.5-3
5.5-4
5.5-5
5.5-6
5.6-1
5.6-2
5.7-1
5.7-2
5.7-3
5.7-4
5.8-1
5.8-2
5.8-3
5.8-4
5.9-1
5.10-1
6.3-1
6.4-1
6.4-2
6.4-3
6.4-4
6.4-5
7.7-1
7.7-2
9.1-1
9.1-2
9.1-3
9.2-1
9.3-1
9.3-2
9.3-3
9.3-4
10.2-1
10.2-2
10.3-1
10.3-2
10.5-1
10.5-2
10.8-1
10.8-2
Core Analysis Report: Analytical Summary Sheet 60
PorosityfromFormation Density Log 61
PorosityfromSonic Log 61
NeutronPorosityEquivalence Curves 62
Porosityand Lithology Determination fromNeutron-Density Log 62
Impact of Clayon Log andCoreMeasurements 64
Porosityvs. Formation Factor 67
Formation Resistivity Index 68
Air Brine Capillary Pressure Test 70
Log Interpretation FlowChart 71
Dual Water Model 72
Shaly SandInterpretation Process 73
DrillstemTest Tool (Unset Position) 76
DrillstemTest Tool (Set Position) : ; 76
Representative Homer Plots from Wellsin the Utah-Wyoming
Thrust Belt 83
Relief Map for Southern Alberta 83
ContourPlot of Spreadfor BHTValues in Southern Alberta 83
Examples of Temperature vs. DepthPlots
fromTwo Areas in Southern Alberta 84
StaticGradient 87
Pressure vs. Time 87
Homer Plot 88
PorosityVolume Map 89
Compressibility Factors for Natural Gases 93
Comparison of Formation Volume Factor
by Differential and FlashLiberation 96
Estimation of Reef Volume 110
Typical Situation: Gas Pool Map III
Conversion of BaseAreato Average Pool Area 113
Typical Situation: Gas-in-Place Distribution 116
Typical Situation: Reserve Distribution 118
Typical Situation: Discounted Net Profit BeforeInvestment 119
Straight LinePlot for Oil Zone andGas CapCase 126
Straight LinePlot for Oil Zoneand Water InfluxCase 127
SolutionGas DriveReservoir 133
Comparison of Solution Gas Driveand Water DriveReservoirs 134
Gas Cap DriveReservoir 135
Recommended Methods for the Stagesof Exploitation 135
Relationship Between Production Rateand Reserves 141
Relationship Between Well Spacing and Abandonment Pressure 143
Optimum Well Spacing 143
Effectsof FacilityConstraints on Economic Limit 143
Classification of Gas Basedon Source in Reservoir 145
Occurrence of Oil and Gas 146
Pressure-Temperature PhaseDiagram of a Reservoir Fluid 147
Phase Diagram of a Cap Gas andOil Zone Fluid 147
Plot ofP/Z vs. Cumulative Gas Production 150
Effect of Water Driveon Pressure Decline 150
Back Pressure Plot 152
Gas Deliverability Plot 152
xv
xvi
11.2-1
11.2-2
11.3-1
11.3-2
11.3-3
11.5-1
12.3-1
12.3-2
12.3-3
12.5-1
13.2-1
14.5-1
14.5-2
16.2-1
17.2-1
17.3-1
17.6-1
17.6-2
17.6-3
17.6-4
18.3-1
18.3-2
18.5-1
18.5-2
18.5-3
18.5-4
18.5-5
18.5-6
18.6-1
18.6-2
18.6-3
18.6-4
18.6-5
19.3-1
19.3-2
19.3-3
19.3-4
19.3-5
19.3-6
19.3-7
19.3-8
19.3-9
19.3-10
19.3-11
19.3-12
19.3-13
19.3-14
Effect of Oil Viscosity on Fractional Flow Curve,
Strongly Water-Wet Rock 155
Effect of Oil Viscosity on Fractional Flow Curve,
Strongly Oil-Wet Rock 155
Cross Section for Vertical Waterflood 156
Plan View for Horizontal Waterflood 156
Flood Patterns for Horizontal Flood Schemes 157
Effect of Mobility Ratio on Oil Production for the Five-Spot Pattern 159
Pseudo-Ternary Diagram Indicating First-Contact Miscibility 172
Development of Multiple-Contact Miscibility Condensing Process . . . . . . 173
Development of Multiple-Contact Miscibility Vapourizing Process 173
Reserves Distribution 178
Gas Injection 184
Types of Analytical Gravity Drainage Models 192
Thermal Efficiency of Steam Zone as a Function
of the Dimensionless Time Parameter 193
Schematic of Horizontal and Vertical Well Drainage Areas 208
Schematic Diagram of Matrix-Fracture Connectivity 215
Mass Balance on Reservoir Element 215
2D Areal Model 217
2D Vertical Model 217
2D Radial Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
3D Model 218
Reservoir Performance Chart 224
Production Performance Chart 224
Exponential Decline Chart 226
Decline Curve Analysis Chart Relating Production Rate to Time 227
Decline Curve Analysis Chart Relating Production Rate
to Cumulative Production 227
Hyperbolic Curve Overlay 228
Production Performance Graphs 229
Composite of Analytical and Empirical Type Curves 230
Production Performance Graph 232
Rate-Cumulative Production Graph 232
Distribution of Well Rates, Pembina Cardium Pool 233
Rate-Ratio-Cumulative Graph, Pembina Cardium POOl 234
Production Performance Graphs, Pembina Cardium Pool 234
Oil Pools 239
Distribution of Primary Oil Recovery Factors 240
Large Mature Oil Pools 241
Light and Medium Oil Pools 241
Heavy Oil Pools 242
Clastic Oil Pools 242
Carbonate Oil Pools 242
Upper Cretaceous Oil Pools 243
Lower Cretaceous Oil Pools 243
Jurassic Oil Pools 244
Triassic Oil Pools 244
Permian Oil Pools 244
Mississippian Oil Pools 244
Upper Devonian Oil Pools 245
7
19.3-15
19.3-16(a)
19.3-16(b)
19.3-17(a)
19.3-17(b)
19.3-18(a)
19.3-18(b)
19.3-19
19.3-20
22.2-1
22.2-2
22.2-3
22.2-4
22.2-5
24.2-1
24.2-2
24.4-1
24.4-2
25.3-1
25.3-2
25.3-3
4.2-1
4.4-1
5.4-1
5.5-1
5.10-1
5.10-2
5.10-3
6.1-1
6.4-1
6.4-2
6.4-3
6.4-4
6.4-5
6.4-6
7.2-1
7.2-2
9.2-1
9.2-2
10.7-1
11.8-1
11.11-1
Middle Devonian Oil Pools 245
Oil Recovery vs. Porosity 247
Porosity Distribution 247
Oil Recovery vs. Net Pay 248
Net Pay Distribution 248
Oil Recovery vs. Water Saturation 248
Water Saturation Distribution 248
Gas Pools (Producing) 249
Large Gas Pools (Producing) 249
Risk and Uncertainty 267
Level of Uncertainty in Reserves Estimates
during the Life of a Producing Property 269
The Effect of Error and Bias on a Reserve Estimate 270
Expectation Curves: Comparison of Results 271
Expectation Curve: Reconciliation of Different Views
of Hydrocarbon Volumes and Values 272
Major Alberta Pipeline Systems 288
Major Crude Oil Pipelines and Refining Areas 289
NYMEX WTI Prices at Cushing 293
Alberta Crude Oil Pricing, Chicago Market (July 1992) 293
Commercial and Regulatory Mechanisms for Ex-Alberta Markets 301
Gas Marketing Options 302
Reserves Connection to Markets 303
TABLES
In-Place Volumes of Related Products 30
Sources of Data 32
Comparison of Techniques of Determining Porosity 56
Wettability and Interfacial Tension 69
Pressure Volume Relations 98
Separator Tests of Reservoir Fluid Sample 99
Differential Vapourization 99
In-Place Volumetric Estimation Techniques 107
Gas-in-Place Distribution for Most Likely Area of384 Hectares 114
Gas-in-Place Distribution for Most Likely Area of 576 Hectares 115
Gas-in-Place Distribution for Most Likely Area of 704 Hectares 115
Gas-in-Place Distribution for Most Likely Area of 576 Hectares,
Variable Temperature and Gas Deviation Factor 117
Reserve Distribution for Most Likely Area of 576 Hectares 118
Discounted Net Profit Before Investment Distribution
for Most Likely Area of 576 Hectares 119
ReservoirVoidage Terms 121
Reservoir Expansion Terms 122
Recommended Reserves Forecasting Methods 136
Decline Analysis Plots Used after Water Break-through 139
Recoveries of Related Products 151
Classification of 33 Waterflood Prediction Methods 165
Summary of Recovery Factors: A Sampling
of Western Canadian Waterfloods 169
xvii
XV1l1
11.11-2
13.3-1
18.5-1
18.6-1
19.2-1
19.3-1
19.3-2
19.3-3
19.3-4
21.4-1
21.4-2
21.4-3
21.5-1
24.3-1
26.4-1
ReserveAnalysis Technique Distribution . . . . . . . . . . . . . . . . . . . . . . . . .. 169
Recommended Performance Prediction Methods 185
DeclineCurve Equations 225
Statistical Parameters for Pembina Cardium Pool 233
PublicData Available for Reserve Studies 237
PrimaryOil Recovery by DriveMechanism 238
AverageOil Recoveries 241
Recovery Factorsfor Upper Devonian Zones 245
Recovery Factorsfor Geological Plays in WesternCanada 246
Summaryof AlbertaNatural Gas RoyaltyChanges 258
Summaryof Equations for BasicRoyalty 259
Summaryof AlbertaCrude Oil RoyaltyRate Changes 259
CashFlowand Income Tax Summary 262
Importers of Canadian HeavyCrude 292
Conversion Rates 318
7
FOREWORD
The estimating and reporting of reserves of oil and gas and related substances are of fundamental
importance to the oil and gas industry. Reserves estimates formthe basis for most development and
operational decisions and are of critical importancein financingand other commercial arrangements
that allow oil and gas developments to proceed in an orderly and efficient manner. Reserves
estimates also playa key part in relevant planning and policy decisions by governments and others.
The role of reserves estimates in operational, financial and policy decisions emphasizes the need for
the estimates to be as accurate and current as possible. The use ofconsistent terminology and estima-
tion procedures is also essential. This monograph, Determination ofOil and GasReserves, has been
developed to assist in achieving the objectives of accuracy and consistency in estimating reserves.
The idea ofdeveloping such a monographwas conceivedby Dr. Roberto Aguilera who, as Chairman
of the Reserves Monograph AdvisoryCommittee,has co-ordinatedthe preparation of the document.
The project was sponsored by the CalgarySectionof the PetroleumSociety ofthe Canadian Institute
of Mining, Metallurgy and Petroleum.
The first organizational meeting of the committee took place in the spring of 1990. Since that time,
members of the committee, on their own and with the support of their employers, have contributed
substantial time and expertise to the project and enlisted the help of many industry experts in the
preparation and critique of specific chapters. The objective was to develop a reference that would be
of substantial value to geologists, engineers and other technical persons involved in estimating re-
serves, as well as to others whouse suchestimatesfor particular purposes. Withthe publication ofthe
monograph in the spring of 1994, the committeewill have achieved that objective.
A total of over fifty people have been involved in the planning, the writing and review of the
chapters, the drafting of figures, and the editing and preparation of the final copy for the printing of
the monograph. All those involvedin estimatingoil and gas reserves, or who use such estimates, owe
them a vote of thanks. I am confident that the monograph will become a standard reference for all
practitioners of the science of estimating oil and gas reserves. It will also serve as an excellent train-
ing tool for persons who have only a basic understanding of reserves estimation methods and who
wish to advance their knowledge of the subject.
G. 1. DeSorcy, P.Eng.
Calgary, January 1994
xix
z
PREFACE
The estimation of reserves of oil, gas, and related substances has been a hot topic since the very
beginning of the oil industry. Over the ensuing years, the concept of reserves has meant different
things to different people within this industry, with each evaluator, oil and gas company, financial
agency, securities commission, and government department using its own version of the definitions.
The monograph represents our effort to find definitions and guidelines for the classification of
reserves that will be acceptable to all ofthese users.
When the concept of this monograph was first discussed, we wrestled with the question: "Should we
ask one or two professionals to prepare the whole monograph or should we ask a variety ofspecialists
to contribute to it?" In the end we concluded that we would not find one or two people with expertise
in all the topics concerned with oil and gas reserves, so we should use a number of knowledgeable
authors. We ended up with forty contributing authors and a group of reviewers who helped to polish
the thirty-seven topics covered in the twenty-six chapters ofthe monograph.
The topics have fallen into four major divisions that we have called "parts" in the monograph. Part
One presents the definitions and guidelines for the classification of oil and gas reserves. These have
been prepared by the Standing Committee on Reserves Definitions of the Petroleum Society of the
Canadian Institute of Mining, Metallurgy and Petroleum.
Part Two discusses the volumetric and material balance methods for estimating volumes of oil and
gas in place, various sources of data, and the interpretation of the data. Part Two also deals with
probabilistic methods for estimating the volumes of oil and gas contained in reservoirs, in addition to
the more common deterministic methods.
Part Three considers the estimation of recovery factors for oil and gas reservoirs, with particular
emphasis on volumes recoverable by enhanced recovery methods. Secondary and tertiary recovery
methods are discussed, as well as primary methods and the use of horizontal wells. Part Three also
addresses decline curve analysis and reservoir modelling by numerical simulation.
Part Four covers the other factors that must be considered in estimating reserves: cash flow analysis,
the assessment of uncertainty, the role of markets, and potential regulatory impacts that must be
recognized by evaluators. Part Four ends with a discussion of the uses that are made of reserves
estimates. This part proved to be very challenging to write as the diverse nature of the applications
of recovery estimates in economic evaluations led to some animated discussions between the
engineering and financial groups. But in the end, I think we put together some information that will
be useful to all the professionals who deal with economic evaluations.
(cont'd)
xxi
xxii
For simplicity, the nomenclature and units of measurement are defined following each equation. We
have used the metric system (SI), with Imperial units shown as well in some cases.
Following the text, we have included brief biographies of the authors and several lists for the
convenience of readers: Acronyms, Glossary, Bibliography, Author Index, and Subject Index.
It is our sincere hope that this monograph, Determination of Oil and Gas Reserves, will help to
simplify and standardize the science and art of estimating oil and gas reserves throughout the world.
Roberto Aguilera, P. Eng.
ACKNOWLEDGEMENTS
Associated with the publication of the monograph was the time-consuming and challenging task of
co-ordinating the material produced by forty authors with forty different backgrounds and forty dif-
ferent writing styles. The Reserves Monograph Advisory Committee did a superb job ofco-ordinating
the four parts of the monograph. As Chairman, I wish to thank the members of the committee for the
many hours they devoted to planning the work, meeting with the authors, and reviewing the drafts.
The following are the members of the committee with their company affiliations. We are grateful to
the employers for supporting the members in this endeavour.
N. Guy Berndtsson
Keith D. Brown
CAS. (Charlie) Bulmer
R.V. (Bob) Etcheverry
John Hewitt
R. V. (Bob) Lang
W.V. (Bill) Mandolidis
Michael E. McCormack
r. Glenn Robinson
Roberto Aguilera, Chairman
Energy Resources Conservation Board
Royal Bank of Canada
Sproule Associates Limited
CN Exploration Inc.
Martin Petroleum and Associates
Energy Consultant
Saskatchewan Oil and Gas Corp.
Fractical Solutions Inc.
Servipetrol Ltd.
7
The work on the monograph involved authors and reviewers with backgrounds in government
regulations, banks, stock brokers, securities commissions, consultants, the University of Calgary,
and major, mid- and small-sized exploration and production companies. On the following pages are
listed the names and company affiliations of the authors of the various chapters and sections of the
monograph. These are the people who supplied the "meat" of the document through many volunteer
hours of labour-writing, revising, and consulting with others-on the material they were
responsible for.
In addition, we would like to thank the Petroleum Society ofCIM, Canadian Well Logging Society,
Society of Petroleum Engineers, Society of Professional Well Log Analysts, American Association
of Petroleum Geologists, and Alberta Energy Resources Conservation Board, as well as Western
Atlas International Inc., Schlumberger, Gulf Publishing Co., PanCanadian Petroleum Ltd., Chevron
Canada Resources, and PennWell Publishing Co. for permission to use material from their
publications.
We also express our gratitude to all of the various authors and organizations that have published
material on reserves estimation and thereby added to the body of knowledge on this subject.
Virginia MacKay, P.Eng., the professional editor for this monograph, undertook the daunting task of
editing the material written by the forty different authors and assembling it all into one coherent
document. She was assisted very conscientiously by lA. (Sandy) Irvine, P.Geol., who entered the
text and figures on the computer. Together they prepared the camera-ready copy for the printer. Mike
McCormack checked the nomenclature throughout the monograph and also contributed to the compi-
lation ofthe Subject Index. Our sincere thanks to Virginia, Sandy, Mike, and all the authors, reviewers
and co-ordinators for their dedication to the quality of the monograph.
Roberto Aguilera, P. Eng.
XXlll
AUTHORS
Part One
Standing Committee on Reserves Definitions
GJ. (Gerry) DeSorcy
Energy Consultant
George A. Warne
Energy Consultant
R. V. (Bob) Lang
Energy Consultant
J. Glenn Robinson
Barry R. Ashton
Ashton Jenkins and Associates Ltd.
Graham R. Campbell
National Energy Board
David R. Collyer
Shell Canada Limited
John Drury
Consultant (Ontario Securities Commission)
W.O. (Bill) Robertson
Price Waterhouse
David W. Tutt
Bank of Montreal
Chairman
Secretary
Co-ordinator
Co-ordinator
xxiv
Note: All committee members contributed to the writing of Part One.
AUTHORS (cant'd)
Part Two
R
N. Guy Berndtsson
CAS. (Charlie) Bulmer
Brent Austin
PanCanadian Petroleum Limited
Robin G. Bertram
Talisman Energy Inc.
Mike J. Brusset
Brusset Consultants Ltd.
Merlin B. (Mel) Field
Consultant
J.D. (Joe) Giegerich
Chevron Canada Resources
DJ. (Dave) Hemphill
Shell Canada Limited
Craig F. Lamb
Lonach Consulting Ltd.
Raymond A. Mireault
Gulf Canada Resources Limited
Co-ordinator
Co-ordinator
Co-Author of Sections 5.2,
5.3,5.4,5.5
Co-Author of Section 5.6 and
Author of Sections 5.8, 5.9
Co-Author of Section 5.6 and
Author of Section 5.11
Author of Chapter 7
Co-Author of Sections 5.2,
5.3, 5.4, 5.5
Author of Chapter 6
xxv
AUTHORS (cont'd)
Part Three
XXVI
R.V. (Bob) Etcheverry
CN Exploration Inc.
John M. Hewitt
Martin Petroleum & Associates
Soheil Asgarpour
Gulf Canada Resources Limited
Anthony D. Au
Servipetrol Ltd.
Keith M. Braaten
Coles Gilbert Associates Ltd.
RonM. Fish
Imperial Oil Limited, Resources Division
Mam Chand Gupta
GM International Oil and Gas Consulting Corp
William E. Kerr
Joss Energy
Gobi Kular
Advanced Petroleum Technologies
Dana B. Laustsen
Coles Gilbert Associates Ltd.
Margaret Nielsen
Petro-Canada
David C. Poon
Consultant, D.C. Poon Consulting Inc.
Ross A. Purvis
Darlene A. Sheldon
Petro-Canada
Phillip M. Sigmund
BRTR Petroleum Consultants Ltd.
Ashok K. Singhal
Petroleum Recovery Institute
Andy Warren
Co-ordinator and
Co-ordinator and
Author of Chapter 12
Co-Author of Chapter II
Co-Author of Chapter 15
Co-Author of Chapter II
AUTHORS (cont'd)
Part Four
KeithD. Brown
Royal Bank of Canada
JanuszBielecki
National EnergyBoard
Noel A. Cleland
DavidC. Elliott
Geosgil Consulting
HaroldR. Keushnig
EnergyResources Conservation Board
TimJ. Reimer
Pan-Alberta Gas Ltd.
Co-ordinator and
Authorof Chapters20, 21
Authorof Chapter 24
Authorof Chapter 23
xxvii
7
PART ONE
DEFINITIONS AND GUIDELINES
FOR CLASSIFICATION
OF OIL AND GAS RESERVES
Chapter 1
OVERVIEW OF PART ONE
?
There are almost as many definitions for reserves of oil
and gas and related substances as there are evaluators,
oil and gas companies, financial agencies, securities
commissions, and government departments. Each
uses its own version of the definitions for its own
purposes. In addition, because of today's unstable
economic conditions in the oil and gas industry, the
lower quality of the reservoirs being discovered, and
the new recovery methods being developed, it is be-
coming increasingly difficult to estimate the reserves
that will be produced. All ofthese factors have made it
imperative to develop a universal set of definitions for
reserves that will meet the needs of all users.
Part One of the monograph contains the definitions of
key terms, the system of reserves classification, and
guidelines to illustrate the application ofthe definitions
and the classification system.
The task of writing the definitions was undertaken by
the Standing Committee on Reserves Definitions ofthe
Petroleum Society of the Canadian Institute of Mining,
Metallurgy and Petroleum, and Part One of the mono-
graph has been published as a separate document
comprising the committee's 1993 report. The commit-
tee includes representatives of oil and gas companies,
geological and petroleum engineering consulting firms,
Canadian industry associations, financial and account-
ing organizations, regulatory agencies, and government.
The definitions ofkey terms and reserves classifications
presented in Chapter 2 are similar to those currently in
use by the oil and gas industry, particularly in North
America. They have been reviewed by users in the in-
dustry and representatives from regulatory agencies,
government departments, industry associations, and
technical and professional organizations.
Chapter 3 presents the guidelines that illustrate the
application of the definitions and the classification
system. These are intended to complement the de-
tailed guidelines on reserves estimation methods and
procedures that follow in subsequent chapters of the
monograph.
The StandingCommittee believes that the recommended
definitions and guidelines are suitable for use with re-
spect to all types of oil and gas and related substances,
including offshore reserves and oil sands. Although
those segments of the industry have used somewhat
different terms and definitions, the principles reflected
in the definitions recommended here are applicable. The
fundamental principle is that those quantities that are
known to exist and to be economically recoverable are
reserves. The total quantities, whether or not they have
been discovered, are resources. Reserves and resources
are further categorized depending on the level of
certainty that they will be recovered.
It is the view of the Standing Committee that current
reserves estimation methods and categories, in general,
match the recommended definitions and guidelines.
The committee, therefore, does not expect that major
changes to reserves estimates would result from adop-
tion of the definitions, although it recognizes that for
some specific reserves estimates (generally for small
pools) changes could be significant. The committee
hopes that, over time, reserves evaluators will increas-
ingly conform to the recommendations presented in this
monograph and thus contribute to the overall quality
and consistency of reserves estimates.
The StandingCommittee received assistance frommany
individuals and organizations in the form of comments
as it formulated the definitions and guidelines. The
committee will continue to communicate with inter-
ested parties to ensure that its intent with respect to the
recommended definitions is fully understood. The
committeewelcomes comments on its recommendations
as well as any other aspects of reserves definitions and
their application. Since comments are being sought from
those that use the recommendations, it is reasonable to
expect that the definitions may change with time. If they
do, the revisions will be available from the Petroleum
Society.
3
Chapter 2
DEFINITIONS
2.1 INTRODUCTION
The terminology recommended for the classification of
estimated quantities ofoil and gas and related substances,
at a particular time, is presented in Figures 2.1-1 and
2.1-2. Each term is defined in this chapter. Figure 2.1-1
and its related definitions set the framework for Figure
2.1-2 and its related definitions.
The major classifications identified in this chapter are
resources, remaining reserves, and cumulative pro-
duction, each of which can be further divided into
sub-classifications. Reserves ownership is also discussed
in this chapter.
2.2 RESOURCES
Resources are the total quantities of oil and gas and
related substances that are estimated, at a particular time,
to be contained in, or that have been produced from,
known accumulations, plus those estimated quantities
in accumulations yet to be discovered.
Figure 2.1-1 Resources
4
7
DEFINITIONS
2.2.1 Discovered Resources or Initial
Volumes in Place
Discovered resources, which may also be referred to as
initial volumes in place (Figure 2.1-1), are those quan-
tities of oil and gas and related substances that are
estimated, at a particular time, to be initially contained
in known accumulations that have been penetrated by a
wellbore. They comprise those quantities that are re-
coverable fromknown accumulations and those that will
remain in known accumulations, based on known tech-
nology under specified economic conditions that are
generally accepted as being a reasonable outlook for
the future.
Initial Reserves
Initial reserves are those quantities of oil and gas and
related substances that are estimated, at a particular time,
to be recoverable from known accumulations. They in-
clude cumulative production plus those quantities that
are estimated to be recoverable in the future by known
technology under specified economic conditions that are
the future. (Figure 2.1-2 shows how initial reserves are
classified.)
Unrecoverable Volumes
Unrecoverable volumes (Figure 2.1-1) are those
quantities of oil and gas and related substances that are
estimated, at a particular time, to remain in known ac-
cumulations because they are not recoverable by known
the future.
Unrecoverable volumes may be further divided
into currently uneconomic volumes, which are those
quantities that are currently estimated to be technically
recoverable, but that are not economically recoverable
under the specified economic conditions, and residual
unrecoverable volumes, which are those quantities that
are unrecoverable by known technologies.
2.2.2 Undiscovered Resources or Future
Initial Volumes in Place
Undiscovered resources, which may also be referred
to as future initial volumes in place (Figure 2.1-1), are
those in-place quantities of oil and gas and related sub-
stances that are estimated, at a particular time, to exist
in accumulations yet to be discovered.
Future Initial Reserves
Future initial reserves are those quantities of oil and
gas and related substances that are estimated, at a par-
ticular time, to be recoverable from accumulations yet
to be discovered by known technology under specified
economic conditions that are generally accepted as
being a reasonable outlook for the future.
Future Unrecoverable Volumes
Future unrecoverable volumes are those quantities of
oil and gas and related substances that are estimated, at
a particular time, to remain in accumulations yet to be
discovered because they are not recoverable by known
the future.
2.3 REMAINING RESERVES
Remaining reserves (Figure 2.1-2) are estimated
quantities of oil and natural gas and related substances
anticipated to be recoverable from known accumula-
tions, from a given date forward, by known technology
under specified economic conditions that are generally
accepted as being a reasonable outlook for the future.
2.3.1 Remaining Proved Reserves
Remainingproved reserves are those remaining reserves
that can be estimated with a high degree of certainty,
which for purposes ofreserves classification means that
there is generally an 80 percent or greater probability
that at least the estimated quantity will be recovered.
These reserves may be divided into proved developed
and proved undeveloped to identify the status of devel-
opment. The proved developed may be further divided
into producing and nonproducing categories.
2.3.2 Probable Reserves
Probable reserves are those remaining reserves that are
less certain to be recovered than proved reserves, which
for purposes of reserves classification means that gen-
erally there is a 40 to 80 percent probability that the
estimated quantity will be recovered. Boththe estimated
quantity and the risk-weighted portion reflecting the
respective probability should be reported. These reserves
can be divided into probable developed and probable
undeveloped to identify the status of development.
2.3.3 Possible Reserves
Possible reserves are those remaining reserves that are
less certain to be recovered than probable reserves, which
for purposes of reserves classification means that
5
-I
generally there is a 10 to 40 percent probability that
the estimated quantity will be recovered. Both the esti-
mated quantity and the risk-weighted portion reflecting
the probability should be reported. These reserves can
be divided into possible developed and possible
undeveloped to identify the status of development.
2.3.4 Development and Production
Status
Each of the three reserves classifications, remaining
proved, probable and possible, may be divided into de-
veloped and undevelopedcategories (Figure 2.1-2). The
developed category for proved reserves is often divided
into producing and nonproducing.
Developed Reserves
Developedreserves are those reserves that are expected
to be recovered from existing wells and installed facili-
ties or, if facilities have not been installed, that would
involve a low expenditure to put the reserves on pro-
duction (i.e., when compared to the cost of drilling a
well).
Developed Producing Reserves
Developed producing reserves are those reserves that
are expected to be recovered from completion intervals
DETERMINATION OFOILANDGASRESERVES
open at the time of the estimate. These reserves may be
currently producing or, if shut in, they must have
previously been on production, and the date ofresump-
tion of production must be known with reasonable
certainty.
Developed Nonproducing Reserves
Developed nonproducing reserves are those reserves that
either have not been on production, or have previously
been on production, but are shut in, and the date of
resumption of production is unknown.
Undeveloped Reserves
Undeveloped reserves are those reserves expected to be
recovered from known accumulations where a signifi-
cant expenditure (i.e., when compared to the cost of
drilling a well) is required to render them capable of
production.
In multi-well pools, it may be appropriate to allocate
the total reserves for the pool between the developed
and undeveloped categories or to subdivide the devel-
oped reserves for the pool between developed producing
and developed nonproducing. This allocation should be
based on the evaluator's assessment as to the reserves
that will be recovered from specific wells, the facilities
Figure 2.1-2 Reserves
6
DEFINITIONS
and completion intervals in the pool, and their
respective development and production status.
2.4 CUMULATIVE PRODUCTION
Cumulative production (Figure 2.1-2) comprises those
marketable quantities of oil and gas and related sub-
stances that have been recovered to date from known
accumulations.
2.4.1 Sales
Sales are produced quantities of oil and gas and related
substances that have been sold to date.
2.4.2 Inventory
Inventory consists of quantities of oil and gas and
related substances that have been produced and are
available for future use.
2.5 RESERVESOWNERSHIP
The terminology that is recommended for reporting the
ownership of quantities of oil and gas and related sub-
stances is presented in Figure 2.5-1. The terms are
defined as follows:
Gross remaining reserves are the total remaining
reserves associated with the property in which an owner
has an interest.
Company*gross remaining reserves are the company's
lessor royalty, overriding royalty and working interest
share ofthe gross remaining reserves, before deduction
of any Crown, freehold, and overriding royalties
payable to others.
Company* net remaining reserves are the company's
lessor royalty, overriding royalty, and working interest
Other Owner
Interest Reserves
Lessor Royalty Interests

Payable
Overriding Royalty Interests
Payable
7
Figure 2.5-1 Reserves Ownership
* The word"Company"maybe replaced by moresuitable adjectives to better depictthe ownership of reserves, e.g., ABCOil
andGas, 9367LimitedPartnership, JohnDoe, etc.
7
share of the gross remaining reserves, less all Crown,
freehold, and overriding royalties payable to others.
2.6 SPECIFIEDECONOMIC
CONDITIONS
In order for oil and gas and related substances to be
classified as reserves, they must be economic to recover
at specified economic conditions. The estimator should
use, as the specified economic conditions, a price fore-
cast and other economic parameters that are generally
accepted as being a reasonable outlook for the future.
The revenue, appropriately discounted, must be suff-
icient to cover the future capital and operating costs that
would be required to produce, process, and transport
the products to the marketplace. A more detailed dis-
cussion of discounting future cash flow is presented
in Chapter 21, Cash FlowAnalysis, and in Chapter 26,
Uses ofReservesEvaluations.
Ifrequired by securities commissions or other agencies,
current prices and costs may also be used. In either case,
the economic conditions used in the evaluations should
be clearly stated. Occasionally, the estimator also may
wish to determine the impact of higher or lower price
forecasts on estimates of reserves as compared to the
most reasonable forecast. These cases (current, higher
or lower prices) should not be reported as the most rea-
sonable reserves estimates, but should be identified as
sensitivity cases with the assumptions clearly stated.
They illustrate the impact of different specified
economic conditions on estimates of reserves.
2.7 REPORTING OF RESERVES
ESTIMATES
2.7.1 Risk-Weighting of Reserves
Estimates
Remaining proved reserves, as defined in Section 2.3.1,
are those reserves for which there is an 80 percent or
greater probability that at least the estimated quantity
will be recovered. In instances where additional reserves
are estimated in the probable and possible categories,
both the estimated quantity and the adjusted (risk-
weighted) portion should be reported, particularly when
the estimates are being aggregated.
Proper statistical procedures may be used to derive the
expected or risk-weighted reserves from the data. In the
deterministic procedure, the best estimate of each
parameter is used in the calculation of reserves. The
probabilistic procedure quantifies the uncertainty in the
resource estimate by using the evaluator's opinion to
describe the range of values that could possibly occur
8
for each variable.' If a deterministic procedure is being
used and a probabilistic determination is not available,
the following equality is recommended to approximate
the expected reserves:
expected= (proved ) + (p x probable) + (p x Possible)
reserves reserves b reserves S reserves
where Pb = probability of recovering the
probable reserves (80-40%)
P, = probability of recovering the
possible reserves (40- I0%)
For individual pools, the amount for the expected or
risk-weighted reserves provides the evaluator's best
judgement as to the quantity that will be recovered from
the pool. The probability used to adjust the estimated
quantity for a specific pool should be that considered
by the evaluator to be appropriate for the particular cir-
cumstance, taking into account the available geological,
geophysical and engineering data. It is likely, however,
that the quantity actually recovered from a specific pool
will be more or less than the risk-weighted estimate. If
the number ofpools for which estimates ofreserves are
being prepared is sufficiently large, then the sum of the
expected reserves should be the evaluator's best judge-
ment as to the total quantity that will be recovered from
all the pools. According to the ranges specified in these
definitions, the risk-weighting should result in an aver-
age risk-weighting of 60 percent for probable reserves
(the mid-point ofthe 80 to 40 percent probability range)
and 25 percent for possible reserves (the mid-point of
the 40 to 10 percent probability range).
When the value of the risk-weighted reserves is being
determined, the unrisked reserves must be used in the
economic analysis. Risk for both the reserves and val-
ues should only be applied after the economic forecasts
have been completed using total costs to develop the
unrisked reserves.
2.7.2 Aggregation of Reserves
Estimates
Traditionally, when deterministic approaches are being
used, the aggregation of a series of reserves estimates
will have been made using the arithmetic method. How-
ever, with the increase in the use of statistical methods
in reserves determination, the arithmetic method of
aggregation may not always be appropriate. Although
Theseprocedures are described in more detailin
Section 4.3.
DEFINITIONS
use of a statistical method of aggregation may be better
for reserves estimates, the method of aggregation may
be dictated by regulators, auditors or management. Thus,
when aggregating a series of reserves estimates, the
evaluator should state whether the method of aggrega-
tion is arithmetic or statistical. If a statistical method is
used, the evaluator should state how it is done.
If the proved reserves, which represent an 80 percent
confidence level, are summed arithmetically, the total
reserves will represent a confidence level that is much
higher than would be achieved if the proved reserves
were totalled using a probabilistic approach of all the
entities and an 80 percent confidence level. Conversely, .
the proved plus probable reserves and the proved plus
probable plus possible reserves will be overstated when
summed arithmetically using a deterministic as com-
pared to a probabilistic procedure.
On the other hand, the sum of the expected reserves, as
defined in the preceding sections, should be the same as
the deterministic (using arithmetic methods) and the
probabilistic procedures. This relationship is extremely
important in summing reserves, and therefore it is rec-
ommended that risk-weighted reserves be used in the
aggregation of reserves. In any event, the evaluator
should state whether the method of aggregation is
arithmetic or probabilistic.
2.7.3 Barrels of Oil Equivalent
From time to time, it may be desirable to report reserves
ofoil, gas and related substances in common units. This
is generally done by converting reserves that are not oil
to barrels of oil equivalent (BOE). The conversion can
be made using either an energy equivalence or a rela-
tive value procedure, depending upon the purpose of
the conversion.
The energy equivalence is only relevant at the burner
tip and, since the value in the marketplace is different
for various types of reserves and the costs to move the
various types from wellhead to the end-user vary con-
siderably, the value of the reserves at the wellhead (or
in the ground) is only somewhat indirectly related to
energy content. Consequently, for making value-based
comparisons, the conversion should be based onthe rela-
tive values of the gas and related substances compared
to the values of oil reserves at the field level. The con-
versions to BOE are usually made to barrels of "light"
oil equivalent. Since medium and heavy oil have values
much lower than light oil, it may be desirable that the
medium and heavy oil reserves be converted to BOE
of light oil as well as converting the gas and related
product reserves, to better indicate their real value.
Some companies may prefer to convert their reserves
using gas as the common unit. The procedure would be
similar, except that the converted reserves would be
quoted as thousand cubic feet of gas equivalent.
It is important, when reserves are reported in BOE
or gas equivalent, that the method used and the respec-
tive conversion rates be disclosed. A more detailed
description ofthe procedure is presented in Chapter 26,
Uses ofReserves Evaluations.
9
Chapter 3
GUIDELINES FOR ESTIMATION
OF OIL AND GAS RESERVES
3.1 INTRODUCTION
The quantification and classification of estimates of
reserves are, by nature, rather subjective processes.
Estimates of reserves are developed under conditions
of uncertainty, and their reliability and classification are
directly related to the quality of the data available, as
well as to the competence and integrity of the individual
responsible for preparing the estimates. The purpose
of this chapter is to elaborate on the classification of
estimates ofreserves derived using the two primary res-
erves determination procedures: deterministic and
probabilistic.
The categories of proved, probable, and possible have
for some time provided a basis for differentiating esti-
mates of reserves to reflect the probability of recovery
considered appropriate by the estimator. Stated in an-
other way, the assignment ofthe estimate ofreserves to
the three categories has provided a qualitative measure
of the probability that a particular estimate of reserves
will, in fact, be realized. However, for some time there
has been discussion as to whether a more rigorous app-
roach should be adopted to describe the degree of
probability associated with the specific reserves catego-
ries. Some observers viewthe use ofterms such as "high
degree of certainty" to describe reserves classification
categories as too subjective, and believe a definitive sta-
tistical probability of recovery would give users more
confidence in utilizing- the estimates of reserves pro-
vided for each of the categories. For this reason,
consideration has been given to a means to further quan-
tify the degree of probability associated with each of
the categories.
The probability ranges adopted by the Standing
Committee on Reserves Definitions for the definitions
ofproved, probable, and possible reserves are intended
to more explicitly quantify the probability of recovery
associated with each of the reserves categories, both on
an absolute and on a relative basis. The ranges provide
an assessment that is more quantitative in nature than
some prior definitions.
10
The use of probabilities to assist in the categorization
ofreserves does not eliminate subjectivity from the pro-
cess. It remains incumbent on the evaluator to ensure
that the basis for the estimate of reserves and the cat-
egory to which the estimate is assigned are clearly
reported. The guidelines and examples given are
intended to assist in this regard. The reserves classifica-
tions and associated probability ranges are applicable
to estimates of reserves derived using either determin-
istic or probabilistic (stochastic) calculation procedures.
3.2 METHODS OF CALCULATING
RESERVES
3.2.1 Deterministic Procedure
The deterministic procedure is the most commonly used
method ofreserves estimation in Canada. Ifthe true val-
ues of all parameters used in any calculation were
known, a true or deterministic value could be calculated.
However, due to the uncertainties in the geological,
engineering and economic data, for the purposes of re-
serves estimation using the deterministic procedure, the
"best estimate" ofeach parameter is used in the calcula-
tion of reserves for each specific case. As a result, the
probability distribution of the input parameters is gen-
erally not formally considered in the classification of
reserves calculated using this method.
Estimates ofreserves calculated using the deterministic
procedure should be assigned to the proved, probable,
and possible categories based on the probabilities in-
herent in the estimates. The assignment ofthe estimates
of reserves to the respective classification categories
should be consistent with the prescribed ranges ofprob-
ability, taking into account factors such as the stage in
the producing life ofthe reservoir, the amount and qual-
ity of geological and engineering data available, the
availability of suitable analogous reservoirs and,
perhaps most importantly, the evaluator'sjudgement as
to the uncertainty inherent in the estimate.
,
GUIDELINES FOR ESTIMATIONOFOILANDGASRESERVES
The assignment of reserves estimates to the respective
categories using the deterministic procedure normally
uses one of two approaches.
In the first, the evaluator develops a "best estimate" of
reserves for each of the categories, using consistent
parameters. Using this methodology, the evaluator
effectively establishes a range of estimates of reserves,
with the proved estimate based on parameters for which
a high probability can be attributed, and additional
estimates of probable and possible reserves based on
parameters for which there is a lesser probability of oc-
currence. The effect of this is to progressively increase
the estimated quantity as it is moved from the proved to
probable to possible categories, with the overall range
of estimates dependent upon the uncertainty inherent in
the specific parameters upon which the estimates are
based.
In the second approach, a single estimate of reserves is
derived for the pool and then allocated to the respective
reserve categories based on an assessment of the por-
tions of the estimate that would satisfy the probability
ranges for each of the reserves categories. In making
this determination, the evaluator must make a subjec-
tivejudgement as to the uncertainty inherent in the single
estimate and, therefore, the extent to which it can be
allocated to the proved rather than the probable or
possible category.
As already noted, where probable or possible reserves
have been estimated in addition to proved reserves, they
should be adjusted (risk-weighted) and added to the
proved reserves to result in the expected reserves.
In summary, using the deterministic procedure, estimates
of reserves are calculated and assigned to the proved,
probable, and possible categories using primarily sub-
jective criteria, the overall basis being that the assigned
quantities satisfy the probabilities established for each
of the categories. It is incumbent on the evaluators to
provide the supporting rationale for the categorization
of the reserves estimates.
3.2.2 Probabilistic Procedure
The probabilistic or stochastic procedure is less
commonly used in Canada. It is more suitable for
circumstances where the uncertainty is high, such as for
reservoirs in the early stages of development, frontier
areas, or areas where new technology is being applied.
As the level of uncertainty increases, it is generally
agreed that the probabilistic procedure becomes more
relevant and the deterministic less reliable. Rapidly
expanding computer applications also facilitate the use
of the probabilistic procedure.
This method uses the statistical analysis of data.
Relative frequency curves established for each variable
describe the range of possible values for each, as well
as the probabilities that these values will occur. After
frequency distribution curves have been established for
each variable to be used in a reserves classification, the
Monte Carlo (described in Section 22.4.4) or a similar
method is used to estimate a value for reserves. A single
sample of each variable is taken randomly from each
probability distribution and used to calculate a single
value of the dependent variable. This procedure is
repeated a large number of times to ultimately create a
frequency distribution curve that describes the range of
estimates of reserves and the probabilities of achieving
particular estimates.
Once the measures of central tendency (the mean
or arithmetic average, the mode or "most likely" value,
and the median or "middle" value) and the dispersion
(range, standard deviation, and percentiles), have been
determined using this technique, estimates of reserves
may be assigned to each of the proved, probable, and
possible categories.
The assignment of the estimates of reserves to the
respective categories should be consistent with the
probabilities outlined in the reserves definitions, proved
reserves being those with an 80 percent or greater prob-
ability, and probable and possible reserves having lower
probabilities. The relative cumulative frequency distri-
bution curves may be used as the basis for the assignment
of estimated quantities to the reserves categories. Again,
the evaluator must clearly describe the supporting
rationale for the categorization ofestimates ofreserves.
Like the estimates derived using the deterministic
procedure, the probable and possible reserves should
be adjusted (risk-weighted). Since the probabilities have
been established through the probabilistic process, they
should be used to adjust the respective estimates.
It should be noted that the probability associated with
the estimate of reserves for a pool should increase as
the pool is developed and produced over a period of
time. As the overall probability of recovery increases,
the estimate of the proportion of reserves considered to
be proved is likely to increase, with a diminishing pro-
portion in the probable and possible categories. The
objective of the evaluator should be to minimize the
extent to which it is necessary to reduce estimates of
proved reserves over the life of a pool for reasons other
than production, although there may be circumstances
(i.e., a significant price decline) where such reductions
are necessary.
11
3.3 GUIDELINESFOR SPECIFIC
METHODS
The guidelines and examples that follow are designed
to provide guidance for evaluators on the calculation of
proved, probable and possible reserves, using the
following methods for determining reserves:
Volumetric
Material balance
Decline curve analysis
Reservoir simulation
This section also deals with the calculation of reserves
of natural gas liquids (NGLs) and sulphur.
It must be emphasized that the guidelines touch on some
key factors related to reserves estimation, but are not
all-inclusive. In the final analysis, the calculation and
categorization of reserves depend upon the judgement
ofthe evaluator as to the probability of recovery of the
reserves of oil and gas.
It is intended that the guidelines will lead to more
uniform practices of reserves calculation in each cat-
egory, and thus to reserves estimates that will be more
comparable and consistent throughout the industry, the
financial community, and the government agencies that
use them.
3.3.1 VolumetricMethod
The volumetric method is the most commonly used
approach to estimating reserves in the early stages of
production from an oil or gas field. As more data
become available, the estimate may be refined, some-
times through the use of other reserves estimation
methods. Often the volumetric estimates are useful for
comparison with other methods.
The volumetric method is used by employing the
standard reserves equation with the appropriate choice
of parameters. For various parameters in the equation,
the guidelines provide suggestions for choosing the ap-
propriate value, according to the category of reserves
being calculated.
Pool Area
The parameter that often has the greatest variability
in the reserves equation is the area chosen to represent
the areal extent of the pool. Thus, the choice of the
value for the area plays a particularly important role in
computing reserves in each category.
12
Single-Well Pools
For single-well pools, the area must be consistent
with the reserves category, recognizing the geological
and engineering information with respect to the single
wellbore and the geological and other information
available for single-well pools in similar formations.
In the case of an isolated gas well with little or no
geological control, it is a frequent practice to assign re-
serves to one section,* a frequently used regulatory
spacing for gas wells. However, one section should only
be.assigned as proved reserves if a review of similar
wells in the same or a similar formation has satisfied
the evaluator that such an area can be assigned 'with
a probability of 80 percent or more. If the review of
similar wells shows that a smaller area, such as one half-
section or even one eighth-section, can be expected to
have a high degree of probability, this reduced area
should be used for proved reserves. On the other hand,
in situations such as a blanker sandstone, the review of
similar wells may justify the assignment of more than
one section if it can be demonstrated with high prob-
ability that the well will drain reserves associated with
the larger area.
In the event that an evaluator is reasonably confident
that gas would be recovered from an area, say one sec-
tion, but not with a high enough probability for the
reserves to totally qualify as proved, then some lesser
area for which there is a high probability, say one half-
section, should be assigned as the proved area. The
remaining half-section ofthe normal spacing unit might
then be assigned to the probable or possible category,
depending on the degree ofprobability that such reserves
would be recovered.
For single oil wells, the area assigned would generally
be less than for gas wells because the flow characteris-
tics for oil result in smaller drainage areas. A typical
practice is to assign proved reserves to areas ranging
from one quarter-section for light crude oils to one
sixteenth-section or less for heavy crude oils.
Such assignments should be made only when a review
of similar wells demonstrates that such reserves can be
expected with a probability of 80 percent or more. The
process used to assign areas to single oil wells should
otherwise be similar to that for gas wells, with an as-
signment that reflects the probability that the area
can be drained at the level required for each reserves
classification.
*One section = 259 hectares, 640 acres, or 1squaremile.
GUIDELINES FORESTIMATION OFOIL AND GAS RESERVES
In certain cases such as sheet sandstones, even though
only one well has penetrated gas or oil, information may
be available, as a result of knowledge about nearby
abandonments and the regional geology, that justifies
the preparation of an isopach map. This situation is
illustrated for an oil pool in Figure 3.3-1, which shows
the zero pay limit. If the probability of a one quarter-
section pool is very high, based on a study of similar
pools in the area, then the one quarter-section contain-
ing the well could be assigned as proved reserves. The
remaining three quarter-section parcels offsetting the
well, and within the zero limits ofthe isopachmap, could
also be assigned reserves as additional proved or prob-
able or possible depending on the degree of probability
that the oil will be recovered. These reserves, however,
should be in the undeveloped category.
The assigrunent of reserves for single gas wells with
considerable geological control can be handled in a
manner similar to that detailed for the oil well in Figure
3.3-1, except that the estimated drainage area for gas
will usually be larger, depending on the available
geological and other data. An area larger than the
assigned area determined as described may be used
-<>-
",-<>-
L--
I
0 0
\
------------ - ~ - - - ~ - ~ - ~ - -
\
0
)
-,
--
[7
t-...
-<>-
depending on information on pressure, drillstem test
results, and seismic data.
Multi-Well Pools
In multi-well pools, the area between wells should
be considered to contain proved reserves if the areas
assigned on a single-well basis overlap or are separated
by a very small area, or if material balance calculations
or production data and pressure response clearly dem-
onstrate that the wells are in the same pool. There will,
however, be many situations where such conclusive in-
formation is not available and the evaluators must use
their judgement, based on geological and other data,
regarding the areal extent and the assignment of
additional reserves to adjacent areas.
For wells that are in separate pools, the preceding
methodologyfor assigningreserves for single-well pools
should be followed. If more than one well can be in-
cluded in a pool, the type of procedure described in the
following example might be used.
Example
Figure 3.3-2 shows the zero pay limits for a multi-well
conventional gas pool. It is important to emphasize that
WELL LEGEND
o Location
-<>- Abandoned
011
* Gas
1 mi
1 km
z
Figure 3.3-1 Single Well Oil Pool with Good Geological Control
13
DETERMINATION OF OIL AND GASRESERVES
RANGE
36 31
V
-.
36
~
1/ \
/
~
0-
J:
en
/
z
s:
I
0
f- WELL LEGEND
~
/
0 Location
1 6
/
1
-<r
Abandoned
1/

Oil
\
36 31 36
~
Gas
-?-
1\
~
L-4
~
<,
D
OneSection
Figure 3.3-2 Conventional Gas Pool, Zero Limit of Net Pay Map
this example illustrates a procedure that is useful for
conventional oil and gas pools. The areas assigned
relate to the particular natural gas reservoir and would
differ in other geological settings.
Knowledge respecting the geological formation is such
that the evaluator is prepared to make a proved area
assignment offour sections for a single well. The map
is constructed using all pertinent data, such as the net
pays encountered in the three gas wells, and informa-
tion on dry holes that indicates the limits of the pool.
Perhaps seismic information and pressure data, along
with experience in the area, suggest that the two wells
in the west are in communication with the one in the
northeast
The first step is to block in a 2 by 2 section area around
the productive well and within the zero net pay isopach
limit, as shown in Figure 3.3-3. These areas would be
assigned proved reserves. Proved reserves would also
be assigned to corridors of one mile or less in width
between the proved areas around each well and any
intervening corridors between the proved areas (Figure
3.3-4). After limits had been established for the proved
reserves, a border one mile wide would be drawn around
14
the proved limits as an indication of the proved plus
probable limits (Figure 3.3-5). As with the proved
reserves, any corridor less than one mile between the
proved plus probable limits would also be assigned to
the probable category (Figure 3.3-5). The procedure
would be continued for possible reserves ifany area were
left within the zero pay limits.
For oil, a similar approach for assigning areas in multi-
well pools can be used, but the area assignments would
usually be smaller.
Presence of Hydrocarbons
In order to estimate any reserves, the presence of
hydrocarbons must have been confirmed by pro-
duction data or by a demonstrated ability to flow based
on the results of drillstem tests. If production and test
data are not available, reserves may be estimated based
on information from cores, or provided that the reser-
voir is analogous (from the standpoint ofgeological and
petrophysical characteristics) to producing or tested res-
ervoirs in the same area. Reserves should be assigned
only to reservoirs that have been penetrated by a
wellbore; otherwise, quantities should be categorized as
a resource.
?
GUIDELINES FOR ESTIMATION OFOILAND GASRESERVES
RANGE
36 31
V-
r-.
36
7
/'
\
// /
/ V~ ~
0-
J:
en
WELL LEGEND
Z
/
v
//-
V/
:s:
/ / 'r>.
/
0
0 Location
l-
I
~
~
V
/
-?-
Abandoned
//
V
Oil
.v 'V
~
6
/
1
Gas
/6
31
V
36
\
'/
//
IZZ2I
Proved
~
\
~
~
V
-----
~
/ /
V vv
D One Section
Figure 3,3-3 Conventional Gas Pool, Zero Limit of Net Pay Map with Individual Well Assignments
RANGE
36 31
V-
r-,
36
;7
V
\
// /
/ :/
~
~
0-
J:
en
WELL LEGEND
Z
/
/ V/-
/ /
:s:
/ '/
//V
V ~
0 Location
~
~
~
/
-?-
Abandoned
/ /
011
~ /
//V
r/
/
1
~
Gas
/.
//
/
6
/ // /
V
36
V
//V
V
6 31
IZZ2I
Proved
\
~
\
~
~
~
--
~
/
'V
'<
VV /
D One Section
Figure 3,3-4 Conventional Gas Pool, Zero Limit of Net Pay Map with Area of Proved Reserves
15
DETERMINAnON OF OIL ANDGASRESERVES
RANGE
36
a.
:c
en
WELL LEGEND
z
s:
0
0 t-
Location
-<?-
Abandoned
Oil
*
Gas
36
IZZa
Proved
Probable
D
One Section
Figure 3.3-5 Conventional GasPool, Zero Limit of Net Pay Map
with Area of Proved Plus Probable Reserves
Reservoir Parameters
Values ofpay thickness, porosity, and fluid saturations,
when combined with area, permit a calculation of the
volume of oil or gas contained in a reservoir. These
parameters are estimated from analyses of cores or
petrophysical well logs.
In many situations, core analysis is not available, and
well logs indicate the presence of oil or gas, but do not
allow reliable estimates ofporosity or fluid saturations.
Where the geological formation is known to be produc-
tive in the region, a pay thickness based on the logs for
the well and the values ofporosity and fluid saturations
taken from nearby wells in similar formations (values
that may be expected to have a high probability), may
be used to calculate proved reserves. In suchcases, where
these parameters can only be estimated with a lower
probability ofoccurrence, probable or possible reserves
might be calculated.
In the estimation of reserves, the values used for
pay thickness, porosity and fluid saturations must
always be consistent. This requires proper use ofcutoff
values, well log calibration, and proper petrophysical
calculation methods.
16
Averaging these parameters over multi-well pools is also
important in estimating and categorizing reserves. If
reliable estimates for many wellbores exist for any or
all of the parameters, they should be applied over the
intervening area between wells and the edge ofthe res-
ervoir by contouring or other appropriate averaging
methods. The calculation of the average, particularly if
it is by contouring, should have regard for the geology
and for any other factors that might influence the shape
of the reservoir.
Where insufficient individual well data respecting any
of these parameters are available to allow for contour-
ing, averaging should be done in a manner consistent
with the probability necessary to support the particular
category of reserves being estimated.
Certain other reservoir parameters are needed to
estimate reserves, particularly for purposes of convert-
ing the volumes of oil or gas contained in a reservoir
to volumes that will be recovered and marketed. These
include reservoir pressure and temperature and
hydrocarbon fluid composition. The choice of such
parameters does not usually dictate the categorizing
ofreserves estimates as proved, probable, or possible.
GUIDELINES FOR ESTIMATION OFOILANDGASRESERVES
However, particularly for proved reserves, the
parameters must be based on reliable data or be
determined through valid comparison to similar reser-
voirs in a manner that reflects the appropriate level of
probability.
Recovery Factor
Estimates of recovery factor are based on analysis of
production data from the pool in question, by analogy
with producing pools in an analogous reservoir unit, or
by engineering analysis, without analogy or production
data. The estimator should keep in mind that recovery
factors may be influenced by other factors, such as
well spacing, the anticipated compression, the drive
mechanism, and reservoir and fluid properties.
For proved reserves, the recovery factor may be deter-
mined from a detailed reservoir study, or by comparison
with detailed studies of analogous reservoirs where the
recovery factor can be estimated with a high degree of
probability.
For probable and possible reserves, the value used for
the recovery factor may be similar to that used for the
calculation ofproved reserves, the different categoriza-
tion ofreserves being accounted for in other parameters.
However, a larger recovery factor may be justified on
the basis ofgeological data that indicates improved res-
ervoir parameters such as porosity and permeability in
certain portions of the field. Where a range of recovery
factors is known from analogous reservoirs with simi-
lar characteristics, values corresponding to the middle
to upper end of the range may be used for probable and
possible reserves estimates.
In some cases the recovery factor for proved reserves
has been estimated on the basis of an 80 percent or
greater probability, and yet the characteristics of the
formation indicate that better recovery might occur. In
other cases the recovery factor for proved reserves has
been estimated lower due to an anticipated recovery
problem (i.e., water influx in a gas reservoir), but there
is only a chance that the problem will occur. In these
situations the evaluator might use a higher recovery
factor and assign the incremental reserves to the prob-
able or possible categories, depending upon the degree
of probability of their recovery.
3.3.2 Material Balance Method
The material balance method is employed to estimate
the volume ofhydrocarbons in place in a reservoir when
appropriate geologic, production and laboratory data
are available. When economic producibility limits
are coupled with the material balance, reserves are
determined. In its simplest form, the material balance
equation may be written as
initial volume = volume remaining +volume
removed
Since oil, gas and water are present in petroleum
reservoirs, the material balance equation may be writ-
ten for the total fluids or for anyone ofthe fluids present.
For gas reservoirs, the frequently used plot ofreservoir
pressure, adjusted for the gas compressibility (P/Z), vs.
cumulative production is a material balance method.
Four groups of data are required for a material balance:
Fluid production
Reservoir pressure and temperature
Fluid analysis
Core analysis and petrophysical logs
In addition to these data, it is highly desirable to know
the type of reservoir mechanism that is operative in
order to expedite estimation ofthe volume of the initial
hydrocarbons in the reservoir. As with other methods,
the better the quality of the data, the higher the degree
of confidence in the results.
The evaluator, in categorizing reserves, must consider
the probability that the reserves in question will be re-
covered. The volume in place estimated by the material
balance method might have a high enough probability
to be considered as proved in the following situations:
- Where significant data are available, particularly
fluid production and reservoir pressure data, and the
reservoir drive is known
- Where production and reservoir data are limited,
but the reservoir is analogous to reservoirs in the
immediate vicinity and same geologic horizon
- Where such data are of sufficient quantity and
quality to have established the reservoir drive
mechanism
- Where production and reservoir data are limited, but
the estimate is supported by a calculation of the
hydrocarbons in place by the volumetric method
For gas reservoirs, where there is a strong linear
relationship between P/Z and cumulative production
(Figure 3.3-6), the probability ofrecovery is likely high
enough to assign the quantity indicated as proved
reserves. However, no additional reserves should be ass-
igned beyond the proved reserves, since no significantly
different interpretation ofthe data would be reasonable.
17
h _
Average
I:::
Oat. Pressure Z
PIZ Cum. Prod.

(kPa)
(kPa)
(10
8m')
72102 21540 0.875 24621 0.0
I:i
r-.
86107
20078 0.871 23063 96.0
I::
87/08
18705 0.869 21532 209.0
86107
14623 0.874 16740 582.0
Iii
"
89/02 13258 0.879 15086 724.0 IX
<,
89/09 10742 0.894 12018 920.0

90/0B 7357 0.922 79n 1 210.0

i."i i'i.
r-,
<,
r-.
I- - - -- 1-----1-----
-----
--
PROVED
8 ,
OGIP=1800x 10 m
ReserveS=1600xl0
6m3
30000
20000
PIZ
(kPa)
10000
o
o 250 500 750 1 000 1 250 1 500
8 a
Cumulative Production (10m)
1750 2000
Figure 3.3-6 Material Balance(Gas Reservoir)
There are a number of other situations where reserves
estimates from material balance or some portion of the
estimate might have an associated probability level that
results in their being considered probable or possible
reserves:
- Where significant production data are available, but
the reservoir drive mechanism is uncertain or the
magnitude of the reservoir drive is uncertain
- Where production and reservoir data are limited and
there are no analogous reservoirs in the immediate
vicinity
- Where production and reservoir data are limited
and the estimate is not supported by volumetric
determinations
For a gas reservoir, where the P/Z data do not give
a definitive linear correlation, asin Figures 3.3-7 and
3.3-8, the resulting reserves that should be classified as
proved are those that represent the quantity that can be
estimated to be recoverable with an 80 percent
probability. Proved plus probable reserves might reflect
a larger volume than the data indicate may be recov-
ered. In Figure 3.3-7, the scatter of points should
encourage the evaluator to analyze the quality of the
18
data in terms of the type of pressure measurement
(bottom-hole, drillstem test), and the type of recorder
(mechanical or electronic). With respect to Figure
3.3-8, the evaluator should develop an understanding
ofthe reservoir drive and depletion mechanism in order
to accurately classify proved and probable or possible
reserves. The apparent bending of the material balance
plot may be interpreted as gas migration from edge or
tight areas of the reservoir, or pressure support from an
underlying aquifer. Use ofa reservoir simulation model
might assist in this analysis.
3.3.3 Decline Curve Analysis
The analysis of a production decline curve provides
estimates of three important items of information:
Remaining oil and gas reserves to be recovered
Future expected production rate
Remaining productive life of the well or reservoir
In addition, an explanation of any anomalies that
appear on the graph is useful. The analysis is only valid
provided the well will not be altered (i.e., fractured or
acidized) and the reservoir drainage is constant.
GUIDELINES FOR ESTIMATION OFOIL AND GASRESERVES
350 300 250
Average
Date Pressure Z
P/Z Cum. Prod.
(kPa) (kPa)
(10'm')
INIT. 30991 0.987 31391 0.0
76/06 31109 0.988 31479 13.4
81/06 21380 0.922 23182 72.7
84/09 20277 0.919 22075 103.4
86/09 16602 0.913 18179 122.9
86/09 19001 0.915 20762 122.9
87/05 18519 0.915 20237 128.6
89/07 18471 0.913 18036 144,8
200 150 100 50
o+---+---+----I----I-__
o
a
Economic Limit
40000 -,----,----,----.---rI
10000 +----+---+----j----"'f.,;;:-=:O""d----l-----l
P/z
(kPa)
Cumulative Production (10'm')
PROVED
OGIP=300xl0
6m3
Reserves = 270 x 10
6m3
PROVED + PROBABLE
OGIP=350xl0
6m3
Reserves = 315 x 10
6m3
Figure 3.3-7 Material Balance(Scattered Datal
Average
PIZ Cum. Prod.
Date Pressure Z
(kPa)
(kPa)
(lo'm')
85/11 21067 0.924 22800 0.0
75/08 16858 0.899 18761 102.9
76/10 14844 0.902 16451 138.4
76/11 15306 0.901 16989 138.4
77/08 13631 0.906 15044 162.3
....
78/09 12604 0.910 13852 190.5
80/07 13411 0.920 14 SIT 237.1

....
86/05 8936 0.929 9618 340.6
87/08 8556 0.932 9184 358.4
88/06 8494 0.932 9115 368.2

...
'<,
-

---- ----- -----
:"'-..l
::::---
PIZ
(kPa)
30000
20000
10000
o
o 100 200 300 400 500 600 700
Cumulative Production (10'm')
PROVED
, ,
OGIP=620xl0 m
Reserves=550x 10
6m3
PROVED + PROBABLE
6 ,
OGIP=675xl0 m
Reserves = 590 x 10
6m3
Figure 3.3-8 Material Balance(Reservoir Drive and Depletion Mechanism)
19
As with all other methods, the categorizing of reserves
by decline curve analysis is dependent upon the judge-
ment ofthe estimator. Important considerations include
the amount and quality of data, the variability of the
profile, and an understanding of past and future
production policy and the depletion mechanism.
Because ofthe empirical extrapolation, a decline curve
can usually have a wide range of interpretations. The
range depends upon the production history of the prop-
erty. For example, if there is limited prior production
history, a wider range of interpretations is possible than
for a well or property in the stripper stage of produc-
tion. It is valuable to understand the production recovery
. mechanism of the formation (or the same formations in
the area) and the various characteristics of the well (net
pay, permeability, and zone of completion). Also, each
specific interpretation is a function of the experience,
integrity and objectivity of the individual doing the
evaluation.
Determining reserves from historical graphs of
production data that exhibit strong consistent decline
characteristics should be straightforward. When a high
degree of probability exists, as in Figure 3.3-9, proved
reserves only would be assigned.
DETERMINATION OFOil ANDGASRESERVES
In a case where well-established trends are not evident,
proved reserves should be restricted to the minimum
quantity that the evaluator believes will be recovered
with an 80 percent probability. Figure 3.3-10 shows
such an example. Proved reserves are estimated by
projecting the steepest portion ofthe production decline
data. In this case, the incremental volume of oil that
may be recovered if the lower rate of production
decline prevails might be classified by the evaluator as
probable or possible.
This situation could also apply when the type ofdecline
pattern is not obvious. Figure 3.3-11 illustrates a case
where either an exponential or a harmonic decline could
be used to extrapolate the data. In this example, reserves
determined from the exponential curve might be
assigned to the proved category, since there is a high
probability that at least this volume will be recovered.
The harmonic curve reserves might be classified as prob-
able or possible, depending on the probability of
recovery, as judged by the evaluator. In this example
there is a large difference between the estimates using
the different interpretations, and this suggests consider-
able uncertainty. Thus portions ofthe quantity in excess
of the proved reserves could be classified as probable
and possible.
PROVEO
Reserves = 33 x 10
3m3
n.
.LA

.

''\.."
f-----------
_ Ll"!!!.. _
-----------
20
15
."
....
E
-
..
co
II:
c
10
0
;:
U
::J
."
2
e,
(5 5
o
o 10 20 30 40
Cumulative Oil Production (10
3
m3)
Figure 3.3-9 Decline Curve, Proved Reserves
20
20
15 -It----,-----+-I------H
PROVED
Reserves = 155x 10
6m:3
M
Q
-
-
*
II:
c
o
:s
::J
'D
e
Q.
i5
10
5-++----+-1-----
Economic Limit
PROVED + PROBABLE + POSSIBLE
Reserves = 176 x 10
6m3
o+--------+------\--------f-l-"'"---..L.::::>...-J
o 50 100 150
Cumulative Oil Production (10 m
3
)
200
Figure 3.3-10 Decline Curve, Cumulative Gas Production
PROVED
Reserves = 17x 10
3m3
PROVED + PROBABLE + POSSIBLE
Reserves = 25 x 10
3m3
1\
-,
..
"""-

ECOnOm!C
t
Limit .T
-
16
12
:E
M
.
Q)
'"
II:
c
8 0
.,
U
::J
'D
0
Q.
i5
4
o
o 5 10 15 20 25 30
Cumulative Oil Production (10
3
m3)
Figure 3.3-11 Decline Curve, Cumulative Oil Production
21
3.3.4 Reservoir Simulation Method
A reservoir simulator is a tool that is used to simulate
the processes that take place in producing a reservoir.
Simulation is often done to optimize recovery by an-
alyzing various reservoir development plans, methods
of production, and the complexity of the reservoir
itself. Although reservoir simulation methods are com-
plex, they include a combination of the physical
principles and analytical techniques of one or more of
the other methods of reserves estimation.
The criteria for categorizing reserves would include the
amount and quality ofproduction and pressure data, the
validity of the model and its demonstrated reliability
with comparable reserves, and the ability to history
match. To illustrate, if sufficient amounts of good geo-
logical and performance data are available to allow for
a reasonable history match, and if the estimator is using
an appropriate simulation model that has been used
successfully in reservoirs similar to the one being stud-
ied, projections ofrecovery under primary mechanisms
and the specified economic conditions might be con-
sidered proved reserves. Ifthe situation being modelled
is an improved recovery mechanism, these criteria and
the guidelines given in Section 3.3.5 for categorizing
improved recovery reserves generally apply. This means
that for existing and operating improved recovery
projects where an appropriate simulation model is be-
ing used, adequate data exist, and the response to the
data is consistent with the simulation results; or where
future projects can be expected with a high probability
inreservoirs ofthe type where the model has been shown
to give reliable results, the simulated recovery can be
considered as proved reserves.
At least a portion of the simulated recovery should be
categorized as probable or possible or not considered
as reserves, depending on the evaluator's views on
the probability that the additional oil or gas will be
recovered in the following situations:
- Where the model hasnot been shown to give reliable
results for the same type ofimproved recoveryproject
in a similar reservoir
Where insufficient data are available to properly
use the model
- Where the installation of an improved recovery
project cannot be predicted with a high probability
3.3.5 Reservesfrom ImprovedRecovery
Projects
The calculating and categorizing of reserves from
improved recovery projects should be based on the
22
judgement of the evaluator and on information such as
observed performance, the results of pilot projects, the
performance of projects in analogous pools, and engi-
neering studies. To illustrate, reserves attributable to
improved recovery projects may be considered as proved
reserves provided certain conditions are met. Such situ-
ations occur when the production response froma project
corresponds to the results predicted by engineering
analysis or where the improved recovery project has
been in operation for a considerable period and the analy-
sis of a decline curve can be used with confidence, or
where a history-matched simulation is available. If the
production response has fallen short of original predic-
tions, the observed production data should be used for
calculating and categorizing reserves. Proved reserves
may be attributed to other areas of the pool where an
improved recovery project has not yet been applied,
provided that it is highly probable that a project will
proceed, and that the geological and other reservoir char-
acteristics are equivalent or superior to those for areas
where an improved recovery project is in operation.
If a successful scheme has been implemented in a
similar pool that has analogous reservoir characteris-
tics, proved reserves due to improved recovery may be
assigned, provided the evaluator is convinced that the
analogy is sound and that there is a high probability that
a project will proceed and be successful.
Probable or possible reserves can be assigned in other
cases where the improved recovery method has been
applied successfully to analogous reservoirs, but where
there is a lower probability that a project will go ahead
and be successful. Proved, probable or possible reserves
may be attributable to a planned workover treatment,
improvement to equipment, or other procedures, de-
pending on the evaluator's judgement respecting the
probability of success.
3.3.6 Related Products
Natural gas liquids (NGLs) are the liquid hydrocarbon
components recovered from natural gas. If they are re-
coverable, they must be calculated and reported as
reserves of either natural gas or natural gas liquids,
but not both.
The first test of recoverability ofNGLs is whether they
will be produced as part of the stream of raw natural
gas. If the fluid properties and reservoir pressures are
such that the composition ofthe produced raw gas stream
will significantly change with time due to retrograde or
other phenomena, this must be reflected in the calcu-
lated reserves. Components of natural gas that wiil
>
liquefy in the reservoir and not be recoverable must not
be included in reserves of either NGLs or natural gas.
If cycling or other special means of producing the
reservoir is planned in order to reduce the liquid losses
that might otherwise occur, the NGLs that would be so
recovered can be categorized only as proved reserves
where their recovery can be estimated with a high prob-
ability. This would require sufficient reservoir and fluid
data to make an accurate detailed projection ofproduc-
tion and, also, the special means of production would
have to be actually in operation or expected with a high
degree of probability.
Where the prevention of losses in the reservoir is less
certain, such NGLs should be categorized as probable
or possible or not considered a reserve, depending on
the probability of their recovery.
For most reservoirs, the composition of the produced
gas will not significantly change with time. For these
reservoirs, the only test of recoverability of NGLs re-
lates to whether they will be recovered as liquids or
remain in the natural gas. This is also a second test for
those reservoirs previously mentioned where the NGL
content of the produced gas will change with time.
The first criterion in terms of their classification as
reserves is that NGLs can only be categorized as proved
ifthe raw gas from which they are to be removed will,
after processing, result in marketable gas that is cat-
egorized as remaining proved reserves.
Some portions of some hydrocarbon components,
particularly ethane and propane, may not have to be re-
moved from raw gas to make the gas marketable. Since
the technology for removal of essentially 100 percent
of all NGLs is well-proven, the only test of their recov-
erability from a proved natural gas reserve relates to
whether the liquids would be recoverable at the speci-
fied economic conditions under which the estimates of
proved reserves are being made.
Where the removal of NGLs from the raw gas is
necessary in order to make the gas marketable, the re-
moval of the liquids must be economically feasible or
the natural gas would not be economically recoverable
as marketable gas at the specified economic conditions,
and therefore neither the natural gas nor the NGLs could
be categorized as remaining proved reserves.
Where the removal of NGLs from the raw gas is
not required but is being planned, the removal of
the liquids must be economically feasible or else the
NGLs cannot be categorized as proved reserves. If the
removal ofthe liquids is not economically feasible, they
would be included as part of remaining proved reserves
of natural gas.
If raw gas containing NGLs that will be marketable
natural gas after processing is categorized as either
probable or possible reserves, the NGLs must be
categorized in the same manner.
With respect to sulphur reserves, essentially all of the
hydrogen sulphide and other sulphur compounds must
be removed from the raw natural gas and converted to
elemental sulphur to meet environmental and other stan-
dards. The necessary technology exists, and the key
question is whether the recovery of the sulphur is eco-
nomically feasible at the specified economic conditions.
If it is not, the natural gas would not be economically
recoverable as marketable gas and thus could not be
categorized as reserves.
If the sulphur in question is economically recoverable
but is contained in natural gas categorized as probable
or possible reserves, the sulphur must be categorized
in the same manner.
In some reservoirs, usually where the gas has a very
high HzS content, the pressure, temperature and fluid
properties are such that some ofthe sulphur will liquefy
or solidify in the reservoir and will not be producible
without special production measures. Where such con-
ditions are known to exist or can be expected, the sulphur
that would liquefy and remain in the reservoir cannot
be categorized as proved reserves unless special pro-
duction measures for dealing with the problem have been
demonstrated to work successfully. They would have
to be feasible at the specified economic conditions, and
either have been implemented or have a high probabil-
ity of being implemented. Where these criteria are not
met, at least a portion of the sulphur should be catego-
rized as probable or possible or not considered as a
reserve, depending on the overall probability of its
recovery.
23
r
PART TWO
DETERMINATION OF
IN-PLACE RESOURCES
!
n _
- I
..
Chapter 4
OVERVIEW OF PART TWO
b
4.1 INTRODUCTION
Part Two deals with the estimation of hydrocarbons in
place, the economically recoverable portions of which
are classified as reserves.
The estimation of initial in-place resources involves
contributions from several disciplines, primarily geol-
ogy, geophysics, petrophysics, and engineering, but
contributions in varying degrees may also be required
from specialists in chemistry, physics, economics, and
other geological-engineering disciplines.
It is important that the size, or at least the range in size,
of a potential resource be determined using consistent
approaches and considering the interrelationships ofthe
parameters used to make the estimate. The size of the
resource forms the basis for the determination of how
much oil, gas, and related products may ultimately be
produced for society's use, and for the formulation of
operation plans and the necessary business decisions.
Volumes ofthese discovered resources may be estimated
by either a volumetric or a material balance method of
calculation. These methods are described in Section 4.2.
Section 4.3 describes the deterministic and probabilis-
tic procedures for estimating in-place resources. Sections
4.4 through 4.7 briefly discuss sources and reliability
of data, the interrelationship ofparameters, the ways in
which resource estimates are used, and the background
and experience of evaluators.
4.2 RESOURCE ESTIMATES
4.2.1 Volumetric Estimates
Reservoir Volume
The first step in a volumetric calculation ofhydrocarbon
resources is an estimation of the volume of subsurface
rock that contains oil and gas. The volume is derived
from the thickness of the reservoir rock containing the
hydrocarbons and the areal extent of the accumulation.
The important geological considerations in establish-
ing a realistic estimate of reservoir volume include
the depositional environment of the reservoir beds, the
history of any structural deformation of those beds, the
trapping mechanism for hydrocarbon accumulation, and
the positions ofthe various fluid interfaces.
Mapping the extent and configuration of the hydro-
carbon accumulation requires the evaluator to have an
understanding ofthe geological concepts ofsedimenta-
tion and the structural attitudes ofthe reservoir rock that
control the limits and define the geometry of the de-
posit. Well samples and cores, well logs, seismic and
well test data, and pressure information are all used to
interpret the extent of the oil or gas pool. Visualization
of the accumulation in three dimensions is necessary to
portray a realistic mapped interpretation.
RockandFluidProperties
The properties of the reservoir rock and the particular
hydrocarbon are also important factors in the volumet-
ric estimate of the resource. Although the volumes of
hydrocarbons are calculated at subsurface depths, they
are converted to standard surface conditions oftemper-
ature and pressure for measurement and recording.
The standard surface conditions in a particular loca-
tion become the "base" temperature and pressure.
The following properties are. important in volumetric
procedures:
1. Porosity, $, which is the measure of the void space
(fraction of rock volume)
2. Permeability, k, which is the measure of the fluid
transmissivity in millidarcies (mD)
3. Fluid saturation, Sw'which is the portion ofthe pore
space that is occupied by oil, So, gas, Sg, and inter-
stitial water (fraction)
4. Capillary pressure, Pc' which is the force per unit
area resulting from the interaction ofthe fluids with
the mediumin which they exist in kilopascals (kPa)
or pounds per square inch (psia)
5. Electrical conductivity of fluid-saturated rocks
27
Oil
The calculation of oil in place is based on the following
equation:
I
N=VRx<p x -x(I-So) (I)
B
o
where N = oil in place (ml)
VR = rock volume (m') = 10
4
x A x h
A = drainage area in hectaries (ha)
(I ha =10
4
m
2
)
h = average net pay thickness (m)
<p = porosity (fraction of rock volume)
B = formation volume factor
o
(res. m
3/stm3
)
Sw = water saturation (fraction)
In Imperial units, the equation is as follows:
Natural Gas
The in-place volume of natural gas is adjusted for
temperature and pressure in order to measure volumes
at standard surface conditions. The compressibility fac-
tor adjusts for the compressibility characteristics for
different mixtures of natural gas components in chang-
ing from reservoir to surface conditions to account for
the variance from the Ideal Gas Law.
Natural gas resources may be classified as follows:
Solution gas
Associated gas (gas cap)
Nonassociated gas
Solution gas is the gas liberated from oil produced from
a reservoir. The rate of production of solution gas de-
pends on the rate of oil production, the relative flow
characteristics of the reservoir fluids, and the state of
depletion of the reservoir.
I
N=VRx7758x<px -x(I-So) (2)
B
o
oil in place (bbl)
(1 acre-foot = 7758 stb)
rock volume (acre feet) = A x h
drainage area (acres)
average net pay thickness (ft)
porosity (fraction of rock volume)
formation volume factor
(res. bbl/stb)
water saturation (fraction)
VR =
A =
h =
<p
B =
o
S =
w
N= where
6. Formation volume factor, B
o
, which is used to
convert subsurface volumes of oil to surface con-
ditions (the conversion is a consideration ofa phase
change resulting in the liberation of gas (solution
gas) from the oil and the compressibility of
reservoir oil)
7. Gas compressibility factor, Z, which adjusts for the
compressibility characteristics in mixes of natural
gas in the conversion of ideal gas volumes to actual
volumes
Cutoff Values
Reservoir rock and fluid properties are used to help
determine the thickness of the reservoir rock that con-
tributes oil or gas production based on testing or actual
production. Relationships between porosity, horizontal
permeability, and water saturation can be developed
from core and capillary pressure data to determine
cutoff values below which any known economic re-
covery method will be ineffective, based on present
technology.
The limiting factor in oil and gas production is the
permeability, a measure of the flow characteristics of
the reservoir fluids through the rock pores. The per-
meability to each of the three fluids-oil, gas and
water-varies in relation to the content of each of the
other fluids in the reservoir. The contribution to pro-
duction is best measured by the relative permeability of
the rock-a flow characteristic of a fluid in the pres-
ence ofanother fluid or fluids. For example, the relative
permeability of the reservoir rock to oil or gas may be
almost nil in the presence of a high saturation of inter-
stitial water, which would render the hydrocarbons
immobile. The magnitude of the in-place resource has
this limitation from a thickness perspective, being lim-
ited to the reservoir rock from which it is possible to
recover the hydrocarbons.
Hydrocarbons in Place
The volumetric calculation of hydrocarbons in place
consists of the following steps:
I. Determine the volume of rock containing hydro-
carbons from thickness and area considerations or
from an isopach map of net pay.
2. Determine the average effective porosity.
3. Determine the volume percentage containing
hydrocarbons (from fluid saturations).
4. Correct for the volume of hydrocarbons measured
at the surface.
28
r
OVERVIEW OFPARTTWO
For calculation of initial solution gas in place, G
s
' the
folIowing equation is used:
T P
G= VR x ljl x (l-Sw) x " x -'- (5)
P"xT, Z;
G, =N XR,i (3)
where G, = solution gas in place (m")
N = oil in place (m')
R,i = gas in solution at Pi (m
3/m3
)
Pi = original reservoir pressure (kPa)
In Imperial units, the solution gas in place is as follows:
VR = rock volume (acre feet) = A x h
A drainage area (acres)
(1 acre = 43,560 square feet)
h = average net pay thickness (ft)
ljl = porosity (fraction of pore volume)
T
so
= standard base temperature (ORankine)
(460 + OF)
Pso = standard base pressure (psia)
Tf = formation temperature (ORankine)
(460 + OF)
Pi = original reservoir pressure (psia)
Zi = gas compressibility factor at Pi and Tf
The base pressure used varies with the location of the
resource, but is related to the pressure ofone atmosphere
at some elevation above sea level (e.g., in Alberta, 14.65
psia and in British Columbia, 15.25 psia). The base
temperature is normally 15.6C (60F).
The determination of the compressibility of the gas
involves the use of a gas analysis to provide a factor for
a particular mix of natural gas.
The equations set out in this section give in-place
volumes of raw gas expressed at standard surface
conditions. Before the gas is delivered to the point of
sale, there are losses at the surface due to processing
shrinkage, fuel consumption, and metering errors. These
losses must be deducted from the raw gas volumes to
arrive at the pipeline gas resources.
In sweet, dry gas fields, the shrinkage is related only to
fuel consumption and line losses. For wet or sour gases,
the shrinkage may also be a result of recoveries of re-
lated products and an allowance for plant fuel. The
shrinkage may be estimated from a representative gas
analysis to obtain the content of the related products,
and an estimate of the recoveries of each product.
Actual shrinkage for a producing field may be obtained
from the ratio ofthe saleable pipeline gas to the raw gas
delivered to the plant.
Related Products
Natural gas liquids may be calculated from the volume
percentage of the product based on a representative gas
analysis and the gas-in-place volume. The volumes in
place ofnatural gas products expressed in standard vol-
umes per volume of raw gas are shown in Table 4.2-1.
Sulphur, which may be calculated from the weight
percentage, is also shown in Table 4.2-1.
The recovery factor assigned to the in-place volumes
depends on the method and efficiency of recovery.
Actual gas plant statistics are a source of recovery
factors for related products from a producing gas field.
(6)
P
sc
=
T
f
=
h
ljl
S =
w
T
sc
=
G=
VR =
A
T P
G = VR x 43,560 x ljl x (l-Sw) x " x-'-
P"xT, Z;
where G = raw gas in place (scf)
where raw gas in place (m')
rock volume (rn') =10
4
XA x h
drainage area (ha)
(I ha = 10
4
m
2
)
average net pay thickness (m)
porosity (fraction of pore volume)
water saturation
standard base temperature (OK)
(273 + 0c)
standard base pressure (kPa)
formation temperature (OK)
(273 + 0c)
Pi = original reservoir pressure (kPa)
Z, = gas compressibility factor at Pi and Tf
In Imperial units, the equation is as follows:
G, = NXR,i (4)
where G, = solution gas in place (scf)
N = oil in place (stb)
R,i = gas in solution at Pi (scf/stb)
Pi = original reservoir pressure (psia)
Associated gas is the gas associated with an oil
reservoir as a gas cap. Most, if not all, of the energy in
the gas cap is required for maximum oil recovery, so
associated gas reserves usually remain shut in until most
of the oil reserves have been produced.
Nonassociated gas is gas that is not associated with
an oil reservoir. Production is limited only by market
availability and contract terms.
For the calculation ofnonassociated and gas cap in-place
volumes, the folIowing equation is used:
29
---------------------
Table 4.2-1 In-Place Volumes of Related Products
Liquid Volume per Volume of Raw Gas
Vol % Product
Product multiplied by
SI' Imperial'
(m
31l06m3
) (bbVI0
6
cf)
Propane 36.88 6.54
n-Butane 42.22 7.48
i-Butane 43.80 7.77
n-Pentane 48.53 8.60
i-Pentane 49.02 8.69
n-Hexane 55.10 9.77
n-Heptane 61.80 10.96
n-Octane 68.59 12.16
n-Nonane 75.42 13.38
n-Decane 82.26 14.59
SUlphur Weight per Volume of Raw Gas
Vol % SUlphur
Product multiplied by
(tonnesIl0
6m3
) (It/I0
6cf)
Sulphur 13.60 0.377
4.2.2 Material Balance Estimates
Calculation of in-place volumes of hydrocarbons by
material balance requires equating the incremental
expansion ofthe reservoir fluids upon pressure drop to
the reservoir voidage caused by the withdrawal of
oil, gas and water, corrected for any fluid influx or
injection. The process requires an accurate history of
reservoir performance, includingvolumes ofoil, gas and
water produced or injected, and pressure changes. Five
to ten percent ofthe oil or gas must have been produced
before a reasonably accurate calculation can be made.
4.3 PROCEDURES FOR ESTIMATING
INPLACE RESOURCES
The calculation of an in-place resource volume of
hydrocarbons does not yield an exact answer. The
accuracy of each parameter used in the calculation
depends on the validity ofits source and the accuracy of
its measurement. When all the individual factors in an
estimate are combined, the degree of variance can lead
to substantial differences in the answers obtained. The
Standard conditions of pressureand temperature are
101.325 kPa, 15.6Cfor 81; 14.65 psia, 60Ffor
Imperial units.
30
uncertainty associated with any estimate of volumes of
hydrocarbons in place is handled differently in the two
procedures used for the calculation: the deterministic
and the probabilistic.
The deterministic procedure is the one most commonly
used. The best estimate of each parameter is used in the
calculation ofreserves. The accuracy ofthe estimates is
only as good as the quality and source of measurement
of each parameter used in the calculation and will re-
flect the experience of the professionals in selecting the
best estimate for the parameters. After recovery factors
have been applied to the in-place estimates, the reserves
are classified as "proved," "probable," and "possible"
to reflect the degree of uncertainty, in the view of the
evaluator, associated with each category. Degree of
uncertainty is discussed in detail in Part One.
The probabilistic procedure quantifies the uncertainty
in the resource estimate by using the evaluator's opin-
ion to describe the range of values that could possibly
occur for each variable, and producing relative frequency
curves to describe the probability of the values occur-
ring within that range. A combined relative frequency
curve is then generated to describe the possible range
for the in-place resources and the associated probability
of occurrence of each of the volumes within that range.
A variety of methods exist to generate the reserves
volumes, the most common being the Monte Carlo com-
puter simulation, which uses a computer to iteratively
calculate enough in-place values from the variable pa-
rameter ranges to construct the in-place frequency
distribution.
With rapidly expanding computer applications, the
probabilistic procedure is gaining popularity in portray-
ing the uncertainties associated with a range ofestimates.
However, there are alternative procedures to generate
the in-place resource frequency distribution. The alter-
native presented in Chapter 6 is a "short-cut" that can
be performed on a hand-held calculator. It must be
stressed that, as in the deterministic, the reliability of
the results using any probabilistic procedure is depen-
dent upon the quality of the data and the experience of
the evaluator in selecting the range of values for each
variable. If properly derived. the probabilistic estimates
of resources in place and recoverable reserves should
compare closely with the proved. probable, and possible
volumes obtained using the deterministic procedure.
In order to understand the uncertainty associated with
all reserves estimates, the evaluator must have a good
appreciation of probability theory and statistical
methods. This knowledge is critical when applying
OVERVIEW OFPARTTWO
classifications such as proved, probable, and possible
to the values of resources or reserves. Uncertainty in
reserve estimates is covered in more detail in Chapters
3,6, and 22.
4.4 SOURCES AND RELIABILITY
OF DATA
Reliability of data is covered in various sections
of Chapter 5 in the discussions of the individual
parameters used in the calculation of in-place volumes,
and in detail in Section 5.11, Quality and Reliability of
Data and Results. The source of data and the accuracy
of measurement are the two key elements in selecting
parameters with some confidence. There can be several
different sources of data from which a given parameter
can be selected. Evaluators are usually faced with some
conflicting values from which they must select either
their best estimate or a realistic range of values for each
parameter. The experience ofthe evaluator in assessing
the validity ofthe data derived from each source is criti-
cal in explaining the difference and establishing the best
value to be used in the calculations.
Table 4.4-1 summarizes the sources for each of the
variable parameters used directly in volumetric esti-
mates. The source ofeach factor is shown, with a priority
ofsource given for derivation ofthe specific parameter.
The priority is valid only if the testing methods and
measurements are considered to be adequate. Resource
estimates are valid only with the available data and
at the time they were prepared. Constant revision is
necessary as other sources of data become available.
4.5 INTERRELATIONSHIP OF
PARAMETERS
The various parameters used in the volume calculation
are interrelated and, despite their sources, must be
compatible to one another. For example--as mentioned
in the discussion ofcutoff values-porosity, permeabil-
ity, andwater saturationare related through the geometry
of the pore spaces in the reservoir rock. Pressure and
temperature are both dependent upon the depth ofburial
ofthe reservoir rock. The parameters selectedmust make
sense when viewed together.
The subject of recovery of hydrocarbons is covered
in Part Three, which discusses the derivation of the
recovery factor chosen to convert the in-place resources
to reserves. Since the selection of recovery factor may
be affected by other reservoir parameters that are dis-
cussed in Part Two, a few comments are in order here.
Recovery factor may be dealt with independently when
adequate values for parameters such as drainage area,
net pay thickness, and pore volume can be assessed.
When the information available allows only an estimate
of gross productive interval (gross pay), or when the
area assigned may represent spacing or total pool area
rather than effective drainage area, the recovery factor
commonly incorporates the allowance for portions of
the reservoir that may not contribute to the production
in a given well. Allowance for this undrained volume
would probably be better accounted for by adjusting the
parameters of thickness and area.
Competitive operation is another consideration that may
affect the recovery assigned to an individual well.
Hydrocarbons in the subsurface do not recognize bound-
aries of area ownership. Where reservoir continuity
allows the movement of hydrocarbons across owner-
ship boundaries, factors such as the date that production
commenced and the rate of production have a greater
influence on recoveries from individual wells than the
in-place resource underlying the individual company-
owned tract. In such circumstances, a share of pool
reserves based on past production and current produc-
tion rates provides an acceptable method ofestablishing
recovery for individual wells.
Extrapolation of well-established production decline
curves is the most accurate means ofcalculating reserves
and establishing recovery factors to be used with
volumetric estimates ofin-place volumes. Decline curve
estimates, which are dealt with in detail in Chapter 18,
may also lead to re-evaluation of other volumetric
parameters. Decline curve methods may be used only
when there is sufficient production data to define the
rate of decline, and when the capacity of a well to pro-
duce is actually declining. At times, apparent decline in
production may be due to mechanical limitations.
Extrapolation of past performance into the future
assumes that the forces acting in the reservoir in the past
will continue to act in the same fashion in the future.
4.6 USES OF RESOURCE ESTIMATES
Resource-in-place estimates are the starting point for
volumetric estimates of reserves. Regular reserve
estimates provide most exploration and production
companies with a yardstick of their performance. When
current inventory is compared to production rates,
an indication of the life ofthe current resource is avail-
able at any time. Companies also report their reserve
inventories to conservation authorities, securities
commissions, and shareholders.
31
m _
Government agencies require reserve reporting to
prepare resource inventories of the province or country
for the purpose of determining requirements for pipe-
line construction and establishing a rationale for
approving spacing changes, setting allowables, and
approving secondary recovery schemes.
Evaluations of reserves of oil and gas are used for
acquisition and disposition of these assets, borrowing
requirements for banking purposes, and illustrating in-
vestment returns to investors and joint venture partners.
Individual property evaluations (reserves analyses) are
Table 4.4-1 Sources of Data
used for purposes such as land sale acquisitions, explor-
atory drilling operations, development prospects,
participation in third-party ventures, and implementa-
tion of enhanced recovery schemes.
Uses ofestimates ofin-place resources and reserves and
evaluations based on these estimates are many and var-
ied; the amount ofdetail required is dependent upon the
accuracy required for the particular purpose.
The uses of resource estimates are covered in more
detail in Chapter 26.
Units
Parameter Symbol SI Imperial Order Source of Data Requirements
Area A hectares acres Isopach map net pay Sufficient well control, geophysical
control, and identificationof depo-
sitional pattern and type of trapping
2 Assigned area
}
Establishing relationto drainage
3 Spacingunits
and adequately applying average
thickness
Thickness h metres feet Core analyses Representativerecovery
net pay Applying proper cutoffs
2 Porosity log deter- Establishingproper core-log
minationbased on log relationship
core relationship Correlation for hole conditions
3 Log combinations
}
Proper identificationof
4 Porosity log
lithology or rock matrix
S Other wireline log
}
Assessment of gross pay
6 Geologist's log
only may be possible
Porosity decimal fraction Core analyses
}
Assessing weighted average
2 Log analysis based on
porosity of net pay
log core relationship
Varied with lithology or matrix
3 Log combination
}
Lithology identificationand
4 Singleporosity log
use of empirical relationships
S Derivedfrom another
}
well in the same pool or Acceptable comparison
another pool in the
same zone
(cont'd)
32
r
OVERVIEW OFPARTTWO
Table 4.4-1 (cont'dl
Units
Parameter Symbol SI Imperial Order Source of Data
Requirements
Water
Sw
decimal fraction Oil base core
Noncontamination of sample
saturation
2 Capillary pressure test Representative samples for testing
3 Log analyses based on
Adequacy of determination of
corecorrelation
formation water resistivity, R", from
water sample or logs
4 Log analysis using Adequacy of determination of R"
combination logs from water sample or logs
S Resistivity vs. Variation of porosity affecting
estimated porosity resistivity
6 Cores and/or logs from Validity of comparison
samepool orname zone
7 From correlation with Establishment of correlation
porosity or permeability
Formation B
o
m
3/sm3
bbl/stb 1 Oil analysis Acceptability of sample
volume factor
2 Comparison to similar Similar reservoir conditions
gravity crude
3 Correlation curves Validity of correlation
Gas Z dimensionless Gas analysis reservoir Acceptability of data
compressibility and pressure
factor
2 Comparison to reservoir Validity of comparison
at similar depth with
similar gas
Formation P
r
kPa psia Bottom-hole pressure Adequate pressure buildup
pressure bomb gauge
2 From other wells in pool Representative of subject well
3 From other pools at same Acceptability of pressure-depth
depth relationship
4 Estimated from depth vs. Adequacy of correlation
pressure correlations
Formation T
f
C
OF
Bottom-hole temperature Mechanical operation of
temperature measurement - bomb equipment
2 Logs Temperature of mud reflecting
formation temperature
3 From other wells in pool Adequacy of data
4 Other pools at same depth Validity ofparticular depth
correlation
S Depth vs. temp correlation Validity ofparticular depth
correlation
33
4.7 BACKGROUND AND EXPERIENCE
OF EVALUATORS
An evaluator, in estimating oil and gas resources, must
play the role of a modem-day Sherlock Holmes. The
investigative process-sifting through conflicting
evidence, checking the validity of data, selecting the
best parameters, putting together the conclusions in
terms of an answer, and testing the reasonableness
34
of that answer-is a test in deductive reasoning. The
process may be considered partly an art and partly a
science.
The depth of experience of the evaluators plays a large
role in the acceptability oftheir answers. Drawing from
many disciplines-geology, geophysics, engineering,
petrophysics, and statistics--evaluators require the full
background of knowledge in order to arrive at the best
answer possible given the available data.
r
Chapter 5
ESTIMATION OF VOLUMES
OF HYDROCARBONS IN PLACE
5.1 RESERVOIRAREA AND VOLUME
5.1.1 Introduction
The two methods for estimation of original in-place
volume of hydrocarbons are volumetric mapping and
material balance. During the initial delineation and
development of a field, volumetric mapping is the key
to estimation, possibly aided in the very early stages by
analogous fielddata. As depletionproceeds and adequate
production history becomes available, material balance
may represent a practical second method and may
eventually become the most accurate procedure. Reas-
onable confirmation between the two methods can
provide assurance that appropriate data and assumptions
have been used for each estimate.
Certain reservoir factors tend to reduce the applicabil-
ity of material balance and reinforce the importance of
volumetric mapping throughout the life of the field:
Moderate to strong water drive
Low average permeability
Complex internal architecture and poor lateral or
vertical continuity
Any of these factors may make it difficult to obtain a
representative average pool pressure in response to
production.
The capability of mapping the "container size" as the
basis for volumetric estimation is primarily determined
by the interrelationship of the geological complexities
and the amount, quality, and type of data. Well control,
and the spacing of wells compared with the size of the
accumulation are usually the most important consider-
ations. Where applicable, the quality, amount, and
positioning ofseismic data may also be very important.
Information on the following is also important to
volumetric mapping:
Formation tops from logs and sample data
Cuttings samples
Core for lithology, environmental analysis and
measurement of parameters
Log response and evaluation
Pressure and pressure transients
Fluid composition
Fluid contacts
Test data and more extended production data
5.1.2 Acquisition of Data
The scope of reservoir study and data acquisition
starting at field discovery and extending over the life of
the pool must meet the technical objectives, but must
also realistically reflect the cost and potential benefits.
The information collected should meet both short- and
long-termrequirements. Ifimportant data is not collected
when it is available even though it is not yet needed,
there are likely to be serious regrets later when the in-
formation is no longer available or can only be obtained
at prohibitive costs.
The very basic data items such as logs and samples
for formation tops are acquired rather routinely. Some
of the other items are discussed in the following
subsections.
Seismic Data
Seismic can be a useful tool for mapping, depending
on the geological setting and reservoir objectives.
Traditional seismic has been used to provide the transit
time from reflection horizons to define depth and form
of subsurface structures.
Seismic technology has advanced tremendously in the
last several decades. Digital recording leading to com-
mon depth point seismic and the growing computer
capabilities for data processing, have been keys to this
advance. However, in many instances the depth response
is still all that can be extracted from seismic. In a good
number of geological settings where seismic quality per-
mits, "stratigraphic seismic" may also be important.
With this method, the amplitude response ofthe recorded
35
signal may provide data relative to lithology, porosity
and-whenthe seismic signal isparticularlyclear-fluid
content of the reservoir horizons.
The "new kid" on the seismic block is 3-D seismic,
which has quickly gained major importance in many
geological settings, particularly as a development tool
with great potential for assisting in reserves mapping.
The basic response and data provided by 3-D seismic
are no different than those obtained from conventional
seismic. The difference is in the configuration of a 3-D
survey, which is set up to provide a closely spaced grid
ofdata points. This grid allows a more continuous three-
dimensional definition of structuraland other geological
variations.
If seismic data is applicable to a reservoir, it probably
will have been gathered early in the exploration phase.
Ongoing interactive review incorporating new wells
must continue well into the development process. It also
may be appropriate to shoot additional seismic to help
resolve problem areas or incorporate new technical ad-
vances. The potential benefits from 3-D seismic, for
instance, should be carefully considered, usually the
sooner the better. Another aspect to consider in incor-
porating seismic data is that processing capability
is continual1y improving. When field reviews are
undertaken, reprocessing may offer data improvement
without the added cost and possible timing delays of
new shooting.
Original Pressure Data
Undisturbed original pressure data can onlybe obtained
before significant production is taken. Unless the reser-
voir is very small, normal production testing will not be
a problem in this regard. Good initial pressures in gas,
oil and water columns allow construction of pressure-
depth plots for fluid contact definition. A geographic
spread of original water phase pressures will assist in
determining whether hydrodynamics are important in
the region.
Pressure Transient Analysis
In recent years high-resolution pressure recorders have
provided another possible source of information relat-
ing to reservoir limits. This process relies on the
interpretation of very subtle pressure changes. Careful
design of the procedure in consultation with experts is
necessary, as well as care inthe acquisition ofdata. One
of the difficulties, as with any kind ofreservoir simula-
tion, is that the results are not unique and must be
corroborated with other information.
36
Analogous Fields
Another aspect to be kept in mind is that others may
have drilled or be drilling in analogous field settings
relative to the field of specific interest. Utilizing
this data as it becomes available may help maximize
usefulness of limited data sets.
Extended Flow Tests
Horror stories are told of significant investment in
facilities and equipment for a well that declined pre-
cipitously when put on production. If analogous field
data indicates a significant risk, an extended flow test
might provide insurance against such an occurrence. As
the size of the project increases, the risk exposure in-
creases proportionally. The running of extended flow
tests must be weighed against certain considerations:
The level of apparent risk
The cost of the test
Whether it is practical, given the properties of the
reservoir, to run the test long enough to resolve
possible lower size limits
Environmental and conservation concerns
Another option is to put a pool on production with
minimum investment to allow extended production data
to be gathered. If warranted, further development
optimization can then be undertaken at minimal risk.
5.1.3 Data Analysis
Data accumulates rapidly during the delineation and
early development phase of field development. The
volume of data and pace of activity can often lead to a
tendency to handle one well at a time and lose some
perspective on the big picture. Periodic field-wide re-
views of all geological data and related engineering
material provide the best chance for optimal solutions.
Also, careful management of data accumulation and
study scheduling will ensure that holes in data sets
are minimized and that the cost-benefit ratio of data
acquisition is efficient.
Depositional Environments
The recognition of depositional environments and their
relationship to reservoir development is basic to petro-
leum geology. The study of recent deposits as "a key to
the past" is a common theme ofsedimentary geological
training. Outcrops and producing fields provide a record
of ancient depositional environments and resulting res-
ervoir patterns. The extensive literature available on
these subjects should be searched for analogous field
data in any major field study.
-
s
ESTIMATION OFVOLUMES OFHYDROCARBONS INPLACE
Adequate core coverage is required to define environ-
mental concepts in the subsurface. Proper core spacing
and intervals depend on the complexity of the patterns
of reservoir development. Data gathering must be
appropriately resolved in the early stages of delineation
and field development. Nearby analogous fields may
add to tbe database.
Once depositional environments are resolved from core,
it may be possible to expand the study into noncored
wells by calibration to log response. However, there is
always more risk of error when using logs rather than
core for environmental interpretation.
Primary Porosity and Diagenesis
Primary porosity is retained in sedimentary rocks
through deposition, initial burial, and lithification. This
type of porosity and the patterns of its occurrence are
easily related to depositional environment. Most sand-
stones and some carbonates are dominated by primary
porosity.
Subsequent to the formation of primary porosity,
sedimentaryrock is often subjected to increasingor vary-
ing temperature, pressure, depth of burial, and ground
water regimes. As a result, minerals may be dissolved
or precipitated. Also, the reservoir rock may be
fractured. The processes creating tbese changes in the
rock fabric and properties are called diagenesis. The dia-
genetic overprint and the resulting porosity and
permeability changes mayor may not be closely related
to original depositional features and patterns. Diagenetic
porosity development may, in fact, be controlled by
something entirely different such as fault and fracture
sets or erosional surfaces. Diagenesis and its controls
and results must be considered in reservoir mapping,
particularly in carbonate rocks.
Type of Trap
Petroleum deposits may accumulate in three basic types
of traps:
Structural Traps, which are formed by rock layers that
have been folded or faulted
Stratigraphic Traps, which are formedby depositional,
diagenetic or erosional processes
Hydrodynamic Traps, which are created by moving
formation water, buoyancy, and density interaction with
a hydrocarbon accumulation
These traps may occur alone or in combinations of
differing dominance. Mapping patterns and style depend
very much on the types oftrap. Petroleum geology texts,
which usually contain extensive detailed material on
traps, may be used for reference. Analogous field data
is also very important when considering trapping.
The exploration concepts that led to a discovery would
have included an interpretation of hydrocarbon source
and trapping. This interpretation should be reviewed and
refined or revised, if necessary, at an early stage. Most
basins or play areas tend to have a limited suite of trap
types of economic importance. Trapping should be un-
derstood within the limits of available data before
detailed reserves mapping proceeds.
Reservoir Continuity
Larger scale structural and stratigraphic features are of
first-order importance in determining the limits ofa res-
ervoir and the volume of gas or oil in place. Limits may
be defined by faults, folds, facies changes, diagenetic
boundaries, or erosional surfaces.
It is often unclear in the early stages of exploration and
development whether an accumulation of oil or gas is
in a single pool ora series of pools in close proximity.
The keys to resolution ofthis question may be provided
by pressure; pressure-depth plots; gas, oil and water
compositional data; and indications from fluid contacts.
The degree of internal continuity and homogeneity
within a pool is an important geological feature relative
to recovery efficiency. Detailed cross sections or fence
diagrams are usually necessary to resolve the details of
internal reservoir architecture.
Fluid Interfaces
Fluid interfaces important in reserves determination
include the following:
Gas-oil
Oil-water
Gas-water
Pressure-depth plots provide the best technical resolu-
tion oftbese interfaces when good quality pressure and
fluid density (gradient) data is available above and be-
low the contact. This method defines a contact even in
undrilled or untested intervals (Figure 5.1-1).
In medium- and coarse-grained reservoirs of high
porosity and permeability, the transition from hydro-
carbons to water will be sharp and easily defined by
well logs. Flow testing will also be conclusive to defi-
nition of contacts in this type of reservoir if wells and
test intervals are properly located.
Capillary effects in the small-diameter pore systems in
fine-grained rocks result in long hydrocarbon-water
transition zones and considerable difficulty in
37
1700
t- Gas
4.4 kPaim
1800
-;;;-
\ 1\
'"
..
s: 1900
\
15.
Ql
c
'"
o
'E
2000
\\
2028 TVD(m ss)
Ql
\(ree Water Level
::>
>::
2100
Water Gradient /

2200
10'18 kPaim
34 36 38 40
Pressure (mPa)
Figure 5.1-1 Pressure-Depth Plot for Free Water
Level Determination
resolving the water level. For example, in the Turner
Valley Formation gas reservoirs in the Alberta foothills,
the change from fully water-saturated zones to irreduc-
ible water saturations may occur over an elevation
exceeding 100 metres. In this extreme case, accurately
defining water levels is difficult using only log or test
data.
Gas-oil contacts may also be difficult to resolve.
Pressure-depth plots offer a technical solution when
quality data are available. Flow testing, including
wireline repeat formation tester (RFT) data, may be
helpful. The neutron and density log combination can
be definitive where the contact is located withina drilled
continuous porous section.
On rare occasions, reservoir character and seismic
quality may be sufficient to define fluid contacts by "flat
events" on seismic sections.
Hydrodynamic trapping will result in tilted oil-water
contacts with a tilt proportional to oil-water fluid den-
sity differences and flow velocity. Tilted contacts may
not be evident where a very local area is under study,
but they become evident on a larger scale. Accuratereso-
lution of this type of contact may be extremely
significant to reserves definition. Gas accumulations
may also occur in hydrodynamic settings, but the den-
sity difference of water and gas is such that measurable
tilts on gas-water contacts are unlikely.
38
5.1.4 Mapping
Resolution ofthe "container size and shape" by a map
of the hydrocarbon-filled reservoir is the single most
important step in volumetric reserves estimation. Since
the reservoir is a three-dimensional form, vertical
illustrations such as cross sections, fence diagrams,
or isometric drawings may also be required to under-
stand pool geometry. Examples of forms requiring
vertical diagrams include complex faulting, major
unconformities and salt dome intrusives. Once the
vertical geometry is better displayed and understood,
more accurate maps may be drawn.
Mapsfor Volumetric Estimation
The interplay of structure, fluid contacts, and porous
reservoir variations requires at least the combination of
a structure map and an area or volume map. In many
cases, construction of a series of maps prepared in a
logical sequence may be the best technical approach.
This could include some or all of the following:
Structure Maps, which may be:
Top formation or top porosity, showing location of
faults and fluid contacts
Base formation or porosity with limits as above
Fault plane structures
Ifboth top and base porosity structure maps are drawn,
then a gross pay isopach map can be derived by cross-
contouring.
Isopach Maps, which are maps of thickness variations
of gross or net pay showing reservoir limits controlled
by structural form, fluid contacts, depositional features,
diagenesis, erosional features, or combinations of these
controls. The isopachs of gross and net pay thickness
variations are simple geometric depictions of the reser-
voir form that can be assessed for "geological
reasonableness" with some confidence.
Porosity-Thickness (h)* Maps, which may be drawn
directly or constructed by drawing maps on the
individual parameters and cross-contouring. Porosity-
thickness mapping is particularly important where
porosity in the reservoir is variable and average poros-
ity would not approximate the reservoir void space in
all areas.
Porosity isrepresented bythesymbol "1\>" inthismonograph
and in the petroleum industry generally. The thickness of
the reservoir is represented by the symbol "h."
Hydrocarbon Pore Volume (HPV) Maps, which may
be drawn directly or by cross-contouring ljlh with I-S
w
values." HPV mapping is particularly important when
water saturations are variable within the reservoir.
Where a series of maps is drawn showing interrelated
values, cross-contouring is required to ensure that the
maps are compatible. If cross-contouring is being done
by hand, maps on two separate variables are overlaid
and, at each point where contours ofthe two maps cross,
a related variable is calculated by the appropriate arith-
metic manipulationofthe individual values. Figure 5.1-2
shows the derivation of a porosity-thickness (ljlh) map
on porosity and net pay thickness. The manual process
is tedious, but current computer mapping software can
handle it readily.
The use of cross-contouring to combine parameters in a
technically rigorous process is warranted when indi-
vidual parameters have consistent patterns that can be
drawn with reasonable accuracy and with greater assur-
ance than the combined value. For example, a ljlh map
can be constructed by preparing a map of porosity varia-
tions and an isopach map ofnet pay, and then combining
them by cross-contouring. The less rigorous alternative
is to calculate and plot ljlh values at each well location
and construct the map directly from the combined vari-
able. If individual data such as ljl does have a defined
trend, it may tend to be lost in this methodology.
Reservoir Limits and Wedge Zones
Structure maps based on seismic depth data and
availablewell control are often the first maps constructed
on an oil or gas pool. Limits defined by structure and
known fluid contacts may then be located. In dipping
reservoirs, the area of fluid interfaces, for example, the
oil-water interface, produces a wedge area where the
geometry must be carefully handled. This wedge area
is geographically defined when the structure is mapped
on both the top and the base of porosity.
Dipping faults may also create wedge areas, and solu-
tion of this geometry may require drawing a structure
map on the fault plane. When faults are steep, the wedge
area may become very small and may be reasonably
represented by a median line.
In stratigraphic traps, reservoir limits may not be
defined by structure maps, evident gradational thinning,
or other simple techniques. Seismic amplitude response
might be helpful in some cases, but stratigraphic limits
Water saturation is represented by the symbol "Sw"
throughout the monograph.
can remain uncertain well into the field development
phase. Closely spaced drilling may provide the
only method for resolution of reservoir limits in this
circumstance.
The Choice of Map Types
The final map to choose as a basis for volumetric
calculation is a matter oftechnical judgement: a simple
productive area map, an isopach map depicting rock
volume, a pore thickness (ljlh) map, or a hydrocarbon-
pore volume (HPV) map. The choice should be based
on careful appraisal of the degree of complexity that
can be fairly represented with the da!a available. Simple
maps such as productive area or gross pay isopach maps
represent physical forms that can be readily assessed
for realism. Maps that combine parameters are not as
easy to relate in detail to physical forms even though
they often tend to be dominated by a single variable
such as gross pay thickness.
Interpretive geological mapping offers the potential of
providing the best representation of the reservoir if ad-
equate data is available and the practitioner is thorough.
One general rule worth considering even with interpre-
tive mapping is that the simplest interpretation that fits
the data and the geological concepts is often the best.
Even with a thorough and technically sound interpreta-
tion, if there is freedom to vary the reservoir size
significantly, interpretation can introduce the risk of
significant error. Careful assessment is required to
define when this leads from the booking of"proven" to
"probable" reserves.
In summary, mapping concepts may be reduced to a
few simple concepts to consider:
I. Assessing specific data available, analogous fields,
and geological concepts in order to understand and
visualize the feature to be mapped
2. Separately mapping each significant data item that
shows a definable pattern of variation
3. Combining maps by cross-contouring where appro-
priate (Figure 5.1-3 illustrates a series of maps)
Mechanically Contoured Maps
Where a large amount of data is available at reasonable
spacing, an alternative method of reserves mapping is
to use evenly spaced (mechanical) contours. This
amounts to linear interpolation between actual well data
points. The method may require some interpretation to
assign reservoir boundaries, but once this is done the
freedom to vary the result becomes limited. For this
reason it is often used in unit or joint venture projects
39
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,
/
/
/
/
/
/
/
/
_ O.Oe /
/
/
/
/
/
/
I
I
I
I
I
I
I
I
I
/
I
/
/
/
/
/
/
/
/
,,<:)
<:).
,
/
/
/
/
/
/
/
/
/
/
/
o
'b
\
(a) Net Pay Isopach, h (m) (b) Average Porosity, $ (fraction)
(0)
X (.6)
(0)
o
(0)
...
'0
X (1.6)
'" i::>
(2.4)
(1.0)
(2.0)
'" i::>
\
(a)
(0)
(.6)
I
I
/
,
<:)'0
C).
(1.2) /
/
/
(0)
/
/
/
/
hX$=$h /
(1.0) 0
/
\/?
7 ~ /
/
'b I
I
I
I
I
I
(2.4)
(c) Overlay h Contour and $ Contours
(calculate $h at intersections)
(d) Contour Map of $h (m)
Figure 5.1-2 Cross Contouring
40
Gas-water contact
(2603) intersects
base reservoir
I 1 mile I
(a) Structure on Base Porosity (rnss)
0.8
3.0
Gas-water contact
(2603) intersects
top reservoir
I 1 mile I
(b) Structureon Top Porosity (m ss)
Note:
Gross thickness map was developed by
computer cross-contouring structure
maps.
I 1 mile I
n
(c) Gross PorousThickness (m)
Figure 5.1-3 Series of Related Maps (zero edge from seismic, computer-contoured) (ZYCOR
Software)
41
where variations in interpretations can lead to dis-
agreement and impasse. The mechanical method of
contouring minimizes extension of high contour values
into undrilled areas and, in contrast to an interpretive
map, may provide conservative reserves volumes.
The strength of mechanical contouring is that if done
properly it honors the available hard data with minimal
interpretation. Its weakness is that unless the patterns
are very simple it does a very poor job of representing
the geological patterns and reservoir variations. It should
be recognized as only a simple approximation for joint
venture and reserves assignment. It is not a geological
map. An example of an interpretive and mechanically
contoured map of the same data is shown in Figure
5.1-4.
Computer Mapping
Advanced software is available for computer mapping
ofreservoir parameters with a number of contouring op-
tions. The computer is very good at handling simple
surfaces such as structure maps, but may have problems
with complex surfaces and fault discontinuities. The
DETERMINATION OF OIL AND GAS RESERVES
capability to adequately represent complex forms
depends very much on the quantity and spacing of the
data being mapped. Since computer mapping uses
mathematically defined best-fit surfaces, the result
is noninterpretive and tends to be somewhat mechani-
cal. Combining computer mapping on individual values,
editing for geological concepts, and cross-contouring
the map series can produce a map that is geologically
sound.
A major benefit of computer mapping is the ability to
use cross-contouring techniques and to calculate vol-
umes. Even where hand-drawn interpretive maps are
required to capture the geological concepts, it may be
appropriate to digitize maps into computer format to
use these computational capabilities.
Another benefit (curse?) of computer mapping is that it
is possible to test a range of different assumptions and
analytical approaches. This can be very useful ifproba-
bilistic reserves estimates are being prepared. Preparing
a range of map interpretations can be an onerous task
without computer technology.
/I
Yankee
~
1 mile 1 mile
(a) Offshore bar cut by meandering shalefilledchannel.
Environmental concepts may be assisted by log, core,
seismicdata, or nearbyanalogous fields.
Source: AfterWeinmelster, 1989.
(b) Samedata as usedin (a) but contoured ignoring
environmental concepts. Apparent trap integrityand
volumes are quitedifferent from(a).
Figure 5.1-4 Examples of Mechanical and Interpretive Mapping
42
R
ESTIMATION OF VOLUMES OF HYDROCARBONS IN PLACE
5.1.5 Refinement of Volumetric
Estimates
With time and addition of data in any of the areas
discussed, it is reasonable to expect that the uncertainty
of volumetric estimates can be narrowed. The best
answers are obtained when the maturity ofthe field pro-
vides an extensive database, all reasonable sources are
incorporated in the solutions and-where discrepancies
between sources arise-preconceptions are challenged
and either confirmed or revised. On occasion, new tech-
nology such as 3-D seismic, wellbore image logs,
or other similar advances may supply better answers.
Using all of the data sources may require crossing
technical discipline boundaries; thus working in
multidiscipline teams is a growing trend in many
companies.
References
Weinmeister, M. 1989. "Calculating Recoverable Gas
in Place from Volumetric Data." Shale Shaker,
May-Jun. 1989.
43
DETERMiNATJONOFOIL AND GAS RESERVES
5.2 THICKNESS
5.2.1 Introduction
Next to the areal extent of the reservoir under study, the
thickness value referred to in engineering terms as "net
pay" is the most variable component of the oil-in-place
equation. It is frequently the most poorly defined and
misunderstood term in discussions of reserves.
The confusion stems mainly from the differences in
focus of the two contributing disciplines: geology and
reservoir engineering. The geologist is concerned first
with mapping the discrete reservoir elements in ques-
tion irrespective of any real or commercial segregation
dictated by gas-oil or oil-water interfaces.
At this stage geoscientists will map "gross reservoir"
and "net reservoir." Later, after the bulk reservoir el-
ements have been adequately defined and mapped,
economic considerations will come to the forefront as
the reservoir engineer asks the geologist to produce a
map showing only the outlines of the hydrocarbon
accumulation.
The terms "gross pay" and "net pay" are used to
describe reservoir thickness. Gross pay, referring to the
total hydrocarbon-bearing zone, frequently includes
intervening nonproductive intervals that may be present
in the reservoir (Figure 5.2-1). Net pay refers to the sum
of the productive sections of the reservoir and is deter-
mined by the application of cutoffs, which are the
specified lower limits of core or log data (porosity,
0.0
0.0
---
,
- -
OPHI
\
\
,
,
\
c;:"
\
, -
-e..-__
"""-CNL Porosity
.-
... FOe Porosity
,
-.-
---ill
:::
-,
..... ----
0.6000
CAL - caliper
CNL- compensated neutron log
CSU - cyberservice unit
DS - bitsize
DPHI - densityporosity
FDG- compensated formation
density
GR- gammaray (APi)
ILd- deepinduction resistivity
urn- medium induction resistivity
NPHI - neutron porosity
SFL - sphericallyfocused
laterotoq
SP - spontaneous potential
Source: Schlumberger of Canada, 1985.
Figure 5.2-1 Reservoir Interval Terminology
44
ESTIMATIONOFVOLUMES OFHYDROCARBONS INPLACE
permeability, and fluid saturations) below which a
formation will be unable to achieve or sustain economic
production. Cutoffs are determined by using existing
production information from the subject or similar for-
mations, and by constructing correlations between
production, porosity, permeability, and water saturation
and the recoverable reserves requirements.
While porosity and water saturation calculations (which
are discussed in subsequent sections) are subject to
certain inherent errors, none are large enough to change
the results by several orders of magnitude. The same is
not true for net pay.
Net pay is also important in determining the total amount
of hydrocarbons in a reservoir so that the total amount
of energy in that reservoir can be calculated. Net pay in
this context can be much higher than the value used in
the oil-in-place equation because here it can include
intervals located in transition zones and even belowpro-
ducing oil-water contacts.
Another major criterion in determining net pay is the
potential oil available for future secondary or tertiary
recovery programs. In such programs displaceable net
pay may not equate to net pay in a pressure depletion
process, particularly in the case ofa very heterogeneous
reservoir.
Net pay may also be used during the unitization
process either as a stand-alone figure in net pay maps or
as a guide for development drilling programs. Clearly,
the purposes for which net pay calculations will be used
will dictate how they should be determined.
5.2.2 Defining Net Pay
Logs
Wireline logs of all types have been incorporated into
the process of defining net pay. Porosity tools, by their
very nature, offer the most universally consistent net
pay criteria. Where single porosity tools are utilized to
characterize reservoir porosity, the analyst will typically
determine the tool reading corresponding to the appro-
priate lower limit of porosity and draw a vertical line
down the log. All reservoir exceeding this lower limit
may be integrated to arrive at a value for net pay.
Where multiple porosity tools have been run and a more
sophisticated solution approach has been employed,
cutoff values, typically in the 2 to 4 percent range for
most carbonates and 7 to 10 percent for many sand-
stones, will be applied to the computed data. In this way
logs are employed as the primary filter for net pay
because they represent the first available evidence of
the productive potential of a well.
Beyond the obvious quantitative porosity estimates
afforded by neutron, density, and sonic tools, there are
the spontaneouspotential (SP), caliper, gamma ray (GR),
and microresistivity devices such as the microlog. These
provide further qualitative evidence that a zone is
capable of fluid production.
In heterogeneous reservoirs with thin beds of widely
varying quality, some logs may not properly define net
pay due to their tendency to average or smooth porosity
over larger intervals. This problem is most acute in
previously explored areas with a high number of older
logs.
Core
Full-diameter or wireline-retrieved small-diameter cores
offer a further level of definition beyond that accorded
by logs alone. Permeability measurements may be
matched to porosity to confirm or enhance the selection
of the lower level of producibility. It is useful to note
that the absolute value of permeability for a given res-
ervoir and reservoir fluid dictates what the equivalent
porosity cutoff will be, and not the reverse.
Porosity-Permeability Cutoffs
The empirical selection ofporosity cutoffs to determine
net hydrocarbon pay is best accomplished for normal
oil and gas reservoirs by using core permeability-
porosity cross-plots. Using minimum air permeability
values of 1.0 mD (for medium to high gravity oils),
0.5 mD (for wet gas), and 0.1 mD (for dry gas) will
yield approximate effective porosity cutoff levels for
commercial hydrocarbon production into wellbores.
These cutoffs are empirical (i.e., based on testing and
actual production) and are a function of many param-
eters such as fluid viscosity (mobility), rock grain size
and pore size (pore geometry), rock cementation and
infill, wettability, and capillary pressure properties.
Porosity cutoffs usually increase with decreasing pore
and grain size as illustrated in Figure 5.2-2. This plot
was generated from a large database of actual core data
acquired from dozens ofclastic and carbonate reservoirs
scattered across the western Canadian sedimentary
basin.
Exceptions to the cutoffs listed are gas accumulations
in the microdarcy range 0.1 mD) and heavy oil in
unconsolidated sands. Although sophisticated, large
fracture treatments have been employed on wells in
the microdarcy range; however, such low-rate gas
45
b-----------------------------
Figure 5.2-2 Air Permeability vs. Porosity
when applied to net pay computations, but it is often
essential in the evaluation process to estimate even semi-
quantitatively the effective permeability of the reservoir.
The open-hole drill stem test option affords the best
overall assessment of net pay criteria because, under
ideal circumstances, large volumes ofthe reservoir fluid
can be recovered and studied in addition to the exten-
sive drawdown and buildup pressure data that is
obtained.
5.2.3 Data Acquisition Programs
Logs
The earliest methods for using logs to select net pay
intervals involved the use ofSP or ORlogs. Using curve
inflection criteria for determining the top and the base
ofeach reservoir unit remains a valid method ifthe strati-
graphic unit is a simple clean sandstone-shale sequence
with very porous and permeable sandstones present.
However, the blanket assumption that all porous and
permeable reservoir units are capable of production is
dangerous. Bitumen can be present in different forms: a
tar mat or solid pyrobitumen. Disseminated shale, py-
rite particles, bitumen, or other blocking or cementing
materials can seriously impair the capacity of a reser-
voir to produce hydrocarbons and thereby disqualify it
as net pay.
When conditions such as these are known to exist or
where the reservoir approaches the lower limits of the
producing porosity-permeability regime, more sophis-
ticated logging methods must be considered. Here, all
the porosity measuring devices may be employed de-
pending on availability, cost constraints and hole
conditions. In clastic sequences, the neutron-density-
caliper combination in conjunction with the microlog
and a standard induction resistivity device will resolve
most net pay situations satisfactorily.
In mixed lithology carbonate reservoirs, where gas
may be present, additional care must be exercised, par-
ticularly in the choice of the proper resistivity device.
Where matrix porosity is low and water saturation is at
or near irreducible conditions, resistivities can easily
exceed 2000 ohm-metres. The choice ofa laterolog over
an induction device may be advisable if resistivity is to
be used as a net pay discriminator.
An additional environmental consideration involves
thin bed resolution. Thin beds are defined not only as
vertical variations in lithology, but also may include
any closely spaced changing petrophysical parameter
that makes evaluation difficult. Rapid fluctuations in
30 20
Core Porosity ('Yo)
10 o
1000
:;;:
100 ~
i;::
.s
::;
-e
0-
c
0
'"
g ~
e
0
~
10
e
~
:;;
{j
'"
~ ~
~ LL
E
~
~
1.0
()
Q. r
~
c
'in
0
'"
()
~
0.1 .=
CGL::: conglomerate
Source: PanCanadtan Petroleum Lid.
production is considered to be uneconomic at the present
time. The porosity cutoff for commercial primary pro-
duction of heavy oil from wellbores is estimated to be
approximately 27 percent. Air permeability cutoffs
should not be used for heavy oil sands because the
measurement of air permeability in disturbed and ex-
tracted heavy oil sand is quite meaningless. At this
porosity level, the sand is becoming poorly cemented
and mobile, permitting the heavy viscous oil to move
sufficiently for economic production. These oils have
the capacity to carry loose sand grains, as well as small
amounts of connate water or gas bubbles. This flow
mechanism is far different from that ofconventional oil
and gas reservoirs.
Flow Tests
The ultimate test of the ability of a reservoir to give up
fluids is the actual flow test. During the drilling process
and just prior to the decision to run casing in a well, an
operator has two options available:
I. Open-hole/closed-chamber drillstem test (DST)
2. Wireline formation test (WLT)
Judicious use of these tests can enhance the reservoir
analyst's ability to discriminate between pay and non-
pay zones. Approximate values of in situ permeability
can be calculated from WLT data, the object being to
sample a cross section of the elements of a reservoir
unit and project the permeability data to cover the en-
tire reservoir. WLT techniques are at best "quick-look"
46
porosity type, rock texture or pore type may combine to
preclude proper evaluation with standard logging meth-
ods. Where thin hydrocarbon-bearing laminae are
thought to be present, the addition of a mud-gas log to
the open-hole logging program is advisable.
Core
Core data are used to supplement and calibrate log data
when net pay is being determined. In addition to poros-
ity and permeability, other properties may be measured
in the laboratory to determine whether the interval of
interest possesses the properties required for inclusion
in net pay. These supporting properties include water
saturation, electrical properties, capillary pressure,
wetlability, relative permeability, and sensitivity to
completion fluids and methods. In order to determine
the appropriate analyses required, the core retrieval and
analysis program must be designed so that all coring
objectives may be achieved.
A flow chart depicting the process of designing and
implementing a core analysis program in net pay deter-
mination is shown in Figure 5.2-3. Ofcritical importance
is identification of the reservoir properties that must be
measured in the laboratory to aid in the determination
of net pay. Once the coring objectives have been
defined, the operator must design the retrieval and analy-
sis programs in conjunction with the relevant service
I Establishment of Coring Objectives I
I
rDesignof Core Retrieval Program I
I
Core Retrieval and Preservation
j
I Core Gamma I
j
Core Description and Sampiing
For Basic Core Analysis
I
BasicCore Analysis
Porosity
Permeability
Fluid saturation
j
I I
ISampling For Reservoir I
Sampling ForSupplementary I
Quality Analysis Core Analysis
I I
Petrologicai Studies Sample Screening I
and Reservoir
x-ray methods
QuaiityAssessment
I
Supplementary Tests
Electrical properties
Clayswelling
FInes mobilization
Wetlability
Capillary pressure
Relative permeability
I
j
I Data Synthesis I
I
Net Pay Calculations I
Figure 5.2-3 Flow Chart for a Core Analysis Program
47
rtn-. _
companies. Factors such as core barrel type, drilling
fluid and core preservation methods may be important.
Once the core has been retrieved, it is shipped to the
laboratory for appropriate analyses.
Well Testing
Awide varietyoftesting services and equipment is avail-
able to accomplish the objectives of the reservoir
engineer in a safe and efficient manner. If the limita-
tions ofvarious systems are understood, factors such as
excessive downhole pressure and temperature, rough
borehole conditions, and the presence of highly toxic
hydrogen sulphide can be dealt with in advance to
arrive at an optimum testing strategy. Service company
experience has shown that the presence of those three
factors in the Foothills region of western Canada seri-
ously limits the application of open-hole testing. Such
limits apply to a lesser degree to the remainder of the
basin except where the presence of H
2S
is suspected.
An effective program must start with a clear idea of the
priorities given to the following objectives:
1. Reserve definition for either primary or secondary
horizons
2. Stimulation treatment design criteria for follow-up
completion attempts
3. Gathering of reference data to allow drilling and
completion engineers to plan future wells for maxi-
mum efficiency by reducing reservoir damage
created by the drilling or completion process
5.2.4 Data Interpretation
Net pay has been defined as reservoir rock that meets
various quantitative cutoffs such as porosity, effective
permeability, and water saturation. The parameters used
to distinguish net pay are usually well-defined for the
formation and pool or area from a history ofproduction
characteristics for the area. For a specific well to be kept
for production, it normally must have a net pay thick-
ness sufficient to contain enough hydrocarbon reserves
to pay for the well completion plus an acceptable profit.
Wells with less net pay than this should be abandoned
ifthey are not required for other purposes such as water
injector or disposal wells.
Porosity
Porosity is the most popular reservoir quality indicator,
and this is unfortunate because the same enviromnental
and depositional factors that influence porosity
also influence permeability. Although increases in
permeability are frequently associated with increasing
48
DETERMINATION OFOIL ANDGASRESERVES
porosity, post-depositional processes in sands such as
compaction and cementation can shift the porosity-
permeability trend line. For example, increasing poros-
ity associated with constant permeability might indicate
the presence of more numerous and smaller pores.
The concept of mean hydraulic radius is gaining
acceptance as a better method to distinguish reservoir or
hydraulic units (Amaefule et al., 1988). Mean hydraulic
radius distinguishes pore morphological changes that
porosity and permeability alone cannot characterize.
Water Saturation
Water saturation is the next most frequently employed
parameter used by reservoir engineers to describe the
quality ofthe reservoir unit being investigated. Clearly,
lower water saturations are indicative of better hydro-
carbon production potential. Water saturation, or any
fluid saturation for that matter, may be affected by a
multitude of rock properties (composition, grain size or
shape, packing, sorting and cementation); therefore, use
ofa single saturation cutoff could have serious implica-
tions in rapidly changing rock types.
Fluid Contacts and Transition Zones
The identification of the various fluid contacts, the
location of the transition zone, and the determination
of other petrophysical, geological, and production
characteristics are essential for accurate assessment of
what constitutes net pay in the wellbore. This data
may then be used to estimate reserves, hydrocarbon
column heights, productivity, water cut, and production
economics.
Fluid contacts may be identified using core analysis
(capillary pressure), logs, or pressure data. In a reser-
voir that is thick enough, a plot of formation pressure
vs. elevation can yield both formation fluid type and
interface location. Several pressure readings in gas, oil
and water zones are required. Plotting and connecting
points of common slope identifies the fluid types.
Extrapolation ofthe lines to points ofintersection yields
hydrocarbon-fluid contacts as illustrated in Figure
5.2-4.
The analysis of these plots to determine vertical
pressure continuity in a single well or horizontal conti-
nuity from well to well is not straightforward because
permeability barriers can also be present.
Where determinable, the most useful values are the free-
water level (the water level if no rock material were
present), the 100 percent water level (the level to which
water rises due to the presence of the rock material and
T
.
~
.c
15.
Q)
Cl
-
- -
:::
:::
- - -
- - - - - - -
-
-
-
-
-
- -
-
-
- - -
-
- - - - - - - - -
- - - - - - - - - - -
-
- - - - - - - - - - - -
-
- - - - - - - - - - - - -
-
-
- - - - - - - - - - -
~
G a s ~ ~ -
~
Oil
<;
\
Water
\
\
- -
-
- -
\
- -
-
- - -
-
-
- - - - -
-
-
-
-
- - - - - - - -
- -
-
- - - - - - -
- - - - - - - - - - - - -
- - - - - - -
-
- - - - - -
- - - - -
-
- <> /
/
/
-----.-
- -
-:;/
/ / /
O ~
/
A--
/ / / / / .r-
/ / /
Pressure
Source: Computalog Gearhart Ltd., 1990.
Figure 5.2-4 Hydrocarbon Fluid Contact Identification from Pressure Gradients
e
the resultant rock-water capillary forces), the bottom of
the transition zone (the same as the lOa percent water
level), and the top of the transition zone. Across the
transition zone, water saturations will vary from 100
percent at the bottom (lOa percent water level) to irre-
ducible water saturation at the top ofthe transition zone.
Due to the varying relative permeabilities across the tran-
sition zone as saturations change, the hydrocarbon and
water cuts will change from bottom to top, A "no flow"
situation is also possible.
5.2.5 Factors Affecting Data Quality
Adverse Borehole Environments
The reliability ofthe various net pay parameters, water
saturation, porosity, and net pay, when calculated from
open hole logs or measured in full diameter cores, is
directly related to the knowledge and understanding
of the borehole environment from which this data
was drawn. A number of factors can influence this
reliability level. The principal factor is the physical con-
dition ofthe borehole at the time oflogging. Bottom-hole
temperature and pressure can affect the functioning of
every logging tool. Except in extremely hostile (hot and
corrosive) environments (as encountered in deep sour
gas reservoirs in the Alberta foothills), these two fac-
tors are normally manageable and ofminor importance.
Other factors that can, and often do, contribute to criti-
cal errors are rugosity (roundness or smoothness) ofthe
borehole and the depth of invasion of the drilling or
coring fluids employed.
Most logging service companies employ sophisticated
algorithms to correct their porosity tools for hole irregu-
larities, and use electrical devices to minimize the effects
of drilling fluid contamination. However, the reservoir
analyst must use caution when these corrections have
been employed near "the edge ofthe envelope." In cases
ofextreme borehole rugosity, for example, density logs
become totally unreliable for porosity. Unless other tools
that are less affected by rugosity (i.e., the neutron and
sonic logs) are available, the use of nearby well control
data might be moreadvisablethan porosity data that
seems "a bit high."
Similarly, a quick scan of the log header on the primary
resistivity device for evidence of either anomalously
49
high mud weights or fluid loss characteristics is always
a worthwhile precaution. Either ofthese conditions may
lead to excessive overbalancing and consequent flush-
ing of the reservoir which, in tum, can create thick
mudcake buildup and lead to erroneous calculations of
water saturation.
Determination of net pay thickness is usually not
susceptible to direct measurement errors except where
directional or slant drilling techniques have been
employed.
Penetration ofany reservoir at anything less than a right
angle to bedding will give erroneously high thickness
indications. Routine examination of the geological
framework for the area, coupled with due diligence in
the area of borehole trajectory, should remove this as a
concern in most instances.
CoreRepresentation
When core data is being used to assess the net pay
interval, it is important to realize that the core may, in
fact, not represent the true reservoir interval. The rea-
son for this is that often the entire zone is not cored or
core may be lost, and therefore, there may be pay that
must also be considered above or below the retrieved
interval. Proper sampling is essential if the resulting
basic core analysis data is to be representative of the
reservoir. Friable unconsolidated sandstones, fractured
reservoirs and reservoirs with alternating competent and
incompetent layers often are not fully recovered during
coring operations. Small (em scale) to large (m scale)
intervals may be ground up or washed out, leaving only
the competent zones and some rubble. Unfortunately, it
is the competent zones that are often tight and, there-
fore, the core may represent only the poor part of the
reservoir.
The sampling should be based upon the lithological
distribution, porosity and permeability variations within
the lithological units and the distribution of hydrocar-
bons. The samples should be representative of the
interval from which they are chosen, with three to four
samples being selected per metre. Where possible, sam-
pling intervals and sizes should be uniform in order
to minimize statistical errors. In certain intervals,
plug samples may be taken rather than full diameter
samples, but the latter type of sampling should be used
in heterogeneous reservoirs such as those that are
fractured, conglomeratic, or vuggy.
Core gamma logs are used in the core analysis
laboratory to aid in correlation of core depths with log
depths and to determine the precise location of missing
50
DETERMINATION OF OIL ANDGASRESERVES
core intervals. Occasionally they are also useful in
helping to reconstruct the correct depth sequences of
misoriented core.
Normally a core gamma logger is operated as a "total
instrument," measuring all radiation in a certain, wide
range of wavelengths. However, spectral components
due primarily to potassium, uranium and thorium
emissions may also be measured. Methods for using the
spectral components to determine clay types, cation
exchange capacities, clay volumes, and even to
evaluate source rock have been or are being developed.
To properly assess the problem of representation, it is
first necessary to measure the core and determine the
amount ofrecovery vs. the length ofthe interval drilled.
Ifthere is missing core, the lost core interval is custom-
arily placed at the bottom ofthe interval. Often this does
not represent the true picture. The actual missing inter-
val can be determined by a detailed comparison of the
core gamma log to the downhole gamma log.
Formation Heterogeneity
Most logging devices respond to particular properties
of a formation that are related to the depositional and
post-depositional history of the rocks. The search for a
better understanding of porosity and permeability dis-
tributions in reservoir rocks has inevitably led to the
conclusion that geological environments may be recog-
nized from log shapes in correlatable zones. The first
clues to the presence of nearby reservoir boundaries or
heterogeneities may be derived rapidlyandcheaply even
when very little physical sample material (cuttings or
cores) is available from wells. However, as the multi-
tude of examples in Figure 5.2-5 illustrates, care must
be exercised because log shapes are much more charac-
teristic than diagnostic. Log shapes also tend to be more
predictable and reliable in clastics than in carbonates.
Various logs are useful to calibrate geologic data.
Spontaneous potential logs have long been used to
infer not only the presence, but the depositional envi-
ronment ofsand bodies and thereby provide an indirect
estimate ofareal extent. The gamma ray log will in most
cases reflect lithology better than the spontaneous
potential log, particularly where high hydrocarbon satu-
rationexists. Acoustic logs cangive clues to the presence
of unconformities and faulting and may be an early
waming that more than one reservoir unit is present.
Resistivity logs are often helpful in qualitatively assess-
ing vertical grain size variations. The recent introduction
of formation imaging technology, which presents
either an acoustic or an electrical image of the rock
=

GENETIC SAND UNITS
Transgression
on
Unconformity
~ I I ~
Cut and Onlap
i
Distributary
Channel Fill
Cut and Fill
Alluvial-Deltaic
Point Bar
Alluvial
Point Bar
Offlap Fillln
I i
Delta-Marine Barrier
Fringe Bar
[ CC L[ ~ \
Slightly Smooth Smooth Slightly Smooth Serrate Serrate
Serrate Bell Cylinder Serrate Cylinder Funnel Funnel
Bell Bell
Thick 20-150ft. 10-150ft. 10 - 300ft. 10-100ft. 20-75ft.
Form Linear; m ~ Linear Linear Blanket Linear
be verywi e
Trend Parallelto Parallel to Parallel to Parallelto
depositional depositional deroSitiona, slope, shoreline
slope slope bu variable
AMPLIFIED SAND UNITS
Thin
and
Resistive
5-20ft.
Blanket
Cut and Fill Offlap Fill-In Fill-In
i
Barrier Bar
Buildup
Point Bar Buildup
Alluvial Plain or
Valley
(
Delta-Marine
Fringe
Buildup
~ c:
Submarine Canyon
BUildup
Buildup of
Graded Beds
Smooth Bell
Slightly Serrate
Bell
Thick 5 M 1000 ft.
Form Linear to
blanket
Trend Parallel to
depositlonal
slope
Multiple
Serrate
Funnel
50 - 300 ft.
Blanket
Multiple
Smooth
Funnel
50-tOOOft.
Linear, butmay
be verywide
Parallel to
shoreline
Smooth Cylinder
Slightly Serrate
Cylinder
50 - 500 ft.
Fan
Normal to
shoreline; normal
orparallel toaxis
ofbasin
Smooth Cylinder
Slightly Serrate
Cylinder
30 - 300 ft.
Linearto blanket
Paralleltoaxis
of basin
HYBRID SAND UNITS
Systematic
I
Progradation of Alluvial
Over Delta-Marine Fringe
Serrate Trahsgression
Over Della
SerrateFunnel
WithThin
Resistive Streak
Blanket
Smooth BellOn
SerrateFunnel
Blanket
Source: After Shell Development Company, 1970.
Figure 5.2-5 Sand Unit Shape Diagram
51
3
surrounding the borehole, shows great promise in
assisting both the geologist and the reservoir analyst.
Image data is particularly helpful in defining the areal
extent of the pay zone before pressure transient data
becomes available. In summary, the patient analyst has
many tools available in the search for clues to the char-
acter of reservoir heterogeneity. Every avenue must be
explored at this early stage to reduce the uncertainty
regarding the most critical parameter in the volumetric
equation: drainage area.
Tool Resolution
Many types of logging tools are utilized in the
determination of reservoir parameters and net pay. The
vertical resolution of each tool is dependent upon the
requirements ofthe particular measurement. The deeper
measuring tools, designed to overcome or minimize the
effect of the flushed zone, are limited in their vertical
resolution. Conversely, tools that are designed for
shallow measurements often have superior vertical reso-
lution. Knowledge of the limitations and differences
52
DETERMINATION OFOIL AND GAS RESERVES
between the various tools and how these differences
relate to geological variations will result in the analyst
being better able to understand and evaluate the
reservoir.
References
Amaefule, J.O., Kersey, D.G., Marschall, D.M.,
Powell, J.D., Valencia, L.E., and Keelan, D.K.
1988. "Reservoir Description: A Practical
Synergistic Engineering and Geological
Approach Based on Analysis of Core Data."
Paper presented at SPE, Houston, TX, Oct. 1988,
SPE 18167.
Computalog Gearhart Ltd. 1990. "The Selective
Formation Tester." Calgary, AB.
Schlumberger of Canada. 1985. Open Hole Log
Interpretation. Course notes, Calgary, AB.
Shell Development Company. 1970. Reservoir
Geology ofSand Bodies. Houston, TX.
5.3.2 Permeability fromCore
All laboratory methods for determining permeability rely
on a measurement or an interpretation of a flow rate
5.3 PERMEABILITY
5.3.1 Introduction
Permeability does not appear in the volumetric
equation, but it is difficult to have any meaningful dis-
cussion about the concept of volumetrics without
addressing this key attribute of all commercial hydro-
carbon reservoirs. Permeability is a measure of how
easily a single fluid (gas or liquid) will flow through the
connected pore spaces when a pressure gradient is ap-
plied. The permeability, k, of a reservoir rock is related
to the volumetric flowrate, Q, through the rock by means
of'D'Arcy's Law:
where Q = volumetric flow rate (mLls)
k = air permeability (mO)
11 = fluid viscosity (cp)
A = cross-sectional area (cm-)
t>P = pressure differential (atmospheres/em)
t>L = unit length (em)
This permeability is more properly termed specific (or
absolute) permeability: the permeability of a reservoir
to a fluid when the fluid fills 100 percent of the pore
space.
Specific permeability is not usually directly applicable
to petroleum reservoirs. Essentially all reservoirs,
whether they produce oil or gas, contain at least two
components: hydrocarbon and water. Calculations
relating to reservoir conditions require effective perme-
ability: the permeability to the fluid of interest at
the conditions of interest. Effective permeability may
replace specific permeability in Equation (I) when the
conditions are specified under which the permeability
applies. The main "condition" in this regard is the fluid
saturation. For this reason, there is yet another perme-
ability measure termed relative permeability: the
effective permeability at the fluid saturation of interest
divided by the specific permeability. Relative perme-
ability is mainly a function of fluid saturation, but also
depends to varying degrees on other parameters such
as saturation history, temperature, pore pressure,
overburden pressure, and interfacial tension. Permeabil-
ity is interpreted from well test data or logs, or is directly
measured on core samples in the laboratory.
k LlP
Q=-A-
11 LlL
(I)
through, and a pressure drop across, a sample of known
length and cross-sectional area, for a fluid of known
viscosity. This data is then analyzed by means of
0' Arcy's Law. In theory, the nature of the fluid should
not be important; however, in practice, the nature ofthe
fluid is very important if the rock and fluid interact.
The measurement methods for permeability (American
Petroleum Institute, 1952), which are currently under
review, may be divided into classes based on the sample
type (plug or full diameter core), the fluid used (gas or
liquid), and the technique (steady or unsteady state con-
ditions). The sample type controls the amount and
quality of information that can be obtained. For a plug,
only a unidirectional permeability can be measured,
while for a full diameter sample, the vertical permeabil-
ity plus the permeability in any horizontal direction can
be determined. Although gas permeabilities are the
simplest ones to obtain, they suffer from two major
laboratory problems that are only occasionally encoun-
tered in the field: slippage flow (Klinkenberg effect)
and inertial (Forcheimer) effects. These problems, al-
though theoretically possible, are rarely observed when
liquid permeabilities are being measured. Steady and
unsteady state techniques may be used for both types of
samples and both types of fluids.
The gas permeability ofwhole core samples is typically
determined and reported in three directions: one verti-
cal and two horizontal. The two horizontal directions
are at 90 to each other, but otherwise are not usually
oriented in any particular direction. However, ifthe core
was oriented when it was originally cut, the horizontal
permeabilities can be related to actual directions in the
reservoir.
Liquid permeability may be measured using the
principles ofgas permeability, but the fluid used is brine
or oil instead of gas. Except for possible fluid-rock
interactions, unsteady state liquid permeability measure-
ments on plugs do not encounter any major problems
that would affect reservoir applications.
Test procedures are available to evaluate fluid-rock
interactions. These tests involve measuring the perme-
ability of a rock as a function of time (investigation of
clay swelling) or as a function of flow rate (investiga-
tion of"fines" migration). The degree to which the clays,
(most commonly smectite) in a sample have adsorbed
water can significantly change the size of pore throats,
and hence the value of permeability. Even when clays
do not swell, they may contribute to fines migration.
Mineral debris may become detached from the pore
walls and entrained in the moving fluids above a
53
certain critical velocity. These particles are then carried
along with the flow until they come to pore throats
through which they cannot pass. The particles lodge in
the pore throats, accumulate, block the throats, and
thereby decrease the permeability.
Fines migration and clay swelling behaviours are
encountered during liquid permeability testing. In gas
permeability tests, neither phenomenon is normally
observed. However, if clays have been dehydrated dur-
ing the cleaning of hydrocarbons from the pore system,
significant changes in gas permeability may result as
the test progresses.
The advantages of the steady-state plug liquid
permeameter (the apparatus used for permeability
measurement) are that the data interpretation is straight-
forward and liquid permeabilities are more applicable
to reservoir calculations than gas permeabilities. How-
ever, the apparatus is complicated and relatively
expensive and, consequently, the procedure is more
difficult than in the case of the gas permeameter.
Measurements of liquid permeabilities on whole-core
samples are less common because of even higher costs.
5.3.3 Relative Permeability
Measurement
Although the concept of relative permeability is very
simple, the measurement and interpretation of relative
permeability vs. saturation curves are not. There is evi-
dence that relative permeability is a function of many
more parameters than fluid saturation. Temperature,
flowvelocity, saturation history, wettability changes and
the mechanical and chemical behaviour of the matrix
material may play roles in changing the functional de-
pendence ofrelative permeability on saturation. The best
defined of these secondary dependencies is the varia-
tion of relative permeability with saturation history;
relative permeability curves show hysteresis between
drainage processes (wetting phase decreasing) and
imbibition processes (wetting phase increasing).
54
There are currently no industry standard methods for
determining relative permeability, and much research
is ongoing, but there are two basic methods of obtain-
ing relative permeability data: steady state and unsteady
state. For the steady state method and a two-fluid sys-
tem, the two phases are injected at a certain volumetric
ratio until both the pressure drop across the core and the
composition of the effluent stabilize. The saturations of
the two fluids in the core are then determined. If this
experiment is conducted at various volumetric flow ra-
tios, a relative permeability vs. saturation curve may be
derived. This method of testing is generally too time-
consuming and expensive. to be practical for many
commercial reservoir engineering purposes.
The unsteady state method is based on interpreting an
immiscible displacement process. For a two-phase sys-
tem, a core either in the native state (preserved) or
restored to the saturation conditions that exist in the res-
ervoir is flooded with one of the phases. Typically the
flood phase is water or gas since in the reservoir one or
the other ofthese phases usually displaces oil. The flood
process to obtain relative permeability data is interpreted
by means of a theoretical model or else by computer
simulation.
It is sometimes claimed that the steady state and
unsteady state methods yield the same values of rela-
tive permeabilities. Although undoubtedly true under
some circumstances, this statement is not generally true.
For most cases, relative permeability is known to be a
function of saturation history. Because the history of
the core is completely different in the two cases, it is
reasonable to expect a difference in the resultant rela-
tive permeabilities. The unsteady state test would seem
to be the more physically realistic in the context of the
usual reservoir processes, because all such processes
involve one phase displacing another.
References
American Petroleum Institute. 1952. "Recommended
Practice for Determining Permeability of Porous
Media." API RP 27 (3rd ed.), Dallas, TX.
--

Figure 5.4-1 Porosity of Cubic-Packed Spheres
Even though porosity is independent of the size of the
spheres, the porosity of a uniform sphere system can
vary from over 25 percent to nearly 48 percent depend-
ing upon the packing geometry. Ifpart ofthe pore space
of the model is filled with mineral particles of smaller
size than the spheres, porosity is decreased. The poros-
ity continues to decline as ever smaller particles are put
5.4 POROSITY
5.4.1 Introduction
Porosity is the fraction ofthe reservoir bulk volume that
is filledwith fluid or nonmineral matter-in other words,
the "storage capacity" of the rock.
While various methods for determining porosity by core
and log analysis are described in Section 5.2.2, an un-
derstanding ofthe many ways pores may be distributed
in reservoir rocks is necessary to fully appreciate the
concept of porosity. Figure 5A-I illustrateswhat is called
"cubic packing" of spheres and is one example of the
packing of spherical sand grains.
Porosity, .p =
L' - (Lid)' (ltd'
/6
l 0.4764
L'
(1)
into whatever places they will fit and as the constituent
spheres become irregular or nonrounded. The porosity
ofrocks, therefore, decreases as the variation in particle
size and shape increases. The porosity of competent
rocks is also reduced as the amount of cementing mater-
ial in the matrix increases, since the cementing material
tends to bridge the contacting surfaces of mineral
particles and line the pore surfaces.
In addition to "primary" porosity created by the inter-
granular spaces in most clastic rocks and some uniformly
deposited carbonates such as oolites, "secondary"
porosity can result from vugs and fractures that are gen-
erally created after deposition. Vugs are those pore
spaces that are larger than would be expected from the
normal fitting together of the grains that compose the
rock framework. They may originate in many ways,
and the type of vug implies some features of its geom-
etry and interconnection. Vugs may vary from tubes or
planes that traverse the matrix to vesicles isolated from
each other. Fractures and fracture porosity result from
earth movements that create joints and faults through
which fluids may move. Although fractures may
only contribute up to I or 2 percent porosity to a res-
ervoir, they will have a significant effect on reservoir
permeability.
Hydrocarbons have been produced commercially from
rocks with porosities as high as 50 percent. Fractured
carbonates, such as those in the Foothills belt of west-
ern Canada, are prolific, although matrix porosity may
be as lowas 1.5percent. Some nonproductive rocks also
have high porosities. Clays and shales and certain chalky
carbonates may have fractional fluid volumes or
microporosity greater than 40 percent; yet these rocks
are seldom productive. Porosity, therefore, cannot be
considered the sole criterion for the determination of
reservoir productivity.
5.4.2 Sources and Acquisition of Data
Core Analysis
Core analysis has been called the cornerstone upon
which formation evaluation rests, as it provides the only
directly quantifiable measurement of fundamental
reservoir parameters. Measurements are made on full
diameter and plug samples obtained from conventional
coring devices, and on plug samples obtained by rotary
or conventional sidewall coring tools.
The appropriate procedures are described in the
Recommended Practice for Core Analysis Procedure
(American Petroleum Institute, 1960). An overview of
the most commonly used methods follows.
55
m _
Porosity measurements are made after a sample has been
selected and cut to form a right cylinder, and the hydro-
carbons have been removed. The method of cleaning
and subsequent drying can have an effect on the mea-
surements. Samples are normally cleaned in a vapour
phase unit or in a Dean Stark apparatus using toluene
as a solvent. For tight, competent samples, a pressure
core cleaner may be used. The samples are then dried in
an oven to remove the residual toluene. If the samples
contain significant amounts ofclays, the samples should
be humidity (45 percent) dried or dried in a low tem-
perature oven to minimize dehydration. Excessive
dehydration results in porosity values that are too high.
A group of properties, including pore volume,
porosity, bulk volume, bulk density, grain volume, and
grain density, are generally determined in the labora-
tory by means of a single test procedure. Typically, the
steps in this procedure are as follows:
I. Clean liquids from the rock samples.
2. Measure the mass of each cleaned sample (dry
mass).
3. Determine the volume of each sample (bulk
volume).
4. Measure the volume of the open space in each
sample (pore volume) or the volume of the solid in
each sample (grain volume).
The remaining properties may be calculated from the
measured values of dry mass and any two of the three
volumes (bulk, pore or grain).
Methods for determining porosity are oftwo basic types:
those that yield porosity directly, and those that yield
values for grain volume, pore volume or bulk volume
independently. Several analytical methods may be em-
ployed in the laboratory, as shown in Table 5.4-1. The
following are the most commonly recommended ofthese
methods:
Table 5.4-' Comparison of Techniques of Determining Porosity
Measured Method Calculated Accuracy Need for Need Sample Sensitivity Sensitivity
Property Precision Measurement of for Size to Surface to
Noneffective Cleaning Vugs Calibration
Pore Space
Porosity Summation Poor Fair No No Moderate No High
of Fluids O.69% 1.0%
Direct Good Good
-
Yes Any
-
Low
Grain
O.OI cc O.OI cc
Volume
Gas Good Good - Yes Any - High
Expansion O.02 cc O.02 cc
Steeping Good Good No Yes Any Yes Low
Pore
O.OI4 cc O.05 cc
Volume Gas Good Good No Yes Any No High
Expansion O.OI7 cc O.05 cc
Steeping Good Good
-
Yes Any Yes Low
O.014 cc O.05 cc
Mercury Good Good - Yes Any Yes Low
Bulk
Archimedes O.OI4 cc O.05 cc
Volume
Bulk
Volume
Caliper Good Fair
-
No Any No Low
O.015 cc O.OI5 cc
Source: Geotechnical Resources Ltd., 1991.
56
Gas Expansion Method. This is used for determining
grain volume; it is also known as helium porosimetry
and the Boyle's Law method.
Mercury Archimedes Method. This method, used to
determine bulk volumes, is based on the fact that a
nonwettingfluid will not spontaneously invade a sample.
Caliper Method. This method is used to determine bulk
volume by measuring the length and diameter of a right
cylinder sample.
Summation-of-Fluids Method. This method is used
for quick determination of the porosity of uncleaned
s a ~ p l e s .
Log Analysis
Porosity is also obtained from a variety of downhole
measuring devices where tool response is a function of
the formation porosity, the fluid in the pore space, and
the matrix properties. When the fluid and matrix end
points are known or can be determined accurately, tool
response can often be reliably related to porosity.
All three logging devices (acoustic, density, neutron)
respond to the characteristics of the reservoir immedi-
ately adjacent to the borehole. The depth ofinvestigation
is shallow (only a few inches on average) and usually
completely within the flushed zone created by invasion
of drilling mud filtrate from the wellbore.
At present, the density log is the primary porosity log
for most reservoir engineering applications. In opera-
tion, a radioactive source applied to the borehole wall
emits mediumenergy gamma rays into the rock. As these
gamma rays collide with the electrons in the formation,
they lose energy, but continue to travel and are counted
as an indication of formation density. Density tool re-
sponse depends on the electron density which, in tum,
depends on the density of the rock matrix, the forma-
tion porosity and the density, of the fluids filling the
pores. For a clean formation of known matrix density,
formation bulk density, Ph' is given by Equation (2):
$
where Ph = formation bulk density (g/cm")
Pr = fluid density (g/cm")
 = porosity (fraction)
Pma= matrix density (g/cm")
Porosity, <1>, is therefore given by Equation (3):
 = Pm, - Pb
Pm, - P,
(2)
(3)
Except in the presence of gas, the difference between
apparent density, P
a
, read by the tool and true bulk
density, Ph' is trivial.
Acoustic logging tools employ one or more transmitters
that emit a sound pulse and receivers that record the
pulse as it passes them. The acoustic log represents a
recording ofthe time required for a compressional wave
to traverse one metre of formation. This interval transit
time is the reciprocal of the velocity of the wave.
Interval transit time, <it, is dependent on lithology and
porosity, <1>, as illustrated by Equation (4):
(4)
where <it = interval transit time (us/m)
<it
ma
= transit time in the matrix (us/rn)
<it
r
= transit time in the fluid (us/m)
Neutron logs respond primarily to the amount of
hydrogen in the formation. In clean formations with
pores filled by water or oil, the neutron log indicates
the amount of liquid-filled porosity present. Rock has
essentially negligible hydrogen content and therefore
does not contribute to the porosity response.
In the operation of the neutron log, high-energy fast
neutrons are emitted continuously from a radioactive
source in the sonde or tool. These neutrons collide with
formation nuclei in a billiard ball fashion and at each
collision lose some energy. Within a few microseconds,
the neutrons have been slowed down from initial ener-
gies of several million electron volts (eV) to thermal
velocities around 2.5 eV and proceed to diffuse ran-
domly until captured by the nuclei of atoms such as
chlorine, hydrogen or silicon.
The capturing nucleus then becomes intensely excited,
emitting a high energy gamma ray ofcapture. Depend-
ing on the type oftool, either the capture gamma rays or
the neutrons themselves are counted by a detector in
the sonde. The counting rate at the detector is inversely
proportional to the hydrogen concentration. Therefore,
low count rates infer high porosity and vice versa, and
this relationship will generally hold true except where
gas is present in the region of investigation of the tool.
Industry Databases
Except in rank wildcat environments, the reservoir
analyst should be aware that an important source of
reliable data exists in those wells that have already been
logged or cored in the vicinity ofthe study well or area.
Many governments, as part of the management of
57
nonrenewable resources, require that data recovered
during the drilling and completion of a well be submit-
ted to the managing agency. In Alberta, for example, all
activity is reported to the Energy Resources Conserva-
tion Board (ERCB), which maintains a core and cuttings
storage and examination facility as well as copies of all
data derived from the wells (logs, core analyses, special
core analyses, well tests, and production histories). The
ERCB also maintains a comprehensive database com-
posed of all key reserves criteria for the oil and gas pools
in the province.
5.4.3 Analysis of Data
Statistical Techniques for Core Data
Porosity values for each sampled interval, along with
related permeability and fluid saturation data are tabu-
lated in a core analysis report (Figure 5.4-2).
Typically, the reservoir analyst will group core data
measurements into beds or layers that closely approxi-
mate the stratification evident on the open-hole logs.
The interpretation ofthis data is aided by cross-plots of
horizontal permeability vs. porosity (Figure 5.4-3). By
comparing core porosities to individual log response,
the reservoir analyst can more accurately calibrate the
open hole logs over the uncored portion of the interval
of interest.
Great care must be exercised in the use of core porosity
data because many factors can affect the representative-
ness of this data. In reviewing core analysis reports, the
reservoir analyst should ensure that a summary sheet
describing all core retrieval and analysis procedures is
included (Figure 5.4-4). this information provides the
best basis for assessing the quality of core data.
Porosity from Logs
Anyone or, more frequently, a combination of all three
conventional porosity devices are typically run when a
well has reached total depth or when a protective inter-
mediate casing string is to be set prior to drilling deeper.
The science and art of interpreting these logs for
porosity and fluid saturation is embodied in the term
petrophysics. Petrophysics seeks to express the physi-
cal and chemical properties of rocks as they pertain to
the evaluation of hydrocarbon-bearing layers. Each log
has its own unique application.
Figure 5.4-5 illustrates the method used for computing
porosity from a density log for a clean formation
of known matrix density, Pm.' containing a fluid
of average density, Pr. The lithology dependence ofthis
tool is evident in the fact that a log reading of
58
DETERMINAnON OF OIL AND GASRESERVES
2.54 g/cm'' produces porosity values ranging from
6.6 percent for sandstone to 17.5 percent for a dolomite
matrix.
Because sound travels more slowly in a fluid-filled pore
than in solid rock, for each rock type a unique relation-
ship exists that relates the measured transit time to
porosity. The industry has adopted the Wylie Time-
Average Equation as the standard for computing poros-
ity from acoustic logs in clean consolidated formations
with uniformly distributed small pores. Figure 5.4-6
demonstrates this porosity vs, transit time relationship.
For example, a value of216.5 us/m (66 ils/ft) produces
three different values for porosity depending on the
nature of the matrix mineral.
Neutron log porosity readings are computed and
recorded directly on the log. These logs record porosity
in linear units for a particular lithology. An internal pro-
gram automatically provides corrections for the varying
effects of mud weight, salinity, temperature and hole
size variations. Once the appropriate lithology has been
determined, porosity can be read directly from the
service company chart as illustrated in Figure 5.4-7.
Cross-plotting techniques have evolved because use of
a single tool to determine porosity is valid only where
the lithology is known to consist of a single mineral
that is clean and water-filled. In nature, very complex
mineral assemblages are the norm. Here, even the na-
ture ofthe pore structure itself can affect tool response.
Under these circumstances, data from two or more
porosity devices is needed to resolve the response to
differing matrix minerals to the presence of gas or light
oils, and to the pore geometry. By far the most univer-
sally accepted and utilized ofthese is the neutron-density
cross-plot.
Today it is almost standard practice to run the neutron
and density logs in tandem or combination and present
porosity from both logs on a compatible porosity scale.
This overlay presentation provides the experienced
petrophysical analyst with an additional qualitative in-
terpretation of the nature of the porosity and the host
lithology and can aid in the detection of gas-bearing
zones in the wellbore.
In Figure 5.4-8, a reading of 21 percent limestone
porosity from the neutron log is cross-plotted against a
15 percent limestone porosity from the density log, de-
fining a point, P, lying between the limestone and
dolomite curves. If the lithology is known to be a mix-
ture ofthese two minerals, it is appropriate to proportion
the distance on a line connecting equal porosity values
on both curves and assume that it represents the
-
=
"TI m
<0'
CORE ANALYSIS REPORT
en
--<
<:
~
~
'"

'"
Sample Depth Thick- Sample Sample Permeability Porosity Saturation Grain Remarks* --<
:.,.
Number Depth Length k
max k".
k"".
Oil H,O Density
5
,
ness z
'" (m) (m) (m) (m) (mD) (mD) (mD) (%) (%) (%) (kg/m' )
0
"T1
--i <
-c
BELLY RIVER FORMAnON
0
"C
r-
(j'
CORE # I 1023.00 m - 1041.00 m RECOVERY/CUT: 17.85 m/ 18.00 m
c
s:
Ol
1023.00-1025.41 2.41 sh
m
en
o
I 1025.41-1025.60 0.19 1025.43 0.13 82.94 78.49 8.59 20.8 12.6 11.9 2683 FD
0
0
"T1
~
'"
2 1025.60-1025.80 0.20 1025.67 0.12 9.53 8.57 1.89 13.3 10.4 35.8 2668 FD
:I:
-<
3 1025.80-1026.42 0.62 1026.14 0.13 5.12 4.82 3.16 18.0 14.2 35.4 2675 FD
0
=:J :0
Ol
4 1026.42-1027.32 0.90 1026.60 0.14 0.12 0.11 <0.01 10.6 TR 68.4 2677 FD
0
-<
n
IJ)
:0
IJ) OJ
::3J
0
'"
Z
"C
en
0 Z
~
-e ....
r-
10 1029.38-1029.63 0.25 1029.52 0.13 57.52 56.57 45.97 19.7 11.6 31.4 2643 FD
()
m
11 1029.63-1030.07 0.44 1029.71 0.14 88.48 84.96 64 .29 19.9 8.4 24.8 2640 FD
12 1030.07-1030.47 0.40 1030.12 0.13 24.47 23.38 17.80 23.4 9.3 25.2 2646 FD
13 1030.47-1030.75 0.28 1030.55 0.12 25.68 25.23 7.63 19.4 11.9 35.0 2647 FD
14 1030.75-1031.18 0.43 1030.80 0.15 84.63 74.86 3.04 16.3 8.2 39.6 2650 FD
1031.18-1031.39 0
1031.39-1031. 7
103 1 . 7 3 ~ 1032.00
1032.00-1032.28
Hl32.28-1032.60
20 1032.60-1032.81 0.21 1032.67 0.12 12.50 12.16 3.78 19.6 13.9 33.0 2661 FD
21 1032.81-1033.64 0.83 1033.21 0.14 0.38 0.32 0.Q3 18.1 TR 20.3 2682 FD
22 1033.64-1034.66 1.02 1034.32 0.15 0.55 0.53 0.22 18.4 TR 30.9 2682 FD
1034.66-1035.61 0.95 calc ss
23 1035.61-1035.80 0.19 1035. 66 0.09 3.44 3.38 1.30 20.2 TR 46.6 2668 FD
calc ss
MISSING
v.
-c
Source: PanCanadian Petroleum Ltd., PCP Ferrybank 6-23-43-28W4. Date: Nov. 17, 1987, File: 87-GC-422.
* FD = full diameter, P = plugged sample, sh ~ shale, calc ss ~ calcareous sandstone.
** Plug permeability-sample not suitable for full diameter measurement.
~
/
/
/
/
I-
...+,./
/
i=
...... + ~
~
+
/
I-
+;1"
+
'"
/
+
t
/ T
/ ...
/
...
I- /
...+
I-
/
/ ...
~
/
/
~
/
/
I-
/
/
/
...
/
~
/
/
/
I-
/
/
, ,
Equation: log (kh) = -2.7496 + 0.2128 <il
Correlation Coefficient: 0.5998
Formation: Belly River
Depth: 1025.41 m to 1037.12 m
1000
100
~
c
..
>-
=:a
10
.,
'" E
~
'"
a.
iii
~
c
0
N
.;:
0
J:
.1
.01
o 6 12 18
Porosity (%j
Source: PanCanadian Petroleum Ltd., PCPFerrybank 6-23-43-28W4.
Figure 5.4-3 Porosity vs. Horizontal Permeability
24 30
CoreIntervals Recovery/Cut Formation No. of Boxes
1023.00-1041.00 m 17.85/18.00 m BellyRiver 16
Coringequipment Diamond
Coringdiameter 101 mm
Corefluid Water-base mud
CLEANING
Solvent Toluene
Extraction equipment Vapour phase
Extraction time 22 days
Dryingequipment Convection oven
Drying time 24 hours
Dryingtemperature 150'C
ANALYSIS
Pore volume measured by Boyle's Lawheliumporosimeter
Grainvolume measured by Boyle's Lawheliumporosimeter
Bulk volume measured by Mercury/caliper
Fluid saturation measured by Retort
Source: PanCanadian Petroleum Ltd., PCPFerrybank 6-23-43-28W4.
Notes: Plugsare I inchdiameterunlessotherwise noted.
Figure 5.4-4 Core Analysis Report: Analytical Summary Sheet
60
1.9 2.1
3
Pm. =2.65 g/cm
3
P, =1.0g/cm
3
Limestone P
ma
= 2.71 g/cm
Sandstone
2.5 2.3
Bulk Density, Pb (g/cm
3
)
2.7
17.5%
O+-L---'C-.L--'--,-- .- -,- --,
2.9
$ = Pm.' P.
Pm.' P,
10.0%
10 ~ - - - - - - - - - - -
40
30
~ Dolomite
~
-e-
.i- 20
'w
e
e
Figure 5.4-5 Porosity from Formation Density Log
$=
Sandstone Alma = 182 us/rn
I>t, =161511s/m
15.4%
~ - - - - - - - - - - - - - - - - - - - - - -
Dolomite .6.t
ma
= 143 }.ts/m ---,,r/
Limestone ./lt
ma
= 156 jls/m
7.7%
~ - - - - - - - - - - - - - - - - - - - - -
13.0%
50
40
10
rf 30
.".
;6
. ~
~ 20
400 200 300
Interval Transit Time, I>t (lls/m)
O . J - - - - L ~ - . . L - _ , _ ~ - - - - - ~ - - - - - - ~
100
Figure 5.4-6 Porosity from Sonic Log
61
*------------------------
40
30
10
12.6%
-----------------------
10.0%
Sandstone
Dolomite

o 10 20 30
Neutron Index(Apparent Limestone Porosity)
40
Figure 5.4-7 Neutron Porosity Equivalence Curves
-20 +----,---,-----;r-----,---;
o 10 20
 CNL (Limestone) (%)
CNL = compensated neutron log
Figure 5.4-8 Porosity and Lithology
Determination from
Neutron-Density Log
40
25
30
30
10
5 '"Dolomite
25
Sandstone
20
Limestone

o
-10
30
40
20
C
"
<::
o
00 10
Q)
E
2-
.... 0
volumetric proportion of the two minerals. Therefore,
the interval represented at P would be composed of 40
percent dolomite and 60 percent limestone and have a
porosity of 18 percent.
While knowledge of the matrix constituents is always
important, an error in choosing or assuming the matrix
pair does not have a great impact on the porosity deter-
mined except in very low porosity carbonates. This
feature ofthe neutron-density cross-plot, combined with
its inherent gas identification properties, makes it the
most popular technique.
Correlation of Log andCore Porosity
Many reservoir analysts prefer to use core analyses in
reservoir studies, particularly where equity determina-
tion is a key issue. While computer-processed suites of
log data may represent the only continuous source of
computed reservoir parameters, it has long been recog-
nized that log-derived values are not absolute numbers.
In core-log matching exercises, the objective is to stan-
dardize the output results in such a way that differences
in results from well to well represent relative changes
in reservoir quality. Therefore, it is common prac-
tice to use the core data as the reference point and
fit log analysis data to it. A paper by Hamilton and
Stewart (1983) outlines a step-by-step procedure for
conducting this type of analysis.
62
r+
Preservation of In Situ Conditions
The quality ofthe results obtained from core analysis is
directly related to the quality ofthe core when it reaches
the laboratory. Therefore, in cutting and retrieving the
core, precautions must be taken to preserve, as much as
possible, the conditions that exist downhole in the res-
ervoir. The cutting and retrieval ofcore to surface results
in the removal of overburden pressure, the introduction
of dril1ingfines, and some modification ofthe clays, al1
of which can affect porosity measurements.
Shale Content
The most important problem that has eluded solution
since it was recognized by early logging over 50 years
ago is that of shaly sands.
The presence of shale or clay minerals in the interstices
of sedimentary rocks affects log analysis by moving the
resistivity of the porous and permeable zones toward
the normal shale resistivity on the log. Shales also im-
pact porosity measuring devices. With densities between
2.4 and 2.7 g/cm-, shales can show up on density logs
as having nil to moderate porosity. On acoustic and neu-
tron logs, shales may appear to have moderate to high
porosity. In extreme cases the effects on resistivity and
porosity logs can cancel out in the computation of wa-
ter saturation. However, ifthey do not cancel, the analyst
may misinterpret or overlook prospective pay zones. The
amount of shale must therefore be determined to permit
its contribution to be subtracted from the measured
parameters.
The impact of clays on the results of core analysis is
equal1ydifficult to resolve. The main obstacle encoun-
tered is in distinguishing pore water from nonliquid clay
mineral water. In addition to retaining the clay lattice
water, the core analyst must be careful to preserve the
last few molecular layers of adsorbed water on the clay
minerals.
Figure 5.4-9 illustrates the complexity that the presence
of clay minerals can introduce to the process of
porosity determination from either cores or logs.
Rock Compressibility
In the assessment of data quality and reliability, it
must be remembered that most laboratory porosity
determinations are based on information obtained at sur-
face conditions. Rocks are elastic media and can be
compressed and decompressed when subjected to the
stress and release of overburden pressure. Mineral
elasticity, grain movement and, final1y, grain failure al1
contribute to reductions of porosity with increasing
depth.
There is strong evidence of a continuous reduction in
porosity with increasing pressure differential applied
between the interior and exterior of a sample. The ana-
lyst should be aware that in situ porosity will be lower
than that measured under atmospheric conditions in the
laboratory. Pore volume compressibility tests may be
conducted to determine the appropriate reduction
factor for the reservoir under study, and this type of
measurement is now virtual1y routine.
Reservoir Heterogeneity
The results of sampling with wireline logging tools or
core samples can be misrepresentative of the reservoir.
The actual volume of reservoir sampled even with well
logs is insignificant in comparison to the unsampled
reservoir volume and is never statistical1y random.
Certain geologic environments such as marine sands can
be predictable over distances in the order ofkilometres,
while carbonate reservoirs may vary significantly over
distances in the order of centimetres. The effects ofres-
ervoir heterogeneity on the quality ofthe data being used
to characterize the reservoir can be minimized only by
careful geological investigation.
With respect to reservoir heterogeneity, three main
criteria should be considered: sample homogeneity, the
presence of fractures, and sample size. As a basic rule
of thumb, the larger the sample, the better it will rep-
resent the range of microscopic variations in the rock.
Most reservoir rocks, even those that visually appear to
be homogeneous, exhibit variations in permeability over
relatively smal1 distances. In highly fractured reservoirs,
there are real1y two permeabilities of interest: matrix
and fracture permeability. To determine the matrix com-
ponent in such reservoirs, plug samples are used because
al1 fractures must be excluded from the samples. In this
case, the general rule "the bigger the sample, the better
the sample" does not apply. Fracture permeability should
be measured on whole core samples. To get representa-
tive values, however, the samples should be restressed
to overburden conditions. The procedures utilized
for fractured reservoirs are also applicable to vuggy
carbonate reservoirs.
Measurement Precision and Tool Resolution
Anyone who has ever attempted to use wel1 logs and
core analysis data to accurately characterize a reservoir
knows that even with the wide range of tools available
one rarely gets the same answer from each tool.
63
Petrophysical Qualities
(After Overburden Correction)
Log Measurements
---V
C1ay
'I'
 Effective
 Total

I Free Fluid

Clay
Bound
,
Free Water
,
Dry : Clay Water
Clay : Water
,
,
~ ~ c o r .

f--- NML
 Density
1----------- <t> Neutron
VClay = volumeof clay
NML = nuclear magnetic log
Source: Schlumberger, 1988.
<t> Sonic
Figure 5.4-9 Impact of Clay on Log and Core Measurements
The sources of errors in logs and core analyses are both
random and systematic and are introduced by the
implicit limitations imposed on the measuring device
by design considerations. Statistical variation in radio-
activity measurements is an example ofa random error;
improper or degrading calibration in a logging tool
or pressure recorder is an example of a systematic or
constant error.
By far the most serious source of error is introduced by
the unavoidable complexity ofthe reservoir rock. What
is referred to here is any closely spaced variation inpetro-
physical parameters. When petroleum engineers are
confronted with thinly bedded strata, they must be even
more aware of the vertical resolution limitations of the
measuring device.
64
References
American Petroleum Institute. 1960. "Recommended
Practice for Core Analysis Procedure." API RP
40, Dallas, TX.
Geotechnical Resources Ltd. 1991. "Porosity." In The
Science and Technology of Core Analysis (2nd
ed.). Course notes, Calgary, AB.
Hamilton, J.M., and Stewart, J.M. 1983. "Thin Bed
Resolution and Other Problems in Matching Log
and Core Data." SPWLA 24th Annual Logging
Symposium, Calgary, AB.
Schlumberger. 1988. "Measuring Porosity, Saturation
and Permeability from Cores: An Appreciation of
the Difficulties." The Technical Review," Vol. 36,
No.4, Oct. 1988.
"Material fromThe Technical Review is printedwiththe
permission of The Oilfield Review.
7
ESTIMATION OF VOLUMES OF HYDROCARBONS INPLACE
5.5 HYDROCARBON SATURATION
5.5.1 Introduction
The saturation of a given fluid is defined as the fraction
of the pore volume occupied by that fluid. This defini-
tion, while simple, provides no insight as to how or
where the fluids are held within the porous network of
the rock; it merely states that some fraction of the pore
network contains the given fluid.
5.5.2 Saturation Determination From
Core
The saturations of hydrocarbons (both liquid and
gaseous) and water in petroleum reservoirs are two of
the most important properties of interest to the reser-
voir analyst. However, because these fluids are generally
mobile, they are not always recovered during conven-
tional coring operations. Therefore, by the time the core
is analyzed in the laboratory, the fluid saturations do
not necessarily represent those that exist in the reser-
voir. For this reason, fluid saturations measured by core
analysis are generally treated as qualitative numbers
rather than precise values. With proper precautions, such
as drilling with lease crude and using pressurized or
sponge coring techniques, saturation measurements may
be made more accurately. However, these techniques
add considerable expense to the core retrieval. It should
be noted that the inaccuracy ofthe measurements is not
due to the laboratory techniques, but to the difficulty in
obtaining proper samples.
For accurate estimates ofsaturations in a reservoir, both
core and geophysical well log data must be used; fur-
thermore, the log data must be interpreted accurately.
This means that calibration constants for electrical prop-
erties should be measured on core samples. When proper
care is taken, reliable saturation values can be obtained
from logs.
More accurate saturation data may be obtained by
using sponge core or oil-base core techniques. With the
sponge core technique, core is recovered by means of
an aluminum inner core barrel that has a sponge lining.
Fluids escaping from the core are absorbed by the
sponge. Samples are cut from the core and analyzed for
fluid content using the Dean Stark technique. In this
process the sample is weighed and placed in the Dean
Stark apparatus, and the extraction solvent is boiled and
condensed repeatedly. The water-solvent vapour mix-
ture rises and condenses, with the water collecting in a
graduated collection tube. Solvent cleans oil out of the
sample. The volume of water is measured directly and
the mass of oil originally in the sample is calculated by
difference.
The sponge corresponding to each sample is similarly
analyzed in order to obtain the total fluid content of the
core.
Oil-Base Coring for Connate Water Saturation
With oil-base core, the core is drilled with lease crude
or an appropriately designed fluid as a lubricant. The
crude will only displace oil and, therefore, it is possible
to accurately determine connate water saturations. The
recovered core is kept immersed in this fluid until it is
ready for analysis in the laboratory.
The recovery of an oil-base core and the successful
measurement of an average connate water saturation,
Swo' requires balancing the need for accurate water satur-
ation data with the realities of conducting a potentially
hazardous coring operation with minimal risk and rea-
sonable expense. Careful consideration must be given
to the selection of the proper coring fluid to preserve
the native wettability in the core. (Wettability is defined
in Section 5.5.5.)
To determine a reliable connate water saturation, the
optimum placement of the core location is, as far as is
feasible, above the local oil-water contact. Detailed
knowledge ofreservoir pressure permits maximum over-
balance reduction to minimize the stripping of connate
water during the coring process.
When all elements of the operation are carefully
controlled, laboratory analysis (Dean Stark) on full-
diameter core samples for connate water saturation com-
pares favourably with other methods such as single well
tracer testing and open-hole log evaluation.
The economic attraction of such an operation is easily
appreciated, considering that reductions in recognized
water saturation may approach or even exceed 50 per-
cent and may result in increases ofas much as 20 percent
in the perceived original oil in place. Changes of this
magnitude can impact not only estimated reserves, but
also field development plans and production through
increased maximum rate limitations.
Saturation Measurement
Three general families of techniques are available for
the measurement ofsaturations inrocks: chemical, which
includes retort and distillation methods; electrical, which
includes both laboratory and geophysical log methods;
and nonintrusive, which includes X-ray and nuclear
magnetic resonance. The chemical techniques are
65
b ....----------------------------
DETERMINATION OF Oil AND GASRESERVES
currently the universal choice for routine core analysis
operations, and electrical, for wellbore measurements.
The nonintrusive techniques are gaining acceptance
as on- line saturation methods for displacement and
enhanced oil recovery studies, but are not generally used
to determine routine oil and water saturations and will
not be discussed further.
Chemical Methods
The procedure for determining fluid saturations by the
retort method is based ontaking two companion samples.
One is weighed, thoroughly cleaned, and then its
porosity determined (porosity sample); the other is
crushed, placed in a retort oven, and heated for analysis
of its oil and water contents. In the distillation method,
the sample is placed in a Dean Stark apparatus with tolu-
ene. As the toluene is heated and condensed, fluids are
removed from the rock, and the water is captured and
measured. Oil values are determined by calculation.
Generally, the sum ofthe water and oil saturations does
not total one, but is a fraction of the porosity because a
gas saturation has developed with the depressuring of
the core sample.
ljl = porosity (fraction)
m = cementation exponent
S; = water saturation (fraction)
n = saturation exponent
As a consequence ofArchie's work, the exponents m=2
and n=2, and the coefficient a=I are generally used in
formation evaluation; "a" is a constant, also used in
Equation (3). However actual values of "a," "rn,' and
"n" can be determined in the laboratory for any specific
reservoir,
At this time, a recommended procedure does not exist
for formation factor measurement. Although most
laboratories use custom-built apparatus, all have the
same basic principles of operation.
The sample is capped with mandrels and placed
inside a pressure containment cell fitted with electri-
cally insulated end caps. The chamber is pressurized
and the sample is then saturated with brine.
Ifthe tests are to be performed at reservoir temperature,
the pressure containment cell is placed in an oven. The
resistivity of the sample is measured and the formation
factor, F, is calculated using the following equation:
Electrical Methods
Because brine is electrically conducting, it seems
reasonable to expect the electrical conductivity, or its
inverse, the electrical resistivity, to vary with brine satu-
ration. This expectation is the basis of the electrical
method of saturation determination.
During the 1930s, a large number ofworkers performed
tests to determine the relationship between the resistiv-
ity of rock samples and the brine content. In general, it
was found that correlations existed, but it was not until
the comprehensive work ofArchie (1942) was published
that these correlations were placed in their modem con-
text. Archie's work was based on GulfCoast sandstones
in the porosity range of 10 to 40 percent, saturated with
brines of salinity between 10 000 mg/L and lOa 000
mg/L of NaCI. The work covered both fully saturated
and partially saturated samples, and presented the
classical empirical equation still employed today by
petrophysicists and formation evaluation experts:
The determination of the "n" exponent in the Archie
equation (Equation I), is considerably more complicated
than formation factor measurement because it necessi-
tates measurement of not only a resistivity, but also a
saturation at each data point. Samples are commonly
desaturated by one of two methods: centrifuging, or
using a porous diaphragm.
(3)
(2)
log F = log a - m log ljl
where R, = resistivity of water- saturated formation
(ohm-m)
The ultimate objective offormation factor measurement
is to determine the values of "a" and "m" that charac-
terize a reservoir. For this reason, a suite of samples
should be chosen having a range ofporosities that spans
the range found in the reservoir. A prerequisite to
obtaining representative values of "a" and "m" is a
very careful sample selection procedure.
Formation factors and porosities (preferably measured
under stressed conditions) are determined for this suite
of samples. The values for all samples tested are then
plotted on log- log paper as illustrated in Figure 5.51
and fitted with an equation of the form:
(I)
aR"
R, = ljlms:
R, = true formation resistivity (ohm-m)
a = constant
R,. = formation water resistivity (ohm-m)
where
66
10
Source: Schlumberger, 1972.
~
-. ,
'. <,
", <,
'. ,
Hard
. ,
<,
1
yF=-
, $'
"
~
<,
<,
<,
'. ,
". <,
-: ,
.... :-:."-
SOf!(HUm/
~ c..,(S"-'"
". '" - 1 87 0.019
F = 0.62
. ~ m-. +
$,.1.
".~ $
". <,
~
'. ,
". <,
/. ,
F = 0.81 .... -,
$' '.
<,
<,
<,
-,
<,
<,
<,
<,
<,
<,
"
50
30
20
~
>!i.
g....
-e-
~ 10
Ul
e
o
a..
5
2
1
10'
Formation Factor, F
10
3
Once a set of saturation-resistivity data has been
obtained, the saturation exponent is found by plotting
this data in log - log format as illustrated in Figure
5.5-2 and fitting the data with an equation of the form:
where I = formation resistivity index
Capillary Pressure Studies
It is usually accepted that hydrocarbons displace water
in a reservoir rock during the normal process of accu-
mulation. Because sedimentary rock is usually deposited
in a water environment, the pore network must have
been originally full of water. To gain a better under-
standing ofpresent fluid distributions, it is necessary to
understand how hydrocarbons displace water to form
the hydrocarbon accumulation in the first place.
The pore geometry of sedimentary rocks is frequently
described in terms of the "bundle-of-tubes" concept,
Figure 5.5-' Porosity vs. Formation Factor
log I = -n log Sw (4)
where the tubes represent pore throats interconnecting
individual pores. For a hydrocarbon accumulation to
occur, the pore spaces must be continuously interconn-
ected and the capillary pressure of a water-filled pore
must be exceeded by the pressure of the encroaching
hydrocarbons. This threshold pressure, also referred to
as the displacement pressure, determines whether or not
hydrocarbons can accumulate in a pore on the micro-
scopic scale or in a particular geologic structure on the
macro scale. In the case of a cap rock or reservoir seal,
it determines the maximum height a hydrocarbon
column can reach before the seal is breached.
The density differences between the hydrocarbon and
water phases results in a force called buoyancy effect,
which is the principal motive force causing oil or gas to
migrate upwards through water-saturated rocks in the
subsurface.
67
Company:
Well:
Location:
PanCanadian Petroleum Ltd.
PCP Ferrybank 2-23-43-28
LSD 2-23-43-28W4M
Formation:
Field:
Province:
Basal Belly River
Ferrybank
Alberta
10
I \
I ! I
\
R,
1.00
-=--
R
o
S ~ 6 8
1\
\
\
\
-.
\
\
\-
\
~
~
~
,\.
~
~
~
Source: PanCanadian Petroleum ltd.
Figure 5.5-2 Formation Resistivity Index
10"
Brine Saturation (fraction)
1.0
Opposing this upward force, however, is the capillary
pressure of the reservoir which depends on three
factors:
1. Radius of the pore throats of the rock
2. Interfacial tension of the two fluids
3. Wettability of the rock
Capillary pressure data is generally obtained from small
core samples which represent a tiny fraction of the res-
ervoir. In the laboratory, an air-mercury fluid system is
often used to represent the reservoir system. Air-brine
and oil-brine systems are also used. It is essential for
68
the analyst to combine data from many samples to more
appropriately model the reservoir under study. Several
methods are available to average capillary pressure
curves. A frequently used method is one developed by
Heseldin (1973) in which he uses a displaced rectangu-
lar hyperbolic function to relate porosity to bulk volume
hydrocarbon for varying levels ofpressure and, in tum,
relates capillary pressure to water saturation for various
levels of porosity. This method has been used success-
fully in Alberta in the Waterton, Jumping Pound and
Virginia Hills fields.
T
(cr cos 0)'/H.
Pc,,". = 0.433h (SG
w
- SG,) (7)
(o cos 0),/w
where PC
olllg
=air-mercury pressure (kPa)
PC
w10
= water-oil pressure (kPa)
3. Calculate PC
olllg
for any height above the free water
level for the selected rock type.
4. From the air-mercury capillary pressure curves
(Figure 5.5-3), read the percentage bulk volume
occupied by Hg at that level for the selected rock
type and convert it to Sw' or read Sw (wetting phase
saturation) directly.
For reservoir systems with fluid characteristics similar
to the laboratory systems, conversion factors are
not required. However, if the characteristics differ,
adjustments similar to these steps must be taken.
5.5.3 Saturation Determination From
Logs
All water saturation calculations in theoretically shale-
free formations assume a homogeneous intergranular
pore system. These determinations are made from re-
sistivity logs and are based on some form of Archie's
water saturation equation. As with the computation of
porosity from the various geophysical logging combi-
nations, the determination of fluid saturation from
various resistivity and porosity logs has generated many
unique approaches.
Nearly all these techniques are derived from the
classical Archie equation, and the results are wholly de-
pendent on the accuracy of the basic input parameters:
R", F and R,. The analyst usually selects the deep resis-
tivity reading from either the induction or the laterolog
device and after correcting it for environmental, bore-
hole, bed thickness and invasion effects, adopts it
as true resistivity, R,. Porosity derived from the sonic,
the neutron-density, or some combination of log
and core coverage will be matched with the appropriate
lithologically dependent porosity-formation factor
relationship. Finally, R" will be determined either from
log calculations, test recovery, or a sample of produced
water from a nearby water-bearing zone in the same
geological formation. In shale-contaminated reservoirs
and in low porosity complex carbonate rocks, Sw can
only be accurately calculated by employing the most
(6)
_ (cr cos 0)'/H.
PC
a/ Hg
- PC
w/ 0
(o cos 0)'/w
System
0 Cos 0 cr a Cos 0
Air-water-solid
0
0
I 72 72
Air-mercury-solid 140
0
-0.766 480 -370
Oil-water-solid
0
0
I 35 35
Pc
w/
, =0.433h (SG
w
- SG,) (5)
When all data has been assembled, the process for
interpreting water saturation in an oil-water system from
air-mercury capillary pressure curves is a four-step
process:
I. Determine the capillary pressure - height relation-
ship in the reservoir.
Another method used is one developed by Leverett
(1941). This method employs a correlating function
commonly called the "J function," which was originally
proposed as a means to convert all capillary pressure
data to a universal curve. However, experience has
shown that significant differences in the correlation
of the J function with water saturation occur from
formation to formation.
The prime use ofcapillary pressure curves is to confirm
water saturations in difficult evaluation environments.
Other uses include determination of rock characteris-
tics such as average pore throat size, pore throat size
distribution and permeability; calculation of depth of
free water level or oil-water contact; and determination
of the extent of the transition zone. The manipulation
ofcapillary pressure curves is fraught with many uncer-
tainties, and only an experienced reservoir engineer
or petrophysicist should attempt such an exercise.
Accurate knowledge ofthe specific gravities ofthe res-
ervoir fluids, interfacial tension between fluids and rock,
and rock wettability is required for translating capillary
pressure data into equivalent oil-water or gas-water data.
Table 5.5-1 lists commonly used values for wettability,
0, of a water-wet system and interfacial tension, o, in
dynes/em.
Table 5.5-1 Wettability and Interfacial Tension
where PC
w10
= capillary pressure of the water-
oil system (kPa)
h = height (m)
SG = specific gravity, relative to water
2. Convert the reservoir water-oil pressure system into
the laboratory air-mercury pressure system using
the appropriate rock-fluid values and fluid specific
gravities.
69
it
-
Company:
Well:
Location:
PanCanadian Petroleum Limited
PCP Ferrybank 2-23-43-28
LSD 2-23-43-28W4M
Formation:
Field:
Province:
Basal Belly River
Ferrybank
Alberta
Air-Mercury Capillary
Pressure Curve
\
I ~
r-...
\
1 1 ~ 1 ~ 1 ~
BulkVolume Occupied Hg (volume fraction)
1
10
10'
10
5
<? 10
3
a.
~
~
:::J
'"
~
a, 10'
Air-Mercury Capillary
Pressure Curve I-
\
r-;
2
12
14
10
<?
o,
""
x
8
'"0
:::::..
~
:::J
6
'"
'" OJ
~
a.
4
o
o .2 .4 .6 .8 1
Wetting Phase Saturation (fractionof pore volume)
Source: PanCanadian PetroleumLtd.
Figure 5.5-3 Air Brine Capillary Pressure Test
advanced computational routines that in themselves rely
heavily on data support from special core analysis stud-
ies. The casual analyst is well-advised to seek expert
advice in these areas because improper selection of in-
put parameters could lead to solutions that grossly
misrepresent true reservoir conditions.
Figure 5.5-4 represents a flow diagram of a typical
petrophysical evaluation based on saturations deter-
mined from electrical resistivity relationships.
The resultant water saturation is the fraction ofthe pore
volume of the reservoir that is water-filled. That por-
tion not filled with water is assumed to be filled with
hydrocarbons.
5.5.4 Flow Test Procedures for Gas and
Oil Saturation
Well test analysis has always held great interest and
attraction for drilling and reservoir engineers because it
offers the potential to assess not only the true saturation
condition ofthe formation, but also formation transmis-
sibility. As advances were made in mathematical
modelling theory, early field data that was frequently
ambiguous became more amenable to resolution. With
the advent of very sophisticated electronic pressure
gauges, high speed computers and advances in the field
ofmathematics, a new frontier has opened. Addition of
the pressure-time derivative to log-log type curves now
permits the identification of multiple reservoir bound-
aries and heterogeneities such as fractures and layered
formations.
70
,
It
Rock Formation
Type Fluid Tests
~ - - - - - - - - - - - - - - - - - - - - - - - - - +
k
---------------------+
Permeability
Cores.
1-0-- Sidewall Samples.
Drill Cuttings
- - - - - - - - - ~
I
I
I
Drilling
I
+--- ------------+1
Time I
Quantitative
I
I
I
I
I
-----
Quantitative Under
Natural
I
Special Circumstances
----
Radiation
I
I
I
I
I
I
Induced
I
I
Radiation
I
I--

Porosity -
Acoustical
Velocity
-
Spontaneous
----
Potential
I--
R
w
Formation
-
Water
Resistivity R.
Produced
Water-bearing
Water
Formation
Resistivity
Electrical
------------------------+
Resistivity
R
t
True
Formation
Sw
Resistivity
r--
Water
Saturation
Source: After Shell Development Company, 1969,
Figure 5.5-4 Log Interpretation Flow Chart
71
where F* = formation resistivity factor for shaly
sand
B = equivalent conductance of clay ex-
change cations (sodium as a function
of C; at 25C (mho ern- meq")
Q, = concentration of clay-exchangeable
cations per unit pore volume (meq
ml,")
Presence of Shale or Clay
Shale- or clay-free environments are rare occurrences
in nature. Shale is, in fact, one of the most common
constituents of sedimentary rocks.
Aside from the negative effect on porosity and perme-
ability, as previously discussed, the unique electrical
properties ofthese complex mineral assemblages greatly
influence the determination of fluid saturation.
Most analysts resort to one oftwo techniques to resolve
water saturation in a shaly sandstone environment. The
Waxman-Smits relationship (Smits and Waxman, 1968)
attempted to relate the resistivity contribution ofthe shale
to the cation exchange capacity (CEC) of the shale:
In designing any test, reservoir engineers integrate as
much open-hole logging and geological information as
possible. Some of the flow regimes that can be recog-
nized during a pressure test include infinite acting,
pseudo-steady state, and steady state. It is important that
the test be designed to recognize and capture data from
all flow regimes. Critical formation properties like per-
meability and skin factor can be determined only from
the infinite acting flow period. Reservoir size and shape
can be deduced from the pseudo-steady state phase, and
the steady state phase can give clues to that most-sought-
after parameter: drainage volume. Pressure transient tests
can be conducted either in the open hole or in perfor-
. ated casing. The open-hole drillstem test (DST) employs
a valve, packer, and pressure gauge. A more sophisti-
cated production logging tool string run in a cased hole
can measure temperature, pressure, fluid density, and
flow rate in addition to gamma ray activity and bore-
hole diameter. In both cases, the goal is the same: to
assess the fluid content and transmissibility of the res-
ervoir as well as the extent of the producing formation
away from the wellbore.
. ,
I s; BQ,Sw
-=--+--
R, F*R
w
F*
(8)
In 1968, continuous measurements of rock CEC in situ
were not possible and, for practical purposes, a Dual
Water Model was proposed as a solution.
In this approach, clay is modelled as consisting of two
parts: bound water and clay minerals, with the clay min-
erals assumed to be electrically inert. The Dual Water
Model as applied to shaly formations is illustrated in
Figure 5.5-5.
Solids Fluids
Matrix Silt Dry Clay
Bound Free Hydro-
Water Water carbons
Matrix Shaie
Effective
Porosity
Source: Schiumberger, 1987.
Total Porosity
Figure 5.5-5 Dual Water Model
The analyst determines R. and R.b and inputs them to
any ofa number ofgeneral computer interpretation pro-
grams for clastic sequences, such as the schematic of a
typical process illustrated in Figure 5.5-6. To evaluate a
shaly formation, four parameters must be determined:
water conductivity, C; (or R.), conductivity of bound
water, C
wb
(or R.b)' total porosity, li>, and bound Water
saturation, Swb' In practice, a cross-plot of neutron and
density logs generates acceptable values of li>,. Any of a
variety of shale-sensitive measurements, usually the
gamma ray, can be the source of Swb'
Presence of Bitumen
Bitumen, in either the fluid or solid (pyrobitumen) phase,
is observed in significant quantities in many reservoirs
in western Canada, particularly in the Devonian carbon-
ates that account for nearly 70 percent of all oil and 20
percent ofall gas produced. When present, pyrobitumen
is a major source of uncertainty because of its effects
on porosity, permeability, wettability and chemical
adsorption, properties that can have a major impact on
hydrocarbon recovery processes. On the other hand,
bitumen in the liquid phase can be a reserve in itself, as
for example, the 50 x 10' m
3
of resources assigned to
the Devonian Grosmont Formation ofnorthern Alberta
and Saskatchewan.
When a reservoir engineer encounters a reservoir with
either bitumen or pyrobitumen, careful study and analy-
sis are necessary to adequately gauge the impact that its
presence could have on production and production
72
j
I
Correlate logs
I
j
I
Mark permeable beds (SP, ML)
I
I
Breakbeds intozones
SP
Lateroloo
ML
Induction
R'h
/
<;
P'h
Conductive" 2'
I
Zones" 2'
Llt'h
Resistive
" 5'
I
Igr
I
$N
In shale zones, determine average valuesfor
R
o
R'h
P,h Llt'h
eneutron.,
Z
I $.
Determine shalevolumeusingshalescalar
R
w
Chart 1 and Chart 2
v;
I
R
t
I
Start zoneanalysis
j
Readconductivity (or resistivity) and Igr for zone
I
I
I I
j
Density
One of: density, Cross-plot
P'h = 2,65
neutron, acoustic two logs
Yes No
Correct for shaliness
Llt Chart 3
I
P
Chart 4
neutron Chart 5
1$ fromChart 41
j
Solve shalysandequation to get R0.' Z
(need$., R
w'
Vsh' R'h)
i
Solvefor Sw
(needRoo, a, Z)
I
Last zone
Yes No
\
The End
=
spontaneous potential
=
microlog
=
resistivityshale
=
bulk density, shale
=
sonic travel time, shale
=
gamma ray index
=
neutronporosity, shale
=
wet resistivityof undisturbed
zone
=
shaliness index
=
effectiveporosity
=
formation water resistivity
=
volume, shale
=
true resistivity
't
Data Required
Resistivity-induction, dual induction, laterolog
Gammaray
Porosity log(s) - densityneutron, acoustic
Water resistivity
Figure 5.5-6 Shaly Sand Interpretation Process
Charts Required
1. Shalescalar
2. Relationship for gammaray vs. percent clay (V'h)
3,4,5. Acoustic, density, neutronresponse
73
strategies. Reservoir rocks with organic-based
pyrobitumen frequently exhibit strong tendencies to oil
wetness, resulting not only in abnormally low calcu-
lated connate water saturation, but also in high effective
water permeability. And more important to those con-
cerned with reserves and estimating ultimate recovery,
these reservoirs frequently suffer "premature" water
break-through on waterflood recovery schemes.
Reservoir Heterogeneity
As noted in the discussion on the use of capillary
pressure curves, each plug represents the characteris-
tics of only the rock type present in that tiny sample. It
is imperative, therefore, that the reservoir engineer have
some appreciation ofthe variability that can be encoun-
tered within the total reservoir under study. Each discrete
layer is itself susceptible to subtle changes, both verti-
cally and horizontally, that may escape the eye of even
the most careful investigator or lie beyond the depth of
investigation of any borehole logging devices.
While logs and cores provide data that is useful in
calculating water or hydrocarbon saturation, logs
represent a moving observation point. This running
average, when compared to the stationary observation
data point derived from core data, can result in a lack of
conformity between samples of differing geometrical
character. It is important, therefore, that common sense
be employed when comparing saturation data derived
from differing measurements and differing rock vol-
umes. Good correlation between widely diverse
measurements might indicate the presence of a homo-
geneous reservoir and permit the analyst to employ fairly
large-scale approximations ofthe reservoir. Conversely,
poor correlation could signal the presence of extreme
heterogeneity in the larger reservoir sense.
74
Wettability
Wettability is defined as the tendency of one fluid to
spread on or adhere to a solid surface in the presence of
other immiscible fluids. Wettability is a major factor
controlling the location, flow and distribution of fluids
in the reservoir. The wettability of originally water-wet
reservoir rock can be altered by the adsorption ofpolar
compounds or the deposition of organic material. The
wettability of the reservoir can affect the estimation of
in-place hydrocarbon volumes as well as estimates of
hydrocarbon recovery.
The estimation of hydrocarbons in place is affected
because the understanding of fluid saturations, re-
sistivity measurements, capillary pressures, relative
permeability and residual saturations is changed when
the system varies from being strongly water-wet to
strongly oil-wet.
Recovery estimates can also be significantly affected
because the initial and residual saturations, relative
permeability, primary, secondary and tertiary recovery
processes are different for the oil-wet and water-wet
cases.
References
Archie, G.E. 1942. "The Electrical Resistivity Log as
an Aid in Determining Some Reservoir
Characteristics." Trans., AIME, No. 146,
pp.54-62.
Heseldin, G.M. 1973. "A Method of Averaging
Capillary Pressure Curves." Canadian Well
Logging Society, Vol. 6, No. I, Dec. 1973, pp.
33-46.
Leverett, M.C. 1941. "Capillary Behaviour in Porous
Solids." Trans., AIME, Vol. 2, T.P. 1223, pp.152-
169.
Schlumberger. 1972. Log Interpretation Charts.
Houston, TX.
---. 1987. Log Interpretation Principles!
Applications. Houston, TX.
Shell Development Company. 1969. Petrophysical
Engineering. Course notes, Houston, TX.
Smits, L.J.M., and Waxman, M.H. 1968. "Electrical
Conductivities in Oil-Bearing Shaly Sands."
Trans., AIME, Vol. 243, pp. 107-122.
-
b
5.6 TESTING AND SAMPLING
5.6.1 Introduction
The flow capability of a well is generally found by
measurement of actual production. Two general types
of flow tests, the drillstem test and the production test,
are often used to measure production rates and obtain
flow pressures. In addition to collecting this data, flow
tests provide good opportunities to gather samples of
produced fluids for further analysis. This section will
discuss flow tests, as well as the reasons and procedures
for collecting fluid samples.
5.6.2 Drillstem Tests
The drillstem test (DST) is often the first opportunity to
observe the flow characteristics and record the pressure
of a reservoir. A DST meets three objectives when
conducted properly:
1. To obtain a stabilized initial reservoir pressure
2. To obtain an indication of stabilized flow rates
3. To obtain samples of reservoir fluids
The majority of wells today are drilled using the rotary
drilling technique, which consists of rotating a bit that
is fastened to a drill string made up of pieces ofthreaded
pipe called the drill stem, and drill collars. The drill col-
lars are heavy pieces ofdrill stem and allowa downward
force to be applied to the bit. The bit is rotated by the
drill string which, in turn, is rotated at the surface by the
drilling rig. Using this rotary drilling technique, the drill
hole is deepened until the prospective zone is reached.
A DST is conducted by replacing the drill bit with a
drillstem test tool, attaching it to the bottom ofthe drill
string and lowering it into the hole. The tool consists of
one or two sets of isolating packers, a valve for allow-
ing reservoir fluid to flow, and locations where pressure
recorders may be placed. A packer is an expandable
rubber element that is squeezed up against the hole.
When the packers are expanded, or set, the zone of in-
terest is isolated from the fluids trapped between the
hole and the pipe (also known as the annulus). Figures
5.6-1 and 5.6-2 illustrate a typical DST tool in unset
and set position. It is important to ensure that the
packers are set in a zone that will allow a tight seal.
Once the packers have been set at the proper depth, the
valve inside the tool is opened, allowing reservoir flu-
ids to flow up the drill string to the surface. Produced
liquids (oil, condensate, water) are sent to tanks, and
gases are generally sent to a flare pit or flare stack.
After a set period oftime, the downhole valve is closed,
and the reservoir pressure is allowed to increase to
stabilized conditions. The valve in the tool may be
opened and closed as often as required once the packers
have been set. A typical DST would include a 5-minute
preflow, a 30-minute shut-in, a main flow of 60
minutes, and a final shut-in of 90 minutes.
The flow rate during a DST is usually measured when
reservoir fluid appears at the surface. Gas and liquid
rates are easily measured by the service company pro-
viding the DST equipment. Flow rates may be estimated
in cases where reservoir fluid does not reach the surface
by observing the amount ofliquid recovered in the drill
string after the test is complete because any fluid that
travelled past the valve in the DST tool during the test
would be trapped in the drill stem after the valve was
closed for the final buildup. Many experienced rig su-
pervisors are able to accurately determine the amount
of fluid recovered in the drill stem while retrieving the
DST tool. Average flow rates are estimated by dividing
the flow times into the volume of liquid recovered.
Pressures are recorded by gauges inserted in the DST
tool. Drillstem test tools allow the placement of gauges
in a variety of locations so pressures can be measured
above the DST valve, outside the tool, and below the
tool. The most important measurements are those re-
corded inside the tool itself. Analysis ofthese pressures
indicates the hydrostatic head of the mud column and
drawdown and buildup' pressures. Pressure gauges are
discussed in more detail in Section 5.8.
Closed-chamber DSTs are run in much the same
manner as regular DSTs, but the fluids are not allowed
to flow to the surface. A pressure gauge at the surface
records the increase in pressure as fluids enter the drill
string. A detailed analysis of the pressures obtained at
surface, the pressure measurements recorded downhole,
and the liquid recoveries will yield production rates.
5.6.3 Production Tests
Production tests are performed on completed wells; the
tests provide the engineer with insight into the produc-
tion potential of the reservoir. Production tests may be
conducted immediately after the well has been com-
pleted or after the well has produced for several years.
This is an important consideration as reservoir charac-
teristics do change through the life of the reservoir.
Parameters such as pressure and flowpotential all change
as fluid is withdrawn from the pool.
The equipment necessary for a production test can
vary fromwell to well. The basic requirements are press-
ure recorders to continuously measure flowing and
buildup pressures, and surface equipment that is able
75
Figure 5.6-1 Drillstem Test Tool (Unset Position)
76
Figure 5.6-2 Drillstem Test Tool (Set Position)
r
>
to accurately measure the flow rates of the well.
Generally, pressure recorders are placed downhole close
to the producing formation. Pressure recorders are avail-
able in various pressure ranges. It is unwise to expose
the recorder to more than 75 percent of its maximum
range. Flow rates are best measured on single phases,
so test separators are used. A two-phase separator sepa-
rates gases from liquids, while a three-phase separator
separates gas, oil, and water. Surface equipment must
be sized correctly to ensure that it will not be a bottle-
neck for the producing stream.
In the design, implementation, and analysis of a
production test, several factors must be considered: the
purpose ofthe test and the data that is required, the res-
ervoir and fluid characteristics, the type of test, the test
equipment necessary, and any operating difficulties.
The purpose of a production test often depends upon a
number of considerations, the first of which is the life
of the well. The data needed from a well that has just
been completed may be different from the information
needed for a well that has been on production for sev-
eral years. The determination of information such as
delivery rate, reservoir damage, drainage area and
boundaries, stabilized flow conditions, and the need for
formation stimulation treatment must all be factoredinto
the purpose ofthe test. Many tests are conducted to ex-
amine the success offormation treatments, or to recover
representative reservoir fluid samples.
Knowledge of the characteristics of the reservoir and
the fluid is important for the design ofa production test.
Many tests yield inadequate data because of avoidable
problems. Reservoir damage may occur due to high flow
rates, or the well may freeze offdue to hydrates. Knowl-
edge of reservoir and fluid characteristics will lead to
the collection of data that is as accurate as possible.
There are many different types ofproduction tests, each
of which will yield important data. Each type may be
run alone or in combination with other tests. The
following are common types oftests:
Interference
Absolute open flow (AOF) of gas wells
Constant and variable rate
Pressure buildup
A well is generally "cleaned up" after a zone has been
completed or worked over. This allows completion
fluids to be withdrawn from the reservoir to prevent fur-
ther formation damage. A segregation test helps to
determine if one zone is in pressure communication
with another. AOF tests can be one of three types:
conventional, modified isochronal, or single point. All
three yield information about the AOF potential of a
gas zone. Drawdown tests are conducted to determine
reservoir characteristics such as damage, permeability
and flow potential. Pressure buildup tests yield much
the same information as drawdown tests with the
addition of stabilized reservoir pressure.
Another aspect ofproduction test design deals with the
duration of flow rates and any corresponding buildup
times. Generally, flow rates should be ofsufficient time
to allow the flow rate to reach stable conditions. As this
time period is usually dependent upon the parameters
the test is designed to determine, field experience and
rules of thumb are generally used. Typically, buildup
times must be at least twice as long as the preceding
flowrates. Exceptions to these rules occur in some AOF
tests, where the flow time and buildup time are set and
are independent of whether the reservoir has reached
stabilized conditions. The question of the actual flow
rate is usually dependent upon previous production data.
It is recommended that the well be flowed at the antici-
pated delivery pressure, or if the delivery pressure is
not known, at 50 to 70 percent of the well's AOF.
5.6.4 Sampling
Collection ofrepresentative samples of reservoir fluids
is necessary for many reservoir engineering applications.
Gas, oil and condensate samples are needed for
compositional analysis and PVT (pressure-volume-
temperature) analysis. Water samples yield information
relating to the water salinity and solids content. Special
care must be taken when sampling, so that samples col-
lected are representative of the fluids found in the
reservoir. The inability to gather good samples may
compromise many calculations and studies performed
at a later date. Two methods are commonly used in ob-
taining reservoir fluid samples: subsurface sampling
and surface recombination sampling.
In subsurface sampling, a sample chamber is run to the
bottom of a flowing well on wire line. The sample is
collected at bottom-hole pressure and then isolated
through the closing of the inlet valves. The well is kept
flowing during the process to avoid fluid segregation
(and thus an unrepresentative sample). The seemingly
simple process of obtaining representative samples is
easily hampered by the presence ofmore than one phase
in the wellbore. If the reservoir is initially undersatu-
rated above the bubble-point pressure, an accurate
sample is easily obtained. However, if the reservoir is
initially at the bubble point, it is difficult to assess
77
whether the oil and gas are being collected in the
correct volumetric proportions. Wen conditioning can
alleviate this problem. The principal drawback of sub-
surface sampling is that only small volumes of wen fluids
are sampled. Furthermore, it is necessary to take sev-
eral downhole samples so that saturation pressure can
be compared at the same temperature.
In surface recombination sampling, separate volumes
of oil and gas are taken at separator conditions and re-
combined to give a composite fluid sample. Sampling
points should be chosen in order to provide homoge-
neous, preferably single-phase, samplemixtures. Surface
sampling allows the collection of fluid samples at the
operating conditions of the surface production facili-
ties. Samples are usually collected by fining a cylindrical
container with valves at both ends. Due to the location
of the sampling point, a much larger sample may be
obtained. Because the samples are taken over several
hours of flow, this method gives a fairly accurate pro-
ducing gas-oil ratio (GOR). As in subsurface sampling,
the well must be conditioned to ensure stability during
sampling. If done correctly, both sampling techniques
should yield identical samples.
Prior to any sampling of fluids, whether at surface or
bottom-hole, it is important to consider whether the fluid
to be collected represents the reservoir fluid. When fluid
is withdrawn from the reservoir, the pressure changes
caused by the withdrawal sometimes cause liquid and
vapour to separate. If a collected sample contains a dis-
proportionate part of either of the two phases, the
subsequent fluid analyses will give erroneous results.
To prevent this problem, it is recommended that the wen
be conditioned to remove from the sample point any
fluid that may compromise the sample.
Conditioning is generally accomplished by flowing the
wen at low drawdown rates so that any altered fluid is
displaced by true reservoir fluid. Well conditioning re-
duces the amount of free gas present at the wellbore by
essentially pushing it back into solution. The first stage
of a conditioning program involves producing the well
at a low stabilized rate at constant temperature and gas-
oil ratio. This reduces the free gas saturation below the
critical gas saturation for gas flow in the formation. This
first stage may take as little as a few hours or as long as
several days. Any remaining gas is forced back into
solution through pressure buildup (the wen is shut in).
The shut-in period is dependent upon the transmissibil-
ity of the formation and can last up to 72 hours. If the
wen was initially undersaturated, it is flowed at a low
rate during the sampling. If the well was initially at
78
DETERMINATION OFOIL AND GASRESERVES
saturation pressure, the samples are taken while the wen
is shut in. Well conditioning procedures are given
in API Recommended Practice No. 44 (American
Petroleum Institute, 1966).
In the course of sampling, care must be taken to ensure
that the sample containers are properly purged to
prevent air contamination.
Gas Samples
By regulation in Canada and as good operating
practice, gas samples are obtained whenever a drillstem
or production test results in flows of gas. Usually, the
samples are obtained at the surface from the outlet ofa
separator at relatively low pressures (200 to 700 kPa
range). Steel sample containers are used in the case of
sweet gas. Where hydrogen sulphide (HzS) is present in
the gas, it is important to use special containers because
steel containers will absorb small concentrations ofHzS
and thus prevent its detection during laboratory analy-
sis of the sample. If these are undetected, the results
could be small concentrations ofHzS, improper design
of gas processing facilities, and high costs to effect
changes. Determinations for HzS are often made at the
wellsite to ensure that any small amounts of HzS are
detected. In fact, when there is any doubt, Tutweiler or
Gas-Tech measurements should always be made at the
wellsite.
Gas samples are sometimes obtained in conjunction with
PVT sampling at bottom-hole conditions and transferred
to special high-pressure containers for transportation and
analysis at appropriate laboratories. Conventional anal-
yses usually identify the mole percentages of various
hydrocarbon components as well as carbon dioxide,
hydrogen sulphide, helium, and nitrogen. The spec-
ific gravity and heating content of the gas are also
determined.
Gas analyses are used in reserves determinations to
calculate the compressibility factor of the gas mixture
and to estimate the volumes of sales gas, recoveries of
natural gas liquids, and processing shrinkages.
In Canada, gas analyses can generally be obtained quite
readily through public sources and, inparticular, through
the conservation and regulatory authorities of each
province.
Water Samples
Formation water samples can be obtained from the
recoveries of drillstem, wireline, and production tests,
and during routine production operations. Care must
be taken to use only analyses of samples that are
q
...
uncontaminated by drilling mud filtrate and the various
chemicals used during production and treating. In
many cases, determining whether the sample is repre-
sentative of the formation is based on rather subjective
judgement.
Analyses of oil field water samples usually identify the
major constituents and total solids in milligrams per
litre or parts per million. Total solids can range from
a few hundred to over 200 000 parts per million in
Canadian oil field formation waters. Specific gravity
and resistivity are also measured.
Water analyses are generally used to identify the source
of the water or to obtain the resistivity of the water in
order to calculate interstitial water saturations from
porosity information and electrical well logs.
Analytical results are often presented graphically to
enable visual comparisons or "fingerprinting" of wa-
ters to be made. The Stiffdiagram (Stiff, 1951) is widely
used for this purpose.
Useful compilations offormation water resistivities are
available for the majority of productive reservoirs in
the western Canada sedimentary basin and other parts
of Canada. One such compilation is published by the
Canadian Well Logging Society (1987). The published
formation water resistivities represent the best informa-
tion available at the time of publication, but care must
be taken to use the data most appropriate to the specific
application.
Oil Samples
Conventional Surface Samples
Crude oil samples are obtained and analyzed for a
variety of characteristics that are ofimportance in res-
ervoir work, production operations, wellsite treating,
pipelining, and refining. This brief discussion is re-
stricted to crude oil samples as they apply to reservoir
engineering. A distinction will be made between con-
ventional crude oil samples obtained at the surface and
crude oil samples obtained at reservoir conditions in
order to measure PVT characteristics in the native state.
Conventional surface crude oil samples are generally
obtained from crude oil storage tanks, at the wellhead,
and from drill stem test recoveries. The American
Petroleum Institute has published guidelines that should
be followed in obtaining reliable oil samples
(American Petroleum Institute, 1966).
PVT Samples
For a better understanding of the physical properties of
a reservoir fluid, a PVT study should be performed early
in the life of the reservoir to obtain truly representative
samples ofthe reservoir fluid. Generally, it is better that
PVT studies be performed on subsurface samples.
Tests
After a representative sample has been obtained, the
following five tests are normally performed to assess
the fluid behaviour and properties:
Pressure-Volume Test. A pressure-volume (PV) test
involves the constant composition expansion of the fluid
sample at reservoir temperature. The sample is initially
undersaturated (reservoir pressure is greater than bubble-
point pressure). As the pressure is reduced towards the
bubble-point pressure, the oil compressibility is identi-
fied. The actual bubble-point pressure is also measured.
Below the bubble point, the two-phase volume is
measured as a function of pressure.
Differential Liberation or Vapourization Test. In a
differential liberation test, the sample is subjected to an
incremental pressure reduction from the bubble point
to zero. As the solution gas evolves, it is removed from
the system. As a result, the composition of the fluid
sample is always changing. This test identifies the rela-
tive density of gas, the gas deviation factor, the gas
formation volume factor, the relative oil volume factor,
and the gas-oil ratio (the gas remaining in solution at a
given depletion pressure as compared to the volume of
residual oil at stock tank conditions). During this
process, the oil density at each pressure increment
is determined by mass balance. A quality control
check compares the calculated oil density at the deple-
tion pressure (through mass balance) to the measured
oil density at this point.
Viscosity. Viscosity is measured at reservoir tempera-
ture at a series ofpressures above and below the bubble
point.
Flash Liberation or Separator Tests. In a flash
liberation test, the sample is again subjected to a press-
ure reduction from bubble point to zero. The oil and
liberated gas, however, are kept in equilibriumthrough-
out the expansion. This test identifies the formation
volume factor and the solution gas-oil ratio at separator
conditions. One or more flash liberation tests should be
done to determine the behaviour of the reservoir fluid
as it passes up the tubing, through the separator(s), and
into the stock tank.
79
Compositional Analysis. Most reservoir fluid
parameters canbe estimatedfromcompositional analy-
sis. In general, the more fluid parameters sought, the
more detailedthe analysis must be. Atypical composi-
tional analysis includes a separation of components
throughC10 as a minimum. More sophisticated equa-
tionsof statemayrequire analysis through C30orhigher.
It is important to note that due to the nature of the
expansion, theflashanddifferential liberation processes
yield different vapour-liquid splits. The degree of
difference depends mainly on the composition of the
initialsystem. Ingeneral, in lowvolatilityoils inwhich
the solution gas consistsmainlyof methane andethane,
the resulting oil volumes for either formof expansion
areessentially thesame. For highervolatility oils,which
contain a relatively high proportion of intermediates,
the resulting oil volumes can be significantly different.
80
Inan undersaturated oil reservoir, depletionbegins as a
flashprocessand eventuallybecomesa combinationof
flash and differential liberation processes. Because of
this, care must be takento ensurethat the correct data is
being used in engineeringcalculation. Flash data must
be adjustedusing differential liberationvolumes to re-
flect thevariouspressureregimesinthe reservoirduring
depletion.
References
AmericanPetroleumInstitute. 1966. "Sampling
PetroleumReservoir Fluids." API RP 44,
Washington, DC.
CanadianWell Logging Society. C,J. Struyk (ed.).
1987. Formation Water Resistivities ofCanada.
Sep. 1987, Calgary, AB.
Stiff, H.A., Jr. 1951. "The Interpretation of Chemical
Water Analysis by Means of Patterns."JPT., Vol.
192, pp. 15-17.
after the casing is cemented could be affected by the
heat released in the setting reaction of the cement.
The most representative BHT data is probably obtained
following the completion of the well after it has been
shut in long enough for temperature equilibrium to be
established between the wellbore and the formation. An
ideal time to measure BHT is during a static bottom-
hole pressure survey, or pressure buildup following a
flowtest, or during the process ofbottom-hole sampling
following the completion ofthe well. In some instances,
it is a good practice to run a temperature-depth profile
on each producing well using a continuous recording
thermometer.
In the early stages of development and production of a
field or reservoir, measured temperature data may be
too sparse to provide a reliable estimate ofinitial condi-
tions. In this case, regional correlations may be helpful.
The following list provides correlations for estimating
formation temperature for several regions in North
America [T, = formation temperature in C (OP);
D = depth in m (ft)]:
(I)
Tf = 1.7+ 0.0366D
(T, = 35.0+ 0.0201D)
T, = 0.0 + 0.0341D
(T
f
=32.0 + 0.0187D)
T, = 9.4 + 0.0304D
(T, = 49.0+ 0.0167D)
T, = 0.0+ 0.0352D
(T, = 32.0+ 0.0193D)
T
f
= 23.3+ 0.0228D
(T, = 74.0+ 0.0125D)
T, = 15.6+ 0.0306D
(T, = 60.0+0.01675D)
T
f
= 18.9+ 0.0202D
(T, = 66.0+ O.OlllD)
Oklahomadeep AnadarkoBasin T
f
= 18.9+ 0.0255D
(below21,000 ft) (T, = 66.0+ 0.014D)
In general, formation temperature in the hydropressure
zone may also be estimated from thermal gradient maps
published by the United States Geological Survey ~ n d
the American Association of Petroleum Geologists
(Cronquist, 1990), using the equation:
T,= T
sa
+goD
where T, = formation temperature, C COP)
Tsa = average surface temperature, C (OP)
geothermal gradient, C/m (Op/ft)
= depth, m (ft)
OklahomaAnadarko Basin
Alberta(average)
AlbertaBashaw
(carbonale complex)
AlbertaRimbey-Meadowbrook
(carbonate complex)
AlbertaWindfall-SwanHills
(carbonatecomplex)
LouisianaGulf Coast
(hydropressure zone)
NorthTexas
5.7 RESERVOIRTEMPERATURE
5.7.1 Introduction
Reservoir temperature is of prime importance in the
determination of in-place volumes and recovery factors
for gas and oil. In estimating gas reserves, a knowledge
of temperature is necessary to calculate the gas com-
pressibility factor and gas formation volume factor. T.o
estimate oil reserves, knowledge of the temperature IS
critical if laboratory PVT data is to be measured under
reservoir conditions. Temperature also affects other
parameters such as oil viscosity and miscibility, and
thereby impacts reservoir engineering estimates of OIl
recovery.
Oftenvalues ofreservoir temperature are estimated from
data in the literature or from readings obtained during
logging or testing operations. Such data may be accept-
able under initial conditions, but should always be
confirmed or adjusted using more reliable data as it be-
comes available. The most reliable source of temperature
data is a bottom-hole temperature (BHT) measurement
taken with a continuous recording subsurface tempera-
ture gauge under stabilized bottom-hole conditions.
Other methods, such as using maximum reading ther-
mometers during testing or logging operations, are
considered less reliable.
Although temperature is usually a function of depth, a
number of other factors affect temperature as well.
Isotherms at depth may not always follow surface
topography.
This section describes various techniques used for
measuring or estimating BHT and points out the short-
comings in some ofthe values obtained.
5.7.2 Data Sources
Temperature measurements are made in conjunction
with a number of operations conducted on a well. Many
of these measurements will have varying degrees of
accuracy. Measurements taken while the well is being
drilled will likely be influenced by the cooling effect of
the circulated drilling mud and will be only approxi-
mate. During open hole logging, errors may occur in
BHT measurements unless sufficient time is allowed
for the wellbore to reach temperature equilibrium with
the formation. Measurements taken during flow tests
could be detrimentally affected by the cooling effect
created by gas expansion when fluids enter the wellbore
or flow through any mechanical restriction in the
wellbore such as a bottom-hole choke, mandrel or flow
nipple. Temperatures recorded on logs run immediately
81
7
--,
,
Thus if two or more BHTs-measured at the same depth
in the same well, but at different times-are known, the
equilibrium temperature may be estimated.
The Horner method was used by Deming and Chapman
(1988) to analyze BHT data gathered from microfilm
copies of log headers on file at the Utah Oil and Gas
Commission. Figure 5.7-1 shows 18 Horner plots for
BHT data from oil and gas fields in the Utah-Wyoming
thrust belt. Although the quality of these data is com-
paratively high, some scatter about the Horner line is
inevitable. These plots showthat successiveloggingruns
generally yield a series of temperatures that are consis-
tent with the Horner model of conductive heat transfer
into the borehole during shut-in.
temperature. To estimate true formation temperature
from raw BHT data, a correction must be applied.
The corrections may be made using a Horner plot
method. This method owes its name to the fact that
it is identical to the equation developed by Homer to
predict reservoir pressure recovery. In this method,
BHT = T_+ A In [(t +tcire)/t] (2)
where T_ = undisturbed formation temperature
A the negative slope of the Horner
straight line (an unknown constant)
t shut-in time
t - circulation time
eire -
5.7.4 Data Analysis on a Regional Basis
Recently published technical data provides good insight
onvariations in BHT in western Canada (Lamand Jones,
1984; Lam et aI., 1985). One of the key areas ofinterest
has been southern Alberta where a high density of wells
provides an opportunity to measure and explain
temperature variations from one region to another.
Figure 5.7-2 shows the main topographic features of
southern Alberta with respect to the eastern limit ofthe
disturbed belt. As might be expected, variations in the
temperature gradient from the calculated mean value
(referred to as "spread") are more frequent in the vicin-
ity of the disturbed belt. Figure 5.7-3 shows these
spreads. The spread values vary from a low of 2C in
the plains area of southern Alberta to 10 - 13C in
areas near the edge of the disturbed belt. These "spread
anomalies" occur between Hinton and Edson, to the
southeast of Hinton and Edson, and south of Calgary.
One notable feature on this map is the coincidence of
the high-spread area south of Calgary and a fault zone
as indicated on an ERCB Paleozoic surface map. In
addition, relatively high spread values occur in the
Medicine Hat area to the east (as indicated by light
Reservoir temperatures obtained using these correlations
should be considered preliminary, and they are not a
substitute for actual measurements.
In Alberta, temperatures measured at a mean depth
for each oil and gas pool are shown in the annual
reserves report published by the Energy Resources
Conservation Board (1991).
Reservoir temperature is considered to be constant over
the life ofa reservoir, and most reservoir processes, with
the exception of in situ combustion and steam or water
injection, are considered to be isothermal. Waterflood-
ing can cause significant cooling. In some of the West
Pembina Nisku reefs in Albertawhere pools were con-
verted to hydrocarbon miscible flooding after many
years on waterflood, reverse temperature gradients were
still noted years after the pools had been converted.
5.7.3 Data Analysis
It is pertinent to give some thought to the means of
arriving at a value for reservoir temperature. The term
bottom-hole temperature or sand-face temperature is
applied to the temperature opposite the producing hori-
zon. The logical place to record a single representative
measurement would be at the centre of the producing
interval or at the pool datum depth. Frequently, mea-
suring tools cannot be run to the desired depth, and
therefore the temperature must be extrapolated. For this
reason, an accurate determination of the temperature
gradient should be established at the run depth. This
can be done most conveniently while running a press-
ure bomb to measure the static bottom-hole pressure. It
is likely that temperature would be extrapolated to the
same datum as pressure.
If it were desired to estimate BHT from open-hole well
logs, some adjustment to the recorded temperatures
might be necessary (Deming and Chapman, 1988).
Following the cessation of drilling, the usual practice is
to condition the borehole by circulating drilling mud
throughout the hole for a period of time known as the
circulation time. Because the temperature of the drill-
ing mud is usually lower than the undisturbed formation
temperature at the bottom of the well, temperature in
the wallrock drops during mud circulation. When cir-
culation of drilling fluid is stopped, the well is "shut
in," and the temperature in the borehole rises. It is dur-
ing this period of time, usually 4 to 30 hours after the
end of circulation, that the well is logged and the BHT
measured at a shut-in time, which is the time elapsed
since circulation ceased. Thus the BHT measured is
higher than the temperature of the circulating mud,
but lower than the true equilibrium or formation
82
s
Shut-in Time, t (h) Shut-in Time, t (h)
50 30 20 15 10 5 50 30 20 15 10 5
140 140
130 130
Wells
120
AR34-02
120
G
5657m
G
~ 110 ~ 110
Wells
Q)
CC846 AI
~
~
458 F2
::>
5011 m
::>
li! 100 li! 100
4700m
Q)
ARE28 - 06
Q)
0. 0.
ARE36-14
E
90
4595m E
90
4540m
~ ~
ARE20 - 16
45801
Q)
4145 m
Q)
4011 m
ARE28 - 01
"0
80
"0
80
4221 m
::c ::c
,
AR34-02
E E
3544m
ARE28 - 01
a
70
a
70
2996m
'6 '6
AR 4-1
CO AR3-2
CO
2332m
60
2737m ARE30 -14
60
CC846 BI
3305m
2186 m
AR 10-1

50 2367m 50
AR 34 - 2
ARE30-14
1933m
40
1462 m 40
IRD#1
1688m
.1 .2 .3 .4 .5 .6 .1 .2 .3 .4 .5 .6
C+ tel") C+ t
e
;" )
In --
(b)
In --
(a)
t t
Source: After Deming andChapman, 1988.
Figure 5.7-1 Representative Horner Plots from Wells in the Utah-Wyoming Thrust Belt
' M ~ - ~ ' - Lake
Elevation Above
Sea Level
(tt)
1
12000
6000
........... ... 4000
.,....... 3000
2000
1000
o
Source: AfterLamat al., 1985.
Figure 5.7-2 Relief Map for Southern Alberta
I Faull From
ERCSPaleozoic
\ surface map
'C
1 I l ~ ~
. 6
c::J
o
I
Source: After Lamat at., 1985.
Figure 5.7-3 Contour Plot of Spread for BHT
Values in Southern Alberta
83
shading in Figure 5.7-3), but these are surrounded by
lowspread values.
It has been observed that isothermal surfaces do not
alwuys tallowtopographic surfaces for a number of rea-
S,HIS: a rapidlyvaryingtopographicsurface andsmooth
is,'lhemlal surfaces at depth, or distortion to the iso-
thermal surfaces due to a number of influences such as
taults, water movement, or subsurface temperature or
L,,'ndueti,ity anomalies. Water movement along faults
and fractures increases spread values when water is
heated at depth andtravelstowardthe surfacealongfault
planes. Thiscancauselargehorizontal temperature dif-
ti:renees at the same depth level and, consequently, a
large spreadin the temperature values.
\\' atcr movement through permeable strata is another
tactor that can strongly influence the temperature
,,'giIlle. Hydrodynamics appears to play an important
1\'1<' in the distribution of subsurface heat and so influ-
enccs the temperature distribution. Gravity-imposed
,l,lwnward water movement occurs in the upper strata
as",ciatN with surface recharge while, in other areas,
l',-nneable beds allowupward water movement. These
upwardand downwardwater movementsin the sharply
dipping permeable formations cause the isotherms to
dipsharply, givinglargespreadvalues as indicated. Such
water movement is thought to occur in the western
Alberta basin. In the east, wherethe water movement is
mainly lateral, the isotherms lie parallel to the surface
and the spread values are smaller.
Another reason for an increase in spread values may be
the effect ofthermal conductivitycontrastsbetween ad-
jacent dipping beds. For example, the clastic and shaly
formationsabovethe Palaeozoicsurfaceare oflowther-
mal conductivity,whereasthe calcareous and evaporitic
formationsbelow the Palaeozoic surfaceare more con-
ductive. Insteeplydippingbeds, suchchangesinthermal
conductivitymay distort the isothermsso that tempera-
ture vs. depthplots over a 3 x 3 =9TWP/RGE area will
exhibit large spread values. This is illustratedin Figure
5.7-4 in which two 9 TWP/RGE areas of west-central
Albertaare compared(Lamand Jones, 1984).Although
these areas are in the same general region, they exhibit
a totally different temperature gradient and spread.
Temperature ('C)
50 100
150

Temperature (OC)
50 100 150
to :::.
%
m
c
300
Grad. = 31.7C/km
(17.4'F/l 03ft)
' .
100 200
Temperature (OF)
StandardErrorof Estimate
S.4e
.
.
.
.
.
.
.
.
.
.
32
2
4
5
300
100
,
,
, ,
, "
.. ,
, ,
\.
- \
\\ ,),
",. tit
, "
,
, ',,- .
,
, ,
, ,
, "
, .
. .
..'-
. .
. .
. .
. .
. .
. .
. .
. .
. .
. .
. ,
. .
. ,
. .
. .
scar-care Error ofEstimate
4.2'C
1-
2-
,-
200
Temperature (OF)
earnandJones, 1984.
Grad. = 24.2
QC/km
(13.3'FI10
3ft)
=;su
re
Examples of Temperature vs. Depth Plots from Two Areas in Southern Alberta
1
5.7.5 Data Quality
During the drilling and completion ofa well, there are a
number of opportunities to obtain BHT data. It is im-
portant to plan ahead so that the best quality data is
obtained at the most opportune time and at minimal cost.
IfBHT data is required while drilling a well, a drillstem
test may provide the most representative data. Tempera-
ture derivations from logs run in the open-hole wellbore
have been observed to be consistently lower than the
BHT measured from drillstem tests despite the use of
the Horner plot method to extrapolate the temperature
buildup (Hermanrud et aI., 1990).
The preferred method of obtaining representative BHT
data is to obtain measurements following the well
completion and an appropriate shut-in period. An ideal
opportunity to obtain BHT data is in conjunction with a
static bottom-hole pressure measurement, or a pressure
buildup following an oil or gas deliverability test. Even
under these circumstances, two factors could influence
the accuracy of a temperature measurement: a large
drawdown during the flow period, and the depth at which
the temperature is recorded. To improve the quality of
data, the wellbore drawdown should be moderate, and
the temperature sensor should be within the producing
interval (Hermanrud et. aI., 1991).
It is important to note that temperature gradients often
vary from one region to another and, even within the
same area, may deviate significantly from the mean av-
erage due to the proximity ofcertain geological features
in the area. Prudence is required to recognize these de-
viations and not dismiss them as errors in measurement.
Caution is recommended when taking a BHT measure-
ment in shallow wells on hot summer days using a
maximum reading thermometer. The maximum read-
ing could be the surface temperature and not the BHT.
In conclusion, BHT data is available from a number of
sources and the quality of this data is often not ques-
tioned. Such acceptance stems from the fact that small
variations in BHT when converted to absolute tempera-
ture result in a very small percentage error in the overall
reserve estimate. On the other hand, to minimize this
error and improve the overall quality of the reserve es-
timate, one should take advantage of the drilling and
completion process to obtain data that best represents
the true BHT conditions.
References
Cronquist, C. 1990. Reserves Estimation, Petroleum
Engineering Manual. IHRDC Publishers, Boston,
MA, PE 508, pp. 53-56.
Deming, D., and Chapman, D.S. 1988. "Heat Flow in
the Utah-Wyoming Thrust Belt from Analysis of
Bottom-hole Temperature Data Measured in Oil
and Gas Wells," Jour. ofGeophys. Res., Vol. 93,
Nov. 1988, pp. 13,667 - 13,672.
Energy Resources Conservation Board. 1991.
Alberta's Reserves ofCrude Oil, Oil Sands, Gas,
Natural Gas Liquids, and Sulphur. Calgary, AB.
Hermanrud, C., Cao, S., and Lerche, I. 1990.
"Estimates of Virgin Rock Temperature Derived
from BHT Measurements: Bias and Error."
Geophysics, Vol. 55, Jul. 1990, pp. 924-931.
Hermanrud, C., Lerch, I., and Meisingset, KK 1991.
"Determination of Virgin Rock Temperature from
Drillstem Tests." JPT, Vol. 43, Issue 9, Sep.
1991, pp. 1126-1131.
Lam, H.L., and Jones, F.W. 1984."A Statistical
Analysis of Bottom-hole Temperature Data in the
Hinton Area of West-Central Alberta."
Tectonophysics, Vol. 103, pp. 273-281.
Lam, H.L., Jones, F.W., and Majorowicz, J.A. 1985.
"A Statistical Analysis of Bottom-hole
Temperature Data in Southern Alberta."
Geophysics, Vol. 50, Apr. 1985, pp. 677-684.
85
Ib-. _
5.8 RESERVOIR PRESSURE
5.8.1 Introduction
Throughout the productive life of a reservoir, a
record of its pressure is necessary in order to make a
number of necessary calculations. Initial pressures ob-
tained after the discovery of a pool are needed for the
calculation of volumetric reserves, particularly for gas
reservoirs. Reservoir pressure is needed to determine
gas compressibility and formation volume factors for
oil and natural gas, and to undertake PVT analysis.
Material balance calculations for both oil and gas sys-
tems require initial reservoir pressures and subsequent
pressure history after production has commenced.
Fluids flow when a pressure difference is created
between two points. When hydrocarbons are removed
from a reservoir, a pressure drop is created in the
wellbore. This causes the pressure within the formation
to drop. When a flow of fluid is stopped or "shut in,"
the pressure will equilibrate until it reaches stable
reservoir conditions. The time required to reach a stabil-
ized pressure varies fromreservoir to reservoir. Analysis
of the pressure stabilization or "buildup" will reveal
information about the permeability of the formation, the
distance to reservoir boundaries, and any damage to the
formation. If stable conditions are not reached, the press-
ure buildup data may be extrapolated to estimate the
reservoir pressure.
5.8.2 Data Sources
Two types of pressure recorders are available to
measure reservoir pressures: mechanical and electronic
gauges. The mechanical gauge consists of a coiled
bourdon tube pressure element, which spirals outward
as pressure is increased inside it. A stylus on the end of
the tube scribes a thinly coated metal chart, which is
slowly rotated by a clock in the recorder. The distance
the stylus moves is proportional to the pressure inside
the bourdon tube.
Electronic gauges use strain, capacitance transducer,
and quartz gauges as pressure-sensing devices. These
recorders offer the option of programmable sampling
times, and are generally more accurate than mechanical
recorders.
All pressure gauges must be calibrated to ensure that
correct pressures are being recorded. Generally, regula-
tory agencies are responsible for setting guidelines for
gauge calibration. It is important that gauges used for
pressure surveys be calibrated regularly.
It is common practice to use at least two recorders
duringpressure surveys to ensure that representativedata
86
is recovered even if one recorder should fail. Running
tandem recorders also permits comparison between the
two to verify the accuracy of the measurements.
Pressure measurements are usually obtained by
lowering these recorders or "bombs" down the wellbore.
As discussed in Section 5.6.2, the first indication of the
pressure of a formation may come from a drillstem test
(DST), which is usually conducted before production
casing is run into the wellbore (but cased-hole DSTs
are not uncommon). DSTs are also run immediately
upon penetration of a prospective formation in order to
examine its potential before drilling fluids damage the
.zone.
After drilling operations are finished and the well has
been completed for production, pressure measurements
are usually obtained by lowering pressure recorders
down the wellbore on a wire line. In some instances,
the pressure recorders are left downhole for extended
periods of time. In other circumstances recorders mea-
sure the reservoir pressure for only a few minutes. The
latter type of pressure measurement is referred to as
a static gradient. This measures wellbore pressures at
different depths, and these pressures are plotted against
the measurement depth. The resultant plot is used
to identify density changes in the wellbore fluids.
Pressure gradients at reservoir depth are also estimated.
Production tests are commonly conducted when press-
ure recorders are left downhole. When left for a period
of time, pressures are recorded vs. time. Figure 5.8-1 is
an example of data from a static gradient, and Figure
5.8-2, from a flow and buildup test.
Formation pressures may also be measured before the
well is completed by running open-hole wireline tools.
These tools push a probe into the formation and record
the formation pressure.
Bottom-hole pressures are also estimated by measuring
surface pressures and adding the calculated pressure due
to the hydrostatic head of fluid in the wellbore. In cases
where gas and liquid are both present in the wellbore,
acoustic level indicators are employed to determine the
fluid level. The respective hydrostatic heads ofthe flu-
ids are then calculated and added to the surface pressure
to estimate the bottom-hole pressure.
5.8.3 Data Analysis
A major problem in recording pressure data is
determining whether the reservoir pressure is actually
stabilized. There are three widely accepted methods of
obtaining a stabilized bottom-hole pressure. The first
involves the gathering and extrapolation of pressure
..
Figure 5.8-2 Pressure vs. Time
Pressure Recorder Data
Time Pressure Comments
(h) (kPa)
0 20175 begin flow
1 9830 continue
2 8750
"
4 7290
"
8 5570 "
24 5050 "
60 5030
"
90 4670
"
140 4665 stop flow
140.11 5577 continue
140.25 5924
"
140.50 6435
"
140.75 6743
"
141.2 7656 "
142.25 9 163 "
144 11077
"
148 13338
"
152 14273
"
156 14878 "
160 15345
"
170 16146
"
180 16681
"
190 17 074 "
210 17623
"
230 17996
"
350 18989 end of test
As previously stated, the time function [(HLlt)/Llt) must
be calculated. The time, t, is 140 hours, and since
Llt is the elapsed time since the well was shut in, 140
must be subtracted from all the times once the buildup
produced fluid prior to being shut in, and the variable
,
dt, is the elapsed time since the well was shut in.
Plotting the data on semi-log paper theoretically reveals
a straight line when the infinite acting radial flow
period is reached. Extrapolation ofthis data to the semi-
log value of I yields the theoretical static reservoir
pressure. The semi-log value of I corresponds to a
shut-in time of infinity.
Example 1
This example shows how to extrapolate buildup
pressure to obtain a static reservoir pressure.
Pressure recorders were lowered into a new oil well.
The well was flow-tested for 140 hours at a constant
rate and then shut in to allow the reservoir pressure to
build. The data shown in the following table was
obtained from pressure recorders.
400 300 200
Time (h)
100
26,.------------------,
24
22
as 20
ll.
... 18
(t'jX 16
C14
~ 12
~ 10
= 8
d: 6
4
2
o + - ~ _ ~ - _ - ~ - ~ ~ - _ - - I
o
buildup data. The second utilizes a static pressure
measurement, where the shut-in time to reach stabiliza-
tion is determined fromprevious buildup tests. The third
method is also a static pressure measurement, but the
shut-in time of the well is arbitrarily set.
The method most commonly used to extrapolate
pressure data was first discussed by Horner (1951). The
procedure involves the plotting of pressure data during
buildup vs. a time function [(Hdt)/dt) on a semi-log
plot. The time, t, is the time during which the well
Figure 5.8-1 Static Gradient
0
Depth Pressure
200
~
(m) (kPa)
0 11784
300 12129
400
600 12474
900 12819
600 1200 13164
1500 13509
800
~
1800 14862
2100 17532
1000
2150 17977
2200 18422
2250 18867
g
1200 2300 19757
2388 20095
=
1i.
1400
~ - - - - - Slope = 1.15 kPaim
Q
1600
-.\
1800
\ ~ Fluid contact @ 1670mK8
2000
Slope =8.9 kPaim/
2200
2400
2600
10000 14000 18000 22000
Pressure (kPa)
87
b _
--
01-02-003-04W5M
Triassic
930m
2397.0 mKB
930.0m
-2397.0 m
However, if the reservoir is not at stable conditions, or
ifdepletion is thought to have occurred, a buildup analy-
sis is very useful in the determination ofstable reservoir
pressures.
Once pressure data for a reservoir has been collected
from two or more wells, the data should be corrected to
a common datum depth. Many hydrocarbon reservoirs
vary in elevation from one end to the other. In these
situations, a common pool elevation or datum is gener-
ally established. When pressure data is recovered from
wells that have different elevations, the pressure data
must be corrected to this datum depth. The pressure gra-
dient is multiplied by the difference in elevations, and
the result is added to or subtracted from the uncorrected
data. This procedure will correct all pressures collected
for a given reservoir to a common datum depth.
Example 2
This example illustrates how to determine the datum
pressure for two wells.
Pool Datumis at 1467m subsea
09-02-003-04W5M
Triassic
983 m
2460.0 mKB
983.0 m
-2460.0 m
Well:
Formation:
KB elevation:
Top of formation:
Formationtop:
-I 467.0 mss
-1477.0 mss
Date:
October 3, 1991
October 3, 1991
Recorder
run depth:
2388.0mKB
2453.0mKB
(-1458.0 mss)
(-I 470.0mss)
Pressure at
run depth:
20095 kPa
20197 kPa
Pressure gradient
(obtained from
static gradient)
8.9 kPa/m
8.8 kPa/m
Pressure at
-1458.0 mss
-1470.0 mss
pool datum:
-I 467.0 mss
-1467.0 mss
9.0m
-3.0m
9.0m
-3.0m
x 8.9 kPa/m
x 8.8 kPa/m
80.1 kPa
-26.4 kPa
20095.0 kPa
20197.0kPa
+80.1 kPa
-26.4 kPa
20 175.1 kPa
20170.6 kPa
KB = The elevationof the drillingplatformat the kelly
bushing.
Time (t+4.t)/M
Pressure
(h)
(kPa)
0
- 4665
0.11 1273.7
5577
0.25
561.0 5924
0.50
281.0
6435
0.75
187.7
6743
1.20
117.7
7656
2.25
63.2
9 163
4
36.0 II 077
8
18.5
13338
12
12.7
14273
16
9.75 14878
20
8.00 15345
30
5.67 16146
40
4.50
16681
50
3.80 17074
70
3.00 17623
90
2.56
17996
210
1.67 18989
26
24
"' ~ ~ ~ Extrapolated pressure of20 175kPa
~ 18
x 16
"0 14
::. 12
~ a
~ 10 D
III 8 . D
~ 6 a a a
~ a
4
2
o - I - - - ~ - __~ __~ -I
1 10 10
2
10
3
104
[(1 +61)/61]
portion ofthe test begins. The resultant data is shown in
the following table:
Horner Time Data
When the data has been plotted on semi-log paper, a
trend can be seen toward the end of the buildup (Figure
5.8-3). When the trend is extrapolated, the intersection
of the line with a time value of I (which means infinite
t.t) indicates the theoretical pressure the reservoir will
reach. The extrapolated pressure was estimated to be
20 175 kPa.
Figure 5.8-3 Horner Plot
In this example, the first pressure point recorded matches
the calculated pressure found by the Homer analysis. In
cases where the initial reservoir pressure is at static
conditions, a buildup analysis is not necessary.
88
s
Datum pressures for the two wells are 20 175 kPa and
20 171 kPa at 1467 m below sea level.
Once a datum pressure has been determined for all wells
surveyed in a pool, it may be determined that the pres-
sures still vary from point to point. What must be found
now is the average reservoir pressure; three methods
are commonly used. The first is an arithmetic average.
The second is an area-weighted average, where areas of
the reservoir that have similar pressures are grouped
together. The area-weighted average is the sum of the
products of areas times pressures divided by the total
area. The third method is the volume-weighted aver-
age. This method may utilize the rock volume, pore
volume or hydrocarbon pore volume. The following
equations summarize the three methods:
Arithmetic average P= l:(P) / n (I)
Area-weighted average P = l:(P
i
X AJ / A, (2)
Volume-weighted average P = l:(P
i
X VJ / V, (3)
where P = average reservoir pressure
Pi pressure point
n = total number of points
20000 kPa
Ai = area of common pressure
1\ = total reservoir area
Vi = volume ofcommon pressure
V, = total reservoir volume
Example 3
This example illustrates how to estimate the average
reservoir pressure using the arithmetic, area-weighted
and volume-weighted methods.
The porosity volume map in Figure 5.8-4 was found to
have the volumes for the four constant pressure areas as
shown in the following table:
Calculation of Average Reservoir Pressure
Pressure Area Volume
(kPa) (ha) (ha.m)
20000 115 1404
20050 179 4425
20100 155 I 930
20150 90 435
20050 kPa
20100 kPa
20080 kPa
20150 kPa
20000 kPa
o I ha(lOOmx 100m)
20040 kPa: 20060 kPa
.:
15 m
20 090 -'----- 5 m
20110 kPa
--- om
:20 120kPa
20130 kPa
20 140kPa:
20170 kPa
20175 kPa
Area of 20 000 kPa pressure
Area of20 050 kPa pressure
Area of 20 100 kPa pressure
Area of20 150 kPa pressure
Total area of pool
liS ha
179 ha
ISS ha
90ha
539 ha
Volume of20 000 kPa pressure
Volume of 20 050 kPa pressure
Volume of 20 100 kPa pressure
Volume of 20 ISO kPa pressure
Total volume of pool
1404 ham
4425 ha-m
1930 ha-m
435 ham
8194 ha-m
7
Figure 5.8-4 Porosity Volume Map
89
Arithmetic Average
~ ( P , ) = 20 000 +20 040 +20 060 +20 080
+ 20 090 +20 110 +20 120 +20 130
+ 20 140 + 20 170 + 20 175
= 221 115 kPa
n = 11
P = ~ ( P Y n = 221 115 kPa /11
= 20101 kPa
Area-Weighted Average
~ ( P j x Ai) = (20000 x liS) + (20 050 x 179)
+ (20 100 x ISS) + (20 ISO x 90)
= 10 817 950 kl'a x ha
A, = 539 ha
p = ~ ( P j x Ai)/A,
= 10817 950 kPa x ha / 539 ha
= 20070 kPa
90
DETERMINATION OF OILAND GASRESERVES
Volume-Weighted Average
~ ( P j x V) = (20000 x 1404) +(20 050 x 4425)
+ (20100 x 1930) +(20 ISO x 435)
= 164359500kPaxhaxm
V, = 8194haxm=81.94x 10
6m3
p = ~ ( P j x Vj)N,
= 164359500 kPa x ha x m / 8194 ha x m
= 20058 kPa
It should be noted that in this case the arithmetic and
area-weighted averages result in higher pressures than
the most rigorous volume-weighted average.
References
Homer, D.R. 1951. "Pressure Build-up in Wells."
Proc., 3rd World Petroleum Congress, E. 1. Brill,
Leiden, Netherlands, Vol. II, p. 503.
s
In order to calculate the amount of gas in a closed
chamber of fixed volume, two more constants must be
defined: the first is the moles of gas, which is essen-
tially the number of molecules of gas; the second is the
gas constant. The resultant equation is known as the Ideal
Gas Law and expressed as follows:
(2)
(3 )
PXV=ZxnxRxT
PXV=nxRxT
where P = pressure of gas in container
V = volume of gas in container
n = moles of gas in container
R = gas constant
T = temperature 0 f gas in container
5.9.3 Gas Compressibility Factor
The Ideal Gas Law may be used to calculate the
properties ofgases at moderate temperatures and press-
ures; however, the law does not hold true at high
temperatures and pressures. To correct for the devia-
tion, a term called the "gas compressibility factor"
or "gas deviation factor," Z, must be included iri the
equation.
The gas compressibility factor is designed to correct the
volume of a theoretical ideal gas to the volume occu-
pied by a real gas. This factor can be determined in the
laboratory by measuring the actual volumes of a given
amount ofgas at prescribed pressures and temperatures
and comparing these to the ideal volumes calculated by
the Ideal Gas Law. It should be noted that the compress-
ibility factor will change with temperature, pressure and
gas composition.
In cases where the gas compressibility factor is not
obtained from detailed laboratory work, it can be closely
estimated by first calculating two pseudo-critical prop-
erties that are used to determine the compressibility
factor of a natural gas: pseudo-critical pressure and
pseudo-critical temperature. Both of these can be cal-
culated if the composition of the gas is known. Gas
compositions are usually determined by gas chroma-
tography on gas samples; each component is expressed
as a mole fraction of the total.
To calculate the pseudo-critical properties of a natural
gas, the critical pressure and critical temperature of
all the components are needed. These values are avail-
able in numerous publications, such as the Engineering
Data Book (Gas Processors Suppliers Association,
1980). The pseudo-critical pressure of a gas is defined
as the sum of the products ofthe mole fraction of each
component times the critical pressure of that compo-
nent. The pseudo-critical temperature is the sum of the
products of the mole fraction of each component times
the critical temperature of that component. The equa-
tions for calculating the pseudo-critical properties are
as follows:
(I)
1200 kPa x 0.125 m'
450'K
1000 kPa x 0.1 m'
300'K
where the subscript I signifies the first set of condi-
tions, and the subscript 2, the second set of conditions.
Equation (l) assumes that the amount of gas in the
system does not change, and that the gas behaves as an
ideal gas.
Example 1
Aballoon has a volume of0.1 m
3
at 1000kPa and 300K.
If the contents of the balloon are heated to a tempera-
ture of450
oK,
either the pressure or the volume (or both)
must change. In this case, it is assumed that both change,
so that the pressure is now 1200 kPa and the volume is
0.125 m
3
The pressures, volumes and temperatures at
both conditions would be related as follows:
5.9 GAS FORMATION VOLUME
FACTOR
5.9.1 Introduction
In order to determine the gas formation volume factor,
B
g
, which relates the volume of gas in the reservoir to
the volume at the surface at standard conditions of'tem-
perature and pressure, it is necessary to fully understand
gas behaviour. This is explained in the four subsections
that follow. Often the terrns in the B
g
determination
(Equation 15 in Section 5.9.5) are used directly in the
equation for calculating in-place gas volumes, but it is
useful to have B
g
as one term for hand calculations and
simple material balance work.
5.9.2 Ideal Gas Law
Three properties affect the amount of gas in a reservoir:
pressure, P, temperature, T, and volume, V. The 19th
century chemists, Boyle and Charles, found that for a
given amount of gas (see Example 1) the following
relationship holds true:
P, X V, P, xV,
=
T, T,
91
b
(8)
(9)
P, = L(X
j
x P;) (4)
T, =L(X
j
x T;) (5)
where P, = pseudo-critical pressure
T, = pseudo-critical temperature
x
j
= mole fraction of component i
Pj = critical pressure of component i
T
j
= critical temperature of component i
Thomas et al. (1970) found that the pseudo-critical
properties may also be estimated using the specific grav-
ity of the gas. The specific gravity, SG, is the ratio of
the gas density to the density of air.
P, =4892.547 - (404.846 x SG) (kPa) (6)
T, =94.717 + (170.747 x SG) (OK) (7)
Once the pseudo-critical properties are found for a
given gas, the pressure and temperature of the gas
in the reservoir are needed to calculate the pseudo-
reduced properties of the mixture. The pseudo-reduced
pressure is the ratio ofthe actual pressure to the pseudo-
critical pressure. The pseudo-reduced temperature is the
ratio of the actual temperature to the pseudo-critical
temperature.
P, = PIP,
T, =TIT,
where P, = pseudo-reduced pressure
P = pressure of natural gas system
T, = pseudo-reduced temperature
T = temperature of natural gas system
Once the reduced properties ofthe natural gas at a given
pressure and temperature have been calculated, the gas
compressibility factor can be determined by the use ofa
gas compressibility factor chart (Figure 5.9-1) published
by Standing and Katz (In Standing, 1977). The gas com-
pressibility factor may also be determined by the use of
a computer algorithm (Dranchuk et al., 1977).
Example 2
This example illustrates how to estimate compressibility
factor of natural gas from a southern Alberta gas well.
Well location: 02-03-004-05 W6M
Formation: Bow Island
Initial formation pressure: 6790 kPa
Formation temperature: 296 K (23C)
92
Gas Analysis
Mole Critical Critical
Component Fraction Press.
Temp.
(kPa) (OK)
Helium(He) 0.0012 227.53 5.23
Nitrogen (N2) 0.0469 3399.00 126.10
Methane (C1) 0.9322 4604.00 190.55
Ethane (C2) 0.0129 4880.00 305.43
Propane (C3) 0.0045 4249.00 369.82
iso-Butane(iC4) 0.0007 3648.00 408.13
n-Butane (nC4) 0.0009 3797.00 425.16
iso-Pentane(iC5) 0.0003 3381.00 460.39
n-Pentane (nC5) 0.0002 3369.00 469.60
Hexane (C6) 0.0002 3012.00 507.40
Total 1.0000
Pc = L(xixPi) 4541.87kPa
T, = L(xi x Ti) 190.16K
P, = 6790 I 4541.87 1.49
T, = 296 I 190.16 1.56
Z = 0.88 ( from Standing and Katz chart )
In compatison, if only the specific gravity were known,
P, and T, would be estimated as follows:
Specific gravity = 0.587
P, = 4892.547 - (404.846 x 0.587) = 4654.902 kPa
T, = 94.717 + (170.747 x 0.587) = 194.945K
P, = 6790 I 4654.902 = 1.46
T, = 296/194.945 = 1.52
Z = 0.87 ( from Standing and Katz chart)
5.9.4 Sour Gas
Calculating Z using the method described works well
for sweet gases-natural gases that do not contain
carbon dioxide (C0
2
) or hydrogen sulphide (H
2
S).
Natural gases that do contain carbon dioxide and hy-
drogen sulphide are called sour gases. Estimation ofthe
gas compressibility factor of sour gases was found to
be incorrect when using the chart published by Stand-
ing and Katz, and several methods have been developed
to estimate the correct compressibility factor for sour
gases. Wichert and Aziz (1972) compared two of these
methods to one that uses the Standing and Katz chart. It
was found that the chart could be used if the pseudo-
critical temperature and pseudo-critical pressure were
adjusted. An adjustment factor, e, was developed
by Wichert and Aziz to correct the pseudo-critical
0.9
15 14 13 10 11 12
Pseudo-reduced Pressure
9 8
0.9
7
0.3 1.2
0.25
1.1
2.8
1.1
2.4
2.
6
2.'
2.2 Compressibility of
' / . ~
\.9
Natural Gas
Jan. 1, 1941
1.0 1.0
1,1
Pseudo-reduced Pressure
a 1 2 3 4 5 6 7 8
1.1
1.1
Pseudo-reduced
Temperature
3,0
2,8
1.0 2.6
1.0
2.4 1.05
2,2 1.2
2.0
0.95
1.9
0.9
1.8
1,7
1,6
0.8
1.7
1,5
1.45
1.4
0.7
1.6
1.35
N N
..:
1.3 ..:
a a
-
..
ti o
0.6
1.5
'"
1.25
'"
LL LL
>.
, ~
>.
~
, ~
""
:c
1.2
, ~
:c
'00 '00
en
~ ~
(fJ
<ll
0.5 1.4
<ll
~
\ ~
~
0. 0.
E
' / . ~
E
a
-
a
U U
0.4 1.3
Source: Standing, 1977.
Figure 5.9-1 Compressibility Factors for Natural Gases
93

6056.39 X 254.98
Po' =273.18 + 0.3003 (1-0.3003) X 5/9 (32.77)
= 5574.83 kPa
P, = :E(x
i
X P) =6056.39 kPa
T, = :E(xi X T) =273.18 OK
e = 120 x (0.37629 - 0.37621.6) +
15 X (0.3003.5 - 0.3003
4
)
= 32.77
T,' = 273.18 - 5/9 (32.77) = 254.98 OK
(11)
properties. The factor may be determined graphically
or by using the following equation:
e = 120 x (AO.
9
- A1.
6)
+ 15 X (B.5- B
4
) (10)
where A = combined mole fraction of COz and
HzS
B = mole fraction of HzS
The pseudo-critical temperature and pseudo-critical
pressure are estimated in the normal manner and then
adjusted as follows:
Gas Analysis
03-02-004-05 W 6 ~
Rundle
34300 kPa
359 OK (86C)
(13)
r, x T
e
'
P' = (12)
c T, + B x (1-B) x (5e/9)
where Tc' = adjusted pseudo-critical temperature
P,' = adjusted pseudo-critical pressure
Example 3
The adjustments described are detailed in this example
of a sour natural gas well from the Foothills area of
Alberta.
Well location:
Formation:
Initial formation pressure:
Formation temperature:
Mole Critical Critical
Component Fraction Press. Temp.
(kPa) (OK)
Nitrogen (N,) 0.0104 3399.00 126.10
Sulphide (HzS) 0.3003 9005.00 373.50
Carbon dioxide
(CO
z
) 0.0759 7382.33 304.19
Methane(Cl) 0.5277 4604.00 190.55
Ethane (C2) 0.0358 4880.00 305.43
Propane(C3) 0.0079 4249.00 369.82
iso-Butane(iC4) 0.0018 3648.00 408.13
n-Butane(nC4) 0.0041 3797.00 425.16
iso-Pentane(iC5) 0.0020 3381.00 460.39
n-Pentane(nC5) 0.0022 3369.00 469.60
Hexcane(C6) 0.0059 3012.00 507.40
Heptane + (C7+)
0.0260 2486.00 568.76
Total 1.0000
P, = 34300/5574.83 = 6.15
T, = 359/254.98 = 1.41
Z = 0.87 ( from Standing and Katz chart)
In comparison, if the critical properties had not been
adjusted, the compressibility factor would have been
estimated to be 0.77, a difference of 11.5 percent. Use
of the incorrect compressibility factor in estimating
reserves would result in large errors.
It should be noted that the compressibility factor
estimated is only correct at the pressure and tempera-
ture used in calculating the pseudo-reduced pressure and
pseudo-reduced temperature. When the compress-
ibility factor of a gas is required for material balance
calculations, each pressure point requires that a corre-
sponding compressibility factor be estimated.
5.9.5 Derivation of Gas Formation
Volume Factor
Gas formation volume factor, B
g
relates the volume
of gas in the reservoir to the volume on the surface at
standard conditions of temperature and pressure and is
often used to simplify hand calculations ofgas reserves.
For the purpose of estimating reserves, B
g
is generally
expressed as the amount of space occupied at standard
conditions by a unit volume of gas under reservoir con-
ditions. The dimensions ofB
g
are unit volume at standard
conditions per unit volume at reservoir conditions, and
therefore, B
g
is dimensionless.
Derivation of B
g
begins with the following equation
for nonideal gases:
P,x V, P; x V;
Z,T, Z;T;
where P" V" Z, and Ts are all measured at standard
surface conditions, and Pi' Vi' Z, and T, are all
measured at initial reservoir conditions. Transposing
94
r
tenus, B
g
(as defined in this section) is derived as
follows:
v voIume 0 f gas under
B = -' = standard surface conditions
g Vi per unit volume ofreservoir space
Assuming that Vi is one unit volume ofreservoir space,
and that the gas compressibility factor, Z" at standard
surface conditions is unity, B
g
can be reduced to:
References
Dranchuk, P.M., Purvis, RA., and Robinson, D.E.
1977. "Computer Calculation of Natural Gas
Compressibility Factors using the Standing and
Katz Correlations." Institute of Petroleum
Technology, IP-74-008, Vol. I.
Gas Processors Suppliers Association. 1980.
Engineering Data Book, Tulsa, OK.
Standing, M.B. 1977. "Volumetric and Phase
Behavior of Oil Field Hydrocarbon Systems."
SPE of AIME, Dallas, TX.
Thomas, H.K., Hankinson, RW., and Phillips, K.A.
1970. "Determination of Acoustic Velocities of
Natural Gas." JPT, Vol. 22, pp. 889-895.
Wichert, E., and Aziz, K. 1972. "Calculate Z's for
Sour Gases." Hydrocarbon Processing, May
1972.
(14)
(15)
B
g
may now be substituted into the equation for
calculating in-place volumes of nonassociated and gas
cap gas.
95
DETERMINATION OF OILANDGASRESERVES
1.00 ------,r---r--,----,--.-----,
Figure 5.101 Comparison of Formation
Volume Factor by Differential and
Flash Liberation
6000 5000
FlashLiberation
I
1.10
1.20
1.90
2.10 B
odb(2.074)
_
j
' 1:'0...)t..__ Differential liberation
~ I . I . - I
4 1.1._
4
__.11.
I
I
B
o1b(1.723)-/-
/' )
/A :l
/ :
/ g
A ;-
~
!
a.
e
1
'"
2.00
1000 2000 3000 4000
Pressure (psig)
Source: Chevron CanadaResources.
fi
~ 1.80
~
l5 1.70
~
Q) 1.60
5
~ 1.50
~ t 40
..
~ 1.30
5.10.3 DataAcquisition
Before representative samples of the reservoir fluid are
collected, it is important that the well be properly con-
ditioned. A complete well conditioning and sampling
procedure is described in Chapter 5.6.
In most reservoirs, the variations in reservoir fluid
properties among samples taken from different parts of
the reservoir are not large, and lie within the margin of
error inherent in the techniques of fluid sampling and
analysis. On the other hand, some reservoirs, particu-
larly those with large closures, have large variations in
fluid properties, which may be explained by a combi-
nation of the temperature gradients, gravitational
segregation, and lack of equilibrium between the oil
and the solution gas. Methods for handling reservoir
calculations where there are significant variations in the
fluid properties have been documented in the literature
(Cook et al., 1955; McCord, 1953).
5.10.4 DataAnalysis
The composition of the stock tank oil will be quite
different from the composition ofthe original reservoir
fluid. Most of the methane and ethane will have been
released from solution, and sizeable fractions of the
propanes, butanes and pentanes will have vapourized
as the oil moves from the reservoir to the stock tank
and the pressure is reduced. The change in liquid
composition is not a single nor a well-defined process,
5.10.2 Data Sources
A laboratoryanalysis of fluidproperties is the best source
ofdata to estimate the FVF. It is preferable that the labo-
ratory analysis be made on a sample obtained during
the completionofthe discovery well, and that the sample
represent as nearly as possible the original reservoir
fluid. This will ensure that the original FVF is accu-
rately determined with respect to the bubble point and a
decline in the bottom-hole pressure.
Figure 5.101 shows the oil FVF in a typical high.
gravity undersaturated oil reservoir when the reservoir
pressure declines from the initial pressure to stock tank
condition as determined from a laboratory analysis (the
symbols shown in this figure are defined in Example 2,
Section 5.10.5.)
The oil FVF can also be estimated from empirical
methods and correlations available from the technical
literature (Amyx, 1960). A correlation prepared by Katz
(1942) from data on mid-continent crudes requires the
reservoir temperature, and the pressure, gas-oil ratio,
and API gravity ofthe crude. A second empirical correl-
ation developed by Standing (1947) for California
fluids requires the total gas-oil ratio, the gravity of the
stock tank oil and produced gas, and the reservoir
temperature.
5.10 OIL FORMATION VOLUME
FACTOR
5.10.1 Introduction
Theformation volumefactor (FVF) for oil is defined as
the volume in cubic metres (barrels) that one stock tank
cubic metre (barrel) occupies in the formation at the
prevailing reservoir temperature and pressure. A stock
tankcubicmetre(barrel) is defined as the volume occu-
pied by one cubic metre (barrel) of crude oil at standard
pressure and temperature, which are 101.325 kPa and
15C (14.65 psi and 60F) respectively. Crude oil in
the ground always contains varying amounts of dis-
solved gas (solution gas). Because both the temperature
and the solution gas increase the volume of stock tank
oil in the formation, the FVF will always be greater than
one. The symbol B, is used in equations to refer to the
formation volume factor.
The reciprocal of the FVF is called the shrinkage
factor. Just as the formation volume factor is multiplied
by the stock tank volume to find the reservoir volume,
the shrinkage factor is multiplied by the reservoir vol-
ume to find the stock tank volume. Although both terms
are in use, most petroleum engineers use formation
volume factor.
96
1
but is a series of flash and differential liberation
processes.
The difference between these two processes is that in
the flash liberation process, all of the gas remains in
contact with the liquid, while in the differential pro-
cess, some ofthe gas is released (removed from contact
with the liquid phase). For this to be so, the volume of
the system in the flash process must increase as the pres-
sure declines. Thus the flash process is one of constant
composition and changing volume, and the differential
process is one of constant volume and changing
composition.
In the case of reservoir fluids which are at their bubble
point when the pressure declines as a result of produc-
tion, the gas liberated from the oil does not flow to the
well, but accumulates until a critical gas saturation is
reached. This critical saturation will be reached sooner
in the vicinity of the well where the pressure is lower
than at more distant points, particularly for wells pro-
ducing under large pressure drawdowns. With gas
saturations greater than critical near the well, the gas
will move more rapidly than the oil (differential libera-
tion), whereas in the remainder of the reservoir the
liberated gas will remain in contact with the oil (flash
liberation). The volume ofthe reservoir surrounding the
producing wellbore, where the gas is highly mobile, is
usually only a small part ofthe total drainage area. Thus,
where there is a more moderate pressure decline below
the bubble point in the larger part of the reservoir, the
flash liberation is more representative.
On the other hand, when the gas saturation exceeds the
critical value in most of the drainage area, the gas will
flow much faster than the oil. This situation would be
characterized by producing gas-oil ratios considerably
in excess of the initial solution gas-oil ratio. With the
removal of gas from contact with the oil, differential
liberation more closely represents the reservoir behav-
iour. Consequently, differential liberation data should
be applied to the reservoir fluid when the reservoir pres-
sure has dropped considerably below the bubble-point
pressure and the critical gas saturationhas been exceeded
in most of the reservoir.
Flow through tubing and a choke is a declining-
pressure flash liberation in which the gas remains in
equilibrium contact with the oil throughout the process.
There are, however, important differences between
tubing flash and laboratory flash liberation. Tubing
flash liberation is accompanied by declining temper-
atures and, where the gas-oil ratio exceeds the initial
dissolved ratio, the oil is in contact not only with its
own liberated gas but with additional gas produced
from either the oil zone or a gas cap. In contrast the
laboratory flash liberation is isothermal, and only the
gas liberated from the sample is in contact with the
liquid.
When the volume of dissolved gas in the crude oil
is low (indicating low volatility), there are only slight
differences between the flash and differential liberation
data. Under these circumstances the residual barrel by
the differential process may be identified with the stock
tank barrel, and differential liberation data may be used
directly in the oil-in-place equation. Experience indi-
cates that low volatility conditions may exist where the
following are present: the stock tank gravity is below
30 API; the solution gas-oil ratio is less than 70 m
3/m3
(400 scf/stb); and the reservoir temperature is below
54C (130F). These are, of course, only approximate
limits.
When the volatility of the crude is high, as in the
example shown in Figure 5.10-1, more consideration
shouldbe givento the predominant gas liberationmecha-
nism occurring in the reservoir, in the wellbore, and in
surface separation facilities. The FVF used may more
closely approach that of a flash liberation (Craft and
Hawkins, 1959).
In a simple analysis, where only one FVF vs. pressure
relationship is used, industry practice tends toward us-
ing an estimated flash liberation relationship. It may be
argued that the flash process in the wellbore is the final
equilibrium that the oil and gas phases must adjust to.
Also, the pressure drop from bottom-hole pressure to
separator pressure often amounts to a large fraction of
the total pressure decline from formation pressure. In a
common industry compromise, the differential libera-
tion FVF curve is shifted by the ratio between the flash
and differential liberation FVFs at the bubble-point
pressure (refer to Example 2 in Section 5.10.5).
In reality, however, each producing system is different
and each should be examined closely to determine where
the major pressure drops are occurring. In some cases,
further testing and facility modelling may be warranted
in order to maximize liquid production. Figure 5.10-1
shows the FVF calculated by both the flash and differ-
ential processes for a more volatile crude oil having a
gravity of 46.6 API. The difference between these two
curves is significant. This example helps to illustrate
the variability of FVFs, and the importance of under-
standing the impact of each liberation process in the
producing system.
97
.iII? _
...
DETERMINAnON OF OIL AND GAS RESERVES
Example 2: At Pressures Below Bubble Point
(2)
= 0.9750 (Table 5.10-1)
= 1.723 (Table 5.10-2)
= 1.723 (0.9750) = 1.680
VIV
s
. ,
Bod = 1.767 (Table 5.10-3)
B
ofb
= 1.723 (Table 5.10-2)
B
odb
=2.074 (Table 5.10-3)
d
. 1.723
a [usted B
o
= 1.767 x --= 1.468
2.074
and
and
for oil compressibility. This is done by adjusting the
measured volume at saturation pressure using the
following equation:
adjusted B,
where adjusted B,
= B
ofbx
VIV
s
t
(I)
= flash formation volume factor
for pressures above saturation
pressure
= formation volume factor from
flash at saturation pressure
= relative volume from pressure
volume relations at pressure
above saturation pressure
For example, if the reservoir pressure is 27 600 kPa
(4000 psig),
then VIV
sat
B
ofb
adjusted B,
Because oil shrinkage occurs due to gas liberation at
pressures belowthe saturation pressure, flash FVFs that
are referenced to a volume at saturation pressure must
be corrected to reflect this shrinkage. The adjustment is
made using the following equation:
BOlli
adjusted n, = Bod B
, cdb
where adjusted B, = flash formation volume factor
for pressure below saturation
pressure
= relative oil volume from differ-
ential liberation at pressure
below saturation pressure
= formation volume factor from
flash at saturation pressure
= relative oil volume from differ-
ential liberation at saturation
pressure
For example, if reservoir pressure is 14500 kPa (2100
psig),
then
5.10.5 Data Adjustment
In the calculation of a flash FVF, it is often necessary to
adjust the data from a laboratory fluid analysis to more
appropriately represent the true producing conditions.
Normally, flash separation data in a laboratory analysis
is referenced to reservoir fluid volumes at the sat-
uration pressure (bubble point). The following two
examples showhowthe data from a reservoir fluid study
is used to calculate the flash FVF for producing reser-
voir conditions. The data is provided in Tables 5.10-1,
5.10-2 and 5.10-3.
'Table 5.10-1 Pressure Volume Relations
Pressure Relative Volume *
(psig)
VN
t
6000 0.9398
5500 0.9473
5000 0.9556
4500 0.9648
4000 0.9750
3500 0.9867
3300 0.9921
3200 0.9949
3100 0.9979
3029 1.0000
3010 1.0027
2993 1.0051
2982 1.0067
2948 1.0117
2773 1.0408
2571 1.0805
2333 1.1404
2098 1.2206
1849 1.3309
1622 1.4717
1390 1.6732
1298 1.7740
Source: PVT Analysis by Core Laboratories -
Canada Ltd., on Chevron Pembina 1-9-50-12 W5M.
Chevron Canada Resources, File 7013-795.
"Relative volume is in barrels at the indicated
pressure and temperature per barrel of saturated oil.
Example 1: At Pressures Above Bubble Point
Flash FVFs are normally referenced to a volume at
saturation pressure. At pressures above the saturation
pressure, the flash FVF must be corrected to account
98
5
Table 5.10-2 Separator Tests of Reservoir Fluid Sample
Separator Separator Gas-Oil Gas-Oil Stock Tank Formation Separator
Specific
Pressnre Temperature Ratio! Ratlo! Gravity Volume Volume
Gravity of
(psig)
(OF) (OAPI60F) FactorJ Factor" Flashed Gas
reservoir
to 320 74 795 891
- - 1.121 0.725
to 0 74 288 290 46.6 1.723 1.007 1.226
Source: PVT Analysis by Core Laboratories - Canada Ltd., on Chevron Pembina 1-9-50-12 W5M. Chevron Canada
Resources, File 7013-795.
'Cubic feet of gas @ 60F and 14.65 psia per barrel of oil @ indicated pressure and temperature.
2Cubic feet of gas @ 60F and 14.65 psia per barrel of stock tank oil @ 60F.
3Barrels of saturated oil @ 3029 psig and 228F per barrel of stock tank oil @ 60F.
"Barrels of oil @ indicated pressure and temperature per barrel of stock tank oil @ 60F.
Table 5.10-3 Differential Vapourization
Pressure Relative Oil Relative Total Solution Gas-Oil Gas Formation Gas Expansion
(psig) Volume! Volume- Ratio! Volume Factor" FactorS
3029 2.074 2.074 1634
2700 1.947 2.184 1406 0.00568 170.65
2403 1.852 2.326 1231 0.00660 151.52
2100 1.767 2.533 1071 0.00764 130.89
1801 1.695 2.818 934 0.00901 110.99
1502 1.627 3.249 805 0.01098 91.07
1202 1.565 3.905 685 0.01384 72.25
900 1.504 5.080 568 0.01884 53.08
598 1.442 7.481 452 0.02882 34.70
300 1.363 14.802 318 0.05791 17.27
0 1.088
-
0 1.32043 0.757
Source: PVT Analysis by Core Laboratories - Canada Ltd., on Chevron Pembina 1-9-50-12 W5M. Chevron Canada
Resources, File 7013-795.
I Barrels of oil at indicated pressure and temperature per barrel of residual oil at 60F (Bg),
2Barrels of oil plus liberated gas at indicated pressure and temperature per barrel of residual oil at 60F (BJ.
3Cubic feet of gas at 14.65 psia and 60F per barrel of residual oil at 60F CR,).
4Cubic feet of gas at indicated pressure and temperature per cubic foot at 14.65 psia and 60F (B
g
) .
sCubic feet of gas at 14.65 psia and 60F per cubic foot at indicated pressure and temperature: \lgas FVF (\lB
g
) .
99
5.10.6 Summary
Production from the reservoir rock to the stock tank
usually involves a combination of flash and differential
liberation processes. In determining a value for the oil
formation volume factor, the overall flow process of
the oil stream should be analyzed to determine where
the major pressure drops occur and what weighting
should be given to the flash and differential FVFs. If
the volatility of the crude oil is high, there may be a
significant difference between the values of the FVF
determined by the flash and differential processes
(Figure 5.10-1). In such cases, the true FVF may more
closely approach the flash liberation process. If the
volatility ofthe crude oil is low, only slight differences
between the flash and differential data are likely, and
use of the differential liberation data may be feasible.
Future changes in producing procedures should also
be considered in making any assessment of the oil
100
References
Amyx, J.W., Bass, D.M., and Whiting, R.L. 1960.
Petroleum Reservoir Engineering. McGraw-Hill,
New York, NY, pp. 429-435.
Cook, A.B., Spencer, G.B., Bobrowski, F.P., and
Chin, T. 1955. "A New Method of Determining
Variations in Physical Properties of Oil in a
Reservoir, with Application to the Scurry Reef
Field, Scurry County, Texas." US Bureau of
Mines Report, Feb. 1955.
Craft, B.C., and Hawkins, M.F. 1959. Applied
Petroleum Reservoir Engineering. Prentice-Hall,
Inc., Englewood Cliffs, NJ, pp. 86-181.
Katz,D.L. 1942. "Prediction of the Shrinkage of
Crude Oils." Drilling and Production Practice,
American Petroleum Institute, Vol. 137.
McCord,D.R. 1953. "Performance Predictions
Incorporating Gravity Drainage and Gas Cap
Pressure Maintenance - LL-370 Area, Bolivar
Coastal Field." Trans. AIME, Vol. 198, No. 232.
Standing, M.B. 1947. "A Pressure-Volume-
Temperature Correlation for Mixtures of
California Oils and Gasses." Drilling and
Production Practice, American Petroleum
Institute, Vol. 275.
2
5.11 QUALITY AND RELIABILITY OF
DATA AND RESULTS
5.11.1 INTRODUCTION
The quality and reliability of reservoir data reflect
directly on the results obtained in preparing reserves
estimates. As indicated in preceding sections, the con-
ditions under which basic data are obtained and the
laboratory methods used to generate additional data are
both important elements that must be taken into consid-
eration. Elementary reasoning and common sense are
also important elements in the process of preparing
reserves estimates.
In the determination of reservoir rock properties and
fluid saturations, it is common practice to rely on core
data as the reference point and to fit log analysis data to
it. Consequently, the core data must reflect to the great-
est degree possible the in situ conditions ofthe reservoir.
Because of cost considerations, it is usually not poss-
ible to obtain cores under preferred conditions, such as
specifically prepared oil base muds, lease crudes, and
oriented, pressurized, or sponge coringtechniques. Thus,
in most circumstances, conventional cores comprise the
best data available.
5.11.2 Permeability from Cores
Permeability is a particularly important measurement
obtained from cores because it provides an indication
of whether hydrocarbons may be effectively produced
from intervals of interest. The reliability of the perme-
ability measurements can be influenced by the coring
procedure (induced fractures or scale formation), weath-
ering and storage effects, plug sample selection,
preparation in the laboratory, and the measurement
techniques applied. Conventional core analyses are per-
formed without the application ofsimulated overburden
pressure, and horizontal permeabilities are measured in
two directions at 90 to each other. The highest mea-
sured permeability is designated as "k.n,," and the other
as " ~ o ' " A practical approach in most situations is to
assume that the ~ o measurements more closely repre-
sent the in situ reservoir permeability than the k.nax
readings for the following reasons:
I. Small fractures induced during the coring proce-
dure may result in an excessively high k
max
'
particularly in limestones and dolomites.
2. Lack of overburden pressure usually results in
high k.nax and ~ o readings, particularly in poorly
consolidated sandstones.
3. Core plugs represent extremely small samples of
the reservoir rock and may provide higher or lower
permeabilities than might be obtained if it were
possible to use much larger samples, particularly in
heterogeneous reservoirs or reservoirs characterized
by vuggy porosity. In such cases, permeabilities de-
rived from well production characteristics and
pressure measurements may be more representative
of in situ reservoir conditions.
As a general rule, the larger the sample, the better the
reservoir representation.
As previously mentioned, however, if the core was
oriented when it was originally cut, the k.nax and k"o
permeabilities have greater importance and can be
related to actual directions in the reservoir.
Incases where clays contained in sandstone core samples
have been dehydrated during the cleaning procedure,
erroneously high values may be measured for both k.nax
and ~ o permeabilities.
Glaze may be created by core bit action, particularly on
limestone cores, and may obscure variations in core
characteristics during visual inspection and result in
unrepresentative sampling and in permeabilities that are
much too low. Sandblasting is commonly used to re-
move the glaze during sample preparation. Logs should
be consulted during the sample selection procedure.
5.11.3 Porosity from Cores
Porosity measurements made on core samples are less
subject to error than permeability measurements. How-
ever, incomplete cleaning during laboratory plug
preparation may result in erroneously lowporosity mea-
surements. The laboratory techniques used to measure
core porosities may affect the accuracy of the results.
Table 5.4-I in Section 5.4.2 provides a comparison of
techniques.
Since most laboratory porosity measurements are
obtained at surface conditions, the porosities are gener-
ally higher than in the reservoir, particularly in poorly
consolidated sandstones, unless compressibility tests
are conducted to provide reduction factors to allow
for overburden pressures.
It is worth repeating that the quality of the results
obtained from core analyses is directly related to the
quality and condition of the core when it reaches the
laboratory. Therefore, in cutting and retrieving the core,
precautions must be taken to preserve, as much as pos-
sible, the conditions that exist downhole in the reservoir.
Cutting and retrieval of core to surface results in re-
moval of overburden pressure, introduction of drilling
101
fines, and modification of clays, all of which can affect
porosity measurements.
5.11.4 Saturations from Cores
Because ofthe coring and retrieval procedures used for
conventional cores, most laboratory saturation measure-
ments obtained are unreliable. At best, the oil saturations
obtained may provide a preliminary indication of what
residual oil saturations might be after waterflooding. The
water saturation measurements are usually meaningless.
On the other hand, saturations measured on properly
preserved core obtained under well-controlled field and
reservoir conditions can give reliable results. .
Oil-base cores normally provide reservoir samples that
should provide accurate measurements of connate
water saturations. The coring fluid is usually lease crude
or a specially prepared drillingmud that contains weight-
ing material and only very small amounts of water in
emulsion form. The following steps are necessary to
ensure that uncontaminated core is obtained:
I. Set casing and cement to a point immediately above
the target interval to ensure that the drilling fluid
does not become contaminated with uphole fluids.
2. Keep coring fluidin a closed systemto prevent water
from being introduced inadvertently.
3. Analyze samples ofthe drilling fluid for water con-
tent at regular intervals during the coring procedure.
4. Avoid penetration of any underlying aquifer.
5. Preserve recovered core in lease crude, or suitably
protect it from exposure to the atmosphere until it
is ready for analysis in the laboratory.
In Alberta, the Energy Resources Conservation Board
(1993) publishes each year an updated PVT and Core
Studies Index, which is useful in identifying the reser-
voirs that have had special core studies performed.
However, caution should be used in selecting core analy-
ses and special studies from this index since some cores
identified as being obtained with oil-base muds were
not obtained under properly controlled conditions.
Frequently the muds used were oil-water emulsion muds
containing high proportions of water.
Another useful source of connate water saturation
data and relationships derived from oil-base core
analyses relating to reservoirs in the western Canada
sedimentary basin is available in a paper published
by Buckles (1965).
In instances where suitable oil-base cores are
unavailable, capillary pressure studies are performed on
samples ofconventional core to determine information
102
about pore structure that can be related to connate water
saturations. The results should be used with caution since
the studies are generally performed on weathered core
that has been cleaned and resaturated with other fluids.
The results may differ considerably fromthose obtained
from work on oil core using the Dean Stark extraction
technique.
The wettability of reservoir rock is another important
consideration that is often difficult to assess and may
be altered by coring procedures, surface handling, and
laboratory techniques. Generally speaking, the major-
ity of reservoir rock encountered in the western Canada
sedimentary basin is considered to be preferentially
water-wet. However, the term "wettability" is the sub-
ject of much debate and is somewhat misleading in that
it implies that it is a property ofthe reservoir rock that
determines whether it is water-wet or oil-wet. Some
parties hold that wettability of a reservoir rock depends
on which fluid saturated the rock first. Others contend
that wettability is a function of the rock, water, and hy-
drocarbon properties and their associated oxygen-carbon
chains. In fact, most ofthe hydrocarbon reservoirs were
initially deposited under marine environments where
the initial saturating fluid, water, was subsequently
partially displaced by hydrocarbons.
5.11.5 Effective Porous Zone and Net
Pay from Cores
Effective porous zone and effective net pay refer to that
portion of the porous reservoir rock that has sufficient
permeability to permit the flow of reservoir fluids.
Porous rock, with permeability below a certain mini-
mum level in conjunction with capillarity and relative
permeability, will not allow the flow ofreservoir fluids,
at least at rates significant in terms of production eco-
nomics. These minimumpermeability levels may differ
depending on the production mechanism under consid-
eration. In other words, effective net oil pay under a
depletion drive mechanism, where expansion of reser-
voir fluids is the driving force, may be greater than under
a waterflood, where the water displacing the oil tends
to follow the path of least resistance and may by-pass
low permeability reservoir rock. In practice, the con-
nate water saturations related to minimumpermeability
levels tend to be in the range of 50 to 60 percent.
Special core studies and conventional core analyses
should be used to establish cutoffs of permeability and
porosity below which the reservoir is considered
noneffective for specified depletion and production re-
gimes such as solution gas drive, water displacement,
gas displacement, or miscible displacement. Once
s
7
these cutoffs have been established from core
data, correlations (cross-plots of water saturation
vs. permeability, water saturation vs. porosity, and
permeability vs. porosity) with porosity logs may be
developed, thereby permitting a relatively uniform and
consistent approach to the selection of effective porous
intervals and effective net pays throughout a given res-
ervoir. This approach provides a logical and reliable
basis for the creation of effective porous zone maps and
net pay maps. Cutoffs that have been selected arbitrarily
and applied inconsistently throughout a reservoir can
lead to unrealistic estimates of in-place hydrocarbons,
ultimate recoveries, and costly mistakes in reservoir
management.
In reservoirs where core information is unavailable, log
porosity cutoff values may be determined from core
information using nearby reservoirs as models or by
applying generally accepted porosity cutoffvalues from
the reservoir rock under consideration (2 to 4 percent
for carbonates; 7 to 10 percent for sandstones). These
porosity cutoffs are based on experience that shows that
the corresponding horizontal permeability cutoffs are
in the range of 0.5 to 1.0 mD, with the lower end of the
range used for gas reservoirs and the higher end for oil
reservoirs. It should be noted that these cutoffs are
related to measurements made on unstressed core.
5.11.6 Porosity from Well Logs
It is important to calibrate porosity logs using core data
wherever possible since good core-derived data are gen-
erally considered to provide the best benchmarks.
Cross-plots of log information should be used exten-
sively in order to better characterize porosity.
Uncertainty in the detailed mineral composition of the
reservoir rock and borehole rugosity can result in ap-
parent log porosities that are much different than the
true effective porosities. Bitumen and pyrobitumen con-
tained in reservoir rock can greatly reduce effective
porosity with contents ranging up to 30 percent of pore
space in some reservoirs. The analyst should be atten-
tive to all indications of the presence of bitumen and
pyrobitumen and should make it a point to scrutinize
well cuttings and core descriptions for evidence oftheir
presence.
5.11.7 Water Saturations from Well Logs
Water saturations determined from well logs may be
influenced by the following:
Thin beds (averaging effect ofresistivity tools due to
lack of vertical resolution)
Conductive minerals in the reservoir rock
Selection of coefficient "a", cementation exponent
""d' m an saturation exponent "n"
Resistivity of the formation water
With regard to formation water resistivities, care should
be taken to use measurements from samples considered
to be representative of reservoir water uncontaminated
by drilling mud filtrate. Water resistivities determined
from log calculations over known wet intervals should
be compared to those determined from water analyses
wherever possible.
5.11.8 Effective Porous Zone and Net
Pay from Well Logs
As earlier discussions have stressed, the determination
of realistic cutoff levels for permeabilities and porosi-
ties are critical to the selection oftruly effective porous
zones and net pay from well logs. Errors in determining
effective net pay may introduce order-of-magnitude
errors in estimates of effective hydrocarbons in place
and thus lead to costly consequences, particularly in the
planning and implementation of enhanced recovery
schemes.
It is important to use all the data available to ensure the
reliability of results. For instance, in situations where
core information is lacking, correlation of mud cake
build-up on caliper logs can give a good indication of
the sections of the reservoir that have effective perme-
ability and can be used in conjunction with porosity logs
to select effective net pay.
In summary, it cannot be emphasized too strongly that
realistic cutoffs ofhorizontal permeability and porosity
should be used in determining effective porous zone and,
in conjunction with water saturations, net pays from
cores and well logs. Unless unusual reservoir conditions
exist, such as the presence of large concentrations of
clays, horizontal permeability and porosity cutoffs gen-
erally correspond to connate water saturations greater
than 50 to 60 percent. Based on empirical determina-
tions derived from unstressed core measurements,
generally accepted (minimum) cutoffs are as follows:
Horizontal air 1.0mD(medium to high gravityoils)
permeability 0.5 mD(wet gas)
0.1 mD(dry gas under special
circumstances)
Porosity 2 to 4 percent (carbonates)
7 to 10percent (sandstones)
26 to 28 percent (heavyoil in
sandstones)
Watersaturation 50 . 60 percent
103
The cutoffs selected for a given oil reservoir may vary
widely depending on the type of depletion mechanism
being contemplated. Fracture porosity in certain gas
reservoirs may justify the use of lower porosity cutoffs
(0.25 to 2 percent).
5.11.9 Drillstem Tests
The drillstem test provides an indication of the fluids
contained in a reservoir, a measure of the flow charac-
teristics, and a reading of the reservoir pressure. The
reservoir pressures measured during a drillstemtest may
be used to assess the quality and reliability ofthe test as
follows:
1. The hydrostatic pressures measured should be
checked to ensure that no significantpressure change
took place during the test. Any significant change
in hydrostatic pressure would indicate that a proper
packer seal had not been obtained and that the zone
being tested was not properly isolated from the
wellbore fluid column.
2. The pressures measured on different gauges should
be checked for consistency, particularly when more
than one gauge is run at any position. Charts should
be checked for evidence of tool plugging by com-
paring inside and outside gauge pressures.
5.11.10 Production Tests
Good production tests are a function of the objectives
of the test and the test design, as well as the reliability
of the equipment used. From the design viewpoint, it is
wise to use two downhole pressure recorders so that
comparisons can be made to check for consistency. Sur-
face and bottom-hole pressures should be compared, and
any fluid level changes should be noted during build-
ups. Flowrates should be ofsufficient duration to permit
stable conditions to be reached. Generally, when the
objective is to determine static reservoir pressure,
buildup times should be at least twice as long as the
preceding flow rates.
5.11.11 Reservoir Fluid Samples
The sampling equipment and procedures are of utmost
importance in obtaining representative reservoir fluid
samples. Care must be taken to prevent contamination
of the samples by ensuring that the sample containers
are properly purged prior to sampling. Special contain-
ers should be used when collecting gas samples
containing hydrogen sulphide. Proper well condition-
ing prior to obtaining subsurface oil samples is
important, especially when more than one fluid phase
is present in the wellbore.
104
5.11.12 Reservoir Temperature
The most reliable source of reservoir temperature data
is a bottom-hole temperature taken with a continuous
recording subsurface temperature gauge under stabilized
bottom-hole conditions, preferably in conjunction with
a static bottom-hole pressure measurement. Other meth-
ods, such as using maximum reading thermometers
during testing or logging operations, are considered to
be less reliable.
Small variations in bottom-hole temperature, when
converted to absolute temperature, generally result in
only a very small percentage error in the overall reserves
estimates; nonetheless, care should be taken to obtain
the best measurements possible.
As a general rule, temperatures measured in wells will
tend to understate true reservoir temperature because
temperature equilibrium has not yet been reached in the
wellbore. However, in certain situations such as in
shallow wells on warm days, maximum reading ther-
mometers may reflect the high atmospheric temperature
on the day the measurement was made.
5.11.13 Reservoir Pressure
Accurate static reservoir pressures are extremely
important in the determination ofhydrocarbon reserves.
The accuracyof the measurements is a function of the
following:
The type of measurements being made: surface or
bottom-hole
The reliability of the recorders used for pressure
measurements
The duration of the shut-in period
Bottom-hole measurements are considered to provide
morereliable measurements of reservoir pressure than
surface measurements, which must then be extrapolated
to bottom-hole conditions. Usually tandemrecorders are
run to allow comparisons and verification of the
accuracy of the measurements as well as to ensure that
at least one pressure is obtained should one of the
recorders fail.
The duration of the shut-in period is critical in obtain-
ing reliable pressure information and should be a
function of the quality (permeability) of the reservoir
rock and the fluids that occupy it. The poorer the reser-
voir quality and the higher the viscosities of the
occupying fluids, the longer the shut-in period.
s
7
ESTIMATION OFVOLUMES OF HYDROCARBONS INPLACE
5.11.14 Gas Compressibility Factor
Reliable gas compressibility factors are dependent on
the quality ofthe gas analyses being used and how rep-
resentative they are of the reservoir fluids. Since a
compressibility factor is only correct at the pressure and
temperature used in the estimation, it is important to
use reservoir pressure and temperature data of accept-
able quality. With gases containing carbon dioxide or
hydrogen sulphide, large errors can be introduced into
the reserves estimates if the appropriate sour gas corr-
ections are not made in estimating gas compressibility
factors.
5.11.15 Formation Volume Factor
The quality and reliability of formation volume factor
data are dependent upon whether or not the reservoir
fluid samples from which the data were obtained are
truly representative of reservoir conditions. Proper
selection of flash vs. differential formation volume fac-
tors is required to best represent reservoir mechanisms.
5.11.16 Material Balance
Errors inmaterial balance calculations generally fall into
the following categories:
I. Thermodynamic equilibrium not attained in actual
field conditions
2. PVT data obtained using liberation processes that
do not represent reservoir condition mechanisms
3. Inappropriate average pressures
4. Uncertainty in the material balance "m" ratio
5. Inaccurate production data
6. Inability to recognize the presence of an exterior
source of energy, such as an aquifer
The amount of pressure decline covered by the
production historyis one of the best criteria in gauging
potential errors. The material balance is a comparison
of voidage to expansion. It concentrates on evaluating
fluid expansion. Large pressure declines produce large
expansions, making inaccuracies in production volumes
relatively less significant. Similarly, pressure errors are
less critical with more pressure depletion. In general, a
pressure decline of 10 percent of the original reservoir
pressure is needed before the material balance becomes
reliable. This critical depletion level is highly depend-
ent upon the quality of pressure, production, and PVT
data.
5.11.17 Interrelationships
The interrelationships and interdependencies of the
various parameters are important in arriving at reliable
estimates of in-place volumes. Ifthe sources ofthe data
are reliable, then the quality of the resulting estimates
can be improved by a consistent approach in the selec-
tion ofparameters. For example, in a particular reservoir
where reliable oil core data are available, water satura-
tions can be plotted vs. porosities and vs. horizontal
permeabilities. In tum, porosities can be plotted vs. hori-
zontal permeabilities. Minimum porosity and horizontal
permeability cutoff values can then be selected that are
consistent with a selected water saturation cutoff value,
say 50 percent. The porosity and horizontal permeabil-
ity cutoffs established from the oil core data can then be
applied to conventional core data. The combined core-
derived information can then be used to calibrate well
logs and additional interrelationships established
through the use of further cross-plots. This approach
ensures that the data derived from one source is
consistent in its application with data from another
source.
Not only does interrelating the various parameters
introduce consistency to the estimates of in-place vol-
umes, it also provides a sound basis for the application
of recovery factors. Care should be taken to ensure that
the applied recovery factors are consistent with the in-
place volumes and cutoff values used. For example,
negotiatedin-placevolumes, suchas those resultingfrom
unitization negotiations, should be used with great cau-
tion since they are not necessarily an accurate and
consistent representation ofthe reservoir.
References
Buckles, R.S. 1965. "Correlating and Averaging
Connate Water Saturation Data." JCPT, Jan. -
Mar. 1965, pp. 42-52.
Energy Resources Conservation Board. 1993. PVT
and CoreStudies Index. Guide G14, Calgary, AB.
105
Chapter 6
PROBABILITY ANALYSIS FOR ESTIMATES OF
HYDROCARBONS IN PLACE
6.1 INTRODUCTION
Chapter 5 has addressed the importance of, and the
challenges involved in, obtaining accurate and reliable
measurements from samples. This in itself is difficult
enough, but there is a "fact of life" in the petroleum
industry that further complicates the volumetric estima-
tion procedure: petroleum reservoirs are heterogenous,
so parameter values vary from sample to sample even
when they are correctly measured. The variation might
be handled by using many sample measurements and
statistical techniques, but the cost of obtaining samples
is so expensive that there can never be even close to a
sufficient number of samples.
To gain an appreciation for the magnitude of the
shortfall, imagine trying to predict the outcomes of
political elections from the opinion of one voter. If this
sounds ludicrous, it is; yet a one voter sample is a larger
percentage of the total population than the reserve esti-
mator can realistically hope for. Several approaches to
this dilemma have been tried over the years and each
has its shortcomings. This chapter is about searching
for a better way.
Industry's historical approach has been to "guesstimate"
a single best value for each parameter, resulting in a
single value for the volumetric estimate. This sounds
easy until it is tried. There is never enough information
to justify the selected value. Getting a second opinion
does not help because no two people will calculate the
same volumetric number, and some data will exist to
support and contradict both. Thus two technically com-
petent people can have very different opinions and either
or both could be right or wrong.
The industry's current practice of multi-disciplinary
group or team decision-making compounds the prob-
lem because the multiple opinions will almost certainly
be different. Achieving group consensus is rarely pos-
sible because no "right" answer can be determined, and
even consensus does not guarantee truth; in fact, it can
provide a false sense of security that may collectively
lead all those involved into subsequent contradictions
106
between the agreed-to perceptions and reality, and thus
introduce the potential for unfortunate consequences.
The single-value approach presents some organizational
disadvantages as well. In order to arrive at the "right"
number there are only three ways to handle differences
of opinion:
I. Some people have to concede they are wrong,
despite evidence that suggests they might be right.
2. The group goes into an endless analysis mode and
never determines the "right" answer.
3. Dissenting opinions are overruled and ignored.
This could hardly be called good team building-
imagine the confrontations generated and the feelings
of the participants! Is it appropriate that, after a certain
amount of discussion, the debate is often adjudicated at
a higher level of the organizational heirachy? The po-
tential for bias in the assessment likely increases as the
debate proceeds to higher-authority levels, because each
successive level is less familiar with the technical de-
tails, but more cognizant of the impact that a particular
number will have on current plans and operations. Some-
times there may even be personal implications, as with
management whose performance assessment is directly
linked to the reserves booked for the year, or the con-
sultant whose opportunities for further work may depend
directly on the magnitude of the reserve estimate.
A final criticism of the single-value approach is that at
the conclusion of the exercise the participants are
expected to be fully committed to the resulting deci-
sions and to work together toimplement them. This is
not a reasonable expectation for a process that is essen-
tiallyadversarial as winners and losers seldomwork well
together.
In spite of the high organizational costs and the low
probability of achieving a reliable, accurate estimate,
the single-value approach is still used. A plausible
explanation is that the industry is unaware of a better
alternative. Other approaches have been tried over the
years, including those listed in Table 6.1-1. Of the
S'
PROBABILITY ANALYSISFOR ESTIMATES OFHYDROCARBONS INPLACE
approaches listed, the Warren Method is the most work-
able, but it is not widely used at the present time. The
method was developed by a pioneer in the application
of probabilistic methods to the oil industry, Dr. Joseph
E. Warren (1988). It works because it:
Is applicable to volumetric theory
Provides a means to deal effectively with varying
amounts of indirect data that may, at times, seem
overwhelming in volume but are always incomplete
and insufficient to support a purely statistical analy-
sis, or justify a single number as the right answer
Quantifies the uncertainty in the estimate by separat-
ing the range ofprobable values from the much larger
range of possible values
Is applicable to all stages of evaluation, from initial
assessment of basin potential to individual pool
development
Is sufficiently flexible to incorporate all the avail-
able data, which can differ for every pool and at each
evaluation stage
Is quick, easy and inexpensive to use
Table 6.1-1 In-Place Volumetric Estimation Techniques
The Warren Method is simple enough that it can be used
on a personal computer or even a hand-held calculator,
and successive iterations are actually easier to perform
than the initial calculation. These features enable the
focus to be on the quality of the input data rather than
on the arithmetic, and they encourage its use. In addi-
tion, the method can be extended to provide reserve and
net present value estimates, while dry-hole risk can be
accommodated in the pre-drilling evaluations.
6.2 WARREN METHOD THEORY
The Warren Method is based on the following
combination of theory a n ~ assumptions:
I. It has been proven that the product of unimodal
random variables is log-normally distributed as the
number ofvariables approaches infinity (Aitcheson
and Brown, 1966, Theorems 2.8 and 2.9), and that
the product oftwo or more log-normal distributions
is a log-normal distribution (Theorems 2.2 and 2.3).
This theory and its application in analogous
situations, plus the tests on artificial samples,
suggest that the volumetric hydrocarbon-in-place
estimate may be approximated as a log-normal
Methodology
Single-ValueEstimate
Absolute Minimum!
MaximumValue Approach
Statistical Analysis
Monte Carlo Computer
Simulation
Warren's Probability
Analysis
Comments
No satisfactoryway to select the "right"value for each parameter in the volumetric
equation. No way to resolve differing opinions on prospect potential. Cannot quantify
uncertaintyin in-place estimate nor the probabilityof occurrence.
Consistent use of minimum!maximum parameter values to calculate absolute minimum!
maximumhydrocarbonsin place yields a minimumvalue that is uneconomic and a
maximumvalue that is too good to be true. Range is too large to be of practical use. No
way to separaterange of probable values worth consideringfrom the much larger possible
value range.
Generallyinsufficient samples to develop in-placedistribution for the total population
from the sample population. Drillingbest prospects first biases sampling, yielding
optimisticpredictions if sampleresults are extrapolatedto total population. Sufficient
samples for a play are usually available once the explorationist has run out of prospects.
For a given pool, they are available after the pool has been developed. The timing is
unacceptable for both.
Development of in-placeprobabilitydistributionis a significant advancement over
previous methods. The dilemma is how to model parameter distributions. Development
of in-placedistributionfrommultiple single value calculations is computer-intensiveand
time-consuming. The method tends to be too cumbersometo accommodate iteration
requests and time constraints.
Yields similar solutionsas Monte Carlo computer simulationin less time and at lower
costs.
107
---
M, (HCIP) = m, (x.) x m, (x.) x m, (x.) x ... (I)
M, (HCIP) =m, (x,) x m, (x,) x m, (x.) x ... (2)
distribution because it is the product of successive
multiplications. The characteristics of the
hydrocarbon-in-place (HCIP) distribution may
be calculated from the moments of the parameter
distributions as follows:
I
m, (x) = -- (x
mi
, + .95 x
pmb
+ x
m
,,) (5)
2.95
maximum error of 2.05 percent in the tests, while
average absolute and maximum errors for the vari-
ance were 2.2 percent and -7.5 percent respectively.
The recommendations balance the need for accu-
racy with the need for simplicity in the estimation
procedure. In particular, a formula utilizing the mode
rather than the median of the distribution was
chosen to estimate the mean (it is easier to estimate
the mode than the median). The distribution
moments are calculated from the minimum, most
likely and maximum values for the distribution
using the following equations:
(3)
(4)
"
Rio = M, (HCIP) ~ , .
6.3 APPLICATION
The first step in estimating the in-place hydrocarbons
of a pool is the development of value ranges for each
of the parameters in the volumetric equation. The
minimum and maximum values establish the range
for the pool average value by distinguishing between
what is and what is not within the realm of possibility.
It is crucial that the true average value for the pool be
3. Consistent, reliable, unbiased 3-point estimates can
be developed. This assumption, which is also
necessary to Monte Carlo simulation, may appear
daunting. Capen's (i 976) hypothesis that SPE mem-
bers will "miss" an average 68 percent of the
questions and the results that support the hypoth-
esis are a sobering assessment of the industry's
present inability to deal with uncertainty. However,
Capen suggests that the skills necessary to provide
reliable estimates may be developed with practice,
and he offers some practice techniques. He notes
that some meteorologists have apparently mastered
this skill and suggests that oil industry personnel
can eventually attain a similar proficiency.
In practice the assumptions are applied in the reverse
order listed.
where
z M, (HCIP)
a = In ----=--'--------'-
M ~ (HCIP)
M,(HCIP) = first moment of hydrocarbon
in-place distribution
MiHCIP) = second moment of hydrocarbon
in-place distribution
m.Ix,...) = first moment of the nth
parameter distribution
mix
n
) = second moment of the nth
parameter distribution
xi- =parameter distribution (<\>, h,
A...)
R
so
= median value of the in-place
distribution; plotted at the 50th
percentile on log-probability
paper
R
s4
., = median value plus one standard
deviation; plotted at the 84.1th
percentile
2. A three-point approximation can be used to
estimate parameter distribution moments in the
absence of complete knowledge of the continuous
distribution. This assumption, which is also inte-
gral to Monte Carlo simulation, is necessary because
a complete knowledge is seldom, if ever, available.
It is supported by the work of Keefer and Bodily
(1983), who compared the accuracy ofseveral three-
point approximations in estimating the means
and variances for a set of beta distributions. The
recommended approximation for the mean had
an average absolute error of 0.37 percent and a
[
J
'
x - x
m, (x) = m ~ (x) + m" mi,
3.25
where
xmin
= minimum parameter value
(probability =0.05)
x
prob
most likely parameter value
(mode)
x
max
= maximum parameter value
(probability =0.95)
(6)
108
s
PROBABILITY ANALYSIS FOR ESTIMATES OF HYDROCARBONS INPLACE
greater than the minimum value and less than the
maximum value. However, if unrealistic minimum or
maximum values are used, the variation in the in-place
distribution will be so large that the estimate will have
no practical use. For example, the minimum average
pool porosity value must be slightly greater than the
cutoffvalue for the rock type or the discovery well could
not have produced hydrocarbons on the drillstem test.
Using the cutoff value as the minimum average pool
value is probably acceptable, but using zero as the mini-
mum average value is not. Similarly, assuming the well
flowed gas on the test, the residual gas saturation value
might be ~ n acceptable approximation for the minimum
pool average gas saturation value. Values of zero and
one are always too extreme when estimating the
volume of hydrocarbons in a pool because they imply
that no hydrocarbons exist, contrary to the production
from the pool. Warren's methodology does permit an
evaluation of "dry hole risk," but the topic is beyond
the scope of this discussion.
The most likely value or modal value is the "pool
parameter average value with the highest frequency
of occurrence." By definition, it is greater than the
minimum value and less than the maximum value.
A suggested interpretation is the "best guess" for the
pool average value. Several iterations with different
best guesses usually demonstrate that the in-place
distribution is relatively insensitive to variation in the
most probable value. Because the in-place distribution
can be calculated so easily, iteration using all the poten-
tial probable values is often the quickest and easiest way
to resolve which value should be used for this
parameter.
In the absence of sufficient measurements, the source
for parameter values is the combined training and
experience ofa company's earth science personnel. The
multi-discipline team approach to in-place estimates
provides some desirable features. It brings a higher level
of competency to the parameter estimates than can be
supplied by anyone discipline working in isolation, and
the inter-discipline discussion tends to highlight any
individual bias or inconsistency that may exist in the
evaluation. For a given prospect, the objective is to iden-
tify the models that do not apply, based on the available
information, and then develop unbiased parameter value
ranges encompassing all the models that may apply to
this particular prospect. A multi-discipline team that
appreciates the unique viewpoints of its individual mem-
bers and works to include all views in a consistent
explanation has a definite advantage in accomplishing
this task.
Possibly the most challenging part of the evaluation is
incorporating parameter interdependence into the volu-
metric equation. Team members may agree that a
dependence exists, but that the relationship is vague or
unknown. An apparent impasse in the discussion usu-
ally signals that the teamis grappling with a dependency.
This is especially obvious when individuals are basing
their estimates of one parameter on their estimates of a
previous parameter. Because each case is unique, a single
solution applicable to all cases does not exist. Resolu-
tion requires flexibility and at least one team member
with the ability to postulate the mathematics ofthe de-
pendence from the discussion. The guiding principles
are as follows:
1. Deal with only one geologic process at a time.
2. Prevent the team from estimating parameters for
which they have no direct measurements.
3. Ifa parameter can be identified as a product of other
parameters, estimate the primary parameters and
substitute them into the volumetric equation.
4. When one parameter is clearly dependent upon an-
other, substitute the dependency into the volumetric
equation to minimize the number ofparameter esti-
mates required from the team, and thus reduce the
chance ofinconsistencies creeping into the estimate.
An example ofthe application ofthese guidelines is the
estimation of pool rock volumes. The rock volume
should not be guessed at directly because the pool rock
volume is never measured. Teams often find it easier to
approximate the rock volume as a combination of geo-
metric shapes and estimate the dimensions for each
shape. For example, a rectangle-triangle combination
might be used to approximate a reef cross-section
(Figure 6.3-1). The rectangle represents the reef crest
while the two triangles represent the reeffront and back
slopes. Now the team's expertise can be used to pro-
vide estimates for gross thickness, H, crest width, W,
reeflength, L, and slope angles, X. Angle ofrepose con-
trols the front slope, while regional dip is the primary
influence on the back slope. This information, plus the
equations for triangular and rectangular areas, yields the
cross-sectional area of the reef. Multiplication by both
the ratio ofnet pay to gross thickness and the reeflength
yields the volume of the reef considered to
contain hydrocarbons.
The dependency between cutoff values and pool
average values for porosity and net pay deserves men-
tion. Increasing the cutoff value decreases the net pay
value, but increases the average porosity value. The
109
Reef Back Slcpe
/
/'
/'
Reef
Front Slope
-W- Underlying Water
/'
/'
/'
/'
/'
/'
/'
/
/
/
/
/
/
/'
Hydrocarbon Bearing
Rock Volume = (Area Back Slope + Area Crest + Area Front Slope) (Length) (Net/Gross Pay Ratio)
2 2
= (0.5 H + HW + 0.5 H ) (L) (Net/Gross Pay Ratio)
tan Xb tan X,
Figure 6.3-1 Estimation of Reef Volume
recommended method of addressing this issue is to
calculate in-place distributions for each of the param-
eter value combinations corresponding to the different
cutoffvalues. Iteration usually demonstrates that the dif-
ferent combinations yield essentially the same in-place
distribution.
6.4 TYPICAL SITUATION:
CONVENTIONAL GAS
The example described in the next few pages is typical
ofmany ofthe situations encountered. It serves to show
just how far afield one can go if insufficient attention is
paid to the uncertainty in the in-place estimate. To give
this example some reality and illustrate the economic
utility of the method, typical recovery and economic
factors are assumed; however, in practice, equal atten-
tion is paid to developing the range of all parameters.
A recent carbonate discovery well flowed gas at a rate
of 225 x 10
3
m
3/d
from 10 m oflogged pay following
completion. Log-derived porosity and water saturation
values are 0.13 and 0.205 respectively. Movable water
was not interpreted to exist in the pay interval. The
formation temperature during logging was 74C. Core
is not available from this well.
Based on the interpretation of the single rate flow and
buildup data, the well is completed in a single porosity
reservoir, with 300 mD-m conductivity and a -2 skin
factor. Bottom-hole formation temperature recorded
during the buildup stabilized at 81C. The Homer plot
extrapolation yielded a value of 24 731 kPa(abs).
The gas deviation factor is calculated from the gas
compositionas 0.88 at a temperature of81 Cand a press-
ure of 24 731 kPa. Radius of investigation calculations
yield an investigation area of 56 hectares. A single
boundary is interpreted to exist at a distance of 266 m
from the well. This correlates with the seismic interpre-
tation, which located the eastern edge of the structure
200 to 350 m from the wellbore. No insight on the loca-
tion of the other edges is available from the well test or
the seismic interpretation.
Geological interpretation provides the location of
the remaining edges, which are inferred from the
depositional model, dip angle, and offset well data.
Post-depositional erosion results in a very steep-sided
structure. Subsequent infilling of these erosional chan-
nels with impermeable material provides the trapping
mechanism for the structure. From these interpretations,
the maximum areal extent of the pool is four sections
(Figure 6.4-1). The geologist has also interpolateda most
likely value, covering about 2.25 sections. The basis
for this contour is solely the assumption that the true
value is likely nearer the mid-point than the extremes.
The Exploration Department is rumored to be
contemplating a bid in excess of $3000/ha for the off-
setting acreage. Justification seems to be the four-section
upside potential ofup to 4900 x 10
6
m
3
ofreserves. The
Exploration Department's request for review of their
numbers has just been received. The sale will take place
at the end of the week.
110
7
Optimizing porosity. area,
recovery factor, etc.,
indicates up to 4900 X 10' m
3
of recoverable gas.
Geologist's most likeiy contour
p -------\--.
-"---V/\
.' ,
, .:'./ ;
.
. ,
.
,
.
,
,
,
p:
,
,
,
,
,
"*-
,
,
'\
,
,
,
,
,
I
,
,
, ,
\
,
j;/
,
,
P/'
,
~
.
,
,
\
,
,
, .
,
-
-
.
.
\ -------- ---
A completion test has shown
excellentreservoir with one
adjacent boundary.
Figure 6.4-1 Typical Situation: GasPool Map
The Production Department apparently has no plans
to tie in this well at the present time. Volumetric
estimates using minimum parameter values yield
in-place hydrocarbons of 44 x 10
6
m'. The economic
hurdle volume for the tie-in is 250 x 10
6
m
30freserves.
Environmental concerns preclude flaring additional gas
volumes to perform an economic limits test.
Review of the four analogous pools reveals various
stages of depletion, with pool reserves estimated at 55,
120,250, and 550 x 10
6
m'. Cumulative production from
the seven wells in these pools ranges from 30 x ]06 m
3
to 300 x 10
6
m
3
This statistical review did not persuade
the Production Department to tie in the subject well,
but raised questions concerning the size of facilities re-
quired. In addition, the Production Department advises
that they recently abandoned the lone well in the 55 x
10
6
m
3
pool, due to reservoir depletion. Several reviews
with increasingly senior levels of management have
resulted because the well tie-in costs were not recouped,
and Production's personnel are anxious to avoid any
future recurrence. They note that the recently abandoned
well also demonstrated a commercial flow capability
following completion and had an upside potential of
2000 x 10
6
m
3
and an economic hurdle volume of
120 x 10
6
m
3
Your boss just "volunteered" you to resolve the situa-

tion. In addition, he advises that senior management
would like to review the corporate reserves booked
against this well, plus production and cash flow fore-
casts at the upcoming quarterly review. The press
reports described the well in glowing terms, "possibly
the best discovery ofthe year" and-you agree-it can't
just sit there.
How will you proceed?
Behind the Numbers
The situation may seem tense but it is not hopeless!
Although some sabres are rattling, your boss's insight
g e ~ s you in while the majority are still willing to listen.
Pnvately, both departments confide that their numbers
are not absolute but ...
The ultimate purposes of reserve estimates are as fol-
lows:
1. To assess whether the uncertainty in the reserves
of a given prospect is of sufficient magnitude to
justify the expenditures required to reduce the
uncertainty
2. To assess the safety of the prospect and of the
aggregate from an investment viewpoint
3. To provide an indicator of aggregate performance
E a ~ h of these different purposes requires a unique
estimate for the prospect. Additionally, there are times
when the prospect estimate is less important than its
impact on an aggregate ofreserve estimates, such as the
company reserve profile. An understanding of the re-
sponsibilities and COncerns of the different groups and
their relation to the prospect or the aggregate is vital to
resolving this situation. Erroneous conclusions with
potentially disastrous consequences can result when
an estimate intended for one purpose is misused for
another.
In this case, the Production Department is charged with
the responsibility for tying in the well. The concerns
that relate directly to the prospect estimate are the size
and design of the surface facilities, the type of sales
contract to negotiate, and the likelihood that the tie-in
will be economic. Budget allocation requires that the
economic potential of this prospect be compared and
ranked relative to the other financial opportunities avail-
able to the department. This is an aggregate-related
issue because the focus now is on the cumulative
outcome for the budget period and the effect on the
111
overall performance of both the department and the
company.
The company's future depends on continued access to
economic sources ofproduction which, in this example,
is the responsibility ofthe Exploration Department. One
way to access new production sources is via the bid-
ding process. To be successful, the bid price must exceed
all competitive bids, but it must also be less than the net
economic value of the reserves acquired. The conse-
quences of bidding too low or acquiring the prospect at
an uneconomic price are equally undesirable. This pros-
pect-related issue can be addressed by comparing the
likelihood of exceeding the prospect economic value
for a given bid price to the likelihood of acquiring the
prospect at that price. The aggregate issue is again bud-
get allocation and the impact of this opportunity on
overall performance.
The issues at the corporate level tend to be aggregate-
related. Both internal and external comparisons to
established criteria are performed at this level, under-
scoring the need for aggregate reliability and consistency
throughout the industry. Reliability is required to es-
tablish trust in future projections, and is achieved when
past performance essentially agrees with past projec-
tions over some time period. Consistency is necessary
to permit comparison. Comparisons may be between
producing horizons, between geographic areas, between
departments within a company, between companies, or
even between industries. Comparison criteria are usu-
ally economic and incorporate required or desired
objectives. An example of a required objective might
be the time component in sales contracts, security of
supply issues, or possibly safety and environmental
issues.
This section demonstrates that calculating the in-place
hydrocarbon distribution cannot satisfy these concerns
directly. The calculation is only a necessary first step in
developing solutions that avoid disaster while achiev-
ing acceptable results for at least the majority of the
probable reserve outcomes. This approach is based on
the concept that a solution that avoids disaster under all
probable outcomes is preferable to one that performs
nearly ideally under a narrow range of conditions, but
provides unacceptable results the majority of the time.
The optimal solution is the one that avoids disaster for
all probable outcomes while maximizing the desired
results over the widest range ofprobable outcomes. For
an individual prospect, this requires consideration ofthe
probable range of outcomes available to the prospect,
while an aggregate question requires consideration of
the probable variation in the aggregate.
112
Pool Parameter Values
Congratulations! You've established sufficient trust that
representatives from both departments have agreed to
meet with you for the purpose of establishing param-
eter value ranges. An unexpected break is the attendance
of two people whom you've successfully worked with
before. Several intense discussions prove fruitful and
produce group consensus on the following parameters.
Areal Extent
By group consensus, the pool areal extent must be greater
than 56 hectares. The most conservative guess is 64
hectares, which is deemed to be the minimum possible
value. The maximum possible value is quickly set at
1024 hectares, but opinions on the most likely value
range from 1.5 to 2.75 sections. Resolution is reached
when you offer to run three cases, using 384, 576, and
704 hectares as the most likely value, to demonstrate
the impact on the in-place distribution. Discussion of
deposition and erosional processes, seismic interpreta-
tion plus several pictures of badlands terrain produces
consensus that the area ofthe top ofthe pool is less than
the area of the base. Opinions range from 60 to 95 per-
cent ofthe basal area, with 80 percent as the most likely
value. The inter-relationship is handled using an aver-
age area, which is equal to 0.5 (base area + top area).
Substituting these percentages into the equation yields
the average area equal to 80, 90 and 97.5 percent ofthe
base area respectively (Figure 6.4-2). These percentages
and the basal area estimates are substituted for the
average area in the in-place distribution calculation.
Net Pay
Discussion quickly identifies that for this case the pool's
net pay is the product of two geological processes. The
gross thickness of the rock is controlled by deposition
and erosion, but not all of the rock is reservoir quality.
Only the portion whose porosity and permeability has
been enhanced via post-depositional processes is con-
sidered to contain hydrocarbons. This interrelationship
is handled by first estimating the gross pay of the pool
and then the percentage conversion to reservoir rock.
Net pay is the product of the two parameters.
The gross pay thickness is controlled by topographical
variation on the upper erosional surface and the eleva-
tion ofthe gas-water contact, ifone exists, on the bottom.
In the worst case, free water exists just below the
bottom of the discovery well and, in the best case, it is
not present. Free water is known to exist in two of
the analogous pools, but at different elevations. This is
'1
!
<
For the minimum case,
Atop = 0.6 Abo" (7)
A
OVg
= 0.5 (A,op + Abo,,) (8)
substituting (7) in (8)
A
ovg
= 0.5 (0.6 A
bos
+A
bos.)
0.5 (1.6 A
bos.)
0.8 A
bos
Figure 6.4-2 Conversion of Base Area to
Average Pool Area
consistent with the theory that the hydrocarbons were
locally sourced. From this and the 0.98 degree regional
dip angle, the gross pay thickness estimates are 6.5 m
as the minimum case, 19 m as the maximum, and 15 m
as the most likely value. At 13 m, the gross pay thick-
ness for the discovery well is slightly below the pool
average and came in about 2 m lower than expected.
Anumber of possible mechanisms are discussed for con-
version of limestone to dolomite, none of which are
definitive. In the end the estimates are based on the
group's experience with the region, gained from the
examination of logs and core from this formation over
the entire geological basin. Based on that experience,
the rock encountered by the discovery well is about av-
erage in terms of converting gross pay to net pay. The
conversion efficiency for the pool is estimated at 65,
80, and 90 percent, respectively.
Porosity and Gas Saturation
Regional experience again comes to the forefront in the
estimation of these parameters. The question of bitu-
men infilling of the available porosity arises but is
considered remote, based on the group's experience with
this formation. The group also considers the possibility
that porosity and water saturation are interrelated, but
postulated correlations prove inconclusive. However
it is agreed that the greatest variation in the in-place
estimate results from the independent treatment of
the two parameters, so value ranges are developed
accordingly. The minimum possible pool porosity is
estimated at 12percent, the maximum at 17percent and
Similarly for
Atop =
A
avg
=
and when
Atop =
A
avg
=
0.8 A
bos
0.9 A
bas
0.95 A
bos
0.975 A
bos
the most likely at 15percent. Water saturation estimates
are 18, 20 and 22 percent respectively.
Pressure
The initial reservoir pressure is uncertain. The Homer
plot gives an extrapolated pressure of 24 731 kPa (abs)
fromthe buildup, but this is not the initial reservoir press-
ure because the boundary's presence violates the
requirement for infinite acting radial flow. Regional
pressure gradients suggest an initial pressure of 22 000
to 26000 kPa (abs). The group agrees that the mini-
mum possible pressure is 24 000 kPa (abs) because the
pressure was still building at the end of the buildup
period, with a final value of 23 966 kPa (abs). A maxi-
mum value of26 000 kPa (abs) is assumed, with a most
likely value of24 700 kPa (abs).
Temperature and Gas Deviation Factor
Recorded bottom-hole temperatures during the buildup
ranged from 80.97 to 81.25C. This variation is very
small relative to the uncertainty in the other parameters.
Perhaps parameters with less than I percent difference
between the minimum and maximum values can be
treated as a constant without significantly affecting the
in-place distribution? The effect can be observed by first
considering temperature as constant at 81C, and then
as a parameter, with values of 80.97, 81 and 81.25C.
The gas deviation factor varies from 0.87 to 0.89 over
the 24 000 to 26 000 kPa (abs) pressure range. The
variation between the minimum and maximum value is
less than 3 percent, so perhaps it too can be treated as a
constant? The incentive for doing so is that the increased
accuracy achieved by incorporating the gas deviation
factor's dependency on temperature, pressure and gas
composition into the calculation(s) may not be worth
the effort. Since the gas deviation factor is actually some-
thing between a constant and a random variable, the
validity ofthe assumption might be confirmed by con-
sidering the impact of the two extremes on the in-place
distribution. Values of 0.87, 0.88 and 0.89 were used
for the parameter range, while 0.88 was selected when
the gas deviation factor was considered constant.
Gas In Place
In-place distribution calculations using 384, 576 and
704 hectares as the most likely value for areal extent
are presented in Tables 6.4-1, 6.4-2, and 6.4-3. For a
constant, m, (x) = constant and m
2
(x) = constant
squared. The in-place distribution is obtained using the
calculated R
so
and R
s4
.
t
values to establish a straight
line on log-probability paper (Figure 6.4-3). For
113
DETERMINAnON OF OIL AND GAS RESERVES
Table 6.4-1 Gas-in-PlaceDistribution for Most Likely Area of 384 Hectares
Pool Minimum Most Likely Maximum
Parameters Possible Value Value Possible Value
x
min
x
prob
x
Msx
m. (x) m, (x)
Basal area, Abo" (ha) 64 384 1024 492.5
329783
Correction to avg. area, C, 0.80 0.90 0.975 0.8915 0.7977
Grosspay, H(m) 6.5 15 19 13.47 196.4
Net/gross pay ratio, N/G 0.65 0.80 0.90 0.7831 0.6191
Porosity, <p 0.12 0.15 0.17 0.1466 0.02173
(l - Sw) 0.78 0.80 0.82 0.80 0.6402
Pi(kPa abs) 24000 24700 26000 24903 620557523
Constants
10 000 (288.16) 10000(288.16)
0.000091 8.327 x 10-'
10' (101.325) r,z, 10' (l 01.325) (354.16) (.88)
M
1
(OGIP)= 1234.7 M,(OGIP) = 2 298 761
10000 (288.16) A
b",
(C,) H(N/GH (l-Sw) Pi
a' = In
M, (OGIP)
OGIP=
10' (101.325) T
i
Z,
0.4107
M; (OGIP)
1
"
m, (x) = -- (x
mio
+ .95 x
pmb
+x
m,,)
-- ,
2.95
R,o=M,(OGIP)e' = 1005.5 x 10 m'
[X x J m, (x) = m; (x) + max - min
a , ,
3.25
R
84
. , = R
so
e = 1908.6 x 10 m
M
1
(OGIP) = m, (x,) X m, (x,) X m, (x.) X ... M, (OGIP) = m, (x.) X m, (x,) X rn, (x,) X ..
Note: Pi. T
i
and Zj are respectively initial reservoir pressure, temperature, and gas formation factor.
,
I
prospect issues the question is: How much of the
distribution should be considered? The suggested range
is all values from the R, to R,s values, which can be
read from the graph. For this example the range is 400
to 3250 X 10
6
m
3
using the 576 hectare most likely value
distribution. This encompasses 90 percent of the prob-
able outcomes and is consistent with developing
solutions that work the vast majority of the time. Since
human nature is inclined to over-estimate the extent of
knowledge, an initial reaction might be disbelief at the
magnitude of the range. However, an order-of-magni-
tude variation in the range is common, especially for
new discoveries. For situations where a single number
is desired to describe the distribution, the mean value
(M1(HCIP is recommended. For the 576 hectare dis-
tribution M
1
(HCIP) = 1389.7 X 10
6
m
3
This value has
no significance to prospect issues, only to aggregate
questions. Misuse it at your own peril!
114
The effect of varying the most likely value of the
distribution can be seen on Figure 6.4-3. In this example
this variation is insignificant compared to the R
s
to R,s
range in the distribution. Group consensus on which
value to use is usually easy to obtain following the team's
inspection ofthe graph because it does not really matter
which distribution is used. However, if consensus does
not exist, a further compromise is to draw a line through
the smallest R, value and the largest R,s value to estab-
lish a composite in-place distribution. The characteristics
ofthis distribution can be calculated by reading the R
so
and R
84
.
1
values from the graph and using the equations
to calculate M,(HCIP) and M
2(HCIP).
Alternatively, one
can carry the two extreme distributions through the de-
cision-making process until everyone agrees that "it does
not matter."
d
Table 6.4-2 Gas-in-Place Distribution for Most Likely Area of 576 Hectares
X
m1n
x
pr ob
X
Max
m, (x) m, (x)
Basal area, A
b,,,,
(ha) 64 576 1024 554.3 394506
Correction to avg. area, C
f
0.80 0.90 0.975 0.8915 0.7977
Gross pay. H(m) 6.5 15 19 13.47 196.4
Net/gross pay ratio, NIG 0.65 0.80 0.90 0.7831 0.6191
Porosity, 0.12 0.15 0.17 0.1466 0.02173
(I - Sw) 0.78 0.80 0.82 0.80 0.6402
P, (kPa abs) 24000 24700 26000 24903 620557523
Constants
10000 (288.16) 10 000 (288.16)
0.000091 8.327 x 10'
10' (101.325) T, Z, 10' (101.325) (354.16) (.88)
M, (OGIP) = 1389.7 MlOGIP) = 2 749 913
10000 (288.16) A
b
" , (C,) H (NIGH (I-S
w
) P,
a' =In
M, (OGIP)
OG1P= = 0.3533
10' (101.325) T, Z, M: (OGIP)
a' a , ,
- - 6 3
R
84
.l =Rsoe =2110.4x 10 m
R
so
= M, (OGIP) e' = 1164.7 x 10 m
Note: Pi. Til andZ, are respectively initial reservoirpressure, temperature, andgas formation factor.
Table 6.4-3 Gas-in-Place Distribution for Most Likely Area of 704 Hectares
x
min
x
prob
x
Max
m. (x) m, (x)
Basal area, Ab,,,,(ha) 64 704 1024 595.5 441 902.6
Correction to avg. area, C, 0.80 0.90 0.975 0.8915 0.7977
Gross pay, H(m) 6.5 15 19 13.47 196.4
Porosity, 0.12 0.15 0.17 0.1466 0.02173
(1 - Sw) 0.78 0.80 0.82 0.80 0.6402
P, (kPa abs) 24000 24700 26000 24903 620557523
Constants
10 000 (288.16) 10 000 (288.16)
0.000091 8.327 x 10'
=
10' (101.325) T, Z, 10' (101.325) (354.16) (.88)
M, (OGIP) = 1493.1 M,(OGIP) = 3 080 291
10000 (288.16) A
b
" , (C,) H (NIGH (l-Sw) P,
a'=In
M, (OGIP)
OG1P=
= 0.3233
10' (101.325) T, Z, M: (OGIP)
"
a , ,
-,
= 1270.2 X 10' m'
R
84
.
1
=R
so
e =2243.0 x 10 m
R
so
=M, (OGIP) e
Note: Pi' T
i
and ~ are respectively initial reservoir pressure, temperature, and gas formation factor.
115
2 5 10 20 3040506070 80 90 95 98 ,
10' 10
Figure6.4-3 Typical Situation: Gas-in-Place
Distribution
Observations
The purpose of performing the calculations is to show
the ease with which the in-place distribution can be up-
dated. In the working world, this feature translates into
more rigorous estimates that are updatedmore frequently
and with less time and effort than is achieved with any
other method. This statement becomes truer as the team
gains familiarity with the methodology, the prospect,
and each other. Gradually the emphasis on the reasons
for performing the calculation shifts froma reactivepost-
event exercise to more of a planning and evaluation
activity.
Production's 44 X 10
6
m
J
minimum pool volume and
Exploration's 4900 x 10
6
m
J
upside number do not ap-
pear on the probability distribution. The 44 x 10
6
m
J
value is the product of all the minimum possible pa-
rameter values, while the product of the maximum
parameter values and an optimistic 87 percent recovery
factor yields the 4900 x 10
6
m' upside number. Consis-
tently using the worst or best parameter values for the
in-place estimate always results in a number which is
less than or greater than 99.5 percent of the cumulative
probability distribution and is even more extreme for
the cumulative reserve distribution. The question for
both groups is why they are basing their decisions on
such improbable numbers.
Some insight on what numbers should be used can be
gained by preparing a reserve distribution (Table 6.4-5,
Figure 6.4-4) and a discounted net profit before invest-
ment (DNPBI) distribution (Table 6.4-6, Figure 6.4-5)
for the pool. Both distributions are prepared analogous
to the in-place distribution. The reserve distribution uses
the in-place distribution moments and recovery factor
estimates of 65, 75 and 87 percent respectively as
input, while the DNPBI distribution requires the reserve
distribution moments and a unit value for the gas of
$8.00, $11.00 and $15.00 per thousand cubic metres.
The unit value for the gas is the estimated present value
ofthe future profit from the future production, account-
ing for prices, production profiles, effluent composition,
royalties, operating costs, inflation and discounti?g.
Multiplying by the prospect reserves and subtracting
the present value of the capital investment yields an
estimated net present value for the prospect."
From the reserve distribution shown in Figure 6.4-4,
pool reserves are between 320 and 2350 x 10
6
m'. With
384 ha
Il /
L576 ha
i:
. ~
(!J 102
The previous distributions were calculated assuming
that reservoir temperature and gas deviation factor are
constants. For comparison, in-place distributions were
calculated using 384, 596 and 704 hectares as the most
likely value and the following temperature and gas
deviation factor assumptions:
I. Variable temperature, constant gas deviation factor
2. Constant temperature, variable gas deviation factor
3. Variable temperature and gas deviation factor
In all cases, the calculated values for M
1
(HClP), R
so
and R
S4
.
1
agree with the previously calculated values
to four significant figures: In-place distribution
calculations for a 576 hectare most likely value with
variable reservoir temperature and gas deviation factor
are presented as Table 6.4-4. The inverse (liT, I/Z)
of the denominator parameters is used to conform to
theory. Calculations for the other combinations are not
presented, but left as an exercise for the reader. For com-
parison purposes, the time required to prepare all twelve
distributions was approximately 3 hours using a
programmable calculator.
10 10
2 5 10 20 3040508070 80 90 95 98
Percentage
An understanding of Warren's theory governing the unit
value parameter is necessary to attempt this procedure
(Warren, 1988).
116
_________C1
PROBABILITY ANALYSIS FOR ESTIMATES OFHYDROCARBONS INPLACE
Table 6.4-4 Gas-in-Place Distribution for Most Likely Area of 576 Hectares.
Variable Temperature and Gas Deviation Factor
Parameters Possible Value Value PossibleValue
x
min
x
prob
x
Max
m, (x) m, (x)
Basal area, A
b
. " (ha) 64 576 1024 554.3 394506
Correction to avg. area, C
r
0.80 0.90 0.975 0.8915 0.7977
Grosspay, H(m) 6.5 15 19 13.47 196.4
Porosity, 0.12 0.15 0.17 0.1466 0.02173
(I - Sw) 0.78 0.80 0.82 0.80 0.6402
Pi(kPa abs) 24000 24700 26000 24903 620557523
1 1 1
7.9693X 10" Temperature
273.16+ 81.25
0.002823
273.16+ 81 273.16 + 80.97
Gas Deviation Factor 11.89 1/.88 11.87 1.136463 1.291612
Constants
10000(288.16)
0.028439 0.000809
10' (101.325)
M
1
(OGlP) = 1389.6 M,(OGlP) ~ 2 749 372
10000 (288.16) A
b
", (C,) H(NIGH (I-S
w)
Pi
a' = In
M, (OGIP)
OGIP=
= 0.3534
10' (101.325)r,z, M: (OGIP)
"
a , ,
R
so
= M
1
(OGIP) ~ , - - = 1164.5 X 10' m'
R
84
.
1
= R
so
e = 2110.2 x 10 m
Note: Pi. T
i
and Z, are respectively initial reservoir pressure, temperature, and gas formation factor.
a 98 percent probability of exceeding the 250 x 10' m
3
tie-in hurdle volume, development of this pool should
be a sufficiently safe bet for even the Production
Department. Once pool deliverability, pressure, temper-
ature and effluent composition information have been
supplied, the central production facilities, such as
the gathering line to the gas plant, can be sized. The
number of wells required to deplete the pool and inter-
well spacing can be estimated by comparing well
deliverability to pool deliverabi!ity. Sizing of the indi-
vidual wellsite facilities can also be determined from
the well deliverability estimates.
One way of obtaining an estimate for pool deliverabi!-
ity is to divide the reserve distribution by a desired rate
of take. For this case a 1/3650 rate of take yields an
initial deliverability range of88 to 644 x 10
3
m
3
/d. Since
the discovery well flowed at 225 x 10
3
m
3
/d, it is not
necessary to design the central facilities to handle the
entire 88-644 x 10
3
m
3
/d range. Using the discovery
well's capability as the minimum throughput, with 644
X 10
3
m
3
/d as the maximum, is technically acceptable
and more economical than designing to cover the larger
range. Completion of the equipment sizing exercise in
this fashion provides the input required for sales con-
tract negotiation, and simplifies matching contracted
deliverabi!ity to facility capability.
The purpose of equipment sizing at this stage is two-
fold. The present value cost of both present and future
capital is required to evaluate the economic attractive-
ness of developing the prospect. However, only those
facilities, such as the gathering line to the gas plant, that
are required immediately to initiate production will be
constructed on the basis of this initial estimate. Sizing
of future facilities, such as field compression, can be
confirmed prior to their construction because signifi-
cantly more information will be available by that time.
At this stage the optimal design is the one which pro-
vides the largest probability of achieving a positive net
present value over the prospect reserve distribution. The
optimal design does not have to provide the capability
117
Table 6.4-5 Reserve Distribution for Most Likely Area of 576 Hectares
x
m1n
x
prob
x
Max
m, (x)
m, (x)
aGIP (10 m')
1389.7
2749913
Recovery Factor 0.65 0.75 0.87 0.7568
0.5773
M, (RIG) = 1051.7
M,(RIG) = I 587 519
a M, (RIG)
a =In =0.3613
M: (RIG)
2 5 10 20 3040506070 80 90 95 98 4
10' 10
10 10
2 5 10 20 304050.6070 80 90 95 98
Percentage
Figure 6.4-4 Typical Situation: Reserve
Distribution
to operate at all the rates specified by the rate of take
deliverability distribution, and probably would not when
its magnitude is very large.
In this case the present value tie-in cost is estimated at
$2.6 million, including future field compression. The
present value of future development drilling, including
dry hole and wellsite facility costs, is estimated at $3.5
118
"
( )
-, 6 J
R
so
= M, RIG e = 877.9 x 10 m
, 6 J
R"., =Rsoe = 1601.4x 10 m
miUion, while sunk costs are $2.5 million. Now the
effect ofbid price on profitability can be observed. The
cumulate exploration and development cost of $8.6
million" ($2.6 miUion + $3.5 million + $2.5 million)
intersects the discounted net profit before investment
curve at a probability of42 percent (Figure 6.4-5). Thus,
ifthe remaining four sections ofland could be acquired
at no cost, there is a 58 percent probability ofachieving
a positive net present value (NPV) through development
of this pool. At the rumoured bid price of $3000/hect-
are, the cost for the remaining four sections is
approximately $3 million, which reduces the probabili-
ty of achieving a positive NPV to 39 percent on a total
cost of$II.6 million (Figure 6.4-5). Is this a good gam-
ble? Unless one is unusually lucky, probably not. Awiser
course might be a minimal bid price and anticipating
that the rewards (and risks) of development will likely
be shared with others. Then the sharing options can be
identified and their economic merits evaluated.
The example illustrates one way of turninga promising
exploration prospect into a probable money-losing ven-
ture. Of course there are many other ways. The key to
consistent financial success is staying true to the pur-
pose ofexploration and development, which is profitable
investment, not production at any cost. Warren's meth-
od ultimately provides a means to do just that, and it
starts with the in-place estimate.
Summary
The example illustrates the use of the Warren Method
to estimate hydrocarbons in place, and some
*Although variablecapital costs can be accommodated,
single-value costshave been usedto simplify the example.
s
Table 6.4-6 Discounted Net Profit Before Investment Distribution for Most Likely Area of 576 Hectares
xml n Xprob
x
Max
m
t
(x)
m, (x)
RIG (10' rrr') 1051.7 I 587519
Unit Value ($/m
3
) 0.008 0.011 0.015 0.01134 0.0001332
M, (DNPBI) =11.926 M,(DNPBI) =211.4759
I
z M, (DNPBI)
a = In = 0.3967
.
2 5 10 20 30 40 50 60 70 80 90 95 98
10' 10'
w
0
C
Q)
10
2
10'
Q)
>
E
!!!
ID
'"
,
e
,
Q.
0
,
;;
0 0
z 10
10
'0
/" Sunk Capital
Q)
C
Development 0
0
'"
Drilling Capital
is
..:.:...-
Tie-In Capital
1 1
2 5 10 20 30 40 50 60 70 80 90 95 98
Percentage
Figure 6.4-5 Typical Situation: Discounted Net
Profit Before Investment
applications of the in-place estimate in economic
evaluations. For those who accept that a probabilistic
answer is the limit ofhuman capability, when assessing
the future it is an extremely powerful and flexible, yet
deceptivelysimple, tool for dealing with the uncertain-
ties of reserves estimation. But it is not infallible. It
cannot compensate for unrealistic input, it cannot warn
a'
R
50
= M, (DNPBI) e- 2" = $9.78 X 10'
, ,
R"., = R
50
e =$18.36 x 10
when the input is unrealistic, and it cannot identify the
reasons for the discrepancies. These limitations restrict
its use to knowledgeable, conscientious evaluators and
evaluation teams that are comfortable with the meth-
od's assumptions and theory and willing to expend the
effort required to attain realistic input. The payoff for
these individuals is an analysis that faithfully summa-
rizes their thoughts and their earth science expertise in
a mathematical form and that can be extended to any
desired depth and variables.
Despite this caveat, the Warren Method will undoubt-
edlybe attemptedby the unthinkingandthe unqualified;
the output, if accepted unquestioningly, will prove
costly. The only safeguard is a careful examination of
the evaluators' competenceandthe supportingevidence
for the input. If both survive scrutiny, the predictions
fromthe output are worth testing.
References
Aitchison1., and Brown J.A.C. 1966. The Lognormal
Distribution. Cambridge University Press, New
York,NY.
Capen, E.C. 1976. "The Difficulty of Assessing
Uncertainty."JPT, Vol. 28, Aug. 1976.
Keefer, D. L., and Bodily, S. E. 1983. "Three Point
Approximations for Continuous Random
Variables." Management Science, No. 29, pp.
595-609.
Warren, J.E. 1988. "Exploration and Production
Decisions: Risk, Uncertainty and Economics,"
Course, OGGl, Houston, TX, Sep. 1988.
119
Chapter 7
MATERIAL BALANCE DETERMINATION OF
HYDROCARBONS IN PLACE
...
7.1 INTRODUCTION
One of the fundamental principles used in engineering
is the Law of Conservation of Matter. The application
of this law to petroleum reservoirs is known as the
"material balance equation" which has proven to be an
invaluable supplement to direct volumetric calculation
of reservoir parameters. Numerous articles and papers
describe all aspects ofits use in the analysis ofreservoir
performance.
The material balance equation is being widely used
today, aided by access to computers and the increasing
knowledge base in the literature. The results from ma-
terial balance calculations are significant because they
are largely independent of the factors that contribute to
volumetric estimates. As databases for production, res-
ervoir pressure, and fluid properties improve, the
usefulness of the material balance equation increases.
When oil, gas or water is removed from a reservoir, the
pressure in the reservoir tends to fall, and the remaining
fluids expand to fill the vacated space. The hydrocar-
bon system is also affected by fluids and energy sources
that are in pressure communication with it. Examples
of these include connected natural aquifers, nearby in-
jection or production activities, and other oil or gas
reservoirs.
The material balance is the application of the Law of
Conservation of Matter to a petroleum reservoir during
its depletion history. It is important for the reservoir
engineer to understand the system at hand and apply
the material balance realistically.
Simply stated, the material balance says that the initial
mass, plus the mass added, less the mass removed, must
equal the mass remaining in the system. In reservoir
engineering usage, mass is often replaced by volume.
Thus the bulk volume, plus fluid entry volumes, plus
expansion, must equal the bulk volume remaining plus
voidage. If the bulk volume is considered constant,
then at reservoir pressure and temperature, expansion
equals voidage. The writing of a volumetric material
balance is an exercise in describing the expansion of
120
oil, gas, water and rock with changes in pressure and
temperature over discrete time periods. These time
periods are chosen to extend from initial production
to various later dates when both reservoir pressures
and voidage cumulatives are known.
The pressure-volume-temperature (PVT) properties
described in Chapter 5 provide the basis for relating
expansion to voidage. In material balance usage, rock
and fluid volumes are normally considered at two con-
ditions: (I) reservoir pressure and temperature, and (2)
surface reference conditions. The PVT data is usually
presented in a format that conveniently bridges these
conditions. Since changes in reservoir temperature are
relatively insignificant except for thermal projects, ex-
perimental PVT data is generally based on a constant
reservoir temperature, and pressure is treated as the
primary independent variable.
The material balance equation has been used extensively
to determine initial fluids in place, calculate water
influx, estimate fluid recovery, and predict reservoir
pressures. The use of the equation in defining initial
fluids in place is the focus of this chapter. Applications
of the equation to gas reservoirs, oil pools, and mixed
drives will be discussed.
7.2 UNDERLYINGASSUMPTIONS
In terms of normal physics, the material balance
equation itselfis devoid ofconditions and assumptions,
but in regular oilfield usage, a number of underlying
assumptions arise. These may result from the way in
which the input data is derived or from computational
simplifications. The material balance calculation is
based on changes in reservoir conditions over discrete
periods of time during the production history. The
calculation is most vulnerable to many of its under-
lying assumptions early in the depletion sequence when
fluid movements are limited and pressure changes
are small. Uneven depletion and partial reservoir
development compound the accuracy problem.
s
MATERIALBALANCE DETERMINATION OFHYDROCARBONS INPLACE
7
The basic assumptions in the material balance method
are as follows:
Constant Temperature. Pressure-volume changes
within the reservoir are assumed to occur without re-
lated changes in temperature. The pressure changes
happen slowly in most of the reservoir, and the mass
of adjacent rock volumes is such that the reservoir sys-
tem very closely approaches constant temperature
performance.
Pressure Equilibrium. Auniform pressure is assumed
to apply across the pool. The model is considered as a
tank,with infinite permeability. This is a critical assump-
tiou, since the expansionproperties ofthe rock and fluids
are stated in terms of prevailing pressure. Local
pressure variations around producing or injection well-
bores may generally be disregarded. However, regional
trends must be recognized and included in the pressure
averages.
Constant Reservoir Volume. Reservoir volume is as-
sumed to be constant except for those conditions ofrock
and water expansion or water influx that are specifi-
cally considered in the equation. The formation is
considered to be sufficiently competent that no signifi-
cant volume change will occur through movement or
reworking of the formation due to overburden pressure
as the internal reservoir pressure is reduced. The con-
stant volume assumption also relates to an area of interest
to which the equation is applied. If the focus is on some
part of a reservoir system, except for specific exterior
flow terms it is assumed that the particular portion is
encased in no-flow boundaries.
Reliable Production Data. As measurement tech-
nology has improved and regulatory authorities have
consolidated the data-gathering process, the reliability
ofproduction and injection data has improved substan-
tially. Good well rate data is critical to the material
balance, as net voidage figures directly in the calculated
oil in place.
Representative PVT Data. The PVT information is the
other main ingredient of the material balance equation.
It is assumed that the PVT samples or datasets repre-
sent the actual fluid compositions and that reliable and
representative laboratory procedures have been used.
Notably, the vast majority of material balances assume
that differential depletion data represent reservoir flow
and that separator flash data may be used to correct for
the wellbore transition to surface conditions. Such
"black oil" PVT treatments relate volume changes to
temperature and pressure only. They lose validity in
cases of volatile oil or gas condensate reservoirs where
compositions are also important. Special laboratory
procedures may be used to improve PVT data for
volatile fluid situations.
7.3 EXPLANATION OF TERMS
As previously indicated, the material balance equation
relates net reservoir voidage to expansion of reservoir
fluids. This section describes the various components
of voidage and expansion used in the conventional black
oil material balance. .
Table 7.2-1 lists reservoir voidage terms. In addition to
wellbore flow streams, water influx-efflux acts as a
pseudo production quantity. Various independent wa-
ter influx formulations are discussed in Section 7.7.3.
Table 7.2-' Reservoir Voidage Terms
Surface Reservoir
Fluid Volumes Volumes
Gas cap gas G
pe
GpeB
ge
Liberated gas G -N R (G -N R)B
ps p s pspsgs
Injected gas -0-
-GiB
gi I
Oil N
p
NpB
o
Water W
p
WpB
w
Water injected -w -WB
I I w
where G = gas subscripts c = gas cap
B = formation g = gas
volume factor = injected fluids
N = oil a = oil
W= water p = produced fluids
R = gas-oil ratio s = solution gas
w = water
In Table 7.2-1, the formation volume factor, B, is the
volume at reservoir temperature and pressure per unit
of surface reference volume. The change in formation
volume factor for the various fluids is proportional to
their compressibilities. Rock compressibility usually
ranges from 0.4 x 10,6 to 1.5 X 10-
6
vol./pore volume/
kPa (kPa,I), and is primarily dependent upon porosity.
Water compressibility is linear with pressure, and ranges
from 0.3 to 0.6 kPa,l. Oil compressibility shows
some nonlinearity with pressure. It varies from 0.4 to
3.0 kPa,l, relating to its gravity. Gas at 14000 kPa has a
compressibility in the order of 60 x 10-
6
kPa,l. The
behaviour of the material balance calculation follows
directly fromthe relative compressibilities as manifested
by the formation volume factors.
121
qiit-
Table 7.2-2 Reservoir Expansion Terms
(3) B
Oi
(B, -B,;) + I-S (Swcw+c
r)
dP
w
N
all of the factors that could be applied to routine deter-
minations of oil and gas in place. The fifth term in
the numerator, We' is water influx and is defined in
Equation (13) in Section 7.7.
(2)
(1)
In Equation (1) the formation volume factors reflect the
reservoir volume per unit of stock tank or surface vol-
ume. They are dimensionless, i.e., reservoir m
3/surface
m
3
The terms of the equation represent volumes or
changes at reservoir conditions. Reservoir engineers
commonly use the same formation volume factors for
gas cap gas, solution gas and injected gas, the degree of
error inherent in such a simplification depending upon
the circumstances. If such a shortcut is taken, Equation
(1) is reduced to the form ofEquation (2), which will be
used to illustrate adaptations ofthe material balance for
particular conditions. The engineer is free to re-insert
the distinction between diverse gas compositions when
it is worthwhile to do so.
7.5 SPECIAL CASES OF THE
MATERIAL BALANCE EQUATION
7.5.1 Undersaturated Oil Reservoirs
Several terms of the material balance equation may
disappear when reservoir conditions negate their use.
This is particularly true for the volumetric undersaturated
oil reservoir. For this case there is no gas cap, and since
reservoir pressure is above the bubble-point pressure of
the oil, there is no free gas in the oil zone. Production
depends largely upon liquid expansion ifreservoir pres-
sure is being depleted. Therefore, rock and connate water
expansions are significant and should be included.
Equation (3) provides a material balance for an
undersaturated pool with water injection, production,
and influx.
Expansion
NB,j(Hm)
--'-----crdP
I-S
w
N(R,;-R,)B
g
,
N(B,-B,;)
NB (Hm) S c dP
01
1
_
8
ww
w
compressibility (volumechange/
volume/pressure unit)
formation
changein pressure
gas capreservoir volume/ oil zone
reservoir volume
oil in place
formation volume/ surfacereference
volume
ratio of gas content / oil volume(surface
reference conditi'ons)
connatewater saturation(fractionof pore
space)
Gas Cap
Liberated Gas
Oil
Water
Rock
Material
f
dP
m
R
N
B
where c
As pressure is reduced in an oil-gas-water system,
liquid volumes increase in the undersaturated fluid re-
gion. When the oil reaches its saturation pressure, gas
is released and a vapour phase begins to form. Further
pressure depletion results in diminishing liquid volumes
and rapidly expanding gas volumes. Both total fluid
volume and system compressibility then increase.
Table 7.2-2 provides various expansion terms that
occur in a material balance equation. These terms off-
set the various voidage quantities in the material balance
equation.
7.4 GENERAL MATERIAL BALANCE
EQUATION
The general material balance equation equates
reservoir voidage to reservoir fluids expansion. If the
voidage terms of Table 7.2-1 are equated to the expan-
sion terms of Table 7.2-2 and N is factored out from
the expansion terms, rearrangement yields the general
material balance, Equation (I). This form contains
122
______________________1
MATERIAL BALANCE DETERMINATION OFHYDROCARBONS INPLACE
7.5.2 Saturated Oil Reservoirs
The saturated oil reservoir, either with or without a gas
cap, exhibits a much greater compressibility than the
liquid-filled undersaturated system. Even a small gas
saturation is noteworthy, due to the relatively high com-
pressibility of gas. In such cases rock and water
compressibility are often neglected in the interest of
minimizing the calculations. Equation (4) is the materi-
al balance equation for a saturated reservoir, initially at
the bubble-point pressure. The terms for gas and water
injection, water influx and water production may be
added as required.
With the usual assumption of an isothermal reservoir,
Equation (6) becomes:
(J,,((Z/P),,-(Z/P),;) =(Jp,(Z/P)" (8)
Rearranging, Equation (8) becomes:
(J" =o, C_ (9)
Equation (9) can also be transformed to the form shown
in Equation (10):
The gas formation volume factor, 13g' may be replaced
according to Equation (7):
Eliminating the terms for net water voidage, rock and
water expansion, and those relating to oil zone produc-
tion and expansion gives Equation (6):
7.6 LIMITATIONS OF MATERIAL
BALANCE METHODS
The basis of the material balance is firm, and the
equation can be made to encompass most ofthe factors
relevant in hydrocarbon production. However, in prac-
tical application, several sources of errors limit the
accuracy of material balance methods. The gravity of
these errors varies with circumstances.
1. Thermodynamic equilibrium is not attained in
actual field conditions.
2. PVT data is obtained using liberation processes that
do not represent reservoir conditions.
3. Inappropriate average pressures are used.
4. There is uncertainty in the "m" ratio.
5. The production data used is inaccurate.
The amount ofpressure decline covered by the produc-
tion history is one ofthe best criteria in gauging potential
errors. The material balance is a comparison ofvoidage
to expansion and concentrates on evaluating fluid
Equation (10) is in the form of a straight line, y = mx -t-
b. Hence, plotting P/Z vs. (J and extrapolating the line
to P/Z =0 yields the initial gas in place. This is a tradi-
tional method ofcalculating gas reserves for a volumetric
pool. Fluid entry or exit from the system is indicated by
upward or downward plot curvature, respectively. Such
performance may be seen in cases of water influx from
an aquifer, interference with other pools, or interference
with a portion of the reservoir outside of the area of
interest. Formation compaction also may cause a
nonlinear PIZ curve. In this case the historical trend will
run above the gas-defined slope in early years and then
tum sharply down to the true gas in place.
P
(P/Z)" =(P/Z)"-(Jp,(--),, (10)
(J"Z
(6)
(7)
(5)
(4)

(J =--
" 13gci

(13,-13,)
(13,-13,) -l- (Ft,,-Ft,) 13,1fm13'i
s,
P = standard or reference pressure
sc
Z = gas compressibility factor
T = reservoir temperature
T = reference temperature
sc
P = formation pressure
where
7.5.3 Gas Reservoirs
Gas reservoirs are also amenable to the material
balance treatment. Starting with Equation (1), it is as-
sumed that water production, influx and injection are
zero. Since gas has a very high compressibility, rock
and water expansion in the gas cap may be safely ne-
glected. Oil production and expansion terms are not
applicable. Cross-multiplying Equation (I) and making
substitution gives Equation (5):
123
expansion. Large pressure declines produce large
expansions, making inaccuracies in production volumes
relatively less significant. Similarly, pressure errors are
less critical with more pressure depletion. In general, a
pressure decline of 10 percent of the original reservoir
pressure is needed before the material balance becomes
reliable. This critical depletion level is highly depen-
dent upon the quality of the pressure, production and
PVT data.
Pressure errors originate from several sources. Gauge
and sonic survey errors can be compounded during
processing and conversion to a common datum. True
static pressures may be difficult to derive in low trans-
missibility pools with high viscosity fluids. Areally
imbalanced withdrawal or injection may create regional
pressure gradients in the pool. It is important that such
areal pressure variations be properly reflected in the
averages applied to material balance equations. Volu-
metric averaging of measured values is the preferred
technique. Multiple layers ofdiffering permeability and
severe lateral changes in permeability within the for-
mation may complicate the gathering of representative
pressures. A study by Hutchinson (1951) presents
the quantitative effect of pressure errors on material
balance determinations of hydrocarbons in place.
7.7 SUPPLEMENTAL CALCULATIONS
7.7.1 Gas Caps and Aquifers
Most ofthe material balance parameters are defined by
pressures, PVTmeasurements, and production-injection
data. Original oil or gas in place can be calculated in
some circumstances, but incases where gas caps or aqui-
fers exist, the material balance equation contains more
than one unknown. Supplementary calculations must
then be utilized for a solution.
Gas caps can often be estimated by volumetric means.
Core and log data from upstructure wells can be used
with conventional volumetric mapping techniques to
estimate the amount of associated gas that is in contact
with the oil zone. The gas cap volume enters the mate-
rial balance equation through the parameter "rn" in
Equation (1). As gas is a high mobility fluid, the gas
cap can often be represented as having the same reser-
voir pressure history as the adjacent oil zone. However,
when the gas zone is large relative to the oil zone or
when the gas zone is geographically widespread, the
areal pressure variation within the gas cap should be
considered. Small errors in gas cap average pressure can
produce large changes incalculated oil in place, because
gas is much more compressible than oil.
124
If an aquifer is large enough to impact the pressure
performanceofthe hydrocarbon zones significantly, part
of the water is likely to be substantially removed from
the hydrocarbons, due to its low compressibility. Water
also has much less mobility than gas. Therefore, the
assumption of common pressure used for oil zones and
their gas caps is usually not applicable to hydrocarbon
zones and their aquifers.
7.7.2 Water Influx Measurements
The simplest method of externally determining water
influx for use in the material balance equation is to
measure it directly. In pools where water influx is an-
ticipated, the operators may periodically log selected
wellbores to determine water saturations. The advance
ofthe oil-water or gas-water contact canbe defined with
a selection of logged wellbores distributed across the
area of the hydrocarbon-water interface. The engineer
must have reliable data for reservoir porosity and water
saturation adjacent to the water contact. It is also very
helpful to have an independent source of residual
hydrocarbon saturation in the water-invaded zone.
Such data may be obtained from relative permeability
measurements in special core analyses.
The accuracy of water influx volumes from periodic
water contact elevation maps varies with the circum-
stances. The reliability of water saturation and porosity
values is important.
There is also an element of doubt in the reservoir
stratification. Rock capillarity variations and trans-
missibility barriers may cause undulations in the
water contact as influx occurs. Areal variations in res-
ervoir pressure can also lead to nonuniform water
advance. The user should be aware of the potential for
error when working with a limited number of water
contact measurements.
7.7.3 Analytical Water Influx Models
Water influx may be calculated from the material
balance equation as a function oftime using a volumet-
ric estimate of oil in place. The engineer can then
endeavour to match this influx vs. time trend with an
analytical "model." Ifa reasonable match ofan extended
historical period is achieved with a single set of coeffi-
cients, the analytical relationship is plausible and
provides a basis for estimating future influx for use in
the material balance.
Schilthuis (1936) provided the simplest aquifer influx
model. His model assumes that constant pressure is
maintained somewhere in the aquifer and that flow to
the oil zone is proportional to the pressure differential,
n
W, = BL Q(t)] (13)
with the remaining factors in D' Arcy' s Law constant.
Equation (II) shows the Schilthuis steady state
formulation:
= pressure differential, aquifer limit to
oil-water contact (kPa) (psi)
Q(t) = dimensionless water influx;
function of to
to = dimensionless time
lJ. = constant, 0.0863 (6.323 x 10-
3
)
k = aquifer permeability (Ilm2) (mD)
t = time (days)
 = porosity, fractional
Il = water viscosity (mPa's)(cp)
c = effective rock, water compressibility,
kPa-
1
(psi")
r
w
= equivalent oil zone radius (m) (ft)
= constant, 6.2792 (1.119)
h = equivalent aquifer thickness (m) (ft)
El = azimuth angle of aquifer inflow
(degrees)
The superposition theorem is applied to calculate water
influx, We' The pressure history at the water contact is
divided into a series oftime intervals for which average
contact pressures can be estimated. These average pres-
sures define decrements between the initial aquifer
pressure and the hydrocarbon interface pressure that are
assumed to be constant within each time interval. The
superposition theorem holds that the aggregate effect
of all these pressure differentials is equivalent to the
summation of their individual effects, each operating
over its respective time interval. In practice, reservoir
parameters are chosen to calculate to as a function of
the time intervals. Tables and figures ofQ(t) have been
supplied by Van Everdingen and Hurst (1949) and in
the summary by Craft and Hawkins (1964). Craft and
Hawkins also provide a good description ofhow to cal-
culate the summation of to get W as a function
of time. e
Carter and Tracy (1960) developed a method based on
Hurst's (1958) simplification of the Van Everdingen
and Hurst unsteady state influx calculation. The Carter-
Tracy method gives answers similar to those of Van
Everdingen and Hurst without the iterative solution
involving the conventional material balance equation
and the water influx summation equation.
(I I)
(12)
(14)
dW,= c(p;-p)
dT log (at)
where k = water influx constant (m
3/d/kPa)
P, = aquifer boundary (initial) pressure
(kPa)
p = oil-water contact pressure (kPa)
Hurst (1943) proposed a modification of Equation (II)
wherein the influx constant is altered and a denominator
term, log (at), is added. The denominator compensates
for the gradually lengthening flow path of the water
through the aquifer as depletion progresses. Hurst's
modification is shown in Equation (12):
where c = water influx constant (m
3/d/kPa)
a = time conversion constant that depends
on units of time
t = elapsed time from start of influx (h)
Van Everdingen and Hurst (1949) produced an unsteady
state water influx solution which can deal with infinite
or limited aquifers. This model is based on radial flow
from a concentric aquifer to an interior oil zone, but it
can be adapted to situations where the aquifer underlies
or extends primarily in one direction from the oil pool.
Van Everdingen and Hurst overcame the site-specific
nature of the solutions to the radial formof the diffusivity
equation by providing their data in terms ofdimension-
less time and dimensionless influx. Briefly, their
. formulation is as follows:
where We
B
El
B = Amcr ' h-
t''Y w 360
= water influx (m") (bbl)
= water influx constant (m
3/kPa)
(bbllpsi)
(15)
7.8 MULTIPLEUNKNOWN MATERIAL
BALANCESITUATIONS
The solution methods outlined rely on separately
determining relationships for secondary unknowns in
the material balance equation, namely the gas cap to oil
zone ratio, m, or the water influx term, We' A second
techniqueutilizes a simultaneous solution for oil in place
and a secondary parameter. Theoretically, given
125
where c
f
= formation compressibility
C
w
= water compressibility
B, = formation volume of oil and originally
dissolved gas
Using Havlena and Odeh terminology, the left side of
Equation (16), denoted by F, represents the net reser-
voir volume ofproduction. The expansion terms for oil,
rock and water, and gas on the right side, are denoted
multiple pressure and production combinations, the
material balance equation could be simultaneously
solved for multiple unknowns. In practice, transient ef-
fects, data errors and unrepresentative averages make
the simplistic simultaneous solution unreliable.
Havlena and Odeh (1963) presented an algebraic
rearrangement of the material balance. Their technique
involves calculating production and expansion entities
that are interrelated as terms of a linear equation. Since
the pressure-production-time points plot as a straight
line, graphical methods can more easily be used to de-
termine the best solution for the dataset. Havlena and
Odeh emphasized the idea of examining multiple val-
ues of a parameter by means of a statistical variation
factor. In some circumstances, this approach provides a
useful supplementary measure of how well the entire
pressure-production history is satisfied by a particular
reservoir solution.
The straight-line method involves the use of variable
groups. The reservoir circumstances determine which
variable groups are plotted against each other. This
method attaches a significance to the sequence and
direction of the plotted points and the shape of the
resulting plot. The variable groups can be effectively
computed and plotted with a spreadsheet program,
particularly if the derivation of PVT data is automated
through macros. The analyst must then examine the
sequence and configuration of the plot points to assess
their meaning.
With minor rearrangement, Equation (2) may be
rewritten as:
N
N =oil inplace
Figure 7.7-1 Straight Line Plot for Oil Zone and
Gas Cap Case
The usual criteria for a successful material balance
solution are consistency of the results and agreement
with volumetric calculations. The consistency aspect is
often left as a rather nebulous, unquantified factor, but
Havlena and Odeh offer a method to systematize it.
Agreement with volumetric oil in place estimates can
be overemphasized. Volumetric calculations tend to
focus on total oil in place due to their reliance on geol-
ogic interpretations and petrophysical data. Material
balance oil-in-place is the active oil that takes part in
the depletion history. The similarity of volumetric and
material balance oil-in-place values should not be
overrated as a measure of the accuracy of either.
Btl
E,+rnsE
g
g'
Source: Havlena and Odeh, 1963.
u,
by Eo, s, and E
g
, respectively. The s, components may
be deleted, except in the case of undersaturatedoil pools.
The final right term, We' is calculated by the unsteady-
state water influxequation, Equation (13). Alternatively,
the Carter-Tracy influx formulation could be used.
There are many different formulations of the straight-
line material balance method. The reader is encouraged
to reference the comprehensive and readable presenta-
tion by Havlena and Odeh (1963). Figure 7.7-1 shows
the form of the straight-line plot for a pool with un-
known oil zone and gas cap size, and Figure 7.7-2
portrays one with unknown oil zone and water drive.
McKibbon et al. (1963) provide an excellent example
of the application of the straight-line material balance
to an oil reservoir with active water influx.
(16)
mB J
+ --" (B.-B,,) +W,
n,
N, [B,+ B,(R,-R,,)] + (W,-W,) a, -G,B"
126
$
Figure 7.7-2 Straight Line Plot for Oil Zone and
Water Influx Case
7.9 COMPUTER SOLUTIONS
Computer spreadsheets are valuable tools in material
balance work. They greatly reduce laborious calcula-
tions and allow easy sensitivity analyses with varied
data. A noteworthy advantage of spreadsheets is that
the user retains complete knowledge and control of the
computation method.
Although it is theoretically possible to solve for
multiple unknowns with the straight-line method, in
practice, difficulty is met in some cases. Highly accur-
ate data are needed to solve simultaneously for a notable
gas cap and an oil zone, or for a gas cap, oil zone and
water influx. The difficulty in these two cases relates to
the high compressibility of gas and its large potential
impact on the pressure response.
In conclusion, the straight-line requirement does not
prove the uniqueness of the solution, but is one of the
conditions that a satisfactory solution should meet. As
always, the quality of the solution will depend on the
quality and quantity ofthe input data and on the ability
and thoroughness of the analyst. The straight-line
method is recommended as being robust and effec-
tive. Its dynamic nature is a valuable supplement to
traditional methods.
Formal computer programs are available to perform
many material balance calculations. They handle much
of the repetitive computation and greatly speed the
solution process. However, users must be sure that they
understandhow such programs work. The methods must
fit the problem and be compatible with the available
dataset.
Havlena and Odeh (1963) caution against total auto-
mation ofthe straight-line material balance, because the
sequence and direction of successive points provide in-
formation as to the nature ofthe solution. The engineer
should take care to scrutinize this aspect ifmachine plots
are utilized in the straight-line method.
References
Carter, R.D., and Tracy, G.W. 1960. "An Improved
Method for Calculating Water Influx." Trans.,
AIME, Vol. 219, p. 415.
Petroleum Reservoir Engineering. Prentice Hall,
Inc., Englewood Cliffs, NJ, p. 205.
Havlena, D., and Odeh, A.S. 1963. "The Material
Balance as an Equation of a Straight Line."
Trans., AIME, Vol. 228, p. 896.
Hurst, W. 1943. "Water Influx Into a Reservoir and
its Application to the Equation of Volumetric
Balance." Trans., AIME, Vol. 151, p. 57.
---.. 1958. "The Simplification of the
Material Balance Formulas by the Laplace
Transformation." Trans., AIME, Vol. 213, p. 292.
Hutchinson, C.A. 195I. "Effect of Data Errors on
Typical Engineering Calculations." Paper pre-
sented at SPE of AIME meeting, Oklahoma City,
OK.
McKibbon, lH., Paxman, D.S. and Havlena, D. 1963.
"A Reservoir Study ofthe Sturgeon Lake South
D-3 Pool." JePT, Vol. 2, No.3, Fall 1963, p. 142.
Schilthuis, R.l 1936. "Active Oil and Reservoir
Energy." Trans., AIME, Vol. 118, p. 33.
Van Everdingen, A.F., and Hurst, W. 1949. "The
Application of the Laplace Transformation to
Flow Problems in Reservoirs." Trans., AIME,
Vol. 186, p. 305.
B=
N = oil inplace
o0 IdpQ(A1
D
)
Eo
Source: Havlena and Odeh. 1963.
N
127
i
g
R
PART THREE
ESTIMATION OF RECOVERY
FACTORS AND FORECASTING
OF RECOVERABLE HYDROCARBONS
---
----------------------------71
Chapter 8
OVERVIEW OF PART THREE
8.1 INTRODUCTION
Part Two focuses on in-place hydrocarbons or resources;
Part Three addresses reserves, which are the portion of
the resource, or the quantities of oil and gas and related
substances that are economically recoverable under
known technologies and a generally acceptable forecast
of future economic conditions.
Forecasting of recoverable hydrocarbons may be
approached from several standpoints: recovery factor
as a percentage of original in-place resources; statisti-
cal analogies, reservoir simulations, andmaterial balance
techniques; or methods such as decline analysis, where
the determination of in-place hydrocarbons is not a
requirement.
Many factors may affect the recovery of hydrocarbons:
Depletion mechanisms and the timing of the
implementation of various recovery methods
Reservoir and hydrocarbon characteristics
Well spacing, completion techniques, mechanical
conditions, and production equipment
The natural depletion mechanisms for oil include, but
are not limited to, primary production mechanisms in
which reservoir fluids are produced as a result of the
energy of fluid expansion, solution gas drive, water
drive, gas cap drive, compaction drive, and combina-
tion drive. These primary production mechanisms are
described in Chapter 9.
Production of natural gas generally involves primary
depletion using surface compression, but recovery of
liquid- and sulphur-rich gases often utilizes re-injection
of dry gas or cycling to maximize recovery. The deple-
tion methods for natural gas recovery are covered in
Chapter 10.
Primary oil recovery can be improved by secondary and
tertiary recovery schemes referred to as "enhanced re-
covery." Chapters II through 15 describe the various
enhanced recovery methods used in oil reservoirs: water-
flooding, hydrocarbon miscible flooding, immiscible
gas injection, thermal stimulation, and carbon dioxide
flooding.
Another method of improving recovery from oil
reservoirs is by the use ofhorizontal wells, which allow
drainage from larger areas than vertical wells. Chapter
16 discusses horizontal wells.
Reservoir characteristics that may affect hydrocarbon
recovery include heterogeneity and reservoir dis-
continuities, both vertical and lateral; the structural
characteristics of the reservoir; the presence of natural
fractures, both open and closed; pore size geometry and
distribution; permeabilities; in situ stresses and fracture
orientation; parting pressures (injecting fluids); and
reservoir pressure.
Hydrocarbon characteristics that may affect recoveries
include viscosity, composition, and the pressure-
volume-temperature relationships of the hydrocarbons
in the reservoir. The interrelationship of fluids and
reservoir rock, expressed in terms such as interfacial
tensions and wettability, control fluid movement in a
reservoir. The overall contrast between the mobility of
fluids in a reservoir significantly affects recovery.
The well spacing, completion intervals within wells,
completion techniques such as fracturing, and proxim-
ity of wells to underlying water or a gas cap are all factors
to consider when analyzing recoveries. Mechanical
equipment such as compressors can also significantly
affect recoveries as well as the abandonment of wells.
8.2 PURPOSE OF DEPLETION
STRATEGY
The purpose of a depletion strategy is to maximize
project economics and the recovery of hydrocarbons.
While this may sound obvious, the current focus on
quarterly earnings by most North American sharehold-
ers, coupledwith a tough economic climate, often results
in the need for immediate cash flow, which sometimes
overrides longer term business strategies. However, it
should not preclude companies from investigating other
131
development options and addressing those that meet their
financial constraints.
The development of a depletion strategy should
ultimately result in the identification of all potential re-
coverable reserves and the establishment ofa framework
that can maximize revenues from the project.
Developing a depletion strategy early in a project is very
important because the timing of the implementation of
various production strategies could be critical. It may
not be prudent to continue primary production without
fully addressing a depletion strategy for a pool. The
following are examples of what could happen:
1. Depleting a gas cap could cause a disastrous
decrease in the recovery factor of an oil pool.
2. Production from an oil pool to the extent that the
pressure drops below the critical gas saturation in
the reservoir prior to commencement of a water-
flood could have a detrimental effect on recovery.
3. Gas production with the pressure declining
significantly below the dewpoint in a retrograde gas-
condensate reservoir before implementing a dry gas
cycling scheme could result in a dramatic decrease
in liquid recovery.
Planning the depletion strategy during the initial
development stages of a pool will also identify the app-
ropriate data that should be gathered and accumulated
through both the drilling and the production stages of
development. The availability of this information will
assist in identifying the most economically feasible
depletion mechanism.
8.3 TECHNIQUES FOR RESERVES
AND PRODUCTION FORECASTING
The techniques used for reserves estimation and
production forecasting vary depending upon several
criteria:
The reservoir depletion strategy
The type of depletion mechanism, both existing and
future
The stage of reservoir development and depletion
The extent of the production history
The constraints that have been imposed on produc-
tion by regulation, markets, or the physical nature of
production facilities .
132
The reliability of techniques to forecast reserves and
production improves during the life of the pool as more
options become available. In the very early stages, with
little more than geophysical, geological, and wellbore
data and test information available, it is common prac-
tice to rely on analogy and statistical data for preliminary
reserves estimates.
During subsequent phases of reservoir depletion, the
availability of increasing volumes of information may
lead to the use of two more sophisticated techniques
of reserves estimation: numerical simulation and
decline curve analysis. These are the techniques most
commonly used for reserves estimation and production
forecasting.
The use of numerical simulation is not restricted to
reservoirs with significant producing histories, but the
ability to calibrate the reservoir model developed by
matching historical performance offers far more reli-
able results although the technique is often expensive.
This technique is of particular value where decisions
are necessary regarding the feasibility of some form of
enhanced recovery mechanism. Numerical simulation
is discussed in Chapter 17.
Decline curve analysis is both used and misused in
reserves and production forecasting, and it has wide-
spread use in every aspect ofreservoir depletion. Clearly,
the more established a decline trend becomes, the more
reliable the extrapolation ofthat trend, provided the un-
derlying reservoir or production mechanism that is
causing the decline does not change. Decline curve
analysis is discussed in Chapter 18.
In Part Two, the techniques for determining the most
likely in-place hydrocarbon volumes are discussed. The
assignment of recovery factors to these volumes at this
stage, particularly in the case of oil, requires an
assessment ofthe reservoir environment and the recov-
ery mechanism in order to determine likely performance
by analogy to similar, and preferably nearby, pools.
In westem Canada, a wealth of statistical data is avail-
able from the Alberta Energy Resources Conservation
Board (ERCB); the B.C. Ministry of Energy, Mines,
and Petroleum Resources; and the Saskatchewan
Department of Energy and Mines. Some ERCB data is
presented in Chapter I 9.
____________________..d
Chapter 9
NATURAL DEPLETION MECHANISMS
FOR OIL RESERVOIRS
Pressure drops in a reservoir caused by the withdrawal
of some of the fluids initiate the expansion of the
remaining fluids. Oil, gas, and water are then produced
as a result of their expansion and the expansion of the
surrounding reservoir rock. This recovery process
is called a natural depletion mechanism. The names
for the various natural depletion mechanisms-fluid
expansion, solution gas drive, water drive, combination
drive, and gas cap drive-are associated with the major
contributing source of expansion energy. When more
than one major source of expansion energy contributes
to the depletion process, it is referred to as a combination
drive.
This chapter discusses the natural depletion mechanisms,
the types of predictive tools and their applicability
at the different stages of development of a reservoir,
and the factors affecting recovery.
9.1.1 Fluid Expansion
Fluid expansion exists as a natural depletion process
when only one mobile fluid exists in the reservoir. (Fluid
may refer to either gas or oil.) The withdrawal of some
of this fluid will cause a pressure drop. The remaining
fluid will expand and displace itself toward the pres-
sure drop. Because ofthe highly compressible nature of
gas, fluid expansion is generally the dominant deple-
tion mechanism in gas reservoirs. Conversely, because
ofthe low compressibility ofliquids, fluid expansion is
not a good source of depletion energy in oil-filled res-
ervoirs. Fluid expansion in oil reservoirs exists by itself
only at pressures above the bubble point. At the bubble
point, the gas dissolved in the oil breaks out ofsolution,
and the expansion energy associated with the compres-
sive nature of this gas becomes the dominant depletion
mechanism. Only oil deposits containing very under-
saturated oil will be produced with fluid expansion
as their dominant depletion mechanism.
Pressure
SolullonGas Drive
,. .... -- .....
"
/ \
I \
~ I \
q!!'1
rY/ 1
~ I I
o
I
I
/
/
Cumulative Oil
III II
Oil
Production
----_ ....
Expansion
9.1.2 Solution Gas Drive
The predominant source ofenergy for solution gas drive
comes from the expansion of gas released from the oil.
As the pressure drops in a reservoir, the ability of the
oil to keep gas dissolved is reduced, and free gas is re-
leased. With further pressure reduction, the free gas
expands and displaces oil towards the producing wells.
Because of its highly compressible nature, the gas will
expand and displace significantly more oil than an
initially equal volume of liquid.
In an undersaturated oil reservoir, that is, one without
any initial free gas, the initial depletion mechanism will
be due to the expansion ofoil. Generally, there will be a
direct relationship between the volume and rate at which
the oil is produced and the pressure reduction, as shown
in Stage I in Figure 9.1-\. When the pressure drops
belowthe bubble point, free gas is released and becomes
the major source of expansion energy. Gas-oil ratio
does not significantly increase during this stage until
the critical gas saturation is reached. Because of the
compressible nature of the gas, with continued oil
production, the pressure drop is significantly reduced
and the oil rate will be fairly constant, as shown in Stage
II of Figure 9.1-\.
INTRODUCTION 9.1
Figure 9.1-1 Solution Gas Drive Reservoir
133
,
As the pressure continues to drop, the evolved free gas
will reach the critical saturation; at this point, gas will
start to move and will be produced in conjunction with
the oil. As the gas saturation increases, the ease with
which gas moves within the reservoir relative to oil
increases, and the gas is then produced preferentially
over the oil. With continued production and the associ-
ated pressure drops, the gas continues to be evolved,
increasing its saturation level. The production of gas
increases and the production ofoil decreases. This com-
plicated procedure, represented by Stage III in Figure
9.1-1, continues until the rate at which gas is being
evolved from the oil is less than the rate of gas being
produced. At this point, the pressure andproduction rates
drop quickly, as shown in Stage IV.
9.1.3 Water Drive
An oil deposit is considered to be produced by water
drive when the predominant source of expansion en-
ergy comes fromthe water-filledportion of the reservoir.
Since water has a lower compressibility than oil, the
volume of water needs to be significantly larger than
the oil-filled portion of the reservoir.
The pressure in the oil deposit will drop as production
is initiated. As the pressure gradient reaches the aqui-
fer, the water starts to expand, displacing the oil toward
the producing wells. If the aquifer is large enough and
thus has sufficient expansion energy, all the mobile oil
will be produced without any further pressure drops.
The oil rate will remain constant until the aquifer con-
tacts the producing well, after which the water
production will increase as the oil rate drops.
If the aquifer is not large enough to provide full
pressure support, the pressure drops. When the bubble-
point pressure is reached, free gas will be released, and
this gas will start to contribute significantly to the deple-
tion energy. This type of depletionmechanismis referred
to as a combination drive because there is more than
one significant source of depletion energy. Figure 9.1-2
shows the relative difference between solutiongas drive,
full water drive, and a partial water drive.
In many situations, at a localized area around the
producing wells, the water contact will rise dramatically
and effectively water out the wells. This phenomenon
is called "water coning." The consequence of water con-
ing is that large volumes of oil will be trapped and thus
become unrecoverable. In reservoirs that are subject to
coning, recovery factors tend to be very low. The more
viscous the oil and/or the greater the vertical perme-
ability, the more dramatic the effect of coning on
recovery.
134
Partial
Water
Drive .,
ty0t\ >
'\e
t
'5\l.9......
. '!\QI.1\ ... '"
Full
- - -
Solution
Gas Drive
Cumulative Oil
Figure 9.1-2 Comparison of Solution Gas Drive
and Water Drive Reservoirs
9.1.4 Gas Cap Drive
A reservoir that initially contains free gas as well as the
gas dissolved in the oil will benefit from the additional
expansion energy of the free gas. If the volume of free
gas is large enough so that this source of expansion
energy overshadows the effect of other sources of en-
ergy such as solution gas drive, the primary depletion
mechanism is called a gas cap drive.
As in water drive reservoirs, the oil undergoes an
initial pressure drop until the pressure gradient reaches
the gas cap. The gas then expands and displaces the oil
toward the producing wells. If the gas cap is large
enough, the oil deposit will undergo only minimal pres-
sure drop, and the oil production rate will remain
constant until the gas cap reaches the producing well
interval. Due to relative permeability effects, the gas
production rate will then increase quickly as the oil rate
drops off. If the gas cap is not large enough to give com-
plete or nearly complete pressure support, then as the
pressure drops, solution gas drive will be contributing
free gas energy. The resultant drive mechanism is also
referred to as combination drive. Figure 9.1-3 shows
the response ofa gas cap drive reservoir that becomes a
combination drive reservoir.
As in water drive reservoirs, many gas cap drive
reservoirs are also subject to coning effects. Because of
the inherent differences in viscosity of gas and oil,
coning is often more serious in gas cap reservoirs than
water drive reservoirs. In the presence of gas coning,
recovery factors tend to be relatively low.
9.1.5 Compaction Drive
In weak, unconsolidated reservoirs, the pressure drop
due to the production of fluids causes an imbalance III
__________________FZ8
NATURAL DEPLETION MECHANISMS FOR OILRESERVOIRS
this "sandwich" effect. The recovery factor in this
situation would be fairly low.
Figure 9.1-3 Gas Cap Drive Reservoir
Time
MaterialBalance ~ >
Decline Analysis-)-
-,
-<-' Numerical Simulation )-
Analytical Methods "-. ~ )-
k-c7""c-_- Analogous Methods - ~
*
a:
is
9.2 FORECASTING OF
RECOVERABLE OIL
Throughout the productive life of a reservoir, there is
always a need to establish the reserves. Recovery esti-
mates are used to justify capital spending, predict future
cash flow generation and, ultimately, estimate share-
holder value. Because of the importance of reserve
estimates, al1 available data should be used when deter-
mining the size of the oil deposit and the amount of oil
that can be recovered economical1y. The amount and
accuracy ofthe available information increase as an oil
deposit passes through the various phases of the
production life cycle. Thus, the recommended method-
ologies used to estimate recoverable oil change as the
quantity of information increases.
Two basic approaches are used to establish reserves for
an accumulation. Inthe first approach, the ultimate eco-
nomic recovery factor is established through analogous
or analytical methods, and then applied to volumetric
estimates based on geological interpretations (as dis-
cussedin Part Two). The second approach predicts future
production rates, with reserves calculated as the sum-
mation of the volume produced above the economic
limit. Table 9.2-1 and Figure 9.2-1 show the recom-
mended methodologies according to stage ofproduction
life and whether recovery factor or reserves are
predicted. Sometimes material balance and numerical
simulation are useful in the development stage
The purpose of establishing a reserves estimate, the size
and value of the reserves to the corporation, and the
Figure 9.2-1 Recommended Methods
for the Stages of Exploitation
,
,
,
,
,
,
,
,
,
,
,
,
___ Pressure
Cumulative Oil
Oil
Production
Rate
the stress within the bulk rock, and the weight of
the overburden causes the bulk rock to compact.
The compacting rock squeezes the internal fluids,
thus maintaining the pressure. The resultant drive
mechanism is referred to as compaction drive.
Compaction drives are found in heavy oil reservoirs
and some natural1yfractured reservoirs where fractures
tend to close as the reservoir is being depleted. Com-
paction drives can increase the recovery due to solution
gas drive by more than 10 percent of the original oil in
place.
9.1.6 Combination Drive
Often recovery from oil reservoirs is the result ofmore
than one drive mechanism. A reservoir with combina-
tion drive poses a difficult problem for reserve
estimation. General1y one depletion mechanismis domi-
nant at any stage of depletion or geographic area of the
reservoir. In a reservoir that has a smal1 gas cap, ini-
tial1y the dominant drive mechanism is solution gas
drive. When significant volumes of gas have evolved
out of solution, the dominant drive mechanism becomes
gas cap drive. For example, in the presence of both a
gas cap and an aquifer, the dominant mechanism at the
gas-oil interface would be gas cap drive, and the domi-
nant drive mechanism at the water-oil interface would
be water drive. It is critical for the evaluator to under-
stand the reservoir and which drive mechanism is
dominant.
In a combination drive reservoir that has both a water
leg and a gas cap, coning has a double effect in that
the gas cones downward and the water cones upward.
Thus, significant volumes of oil will be by-passed by
135

Table 9.2-1 Recommended Reserves Forecasting Methods
Stage
Exploration
Delineation/ development
Early life
Middle/late life
Abandonment
Forecast Method
Analogous
Analytical methods
Analogous
Analytical methods
Analytical methods
Numerical simulation
Decline analysis
Material balance
Actual production
What is Forecasted
Recovery factor
Recovery factor
Recovery factor
Recovery factor
Recovery factor
Reserves
Reserves
OOIP
Reserves
amount and reliability of the data should dictate the
degree of effort put into calculating an estimate. Often
comparing two or more methods of evaluation is
recommended. For example, an estimate determined
from decline analysis could be compared with one
calculated using an analytical method.
Information on a particular reservoir can be obtained
by techniques such as drilling, coring, logging, produc-
tion testing, pressure testing, and fluid analysis. Prior
to obtaining any ofthis information through the drilling
of the first well, the evaluator must resort to the use
of established information from analogous fields.
Analogies can be used to estimate recovery factors,
initial production rates and decline rates that are applied
to the geological interpretation. The more similar the
analogous field is in size, depth, fluid properties and
formation, and the closer its proximity to the prospect,
the better the estimate of recovery factor will be.
In analytical methods, the mathematical equations that
represent material balance calculations have been sim-
plified by making certain assumptions about particular
parameters. By measurement of some and "guessing"
at the remainder, the evaluator can establish the recov-
eries. Analytical methods have been developed for the
more complicated processes such as solution gas drive,
water drive and gas cap drive. Fluid expansion is a fairly
simple process, and therefore production forecasting and
recovery estimates are generally solved directly from
the material balance equation. Analytically predicted
recovery factors along with either early life production
history or rates based on analogous fields are applied
to the geological interpretation in order to establish
recoverable volumes of hydrocarbons.
Material balance, whether done graphically or
numerically, attempts to establish initial in-place
136
volumes of oil, gas and water. In order to establish a
recovery estimate, the results of the material balance
analysis must be combined with another prediction tech-
nique or assumptions applied to the depletion of the
reservoir. For example, assumptions on abandonment
conditions define the pressure or production rate at which
the field would be abandoned; thus the difference
between volumes in place and the volumes remaining
at abandonment establishes the reserves. The material
balance method is discussed in detail in Chapter 7.
Decline analysis is the prediction of future rates based
on observed behaviors seen in actual production histo-
ries. Typically, reservoir engineers forecast the future
well flow behaviours by extrapolating production his-
tory using a straight line. A single straight line will
represent the entire life ofa reservoir only when there is
one source of reserve energy in a simple homogeneous
reservoir with all wells producing at a similar rate. In
other words, a single straight line would represent the
entire production life for only a few oil reservoirs. In
using decline analysis, it is important to know what stage
of the natural depletion is represented by the produc-
tion history and is being represented by the prediction.
More than one straight-line segment may be necessary.
Other factors that can invalidate the use ofthe straight-
line method are the existence of dual porosity systems,
layered reservoirs with each layer having different prop-
erties, and geographic areas of an accumulation with
each area having different properties. These phenom-
ena, when incorporated into the prediction, change what
would have been a straight-line segment in a homogen-
eous reservoir into a curved line. A technique to handle
geographic differences is to subdivide the reservoir i?to
areas of similar characteristics and perform dechne
--------------------_....
NATURAL DEPLETION MECHANISMS FOR OIL RESERVOIRS
analyses on each area. Summing the various areas will
give a more accurate picture of the entire reservoir.
Numerical simulation, material balance and decline
analysis are the methods most commonly used in the
middle and late stages of depletion. These methods re-
quire a sufficient amount ofreliable data to be effective
predictors of recoveries. The following subsections
present general comments on the use ofthese methods
for the specific drive mechanisms. Numerical simula-
tion and decline analysis are discussed in more detail in
Chapters 17 and 18, respectively.
9.2.1 Solution Gas Drive
Oil recovery as a result of solution gas drive typically
ranges between 2 and 30 percent. The lower recoveries
generally occur in low API, shallow, and low pressure
oil reservoirs, whereas the higher recoveries occur in
high API oil, deep, and high pressure reservoirs.
Analytical Methods
The most common analytical methods for estimating
recovery in solution gas drive reservoirs are based on
material balance concepts. Four methods are applicable
below the bubble point. The most common analytical
approach used is the Tracy Method, followed by the
Muskat Method.
The following are the most commonly used analysis
methods:
The Tracy or Tarner Method (Tracy, 1955) is a re-
arrangement of the basic material balance equation so
that pressure-dependent variables are grouped. Tamer
extended the method by incorporating the gas-oil equa-
tion based on gas-oil relative permeability curves,
resembling the Pirson and Muskat methods.
The Muskat Method (Muskat, 1949) uses the material
balance equation, written in differential form, in con-
junction with the gas-oil relative permeability curves.
Because of the importance of these curves, some de-
gree of confidence in the data is crucial.
The Pirson Method (Pirson, 1950) is based on the
Schilthuis material balance equation written in finite
difference form. This is essentially a material balance
equation that predicts oil recovery as a fraction of oil in
place at the bubble point as the pressure declines over a
time period. The gas-oil relative permeability curve is
required to define the producing gas-oil ratio.
The Humble (Schilthuis) Method (Schilthuis, 1936)
is based on the Schilthuis material balance equation. In
the forecasting of future production, the equation is
applied to reservoir conditions at the beginning and end
of specified periods, and the interim production or
pressure change is obtained by difference.
Short-cut methods are used when there is little data or
when a recovery estimate is desired quickly. These are
not recommended if a high degree of confidence is
desired. Two short-cut methods are as follows:
Wahl et al, (1958) created various nomographs based
on the Muskat Method using varying fluid properties
and relative permeability characteristics.
The Roberts and Ellis (1962) Method uses the early
GaR data to predict future production. Using oil grav-
ity and solution gas-oil ratios, the trend of producing
gas-oil ratio is matched to the published predictions.
Decline Analysis
The productive life for a solution gas reservoir that
initially was above the bubble point is made up of four
distinct stages as shown in Figure 9.1-I. In a decline
analysis, the analyst must know what stage of depletion
is represented by the production and must predict when
the reservoir will enter future stages. Because ofthe dif-
ficulty of predicting when these future stages will occur,
production decline analysis is generally not used as a
predictive tool until the production data reaches Stage
III.
Reservoir Simulation
In solution gas drive reservoirs, generally analytical
anddeclinetechniquesare sufficient toestimatereserves.
In special situations typically dictated by geological
discontinuities or heterogeneity and in naturally frac-
tured reservoirs, simulation may be warranted to
establish reservoir flow and resultant recoveries.
9.2.2 Water Drive
Oil recoveries in a water drive reservoir can typically
range from 2 to 50 percent depending on factors
inherent in the reservoir.
A common method for evaluating recovery efficiency
of water drive reservoirs uses the observed rise of the
water-oil contact due to the water influx from the aqui-
fer. This requires sufficient production history for the
water-oil contact to rise noticeably and a method of
measuring the rise. The relationship over time between
the fraction of the reservoir invaded by water and the
initial oil-filled reservoir compared to the oil produced
allows the prediction of the total oil recovery.
Additional factors that affect reserves include coning,
fractional flow, and economic limit.
137
Analytical Methods
If the observation of the advance of the water-oil
contact is insufficient to directly predict recovery effi-
ciency, or direct measurement of the advance is not
possible, theoretical methods based onmaterial balance
are recommended with preference given to the Welge
Method. Assuming near-constant pressure at any time,
the reservoir recovery, E
R
, can be calculated using the
relationship:
where W, = water influx
Wp = cumulative water production
B
w
water formation volume
factor
We - Wp B
w
net water influx at reservoir
conditions
HCV, = cumulative water-invaded
hydrocarbon volume
Ultimate recovery is then determined from reservoir
production vs, cumulative water encroachment.
The following are the most commonly used analysis
methods:
The Welge Method (Welge, 1952) is recommended if
production history data is insufficient to determine the
efficiency of the water drive. Fractional flow of water,
f
w
' as a function of water saturation, is used to predict
oil recovery.
throughput area
formation permeability
relative permeability to oil
density difference, water density-
oil density
acceleration due to gravity
formation dip
total throughput rate
water viscosity
oil viscosity
relative permeability to water
where
138
A
k =
!c"o
.1.p =
g
CJ. =
q,
Ilw =
Jl
o
::;:;:
k.w=
W, w,e,
E = --'---'---'-
R HCV
e
I . _A_kk-,,"::..:(_.1.,:-:,pg::...s_in_CJ....:.)
q,/.lo
I + /.lw
k
,"
J.Lo k.;
(I)
(2)
The last term on the right-hand side of Equation (2)
represents the effect of gravity on fractional flow. For
a nontilted reservoir, this term becomes zero. The
relative permeability vs. saturation relationship must be
reliable in order for this method to result in a reason-
able recovery estimate.
The Dietz Method (Dietz, 1953) predicts oil
recovery in reservoirs where the waterfront flows up-
dip along the base of the formation, causing the front
to assume a tilted position. This is especially notice-
able in reservoirs with a water influx rate that exceeds
the critical rate and in reservoirs containing viscous oil.
The MarshaI'Method(Marshal, 1957) uses Buckley-
Leverett theory to predict recovery in a stratified
reservoir. From production history the time required for
a given water cut to move between two rows ofwells in
a field is obtained, and the velocity of the water front
determined. Field-measured water cuts are used to de-
scribe oil-water relative permeability curves. If enough
water-cut ranges are available, the fractional flow curve
vs. distance in the reservoir, as defined by Buckley-
Leverett, can be predicted.
The Schilthuis Method (Schilthuis, 1936) determines
water influx by calculating the water flow fromthe aqui-
fer to the reservoirin a series ofsteady-state steps. Water
influx is assumed to be proportional to the pressure dif-
ference between the aquifer and the reservoir. Since
aquifer pressure is assumed equivalent to the initial
reservoir pressure, this method is valid only for
infinite-acting aquifers. The weakness in this method
is due to calculation of an aquifer constant from
production history.
The Modified Hurst Method (Hurst, 1943) is similar
to the Schilthuis material balance method in that it also
. predicts water influx. The Hurst equation extends the
Schilthuis Method by accounting for the increase in the
drainage radius in the aquifer.
Correlations have been identified and should only be
used for quick evaluations or where data is minimal:
Khan and Caudle (1968) for thin oil columns, Caudle
and Silberberg (1965) for edge-water drive, Hutchinson
and Kemp (1956), and Henley et al. (1961).
The analytical methods discussed in this subsection
assume that the water-oil contact rises as a flat surface,
either from the flank or from the bottom. If the reser-
voir is subject to coning, these analytical methods
will overestimate oil production rates and ultimate
-
NATURAL DEPLETION MECHANISMS FOR OIL RESERVOIRS
recoveries. In the early life of the reservoir, i.e., prior
to water break-through, empirical correlations exist to
identify the susceptibility of the wells to coning. These
methods forecast recoveries by estimatingbreak-through
time and the water-oil curve forecast. Using the water-
oil forecast, oil production can be estimated. Although
reservoir simulation is recommended for evaluating
coning situations, the following correlations are
available for quick evaluation:
I. Kuo (1989) combines various correlations that
determine critical rate calculations, break-through
time calculations, and water-cut performance pre-
dictions on a PC spreadsheet for rapid analysis of
comng.
2. Boumazel and Jeanson (1971) combine experimen-
tal correlations with a simplified analytical approach
based on the assumption that the front shape
behaves like a straight line. This method may be
applied to thick homogeneous reservoirs that are
horizontally fed.
3. Sobocinski and Cornelius (1965) developed a
correlation based on laboratory data for predicting
water coning time as it builds from static to
break-through conditions. This method involves
correlating dimensionless cone height against di-
mensionless time.
4. Kuo and DesBrisay (1983) developed correlations
based on numerical simulation to determine the
sensitivity ofwater coning behaviour to various res-
ervoir parameters, including the ratio of vertical to
horizontal permeability, the ratio of perforated in-
terval to oil thickness, the production rate, and the
mobility ratio.
5. Numerous correlations have been developed
based on the theoretical curves by Muskat for
homogeneous reservoirs. The best known correla-
tions include Muskat and Wuckoff(l935), Chaney
et al. (1956), and Chierici et al. (1964). All these
methods use the theoretical curves to obtain a criti-
cal production rate, the maximum production rate
at which oil can be produced without coning. In
order to estimate recoveries, a way of forecasting
water-oil ratio and oil production must be incorpo-
rated. Therefore, these correlations in themselves
will not forecast recoveries.
Decline Analysis
In some water drive reservoirs, the production
forecast might be represented by two straight-line
segments, pre- and post-water break-through. Due to
the difficulty of predicting the timing of water break-
through using decline analysis, this method is generally
used after break-through has occurred.
Many approaches are available in analyzing production
after water break-through. Table 9.2-2 outlines the more
commonly used combinations of production data plots.
In the analysis of any data set, it is recommended that a
number of these combinations be used, selecting the
combination that gives the best match.
Table 9.2-2 Decline Analysis Plots Used
after Water Break-through
1. Logoil ratevs, time(exponential decline)
2. Oil ratevs. cumulative oil (exponential decline)
3. Logoil ratevs. cumulative oil (harmonic decline)
4. Logcumulative oil vs. logcumulative oil plus
water
5. Oil andwaterratesvs. cumulative oil
6. Logoil andwaterrates vs. cumulative oil
7. Logwater-oil ratio vs, cumulative oil
8. Logwater-Coil +water) ratiovs. cumulative oil
Material Balance
Material balance methods for estimating reserves in
water-drive reservoirs frequently result in erroneous
estimates. A detailed understanding of the supporting
aquifer is required for any degree ofreliability. Often
information about the aquifer is extremely difficult to
obtain. Knowledge that is critical includes the size of
the aquifer, the strength or pressure support provided
by the aquifer, and the areas of the oil reservoir that
receive pressure support. In addition to an estimate of
original oil in place, the parameters defining the aquifer
must be solved from the production and pressure his-
tory data. With the addition of these unknowns, the
material balance method has a greater number ofvari-
abies to solve than it has equations. Because of this,
material balance generally results in multiple estimates
of original oil in place.
Early in the production history of a reservoir, material
balance methods may give erratic results for water in-
flux due to inaccuratepressure measurements or because
well pressure measurements may not be an accurate rep-
resentation of actual average reservoir pressure. In the
early life of depletion, an erroneous negative water
influx may be calculated.
139
F
and pro-rated back to the individual wells, sometimes
result in erroneous amounts and allocation of gas
production. The accuracy ofgas production depends on
the frequency and method of measurement and the
variation between wells in the reservoir.
Because ofthe relatively higher mobility ofgas, careful
planning is critical if a reservoir simulation model is to
be used. The grid blocks and time steps should be small
enough that the movement ofgas can be physically rep-
resented by the simulator. If coning is an issue, a radial
model is recommended. Reservoir simulation is
discussed in more detail in Chapter 17.
9.3 FACTORSAFFECTING OIL
RECOVERY
Although the drive mechanism is the primary factor
influencing recoveries, numerous other factors, either
inherent to the reservoir or resulting from human inter-
vention, influence ultimate recovery. The following
subsections address some of these other major factors.
9.3.1 Production Rate
The production rate, qo' of a well is defined by the
radial flow equation:
9.2.4 Combination Drive
In a combination drive reservoir, generally one
depletion drive mechanism is dominant at a particular
time or in a particular area of the reservoir. Therefore,
in generating production forecasts, it is necessary to
identify the predominant sources of energy throughout
the life of the reservoir and to identify the predominant
sources of energy affecting a particular geographic area
of the reservoir. Because of the complexity of predict-
ing the start and shape of the future production affected
by different dominant depletion mechanisms, decline
analysis techniques generally are not attempted until the
last stage. Techniques appropriate to the specific deple-
tion mechanism dominant during the last stage of
depletion should be used.
(3)
21tkk"h (Pr- Pw)
q =
o IJ)n(r,lr
w
)
where k = permeability
k,o= relative permeability to oil
h = net pay
Pc = in situ pressure of accumulation
Pw = wellbore pressure
110 = viscosity of oil
Material Balance
Since gas is an important fluid in the recovery of oil in
gas cap drive reservoirs, a word of caution is advised
when using the material balance method. Oil field mea-
surement practices, where gas is measured periodically
In reservoirs where coning is a key issue, a reservoir
simulation radial coning model is recommended.
Reservoir simulation is discussed in more detail in
Chapter 17.
9.2.3 Gas Cap Drive
Oil recoveries in a gas cap drive reservoir can be as
high as 60 percent depending on factors inherent to the
reservoir. Three dominant factors influence recovery:
I. Since the gas cap provides the recovery energy, it
must be of sufficient size to displace oil to the pro-
ducing wells. In general, the longer the gas cap can
maintain the pressure, the greater the recovery.
2. High vertical permeability allows the liberated
solution gas and oil to segregate, adding additional
energy to the gas cap.
3. Early gas break-through increases the gas-oil ratio
significantly, thus removing the main source ofdrive
energy.
Analytical Methods
Because the drive mechanism in gas cap drive
reservoirs is frequently combination drive, generally in
conjunction with solution gas drive, the recommended
methods for prediction of recoverable oil are decline
analysis, material balance and reservoir simulation, all
of which take into account the complicated nature of
the reservoir. Short-cut methods include the following:
The Welge Method (Welge, 1952), as previously
described for water drive reservoirs, may be used for
low viscosity oil reservoirs.
The Dietz Method (Dietz, 1953), as previously
described for water drive reservoirs, may be used in
reservoirs where the gas cap overruns the oil along the
reservoir flank. In this case, the rate ofadvance must be
below the critical rate for the method to be valid.
These analytical methods assume the gas-oil contact will
advance as a flat interface. If the reservoir is subject to
severe coning, these methods will overestimate both the
production rate and the recovery. The correlations de-
scribing water coning can also be modified to estimate
gas corung,
140
--------------------------...
r, = external boundary radius
r
w
= wellbore radius
For natural depletion mechanisms, the only parameters
that can be altered due to human intervention are near-
wellbore permeability and producing pressure. The
near-wellbore permeability can be enhanced through
stimulation techniques such as acidizing and fracturing.
The producing wellbore pressure can be reduced by the
installation and optimization of artificial lift equip-
ment. For a given oil deposit, adjusting the production
capability of the wells will not alter the theoretical
quantity ofmoveable oil, but will affect the recoverable
. resource through economic limit, as demonstrated in
Figure 9.3-1. Ifthe only difference betweenthe two cases
shown is the production capacity of the well, the cumu-
lative production at the economic limit will be larger
for the high rate case.
Economic
Limit
Reserves
Theoretical
Recovery
Cumulative Recovery
In general, lower API oil receives a lower price at the
refinery. Since the price directly impacts the economic
limit, the limit would be reached sooner for lower priced
crude.
9.3.3 Reservoir Characteristics
Reservoircharacteristicscan affect recovery factors from
theoretical calculations primarily because of heteroge-
neities in the reservoir. Generally, heterogeneities cause
a reduction in reserves either by (I) decreasing the
amount of oil in place that can be effectively tapped by
the wells, or (2) causing uneven depletion of portions
ofthe reservoir, in turn resulting in a greater amount of
oil being left in the ground because it is uneconomic to
produce. Some ofthese reservoir characteristics include
permeability variations, dual porosity systems, naturally
fractured reservoirs with cemented fractures, and low
permeability stringers.
Although a heterogeneous reservoir generally has a
lower recovery than a homogeneous reservoir, some
heterogeneities can assist the drive mechanism, and thus
increase reserves. For example, in bottom-water-drive
reservoirs where coning is of concern, shale stringers
can restrict the advance of water, allowing higher oil
production for a longer period of time. Also, open
uncemented, or partially cemented natural fractures
can help improve recoveries from low permeability
reservoirs that otherwise would be uneconomic to
produce.
In general, the more heterogeneous the reservoir, the
larger the difference in the actual reserves as compared
to the theoretical calculations.
Figure 9.3-1 Relationship Between Production
Rate and Reserves
9.3.2 Oil Quality
The type of oil in the reservoir directly affects reserves
through the volume of gas in solution and through oil
viscosity. Oils that have less gas dissolved in solution
have less reservoir energy for oil recovery under solu-
tion gas drive; these are generally lower gravity oils.
Oil viscosity influences recovery in two ways. First, if
there are two fluids in a reservoir with significantly dif-
ferent viscosities, oil production would decline quite
rapidly because ofconing or fingering ofthe other fluid.
Second, productivity of a well is inversely proportional
to viscosity (Equation 3). All things being equal, a more
viscous oil would have a lower production rate and
would reach its economic limit sooner.
9.3.4 Reservoir Geometry
Many factors associated with the reservoir geometry
influence the amount of oil produced under primary
depletion. Some of these are the shape of the reservoir,
the continuity ofthe formation, the layering ofmultiple
sands, faulting, structure, and dip. These factors can
affect both the drive mechanism and the economic
viability of developing the accumulation.
Depending on the predominant drive mechanism, the
geometric configuration will have varying degrees of
effect. For example, in a solution gas drive reservoir,
vertical relief could allow the formation of a secondary
gas cap, which would maintain the evolved gas as an
energy source.
In general, the less continuous reservoirs would result
in a lower recovery because some parts of the reservoir
might not be in communication with the producing
141
wells. In this case, infill drilling to reach untapped oil
would result in an increase in reserves. Also, due to dis-
continuities in the reservoir, gas-oil and water-oil
contacts might not advance as a flat interface, and thus
oil would be by-passed.
A layered reservoir poses a different type of problem,
especially if the multiple zones have significantly dif-
ferent reservoir characteristics. If one zone were more
prolific due to considerably higher permeability, it would
have a higher recovery factor than the less prolific
zone. In this case, it is often beneficial to estimate the
recovery factor separately for the multiple zones.
Because ofthe different behaviours of the various zones,
a layered reservoir manifests itself as a hyperbolic or
harmonic decline if decline analysis is being used.
9.3.5 Effects of Economic Limit
Whether a recovery factor is rigorously established
through detailed techniques like numerical modelling
or estimated through engineeringjudgement, innate ass-
umptions are made about the economic limit of the
reservoir. In some cases the economic limit is estab-
lished in the current economic environment using known
technology. The key factors affecting the economic limit
are the prices for the hydrocarbons, the operating cost,
the current fiscal regime, and encumbrances such as
overriding royalties and net profit interests. These
factors are discussed in Part Four. The following sub-
sections discuss some of the other factors that influence
the economic limit.
Well Spacing
A single well in a large deposit of oil will theoretically
produce all of the moveable oil, but this would take a
very large number of years and would not provide the
optimum economic recovery. As the well is produced,
a pressure gradient is established in the reservoir. With
continued production, the pressure gradient moves fur-
ther out into the reservoir, effectively reducing the
average reservoir pressure. As the average pressure
drops, the production rate of the well will drop propor-
tionately. When the radius of the area affected by the
pressure gradient becomes sufficiently large, a pseudo-
equilibrium is established in which the flow at the
furthest boundary reached by the pressure gradient
is equivalent to the production rate of the well. The
pressure gradient will continue to move further out into
the deposit, minimally affecting the production rate,
until the physical limits of the deposit are encountered.
142
,
DETERMINAnON OFOILANDGASRESERVES
If other wells are drilled into the same reservoir, but are
far enough apart that their respective pressure gradients
will not interact until after the economic limit has been
reached, each will behave as if it were the only well in
the reservoir. If the densities of the wells are such
that their respective pressure gradients interact at
the economic production limit, the reservoir pressure
would be at the original level at the point of interaction,
resulting in an overall high average reservoir pressure
at abandonment. Inserting a well midway between the
two original wells will result in a lower average res-
ervoir pressure at abandonment, and thus a higher
economic oil recovery. However, the oil recovered per
well will be less. With continued reduction in spacing,
the average reservoir pressure at abandonment will con-
tinue to drop, but in diminishing increments. The result
will be a typical relationship between the oil recovered
above the economic limit and the number of wells in
the pool. The intersection of the oil recovery forecast
and the economic limit establishes the reserves for this
reservoir. The relationship between well spacing and
abandonment pressure is depicted in Figure 9.3-2.
The point at which increasing the number of wells will
no longer markedly increase the oil recovered when
producing above the economic limit is generallyreferred
to as the optimum spacing (Figure 9.3-3). This assumes
that the revenue benefit from the additional recoverable
oil in reducing spacing while moving from point a to
point b offsets the cost ofdrilling, completing, and equip-
ping the necessary additional wells, and provides the
required return on investment. Increasing the density of
wells beyond point b may be economic through the ef-
fects of rate acceleration. However, the volume of oil
recoveredabove the economic limit will remain the same
unless by having more wells and thus larger volumes,
the economy-of-scale factors will reduce the average
economic limit per well. The optimum well spacing will
be unique for each deposit and should be established by
a combined technical and economic assessment.
Facility Sizing and Constraints
Facilities must be installed in order to separate the
produced oil, gas, and water. The size ofthe facility and
the resulting capital and operating costs (the economics
of the project) have an impact on the ultimate reserves.
Very simply, if the capital cost of the required produc-
tion facility is greater than the potential revenue,
the reservoir will not be developed and produced, and
therefore cannot be considered to contain reserves, even
- .-sra
Original Pressure
Single Well Single Infill Multiple Infills
Average Abandonment Pressure
Constrained
od\.\C\\O{\
F==:::::=::-'l'lQ!ol!!!!alC!F",lu!"id,;..Po-'-
is
~
E
" o
,
,
,
,
,
,
,
,
,
,
,
Cumulative
Oil
'\
!
,
,
,
,
,
,
,
,
,
,
Present ~ p ~ .....
Value ~ ~
~ /
,
,
,
,
. , . ~ , / I ~ b
" a
,
,
,
r
,
,
,
Figure 9.3-2 Relationship Between Well SpacingandAbandonment Pressure
the decline of the oil rate will be sharper, as depicted
in Figure 9.3-4. The decision whether to increase
the capacity of the facility is based on an economic
evaluation of the benefit of the additional oil and the
cost of expansion.
Oil
Production .::
Number of Wells
Figure 9.3-3 Optimum Well Spacing
if it has been adequately delineated through drilling. A
facility sized large enough to handle the maximum ini-
tial production will continue to have high operating costs
when oil volumes decline in the future, and will reach
its economic limit earlier than a smaller, less expensive
facility that limits initial production, but has lower
operating costs.
Sometimes facilities need to be installed in oil fields to
handle increasing production volumes ofassociated gas
and water. Installing large facilities that will not be
utilized for many years may not be economic, and the
use of constraining facilities may be necessary. When
a naturally declining oil rate reaches a facility constraint,
Cumulative Oil
Figure9.3-4 Effects of Facility Constraints
on Economic Limit
Regulatory Constraints
In addition to the standard economic considerations of
developing a reservoir (rate of return, payout, operating
costs, and facility costs), there are also the regulatory
constraints imposed by the local government agencies.
The purpose of these regulations is to ensure the
conservation and responsible exploitation of a
depleting resource, to ensure that the equitable rights of
143
competing producers are met, and to protect the envi-
ronment. Regulations with respect to well spacing,
location of wells on a spacing unit, production rate,
water-oil ratios, gas-oil ratios, and hydrogen sulphide
emissions have been established to meet the objectives
ofthese agencies. These regulations will, in some cases,
impose constraints on development scenarios and thus
affect the estimates of recoverable hydrocarbons. This
topic is discussed in more detail in Chapter 23, The
Regulatory Environment.
References
Bournazel, C., and Jeanson, B. 1971. "Fast Water-
Coning Evaluation Method." SPE3628.
Caudle, RH., and Silberberg, I.H. 1965. "Laboratory
Models of Oil Reservoirs Produced By Natural
Water Drive." SPEJ, Mar. 1965, pp. 25-36.
Chaney, P.E., Noble, M.D., Henson, W.L., and Rice,
T.D. 1956. "How to Perforate Your Well to
Prevent Water and Gas Coning." O&GJ, Vol. 55,
May 1956, pp. 108-114.
Chierici, G.L., Ciucci, G.M., and Pizzi, G. 1964. "A
Systematic Study of Gas and Water Coning by
Potentiometric Models." JPT, Aug. 1964, pp.
923-929.
Dietz, D.N. 1953. "A Theoretical Approach to the
Problem of Encroaching and By-Passing Edge
Water." Proc., Konikl. Ned.-Akad, Wetenschap,
Series B, Vol. 56, p. 83.
Henley, D., Owens, W.W., and Craig, F.F. 1961. "A
Scaled Model of Bottom Water Drives." JPT, Jan.
1961, pp. 90-98.
Hurst, W. 1943. "Water Influx Into a Reservoir and
Its Application to the Equation of Volumetric
Balance." Trans., AIME, Vol. 151, p. 305.
Hutchinson, T.S., and Kemp, C.E. 1956. "An
Extended Analysis of Bottom Water Drive
Reservoir Performance." Trans., AIME, Vol. 207,
pp.256-261.
144
Khan, A.R., and Caudle, B.H. 1968. "Scaled Model
Studies of Thin Oil Columns Produced by Natural
Water Drive." SPE 2304.
Kuo, M.C.T. 1989. "Correlations Rapidly Analyze
Water Coning." O&GJ, Oct. 1989, pp. 77-80.
Kuo, M.C.T., and DesBrisay, C.L. 1983. "A
Simplified Method for Water Coning
Predictions." SPE 12067.
Marshal, D. 1957. "Mathematical Treatment of Water
Invasion of Oil-Bearing Formations." Erd. Kohle,
Vol. 10, Dec. 1957, p. 825.
Muskat, M. 1949. Physical Principles ofOil
Production. McGraw-Hili, New York, NY.
Muskat, M., and Wuckoff, R.D. 1935. "An
Approximate Theory of Water Coning in Oil
Production." Trans., AIME, Vol. 114, pp. 144-
161.
Pirson, SJ. 1950. Elements ofOil Reservoir
Engineering. McGraw-Hill, New York, NY.
Roberts, T.G., and Ellis, H.E. Jr. 1962. "Correlation
of Gas-Oil Ratio History in a Solution-Gas-Drive
Reservoir," JPT, Vol. 14, Jun. 1962, p. 595.
Schilthuis, RJ. 1936. "Active Oil and Reservoir
Energy." Trans., AIME, Vol. 118, p. 33.
Sobocinski, D.P., and Cornelius, AJ. 1965. "A
Correlation for Predicting Water Coning Time."
JPT, May 1965, p. 594.
Tracy, G.W. 1955."Simplified Form of the Material
Balance Equation," Trans., AIME, Vol. 204, p.
243.
Wahl, W.L., Mollins, L.D., and Elfrink, E.R 1958.
"Estimation of Ultimate Recovery from Solution-
Gas Drive Reservoirs." JPT, Jun. 1958, p. 132.
Welge, HJ. 1952. "A Simplified Method for
Computing Oil Recovery by Gas or Water Drive."
Trans., AIME, Vol. 95, p. 91.
_____________n
Chapter 10
DEPLETION MECHANISMS
FOR NATURAL GAS RESERVOIRS
10.1 INTRODUCTIOJII
During the depletion of natural gas reservoirs, many
factors affect the production performance. The basic
characteristics and physical properties ofthe gas and its
associated constituents or products, and its proximity
and interrelationship to other fluids in the reservoir can
either enhance or adversely affect the recovery from
a pool. The most significant aspect, however, is the
compressibility and, conversely, in the reservoir, the
expandable nature ofpressurized gas. On average, a sig-
nificantly higher percentage of the gas in a reservoir is
recovered through natural depletion mechanisms than
of the oil, which has lower compressibility.
This chapter highlights some of the characteristics of
the gas and the reservoir that influence recoveries and
basic approaches in forecasting recoverable gas reserves.
10.2 CHARACTERISTICS OF NATURAL
GAS
The gases that constitute natural gas belong mainly to
the "paraffin series." The main constituent is methane.
Impurities such as nitrogen, carbon dioxide, helium, and
hydrogen sulphide may be present in natural gas.
The Alberta Energy Resources Conservation Board
classifies natural gas with less than one percent hydro-
gen sulphide as "sweet." When the hydrogen sulphide
content is over one percent, the gas is classifiedas "sour."
Natural gas found by itselfin a reservoir and completely
in the gaseous state is classified as "nonassociated,"
(Figure 10.2-1). Gas found in an oil reservoir with no
free gas present except that which is in solution is class-
ified as "solution gas." Gas and oil may be found in a
reservoir in many different combinations when the field
is discovered, and the relationship of the gas and oil
mayor may not change, depending on the reservoir and
fluid characteristics and on drilling, completion and pro-
duction practices. For example, gas may be found
as free gas above the oil. This is called a "gas cap," and
the gas is classified as "associated" gas. Under some
Associated Gas
Nonassociated
Gas
Source: Clark, 1960,
Figure 10.2-1 Classification of Gas Based on
Source in Reservoir
reservoir conditions and producing practices, the
dissolved gas may come out of solution in the reservoir
and form a "secondary" gas cap or add to a natural gas
cap.
At lowpressures in shallowfields, natural gas and crude
oil appear as distinct substances in the reservoir (Figure
10.2-2, Reservoirs A and B). As the pressure at which
petroleum is found rises with increased depth, gas dis-
solves in crude oil, and the high-boiling constituents
dissolve in the gas phase. Some fields have both oil and
gas in contact (Figure 10.2-2, Reservoir C). Deeper fields
at pressures over about 27 600 kPa (4000 psi) and at
temperatures ofmore than 95C(200F) contain single-
phase fluids that are not immediately distinctive as oil
or gas fields (Figure 10.2-2, Reservoir D).
"Dry" gas reservoirs normally yield little or no surface
liquid recovery with processing through normal lease
separation equipment.
A gas is "wet" if hydrocarbon liquids are extractable in
surface separation equipment, and may be produced
from a single-phase gas reservoir, a retrograde con-
densate gas reservoir, or an "associated gas" reservoir.
145
- - - - - - - - - - - - - - - - ~
-/
Source: Katzet al., 1959.
Figure 10.2-2 Occurrence of Oil and Gas
10.3 DEFINITION OF RESERVOIR
TYPES FROM PHASE DIAGRAMS
Various types of reservoirs can be defined using
pressure-temperature phase diagrams (Figure 10.3-1).
The area enclosed by the bubble-point and dew-point
lines is the region ofpressure-temperature combinations
for which both gas and liquid phases exist. The curves
within the two-phase region show the percentage ofthe
total hydrocarbon volume that is liquid for any
temperature and pressure. Initially, each hydrocarbon
accumulation would have its own phase diagram, which
would depend only upon the composition of the
accumulation.
A single-phase gas reservoir at discovery is shown by
point A. Since the fluid in the reservoir during produc-
tion remains at 150C(300F), it retains its gaseous state
as the pressure declines along path A-AI' Furthermore,
the composition of the produced gas does not change
as the reservoir is depleted. However, cooling and
pressure drop in the wellbore and surface facilities
allow the condensing of gas along the line A-A
2
This
accounts for the production of condensate liquid at the
surface from a gas in the reservoir.
Retrograde gas condensate reservoirs or dew-point
reservoirs exist at pressures sufficient to be at or above
the upper boundary of the two-phase envelope and at a
temperature between the critical and cricondentherm
values, as shown by point B. Here the fluid is also in the
one-phase gaseous state. As pressure declines because
of production, the composition of the produced fluid
will be the same as for reservoir A, and remain constant
until the dew-point pressure is reached (Point B
1
)
Below this pressure, liquid condenses out of the gas as
fog or dew, leaving the gas phase with a lower liquid
content. The condensed liquid adheres to the walls of
the pore spaces of the rock, and is immobile. Thus the
gas produced at the surface has a lower liquid content
and the producing gas-condensate ratio increases. This
process of retrograde condensation continues until a
point ofmaximum liquid volume is reached (Point B
2
) .
Vapourization of the retrograde liquid occurs from B
2
to the abandonment pressure at point B) and canbe noted
by decreasing gas-condensate ratios on the surface.
When a retrograde gas condensate reservoir has
conditions on or very close to the dew-point line at
the time of discovery, it means that the percentage of
intermediates (C2 - C6) is high.
It is also quite common to find a volatile oil rim. In this
case, the gas cap would be exactly at the dew point.
If the accumulation occurred as shown by point C, the
reservoir would be in a single-phase (oil) liquid state,
since the temperature is below the critical temperature.
In this case, as the pressure declined, the bubble point
would be reached (Point C
I).
Below this point, a
free-gas phase would appear. This gas is classified as
"solution gas."
Ifthe same hydrocarbon mixture occurred at point D, it
would be a two-phase reservoir, consisting of a liquid
or oil zone overlain by a gas zone or "gas cap." As the
compositions of the gas and oil zones are entirely diff-
erent from each other, they may be represented
separately by individual phase diagrams. The oil zone
will produce as a bubble-point oil reservoir and the gas
cap will be at the dew point, and may be either retro-
grade as shown in Figure 10.3-2 (a) ornonretrograde as
shown in Figure 10.3-2 (b).
The initial in-place gas and condensate for gas
condensate reservoirs, both retrograde and non-
retrograde, may be calculated from the available
production data by recombining the produced gas and
condensate in the correct ratio to find the composition,
average specific gravity (air = 1.000), pseudo-critical
pressure, and pseudo-critical temperature of the total
well fluid, which is presumably being produced initially
from a single-phase reservoir.
Water
Ground Level
.\ containing Dissolved G
........... 0\ Os __......
Water
B
A
146
----------------------_..
DEPLETION MECHANISMS FOR NATURAL GASRESERVOIRS
-18 10
Reservoir Temperature(oG)
38 66 94 122 150 178
4000
3500
til
'w 3000
oS
~
::>
l:l 2500
~
a.
~
. ~ 2000
Q)
<J)
8!
1500
1000
Bubble Point
or
Dissolved Gas
Reservoirs
DewPoint
or
Retrograde
Gas-Condensate
Reservoirs
Single Phese
GasReservoirs
'A ,
II
II
"II
2/1
'iiI I
off/l
el I
0..1 I
'Cs' I
I I
~ I "0 I
IJ.J 'S I
I u::: I
I .: I
" ~ I I Q) I
<Ill
&!I
-I
1
1
"'I
0-
1
I
A,
I
I
I
I
27600
24150
20700 ~
~
~
::>
17250 l:l
~
a.
~
13 800 . ~
Q)
<J)
Q)
a::
10350
6900
Source: AfterCraft, 1959.
100 150 200 250
Reservoir Temperature(OF)
300
3450
350
Figure 10.3-1 Pressure-Temperature Phase Diagram of a Reservoir Fluid
Figure 10.3-2 Phase Diagram of a Cap Gas and
Oil Zone Fluid
10.4 GAS RECOVERY
Ideally, 100 percent gas recovery is the goal. For
reservoirs producing by gas expansion and without
water drive, there is no physical reason why the gas may
BP
T
Temperature
(a)
Source: Craft, 1959.
011-
T
Temperature
(b)
not be recovered down to near atmospheric pressure.
However, the production rates decrease so rapidly when
the pressure approaches atmospheric that some abandon-
ment pressure is established for economic production.
Most volumetric depletion reservoirs with reasonable
permeabilities will produce 70 to 90 percent of the
original gas in place. Sometimes the higher limit ofre-
covery can be approached when operating costs are low
and gas prices high. In other reservoirs, substantial losses
will occur. But it is sometimes possible to minimize this
loss through proper reservoir management and the
application ofbasic principles ofreservoir engineering.
The following are some of the reasons for low gas
recovery:
Drive Mechanism. In terms of drive mechanism, a
frontal displacement-probably a gas-water contact-
always results in a substantial residual gas saturation.
This is often more than 40 percent in sandstones. In the
case of near-total pressure maintenance by water
147
~ !
10.5 GAS RESERVES
"Gas reserves" refers to the fraction or portion of the
original gas in place that is economically recoverable.
Consequently, the recovery factor, RF, is defined as
the ratio of gas reserves to initial gas in place and is
usually expressed as a percentage:
where G
p
, = cumulative gas produced at abandon-
ment conditions
G, = initial gas in place
Gas reserves are assigned to one of three groups:
I. Nonassociated gas reserves
2. Solution gas reserves
3. Associated gas cap gas reserves
The determination of reserves of gas in these three
groups is discussed in the following subsections.
10.5.1 Nonassociated Gas Reserves
Determination
Nonassociated gas reserves are those reserves that
are not associated with recoverable oil reserves. Their
production is limited only by market availability and
contract terms.
encroachment, more than 40 percent of the gas may be
trapped behind the advancing gas-water contact.
Reservoir compaction drive in soft sediments has a
similarly negative impact on gas recovery.
Over-Pressured Reservoirs. Over-pressured reservoirs,
usually at considerable depth, can also have significant
reductions in permeability to gas flow at abnormally
high bottom-hole pressures during the gas exploitation
process (Duggan, 1972).
Phase Behaviour. If the reservoir temperature is less
than the cricondentherm (maximum two-phase tempera-
ture), the potential exists for retrograde condensation
of some of the heavier hydrocarbons as pressure
declines and, therefore, a loss of valuable liquids.
Other Reasons. In addition, gas might be trapped due
to the reservoir configuration, position and number of
producing wells, production rates, water coning, migra-
tion offines, damage at the producing wellbore sandface,
stratification, and loss of permeability due to facies
changes. Low permeabilities often result in high
abandonment pressures when reduced well spacing
cannot be economically justified.
(2)
(3)
T ~ [Pi Po]
G=Ah.p(l-S.) - ---
r, r, Zi z;
T" [(I-S.)P, Sg,Po]
G=Ah.p- --
r., r, z, z,
A
h
.p
S =
w
T
sc
=
If water invasion of the reservoir amounts to less than
100 percent at abandonment, a higher effective residual
gas saturation for the reservoir will result.
where G = original recoverable raw gas reserves
(m") .
= drainage area (nr')
net pay thickness (m)
porosity (fraction)
connate water saturation (fraction)
base or standard temperature CK)
(273
0
+0c)
Pso = base or standard pressure (kPaa)
Tf = formation temperature CK)
(273
0
+0c)
Pi = initial reservoir pressure (kPaa)
Zi = compressibility factor at Pi and Tf
P, = abandonment pressure (estimated)
(kPaa)
Z, = compressibility factor at P, and Tf
The base pressure used varies from 99.284 kPaa to
103.594 kPaa, but is usually 101.325 kPaa. The base
temperature is normally 15C(288K).
Abandonment pressure, P" can be estimated by the
following rule of thumb:
P, = 240 kPaa + 80 kPaaflOOm of depth
The initial gas in place in the reservoir, minus the
remaining gas at the selected abandonment pressure
gives the recoverable raw gas as shown in Equation (2).
In water-drive reservoirs, a residual gas saturation, Sgr'
remains in the water-invaded zone. The recoverable gas,
G, from the water-invaded portion of the reservoir is
calculated by Equation (3).
Gas reserves in gas fields may be estimated by the
volumetric and material balance methods.
Volumetric Method
The volumetric method is used for new gas fields
before any significant production takes place.
In reservoirs where no water influx is expected,
recoverable raw gas, G, is calculated by the following:
(I)
Gpo
RF= - x 100
G
i
148
-----------_..
DEPLETION MECHANISMS FOR NATURAL GASRESERVOIRS
where G, = volume of produced gas at standard
pressure, P'o> and standard temperature,
T
sc
If there is no aquifer present in the reservoir, there is no
water influx and water production will be negligible.
Then Equation (6) may be written as follows:
(7)
(8)
(9)
Z,T Z,T
P;V, PrV,
-----
P,
G =b-m-
p Z
r
G = P;V,T" _ V,T". P,
p Z,P"T P"T Z,
where
and
or
For fixed values of P
sc
and T
sc
, since Pi' Z, and Vi are
also fixed for a given volumetric reservoir, Equation
(8) may be written as follows:
Equation (9) is the equation of a straight line, and
indicates that for a volumetric gas reservoir the graph
of the cumulative gas production, G
p
, vs. the ratio
P/Zis a straight line of negative slope "m."
Figure 10.5-1 shows a plot of P/Z vs. cumulative
gas production. The plot can be extrapolated to zero
pressure to determine the initial gas in place or to any
abandonment P/Zto find the recoverable gas.
For the computation of initial in-place gas for constant-
volume reservoirs, the following data is required:
Initial reservoir pressure
Cumulative gas volume
Stabilized shut-in reservoir pressure at the end of
production '
Gas deviation factors at these two reservoir pressures
assuming the reservoir temperature remains constant
This method is not applicable to water-drive gas
reservoirs. With pressure reduction, when water enters
the space occupied by gas, the pressures are maintained
either almost completely or only in part depending on
the nature of the water drive (Figure 10.5-2).
In reservoirs where an aquifer provides a high degree
of pressure support, the existence of a water drive is
generally quite obvious. In reservoirs with only a par-
tial pressure support, an active water drive may not be
(6)
P;V, _P,(V,-W,+BwW
p
)
Z,T Z,T
Material Balance Method
This method is applicable only to the reservoir as a
whole, because of the migration of gas from one por-
tion of the reservoir to another in both volumetric and
water-drive reservoirs. For single-well reservoirs this
method may be used directly, but in multiple-well pools
the production information must be combined.
The Law of Conservation of Mass may be applied to
gas reservoirs to give the material balance as follows:
mass of gas produced = initial mass of gas -
remaining mass of gas
For the gas system under consideration, if the gas
composition is constant, the number of moles of gas,
both produced and remaining in the reservoir, is directly
proportional to their masses. A material balance in terms
of moles of gas may be written as follows:
!1>=n;-n
f
(4)
where subscripts p, i and f stand for produced, initial
and final remaining at some later stage of production
rather than at abandonment.
If there is a water drive, the final volume, V
f
after
producing a volume of gas, G
p
, is:
V
f
= Vi - We + BwW
p
(5)
where Vf = final gas pore volume (does not
include connate water)
Vi = initial gas pore volume (does not
include connate water)
We= volume of water that has encroached
into the reservoir at the final pressure
P
f
B
w
= the formation volume factor for water
in reservoir volume per surface volume
Wp= volume of water that has been
produced from the reservoir
If the real gas law PV = ZnRT is applied in Equations
(4) and (5):
149
"4
Cumulative Gas Production
Complete Water Drive
10.5.2 Solution Gas Reserves
Determination
Solution gas reserves are dissolved in the oil in a
reservoir and can only be recovered if oil is produced.
If solution gas cannot be conserved or sold, regulations
may necessitate that the oil production be shut in. The
rate of solution gas production depends on the rate of
oil production and the producing gas-oil ratios (GORs).
During the initial stages of oil production, GORs will
generally remain at or above solution GOR until the
critical gas saturation is reached. At this point the pro-
ducing GOR will increase as described in Section 9.1.2.
If decline analysis is used to predict oil production,
an extrapolation of the GOR trend can be conducted
concurrently. More rigorous prediction methods can also
be utilized as described in Section 9.2.1.
As a rule of thumb, the ultimate solution gas recovery
factor in solution gas drive reservoirs generally ranges
from 50 to 65 percent.
In oil reservoirs with an active water drive or water-
floods, the final recovery factor for the solution gas
will be influenced by the degree ofpressure maintenance
and sweep efficiencies, as well as residual oil and gas
saturations.
I
N
ii:
apparent. A plot of P/Z vs. cumulative gas production
in these reservoirs will indicate an overstated
extrapolation of recoverable gas.
Figure10.5-1 Plot of P/Z vs. Cumulative Gas
Production
Cumulative Gas Production
Figure10.5-2 Effect of Water Drive on
Pressure Decline
Models are available that use Equation (5), the basic
material balance equation, for water drive reservoirs.
An example is shown by Guerrero (1968). However,
there are multiple unknowns in the material balance
equation for water influx reservoirs, and calculations
generally involve several assumptions on the reservoir
description. Consequently, material balance predictions
are often unreliable when a detailed understanding of
the reservoir and supporting aquifer does not exist.
10.6 PIPELINE GAS RESERVES
The methods discussed in this chapter give reserves of
raw gas. Before the gas is delivered to the point of sale,
there are losses at the surface due to processing shrink-
age and fuel consumption. These losses must
be deducted from the raw gas reserves to calculate
marketable pipeline gas.
10.5.3 Associated Gas Reserves
Determination
The term "associated gas reserves" refers to a gas cap
above oil reserves. Most, if not all, of the gas cap drive
energy is required to maximize oil recovery. For this
reason, associated gas reserves must ideally remain shut
in until all the oil reserves have been produced. These
gas reserves will be recovered during blow-down ofthe
gas cap.
Associated gas reserves are generally estimated using
the volumetric method and an estimated abandonment
pressure. As a gas cap adds inherent complexities to
an oil reservoir, its presence may justify a more rigor-
ous analysis or reservoir simulation to determine the
appropriate depletion approach.
t
150
. ~ ;
-------------- 41
DEPLETION MECHANISMS FOR NATURALGASRESERVOIRS
In sweet, dry gas fields, the surface loss is usually about
2 to 5 percent. For wet or sour gases, the surface loss
can be estimated from the gas analysis, the recoveries
of related products that are expected, and an allowance
for plant fuel.
10.7 RESERVES OF RELATED
PRODUCTS
Natural gas liquids and sulphur are recovered from the
natural gas, and the reserves are estimated from the gas
analysis and the gas reserves.
10.7.1 Natural.Gas Liquids
For the development of reserve estimates, natural gas
liquids are defined as those hydrocarbon liquids that, in
the reservoir, are either gaseous or in solution with crude
oil and that are recoverable as liquids by condensation
or absorption in field separators, scrubbers, gasoline
plants, or cycling plants. Natural gasoline, condensate,
and liquefied petroleum gases are in this category.
Natural gas liquids are in a sense an intermediate
product-lighter than what is usually considered crude
oil and heavier than what is usually considered natural
gas.
Natural gas liquid recoveries can be estimated as shown
in Table 10.71.
10.7.2 Sulphur
Sulphur is recovered as a by-product if hydrogen
sulphide is present as an impurity in the natural
gas. Sulphur recovery can be estimated as shown in
Table 10.71.
Table 10.71 Recoveries of Related Products
10.8 GAS DELIVERABILITY
FORECASTING
Rawlins and Schellhardt (1935) demonstrated that a gas
well can be tested to predict its deliverability against a
specific bottom-hole flowing pressure.
An empirical relationship has been developed to relate
the well gas flow rate at surface conditions with bottom-
hole flowing pressure and average reservoir shut-in
pressure:
Q" = C (P
R2pl)"
(10)
where Q,,= flow rate at standard conditions of
pressure and temperature
C = a coefficient that describes the position
of the stabilized deliverability line
P
R
= average reservoir shut-in pressure
P
p
= reservoir flowing pressure
n = an exponent equal to the reciprocal of the
slope of the stabilized deliverability line
Limits of n vary from 0.5 for fully turbulent to 1.0 for
completely laminar flow in the formation, reflecting the
degree ofturbulence.
The P/Zvs. cumulative gas production relates the static
reservoir pressure to cumulative gas. The results of
isochronal (back pressure) testing relates static reser-
voir pressure, well flow rate, and sandface flowing
pressure (Figure 10.81).
Well performance estimates are made during the
development stage of the gas reservoir and also during
the depletion of the gas field. Basically, this involves
establishing well production rates vs. reservoir pressure
(gas well deliverability) that exist during the life of the
gas reservoir (Figure 10.82).
?
Related Recovery For For
Product SI Units Imperial Units Fraction Shallowcut Deepcut
Range use use
Propane m'/IO'm' = vol. % x 36.9 bbl/lO'cf = vol. % x 6.54 oto 0.90 0.50 0.90
(rawgas) x recovery(fraction) (rawgas) x recovery(fraction)
Butane
m
3/10'm3
= vol. % x 43.0
bbl/.JO'cf = vol. % x 7.62 oto 0.95 0.75 0.95
Pentanes Plus m
3/lO'm3
= vol. % x 57.3 bbl/lO'cf = vol. % x 10.15 up to 1.00 0.95 1.00
Sulphur m
3/IO'm3
= vol. % x 13.6 bbl/lO'cf = vol. % x 0.377 0.95 to 1.00
(rawgas) x recovery(fraction) (rawgas) x recovery (fraction)
Source: After Gas Processors Suppliers Association, 1981,
151
--
P ~ - - - - -
Stabilized
Deliverabilily
Curve
10
Shut-In Reservoir Pressure
i!!
"
Ul
Ul
i!!
n,
0>
e
. ~
u::
~
. ~
"
Ul
"
a:
AOF
Gas Flow Rate
o
0+------------+-
10
2
10' 10'
Gas Flow Rate
10.
1
+----r:-----.:---,-L----1
10
Figure 10.8-1 Back Pressure Plot
Similarly a wellhead gas deliverability plot in wellhead
flowing pressure vs. gas flowrate can be generated from
the wellhead back pressure plot.
Further discussion on back pressure testing is beyond
the scope of the monograph. For further details, the
reader is referred to Theory and Practice ofTesting of
Gas Wells (Energy Resources Conservation Board,
1975), Back Pressure Test for Natural Gas Wells
(Railroad Commission of Texas, 1972) and "Methods
for Predicting Gas Well Performance" (Russell et aI.,
1966).
10.9 WELL SPACING
Optimum well spacing for the exploitation of gas
reservoirs may be substantially different than for oil res-
ervoirs. Where spacing regulations govern, spacing
would normally be wider for a gas reservoir than for an
oil reservoir. These regulations recognize the increased
mobility of gas as compared to oil, and the correspond-
ing greater migration capability ofgas during producing
operations; thus the spacing assigned to a gas well is
considerably greater-typically, 259 hectares (640
acres) per well. However, a denser well spacing may
exist in areas with shallow,low-permeability reservoirs.
10.10 CYCLING OF GAS CONDENSATE
RESERVOIRS WITH DRY GAS
Incentive exists in cycling of gas condensate reservoirs
with "dry" gas in those cases where natural depletion
of the reservoir will result in substantial loss of
liquid hydrocarbons in the reservoir. This occurs in
Figure 10.8-2 Gas Deliverability Plot
volumetric reservoirs where retrograde condensation
behaviours exist (liquids forming as the pressure
declines), and in water-drive gas fields where "wet" gas
is trapped. It has been noted that liquid hydrocarbons
formed during pressure depletion of a reservoir are not
normally revapourized at lower reservoir pressures and,
therefore, are trapped as a residual liquid saturation.
Under these circumstances, the gas in the reservoir may
be "cycled" to reduce the loss of liquids. In this opera-
tion, gas is produced from the reservoir, the liquid
hydrocarbons are extracted, and the dry gas is re-
injected. This reduces the rate of pressure reduction in
the reservoir, which is responsible for the retrograde
condensation. The dry gas re-injected may be only part
of the gas produced, or it may be all of the gas pro-
duced, or it may even be gas in excess of that
produced, so that the reservoir voidage is fully replaced.
There is evidence (Smith and Yarborough, 1968) that
at least part of any liquid saturation that formed prior
to the implementation of dry gas cycling operations,
will be revapourized into the dry gas. To achieve
maximum benefit from dry gas cycling, cycling should
be initiated before the dew point of the reservoir
hydrocarbon fluid is reached.
In reservoirs where rock characteristics are favourable,
cycling with dry gas should provide recovery of part of
the liquids which otherwise would be lost.
Not all cycling projects are successful. Sprinkle et al.
(1971) have reported the adverse influence of stratifi-
152
s
D
DEPLETION MECHANISMS FOR NATURALGASRESERVOIRS
cation on gas cycling operations. The presence of a high
permeability layer in the reservoir was believed to be
the cause for poor liquid hydrocarbon recoveries and
resulted in the ultimate abandonment ofthe gas cycling
project in a Texas Gulf Coast Frio Sand reservoir.
Income from dry gas cycling projects will initially be
all or mainly from liquid hydrocarbon sales and, later,
during "blow-down," from the sale of both gas and
liquids, but the rate ofliquid recovery will be declining.
10.11 SECONDARY RECOVERY OF GAS
Secondary recovery of gas is uncommon because
primary recovery usually yields a high percentage of
the gas originally in place (70 to 90 percent). New op-
erating practices, however, have sometimes made
commercial deposits out of some that were considered
to be uneconomic.
Boyd et al. (1982) described secondary gas recovery
from the watered-out Frio gas reservoir in the Double
Bayou Field, Chambers County, Texas.
10.12 ENHANCED GAS RECOVERY
Enhanced gas recovery has been traditionally used
to describe methods of unconventional gas recovery
from tight gas sands, Devonian shales, coal-bed meth-
ane, and methane from geopressured aquifers. However,
many difficult problems such as technology, risk and
economics remain barriers to progress in this direction.
In general these reserves are not commercially viable
without subsidy.
Higher recovery from conventional gas reservoirs is
a more likely place to look for additional gas and gas
condensate production.
The largest obvious source of gas from discovered
reservoirs would be those reservoirs that have had strong
water drives. It is worth mentioning that approximately
two-thirds of the gas reservoirs of the world have an
original gas-water contact, and approximately 50
percent of these reservoirs have at least a partial
displacement with water.
References
Boyd, W.E., Jr., Christian, L.D., and Danielsen, c.L.
1982. "Secondary Gas Recovery from a Watered-
Out Reservoir." Paper presented at the fall SPE
meeting, New Orleans, LA., Sep. 1982, SPE No.
11158.
Clark, N.J. 1960. "Elements of Petroleum
Reservoirs." SPE of AIME, Dallas, TX.
Reservoir Engineering. Prentice-Hall, Inc.,
Englewood Cliffs, N.J.
Duggan, J.O. 1972. "The Anderson "L" - An Abnor-
mally Pressured Gas Reservoir in South Texas."
JPT, Feb. 1972.
Energy Resources Conservation. Board. 1975. Theory
and Practice ofthe Testing ofGas Wells. 3rd ed.,
Calgary, AB, Canada, Second Printing, 1978.
Gas Processors Suppliers Association. 1981.
Engineering Data Book (9th ed., 5th rev.).
Guerrero, E.T. 1968. Practical Reservoir Engineer-
ing, The Petroleum Publishing Co., Tulsa, OK.
Katz, D.L., Cornell, D., Kobayashi, R., Poettman,
F.H., Vary, J.A., Elenbass, J.R., and Weinaug,
C.F. 1959. Handbook ofNatural Gas
Engineering. McGraw-Hill Book Co., New York.
Railroad Commission of Texas. 1972. Back Pressure
Test for Natural Gas Wells. Oil and Gas
Engineering Department, State of Texas.
Rawlins, E.L., and Schellhardt, M.A. 1935. Back
Pressure Data on Natural Gas Wells and Their
Application to Production Practices. US Bureau
of Mines, Monograph 7.
Russell, D.G., Goodrich, J.H., Perry, G.E., and
Bruskotter, J.F. 1966. '.'Methods for Predicting
Gas Well Performance." JPT, Jan. 1966, pp.
99-108.
Smith, L.R., and Yarborough, L. 1968. "Equilibrium
Revaporization of Retrograde Condensate by Dry
Gas Injection." SPEJ, Mar. 1968, pp. 87-94.
Sprinkle, T.L., Merrick, R.J., and Caudle, RH. 1971.
"Adverse Influence of Stratification on a Gas
Cycling Project." JPT, Feb. 1971, pp. 191-194.
153
Chapter 11
ENHANCED RECOVERY BY WATERFLOODING
11.1 INTRODUCTION
Waterflooding is the process of injecting water into
a formation for the purpose of displacing oil to
producing wells. The displacement of oil by water is
governed by wettability, pore size distribution and
geometry, rock heterogeneities, and fluid properties.
Waterflooding is a proven technology to improve re-
covery, but the degree of improvement and economic
viability is dependent upon the following:
The type of flood scheme implemented
Properties of the reservoir rock
Properties of the oil
Well spacing
Economic factors (i.e., cost of the scheme, oil price,
royalties, regulatory constraints)
Waterflooding is classified as "secondary" recovery
because it supplements recovery of oil by natural or
"primary" depletion.
In certain reservoirs, mobility ratios are improved by
the addition of polymers, and interfacial tension is re-
duced by the addition ofsurfactants to the injectedwater.
These processes are "tertiary" recovery schemes and
are referred to as "polymer" and "micellar" flooding,
respectively.
Based on a statistical review of waterfloods in western
Canada, total recovery factors generally vary from 16
to 45 percent with an average of 30 percent of original
project oil in place. These values are typically at least
double the primary recovery factor values.
This chapter reviews the waterflooding process, the
industry methods used to estimate reserves and produc-
tion forecasts and the factors that affect the results, the
accuracy of these methods, when and how to apply the
them, and typical statistical data.
11.2 DISPLACEMENT PROCESS
The displacement process is governed by several
fundamental principles that include mobility ratio,
interfacial tension, and fractional flow.
154
11.2.1 Mobility Ratio
D' Arcy developed an empirical relationship for
the velocity of a fluid through a porous medium as a
function ofpressure differential, viscosity, and a propor-
tionality constant (permeability). The mobility ofa fluid
is the effective permeability of the rock to that fluid
divided by the viscosity of the fluid. For a frontal dis-
placement scheme, the mobility ratio, M, is the ratio of
the mobility of the displacing phase behind the flood
front to the displaced phase ahead of the flood front.
(I)
where I<.w = relative permeability to water
k,o = relative permeability to oil
Ilw = water viscosity (cp)
Ilo = oil viscosity (cp)
For a waterflood scheme, water mobility is determined
at the average water saturation at water break-through.
Oil mobility is determined at the initial connate water
saturation. Mobility ratios for water displacing oil
generally vary from 0.1 to 10. Increased mobility ratios
have a detrimental effect on displacement, areal sweep
and vertical sweep efficiencies, as discussed in the
following subsections.
11.2.2 Interfacial Tension
Interfacial tension is a thermodynamic property of an
interface between two phases. Typical values of inter-
facial tension between oil and water at reservoir
conditions range from 10 to 30 dynes/em. Interfacial
tension generally increases with increasing molecular
weight ofthe reservoir fluid and decreases with increas-
ing reservoir temperature. In water-wet rocks, interfacial
tension tends to create bubbles of oil that block pore
throats. In oil-wet rocks, interfacial tension tends to bind
the oil to the rock surface. Interfacial tension is one of
the major reasons why oil becomes increasingly
more difficult to recover as water saturation increases.
--- 1
ENHANCED RECOVERY BYWATERFLOODING
1
where f
w
= fractional flow
Fractional flow is a function of water saturation since
relative permeabilities to oil and water are functions of
water saturation. Fractional flowcurves are constructed
Fractional flow is the fraction of the total fluid flow
that is due to the flow of the displacing phase, and is
a function of the saturation of the displacing phase.
The simplified form of the fractional flow equation,
excluding gravity and capillary forces, is as follows:
using relativepermeabilities to oil and water determined
in laboratory tests. Frontal advance theory and the
application of fractional flow curves are presented in
considerable depth by Craig (197Ia) and Willhite
(1986). Typical fractional flow curves are illustrated in
Figures 11.2-1 and 11.2-2.
These fractional flow curves illustrate that the displace-
ment of oil from a water-wet rock is more efficient than
from an oil-wet rock. Water injection and water pro-
duction volumes will be higher for an oil-wet reservoir
than for a water-wet reservoir.
It is noted that the fractional flow following break-
through represents the producing water cut at the
sandface. In single layer displacement, remaining oil
saturation to waterflooding should be determined from
fractional flow curves at the estimated economic water
cut limit. Inmulti-layerdisplacement, it is commonprac-
tice to assume that the residual oil saturation to
waterflooding is equal to the endpoint saturation from
relative permeability data. This is a consequence of
producing well oil cuts being maintained at economic
rates by layers that have not broken through with water.
(2)
Fractional Flow 11.2.3
Over the range of interfacial tensions encountered in
waterflooding, residual oil saturations are relativelycon-
stant. Residual oil saturations decline when interfacial
tension is reducedto less than one dyne/emandapproach
zero when interfacial tension is approximately 0.001
dyne/em.
o
20 30 40 50 60 70 80
Water Saturation (% pore vol.)
Source: Craig, 1971a.
0.8
-
0.7
c:
'"
-
ttl
0.6
3:
-
0
0.5
0
u:
a;
0.4
c:
0
:;:::
o
0.3
!!1
u.
0.2
0.1

10 20 30 40 50 60 70
Water Saturation (% pore vol.)
Source: Craig, 1971a.
Figure 11.2-1 Effect of Oil Viscosity on
Fractional Flow Curve, Strongly
Water-Wet Rock
Figure 11.2-2 Effect of Oil Viscosity on
Fractional Flow Curve, Strongly
Oil-Wet Rock
155
n
, 0
A
I I
A Injector
0 Producer
-
Principal direction
A 0
of oildisplacement
I I
- horizontal
0 I
A
A----
Pembina Cardium
Wainwright - Sparky
Swan Hills - Beaverhill Lake
Steelman - Midale
A---
I
0----
Figure11.3-2 PlanView for Horizontal
Waterflood
In practice, average remaining oil saturations will be
slightly higher than endpoint residual oil saturation
values due to economic limit constraints.
In dipping reservoirs, fractional flow data are adjusted
for gravity and capillary effects. For oil being displaced
updip, the performance ofa waterflood improves as dip
increases. Capillary pressure effects are assumed to be
negligible for most reservoir flow systems.
11.3 TYPES OF WATERFLOODS
The two general types of waterflood schemes are
classified by the primary direction of the displacement
process, i.e., vertical or horizontal.
Vertical Waterflood Schemes. Water is injected at
wells completed at the bottom of the formation, and oil
is produced at wells completed at the top of the forma-
tion (Figure 11.3-1). The higher density of water
as compared to oil results in water gravitating to the
bottom of the formation and displacing oil in an
upward direction.
Figure11.3-1 Cross Section for Vertical
Waterflood
Horizontal flood schemes are typically classified by
the type of injection pattern. The most common, as
illustrated in Figure 11.3-3, include the following:
Five-spot
Inverted nine-spot
Line drive
Peripheral
A combination of the vertical and horizontal processes
is used in dipping reservoirs. Other types ofpatterns are
discussed and illustrated by Craig (197Ib).
11.4 ANALYSIS METHODS AND
WHEN TO APPLY THEM
There are five general types of reserve and production
forecast methods for waterfloods in common use:
1. Volumetric analysis
2. Decline performance analysis
3. Comparison to analogous pools
4. Analytical performance prediction
5. Numerical simulation
The volumetricmethod is used onlyto calculatereserves,
whereas the other methods may be used to calculate re-
serves and production forecasts. Wherever possible,
reserves should be calculated using more than one
method in order to substantiate the results and increase
confidence.
The following subsections discuss the applicability of
the methods at various stages of depletion.
o Completion
interval
Oil production
t t
--> --
I
Principal
direction of oil
displacement
Oil
-----------
-' -- Water
Water
injection
This type of scheme is best suited to relatively thick
formations and is most commonly applied to reef
reservoirs such as the following in Alberta:
Rainbow, Virgo, Zama, Shekelie-Keg River
Pembina, West Pembina-Nisku
Horizontal Waterflood Schemes. Water is injected in
a pattern of wells, and oil is produced from wells com-
pleted between injectors (Figure 11.3-2). Pressure
gradients caused by injection and production result in
displacement of oil in a horizontal direction.
This type of scheme is best suited to relatively thin or
layered formations and is commonly applied to blanket
or channel type sands as well as carbonate reservoirs
such as the following reservoirs in western Canada:
156
______________________d
'f -0- -0- -0--9
I I I I I
I I I I I
I I I I I
r--b--b--k--*
I I I I I
I I I I I
I I I I I
'f -6- -6- -6--Q
I I I I I
I I I I I
I I I I I
~ - l r - - l r - - I : r - "
Direct Line Drive
Source: After Craig, 1971 b.
A Injection well
o Production well
Pattern boundary
<;> A Q A Q
I I I
<?- - -0- - -?- --0-- - {>
I I I
\>A\>A\>
I I I
?- --0- - -9- --0-- - \>
I I I
6 A 6 A 6
Inverted Nine-Spot
,A"
/ "
/ <,
/ -,
// <,
/ 0 0 -,
/ "
/ "
~ 0 ~
-, /
" /
"0 0 /
" /
" /
-, /
-, /
" /
"If
Peripheral
Figure 11.3-3 Flood Patterns for Horizontal Flood Schemes
11.4.1 Pool Discovery
At pool discovery, there is normally insufficient
reservoir data to accurately calculate waterflood reserves
by any method. If the reservoir is seismically defined,
waterflood reserves may be calculated using volumetrics
or analogies and are normally categorized as "possible"
because of the considerable uncertainties in reservoir
definition.
11.4.2 DelineatedPool: Immature
Depletion
Once a pool has been delineated and on primary
production for a reasonable period of time, waterflood
reserves can be calculated more accurately since reser-
voir size and configuration will have been established,
reservoir properties can be measured at various points
across the pool, oil properties will have been established,
and the primary depletion mechanism can be established.
At this stage, volumetric, analogous comparison, perfor-
mance prediction, and numerical simulation methods
may be utilized. Properly assessed volumetric and
analogy methods are reasonably accurate at this stage
and are normally used to assess waterflood feasibility.
Performance prediction methods alone are only approxi-
mate, but are reasonably accurate if adjustments are
made to fit volumetric reserves and analogies. Numeri-
cal simulation is commonly performed if waterflood
feasibility has been established by analytical tech-
niques. This technique is generally accurate for ultimate
recovery predictions, "provided" reservoir properties
are accurately defined and numerical effects are
properly handled. Frequently, however, reservoir rock
properties, layering and heterogeneities are not
accurately known, and unreliable break-through pre-
dictions result. Analogies in these cases sometimes yield
more reliable results if the analogous pools have
similar heterogeneities and rock properties.
If economically feasible, waterflood reserves at this
time are frequently classified as "probable." Where
strong analogies can be made to similar successful
flood schemes, a portion of the reserves may also be
classified as "proved." The degree to which proved
reserves are assigned depends upon the type of
reservoir, the reliability ofthe data, the commitment of
157
volumetrically ifhistorical oil-water contact movements
are measured. Changes in contact levels compared to
mapped pore volumes yield in situ determination ofdis-
placement and sweep efficiencies which may be used
to assess remaining reserves. Hydrocarbon pore volume
or original oil in place vs. depth relationships are
required to evaluate in situ recovery efficiencies.
the operator to implement a scheme, and the strength of
the analogies.
11.4.3 Post-Injection Startup
After startup of injection, reserves are generally
calculated in the same manner as that described in
Section 11.4.2. Slightly higher confidence may be placed
on the calculated results as water injectivity and
potential premature break-through problems can be
ascertained.
11.5
11.5.1
VOLUMETRIC ANALYSIS
Overview of Method
11.4.4 Post-Waterflood Response
After waterflood response has been exhibited (i.e., oil
production increases and gas-oil ratio (GaR) decreases),
more of the possible and probable waterflood reserves
may be reclassified as "proved" or "probable." There is
basically no change in the way volumetric, analogy and
performance prediction methods are utilized at this stage
of depletion; the only difference is in the confidence
level ofthe results. Numerical simulation results become
more accurate, however, as reservoir and rock proper-
ties are tuned to match actual response.
Mature horizontal waterflood schemes exhibit trends of
increasing water cut and declining oil production. Once
the trends have been established, decline performance
analysis may be used to calculate reserves and oil pro-
duction forecasts. As discussed in Chapter 18, normally
over 50 percent recoverable reserve depletion is required
before decline analysis is performed. Properly assessed
decline analysis is the most accurate conventional
method to determine proved and probable producing
reserves. Numerical simulation techniques can be
more accurate, but the expense of performing the sim-
ulation may not be warranted unless operating and
optimization strategies are being examined. Waterflood
recoveries obtained from decline analysis are fre-
quently rationalized volumetrically. This procedure will
indicate whether all areas of the reservoir are being
efficiently flooded. Additional nonproducing proved
or probable reserves may be assigned to areas of the
reservoir that require infill or delineation drilling,
additional injection well conversions, or recompletion
workovers to improve recovery.
Mature vertical waterflood schemes may not have
established oil production decline or water cut trends
as a result of regulatory production rate limitations im-
posed on oil wells and manual restrictions to prevent
water coning. Recoveries can be accurately predicted
E,
E
H
E
v
E
c
=
V
sw
=
N = '" E V [Sop - ~ ] (3)
pf'l'tswB B
op or
where N
pf
total waterflood reserves from
commencement of the flood to
abandonment (stm")
average porosity within the gross
swept area of the flood scheme
= total sweep efficiency =E
H
x E
v
x E
c
= horizontal sweep efficiency (areal)
vertical sweep efficiency
conformance efficiency (continuity)
gross swept rock volume of the flood
scheme (m")
Sop = oil saturation within the gross swept
volume at the start of the flood
(fraction)
Sor = residual oil saturation (fraction)
Bop = oil FVF @start of flood (m
3/m3
)
B
or
= oil FVF @abandonment of flood
(m
3/m3
)
The equation is straightforward, but the derivation of
each parameter of the equation may not be.
Waterflood reserves are frequently confused with total
reserves. Total reserves are equal to primary plus
waterflood reserves. Similarly, total recovery factor is
equal to the primary plus waterflood recovery factors.
Typically, the total recovery factor for waterflood
schemes is at least double that of primary recovery.
11.5.2 Parameters and Factors
Affecting Analysis
The individual parameters that make up the volumetric
waterflood equation are discussed in this section. More
complete discussions are presented by Craig (1971),
Willhite (1986) and Slider (1983).
The volumetric equation for the calculation of water-
flood reserves is a relatively simple one (Slider, 1983a):
Mature Waterflood 11.4.5
158
______________________51
10
Horizontal Waterflood Schemes
1. Porosity
Average porosity, cp, within the gross swept reservoir
should be used in the calculation. It should be
noted that this may not equal average pool porosity.
2. Total Sweep Efficiency
Total sweep efficiency, E" has three components:
horizontal efficiency, E
H
, vertical efficiency, E
v,
and
conformance efficiency, E
c
. Many evaluators rearrange
Equation (3) and incorporate SolBop- So/Borin a fourth
component term, displacement efficiency, ED:
(4)
Some horizontal waterflood schemes exhibit piston-like
oil displacement. The oil wells produce water-free until
flood front arrival, and then water out within a few
months. This behaviour can result from unstratified
deposition, water-wet characteristics, or the over-
displacement of water injection volumes relative to
pattern producing rates. When this behaviour occurs
in a number of wells, the shape and position of
waterflood fronts can be mapped, enabling in situ mea-
surement of sweep efficiency by the comparison of
swept pore volumes with either injected water or pro-
duced oil volumes. The accuracy of this method is
largely a function ofthe accuracy of the mapped shape
of the flood front.
3. Horizontal Sweep Efficiency
Horizontal (or areal) sweep efficiency, E
H
, may be
defined as the areal fraction ofa waterflood pattern con-
tacted by injected water. This fraction is affected by
pressure gradients, permeability trends, mobility ratios
and injected volumes. Values of E
H
at water break-
through for various waterflood pattern configurations
have been determined through laboratory models in
numerous studies (Craig, 197Ic). With continued
water injection after break-through, E
H
increases as a
function ofthroughput volumes until it reaches 100per-
cent. For volumetric reserve calculations, horizontal
sweep efficiencies are determined for conditions at eco-
nomic water cut limits. A number of design correlation
charts have been developed to determine E
H
; these are
summarized by Craig (1971d). Figure 11.5-1 illustrates
the correlation for a five-spot flood pattern. As can
be seen from this plot, horizontal sweep efficiencies
are generally over 90 percent since economic water cut,
f
w
' limits are typically greater than 95 percent.
100
0..80
Q)
(f)
'"
70
-c
""
60
50
0.1 1.0
Reciprocal of Mobility Ratio
Source: After Craig, 1971d.
Figure11.5-1 Effect of Mobility Ratio on Oil
Production for the Five-Spot
Pattern
This plot also illustrates that E
H
decreases as mobility
ratio increases. Thus, high viscosity oil (commonly low
API gravity) reservoirs will have a lower E
H
and a lower
recovery factor than similar low viscosity (high API
gravity) oil reservoirs.
Permeability trends must be addressed when horizontal
sweep efficiency is being determined. Unfortunately,
these are frequently not identified until after implemen-
tation of a waterflood scheme when wells on trend with
water injectors prematurely water out. These problems
are usually rectified by converting the scheme to a line
drive waterflood with alternating rows of injectors and
producers oriented along the permeability trend. For ex-
ample, most Cretaceous Cardium reservoirs in west
central Alberta have southwest to northeast permeabil-
ity trends resulting from tectonic stress during the
building of the Rocky Mountains.
Horizontal sweep will also be affected by nonuniform
pressure sinks at production wells. E
H
is normally not
affected by gas saturations prior to waterflooding.
However, if gas saturations are too high prior to water-
flooding, cusping of the waterflood front at the
producing well prior to fill-up may occur and adversely
affect horizontal sweep efficiency.
Of greater operational significance when high free gas
saturation exists is the high reservoir voidage created
by high GORs. To maintain cash flow, it is common
practice to continue oil production during waterflood
fill-up. High GORs result in high voidage replacement
requirements and defer re-pressuring ifinjectivity is low
or injector-to-producer ratios are low.
159
4. Vertical Sweep Efficiency
Vertical sweep efficiency, E
y
, accounts for incomplete
sweep of reservoir layers at abandonment of the water-
flood scheme. Incomplete vertical sweep is caused by
the stratified nature ofmost reservoirs. Strata are flushed
with water in descending permeability sequence. At
economic water cut limits at the producing well, not all
strata may be flushed with water, and the vertical sweep
efficiency will then be less than 100 percent.
Vertical sweep efficiencies are commonly calculated
from methods that order flow capacity thicknesses and
permeabilities from core analyses. The two most com-
mon techniques are the Stiles Method, which primarily
concerns capacity thickness ordering (Slider, 1983b),
and the Dykstra Parsons Method, which relates statisti-
cal variations in permeability with floodout behaviour
of flood pot tests made on California core samples
(Craig,197Ie).
In both methods, E
v
is a function of mobility ratio and
permeability contrast. E
v
decreases as mobility ratio and
permeability contrast increase. Thus reservoirs with thin
high permeability streaks have low vertical sweep
efficiency.
Care must be taken to ensure that the stratified reservoir
assumption is valid in both methods. Some reservoirs
that undergo post-depositional porosity alteration have
high permeability contrasts on core, but these contrasts
may be so random in nature that the reservoir will
appear homogeneous, and piston-like displacement
may occur with virtually 100 percent vertical sweep
efficiency.
Other factors that affect vertical sweep efficiency
include gravity and cross-flow between layers.
Due to gravity forces, water will tend to move at the
bottom of the reservoir and, in uniform permeability
distributions in horizontal reservoirs, this movement
tends to decrease vertical sweep efficiency. Ifreservoir
permeability decreases with depth, however, gravity
forces will improve vertical sweep. In dipping and ver-
tical reservoirs, gravity forces can be used to advantage
by injecting downdip and displacing oil updip.
Cross-flow between layers tends to improve E
v
at
favourable mobility ratios (low) and diminish it at
unfavourable mobility ratios (high).
5. Conformance Efficiency
Conformance efficiency, E
c
, or continuity, is a termused
to account for discontinuous reservoir pore volume.
In the past, engineers widely assumed that all pore
spaces in a reservoir are interconnected with each other,
160
but infill drilling results throughout North America
indicate that reservoirs are less continuous than had been
assumed. Generally E
c
is difficult to quantify and is
usually back-calculated in mature producing pools where
reserves from decline analysis do not rationalize volu-
metrically using only vertical and horizontal sweep
efficiencies.
Without considering continuity, infill drilling programs
technically do not usually increase ultimate recoverable
reserves; they only accelerate recovery. In reservoirs
with poor continuity, infill drilling will improve conti-
nuity and, therefore, reserves by accessing additional
pore volume. A more complete discussion of infill
drilling and continuity is presented by Gould and Sarem
(1989).
6. Gross Swept Volume
Gross swept volume, V
sw,
refers to the reservoir rock
volume that is subject to waterflood sweep. In a hori-
zontal sense this includes the area within waterflood
patterns and a portion ofthe area outside the waterflood
patterns. A common error in waterflood analysis is to
utilize entire pool volumes instead of gross swept vol-
umes. A procedure for determining gross swept areas
discussed by Slider (1983c) is dependent on the gas satu-
ration existing at the start of a flood scheme. The higher
the gas saturation at the start of the flood, the lower the
swept fraction of oil outside the enclosed flood pattern.
When reservoir permeability trends exist, they should
also be considered when 'estimating gross swept areas.
The vertical component of gross swept volume is
frequently overlooked in volumetric waterflood analy-
sis. Gross swept volumes should reflect layers which
are receiving injected water volumes. In thick stratified
reservoirs some layers may be ofpoor quality and may
not be completed or may not be receiving injected
water volumes due to formation damage.
7. Oil SaturatIon at Start of Flood
Oil saturation, Sop, at the start of a flood for a solution
gas drive reservoir may be determined using the
following equation (Slider, 1983e):
SOP =
(N - N
pp
) Bop (1 - Sw)
(5)
NB
o;
where N = oil in place (stm')
N
pp
=
primary oil production (stm')
Bop
=
oil FVF after primary depletion
(m
3/m3
)
Sw
connate water saturation (fraction)
a, = initial oil FVF (m
3/m3
)
-----------------------
Initial oil in place is calculated by either material
balance or volumetric methods. Connate water satura-
tion is measured by log analysis or capillary pressure
tests. This Sop calculation assumes the saturation is
uniform at the star! of the flood.
8. Residual Oil Saturation
Residual oil saturation refers to the microscopic oil
saturation left in reservoir rock. Because oil and water
are immiscible, surface tension of fluids with reservoir
rock results in incomplete displacement of oil by water.
The efficiency of this displacement is a function of
the reservoir wettabiIity and pore throat size and
configuration.
Residual oil saturations are most commonly determined
by flooding reservoir core samples with multiple pore
volumes ofwater in either steady-state or unsteady-state
tests. Since Sor is dependent upon wettability, care must
be taken to ensure that the rock samples do not have
altered wettability properties as a result of core hand-
ling. The effects of core handling on wettability are
discussed at length by Anderson (1986). The accuracy
and reliability of Sor measurements generally decrease
from native state to restored state to cleaned cores.
The most significant conclusions from Anderson's
literature survey are summarized as follows:
Removal of a core from the reservoir may increase
oil wettability due to the decreased solubility of
wettability-alteringcompounds as a result of tempera-
ture and pressure reduction.
Core flood tests conducted qt ambient vs. reservoir
temperature and pressure may exhibit oil-wet char-
acteristics resulting in a hig9 estimate of residual oil
saturation.
Cleaning and drying of core samples prior to use in
core flood tests tend to induce water wettability and
result in a low estimate of residual oil saturation.
Ideally, multiple core samples should be tested and
averaged to determine Sor because most reservoirs are
heterogeneous, and one sample may not be represen-
tative of the average reservoir. Due to cost and core
availability considerations, this is not always feasible.
In Alberta, the Energy Resources Conservation
Board publishes a guide of nonconfidential core flood
tests (Energy Resources Conservation Board, 1993).
Values of Sor may thus also be estimated by analogy
to other pools of similar geologic horizon in the same
geographic area.
Another means of estimating Sor whhe core flushing
tests are not available is by examining average Sor
values from conventional core analyses. These values
should be adjusted to reservoir conditions using the oil
formation volume factor. In situ residual oil saturations
are sometimes taken in waterflooded portions of reser-
voirs using log or sponge coring techniques. This could
only be performed in a mature waterflood or pilot
project.
Residual oil saturation may also be affected by trapped
gas saturations, Sgt, when initial gas saturations
are present in the reservoir prior to waterflooding.
Experimental studies discussed by Craig (1971f) indi-
cate a reduction in Sor with Sg! in water-wet rocks but
not in oil-wet rocks. These correlations assume that no
compression or resolution of gas occurs. In most water-
floodschemes, gas saturationis reduced by re-pressuring
which reduces the impact on residual oil saturation.
Dardaganian (1985) discussed the effect of free gas
saturation on waterflooding and a method for deter-
mining the optimum pressure at which to initiate a
waterflood.
Vertical Waterflood Schemes
In vertical waterflood schemes, gravity results in oil
displacement across stratified layers; hence, E
v
and
E
H
are usually taken to be 100 percent. Gross swept
volumes, however, should be adjusted downwards to
reflect the following:
Sandwich Loss. This is the volume of oil remaining at
the top of the reservoir after waterflooding. As a result
of water coning, not all of the reservoir can be swept
with water before producing wells reach economic wa-
ter cut limits. Also, ifthe reservoir is updip ofproducing
wells, attic oil losses may result. Coning correlations
have been developed (Kuo, 1989) to predict sandwich
loss; however, they are highly dependent on mobility.
Typically, sandwich losses can vary from 2 to 15 feet
for mobility ratios of I to 10respectively in unfractured
reservoirs.
Unswept Volumes (along the periphery of the pool).
Under perfect gravity segregation in a homogeneous
pool, water will areally displace the entire reservoir.
However, discontinuities, permeability channels, and
restrictions may limit volumes swept by the flood. These
effects may be incorporated by reductions in either the
swept volume or horizontal and conformance factors.
Vertical waterflood schemes have been implemented in
pinnacle reefs in northern Alberta where the pools have
been essentially depleted under a primary recovery
mechanism. The success of these schemes may be
questionable as primary depletion has established
161
high gas saturations. These likely form gas caps that
improve primary recovery to levels approaching
typical secondary recovery values.
In situ sweep efficiency in vertical waterflood schemes
with a high degree of gravity segregation can be mea-
sured by comparing oil recovery to water-flushed
hydrocarbon pore volume. The flushed pore volumes
are determined using oil-water contact measurements
from log analysis and pore volume vs. depth correla-
tions. The accuracy of the sweep efficiency evaluation
in this method is a function of the accuracy in the oil-
water contact measurement and pore volume vs. depth
plots.
Factors affecting the accuracy of oil-water contact
measurement include the following:
Completion Status. Is the log run in a cased or open
hole? Cased hole interpretations are more subtle and
difficult to interpret.
Producing Status. Is the log run in an observation or
producing well? Oil-water contacts measured in shut-
in producing wells may be higher than the pool
average if the water cone is not allowed sufficient
time to settle.
Variability of Measurements. Is measurement made
at one or a number of wells, and does the value vary
significantly? The more variation, the more interpre-
tation required to derive a pool average value.
The sensitivity ofthe calculated sweep efficiency to oil-
water contact variations should also be checked to gain
confidence in the answer, e.g., does a 0.91 m (3 foot)
change in interpreted contact change calculated sweep
efficiency 5 or 50 percent?
Once sweep efficiency has been derived, the remaining
uncertainties pertain to the determination of remain-
ing gross swept pore volume, which is a function of
the geological mapping and petrophysical properties of
the reservoir.
11.5.3 Reliability of Results
The accuracy of volumetric reserve calculations is
a function ofthe accuracy ofthe parameters in the analy-
sis. An engineer using volumetric analysis must assess
the uncertainties in the parameters when assigning
proved and probable reserve values. There is usually
considerable uncertainty in assessing volumetric
parameters in proposed flood schemes prior to imple-
mentation. These uncertainties diminish as additional
data is gathered.
In certain types of mature waterfloods, total sweep
efficiencies can be determined from performance data.
162
This greatly increases confidence in the calculations.
Waterfloods of this type include vertical and horizontal
bank displacement schemes.
11.6 DECLINEPERFORMANCE
ANALYSIS
11.6.1 Overviewof Method
Decline analysis is used to evaluate mature waterflood
schemes. Historic decline trends are used to extrapolate
future trends; the two generalized methods are oil rate
and oil cut declines. Decline trends may be either expo.
nential or hyperbolic. The mathematics of decline
analysis are discussed in Chapter 18.
11.6.2 Factors AffectingAnalysis
Oil decline trends in waterfloods are a consequence
of increasing water cuts and constant or declining well-
bore flow capacity. The shape of the decline trend
is a function of relative permeability, mobility and res-
ervoir permeability variation. Ideally, under stable
conditions, extrapolation of oil cut and oil rate declines
should yield the same reserve value. Economic oil cut
and oil rate limits should be determined for design fluid
lifting capacity and used as endpoints in the decline
analyses.
Pools with a high degree of stratification, permeability
variance, or dual porosity behaviour will tend to
decline in a hyperbolic or harmonic fashion. Most res-
ervoirs, however, exhibit exponential decline behaviour.
For horizontal floods, the following points should be
considered when analyzing production decline trends:
I. Total fluid production should be plotted along with
oil cut and oil rate data. Increasing fluid rates
may be achieved by increased drawdown at pro-
ducing wells, increased reservoir pressure through
overinjection, or well stimulation. While total fluid
rates are increasing, oil rate decline trends are
dampened. The use of oil cut trends is preferred in
these cases as oil rate trends will yield optimistic
results. Conversely, if total fluid rates are declin-
ing, the use of the oil rate decline trend will y i ~ l d
conservative results unless the fluid rate dechne
cannot be arrested.
2. When wells are grouped for decline analysis, care
should be taken to ensure that wells within the group
have experienced water break-through. Apreferred
method is to group wells with similar water cut.s.
This ensures that there will be no sudden change III
decline behaviour as a result of water breakthrough.
------------------_..
3. Generally, oil cut trends should not be used ifwater
cuts are still less than 50 percent.
4. Infill wells should be grouped separately for
decline analysis. Decline trends of the infills and
original wells, pre- and post-infill drilling, can
be used to assess incremental recovery associated
with the infill program.
5. Yearly voidage replacement ratios should be
checked when decline trends are being analyzed.
Underinjection will cause gradual pressure loss,
accelerated oil rate declines and dampened oil cut
declines. The reverse is true for overinjection. This
is most sensitive in low GOR and low API gravity
oil reservoirs.
6. Decline analysis can be used as a diagnostic tool.
Declining fluid production rates when voidage is
being maintained may be due to formation damage
or pumping equipment failure.
7. Producing conditions should be verified when
declines are being analyzed to ensure that declines
are real and have not been imposed by operating
constraints.
These comments also apply to vertical waterflood
schemes, which generally exhibit a more sudden water-
out behaviour. Flood-out is controlled by coning rather
than by stratification characteristics. Thick vertical flood
schemes will exhibit a relatively extensive water-free
production period followed by a steep decline trend.
When reserves are determined by decline analysis in
vertical flood schemes, completion intervals should
be checked to ensure that wells are completed at the top
of the productive zone. If not, additional reserve
assignments are warranted.
11.6.3 R.eliability of Results
Decline analysis is one of the more reliable methods of
estimating reserves. The reliability of the method in
creases with the maturity ofthe pool and the smoothness
of the data. At the start of production decline, when
trends are not clearly established, interpretation of de-
clines may vary from engineer to engineer. Most
engineers adhere to exponential trends until hyperbolic
trends can be confidently quantified.
Engineers with experience in analyzing decline trends
of pools similar in nature to the subject pool may have
more confidence in assessing a certain type of decline
and thus may use a different trend than an engineer with
less experience.
11.7 COMPARISON TO ANALOGOUS
POOLS
11.7.1 Overview of Method
Predicting waterflood performance by the analogy
method refers to the comparison of a previous mature
waterflood project to a proposed or current project in
order to predict results ofthe proposed or current project.
The method is usually reliable and is best applied in
conjunction with the volumetric method. The method
can be used to determine recoverable reserves as well
as production and injection forecasts. A rigorous anal-
ogy involves comparison of all volumetric recovery
parameters.
11.7.2 Procedure and Factors Affecting
Analysis
The first step in a rigorous analogy analysis is to
rationalize the volumetric parameters in the analogy
pool. The recoverable reserves in the analogous pool
should be well-established from decline analysis.
The oil in place should also be well-established from
mapping and volumetric calculations.
The volumetric parameters should be determined as
described in Section 11.5. The only unknown variable
that is not definable empirically is the conformance ef-
ficiency E
e.
Once all the other volumetric parameters
have been derived, this value can be back-calculated to
match recoverable reserves. In addition to continuity,
this factor will include any error or anomalies associ-
ated with the determination of the other parameters in
the volumetric equation.
The next step of the analogy procedure is to calculate
reserves of the proposed or current waterflood scheme
using the volumetric method. If differences in mobility
ratios, oil saturations and permeability variations exist
between the analogy and the proposed waterflood
project, these differences should be incorporated in the
analysis. The conformance efficiency of the analogy
project should be applied to the proposed project.
The underlying assumption in the analogy method
is that the continuity and anomalies associated with
the analogous pool will also apply to the proposed or
current waterflood scheme.
When the analogy project is similar to the proposed
project in terms of geological deposition and oil grav-
ity, the analogy method is usually simplified by
comparing the recovery factor ofthe analogy project to
the proposed project. This is also often performed when
the specific volumetric parameters are not well-defined
163
in the analogyor proposedwaterfloodproject dueto an
absence of reliable laboratorycore tests.
Analogies can also be used to predict production and
injection performance. Rigorous application of rate-
dependent analogies is describedby Slider(1983d). This
procedure is useful in estimating waterflood response
time, magnitude of oil productivity improvement and
flood-out behaviour after response. The procedure in-
volves plotting oil rate divided by effective injection
rate vs. cumulative effective injection divided by ulti-
mate flood recovery. This plot provides a normalized
relationship that can be applied to a flood scheme of
any size.
When analogies are applied in an analysis, it is good
engineering practice to provide a comparisonof reser-
voir properties so that the reader canjudge the strength
of the analogies being made. The strength of the anal-
ogy is critical to the assessment of proved or probable
reserves.
The closer the analogy project to the proposed project
in terms of geographic area, geologic horizon, oil vis-
cosity, waterfloodpattern and orientation,permeability
variation, residual oil saturation and degree of deple-
tionprior to waterflooding, the strongerthe analogyand
the morereliable the results. An analogyshouldbe cho-
sen that is typical of performance and not one that is
clearly the best or worst performance.
Analogiesare best utilizedprior to or immediatelyafter
implementationof a waterflood project.
11.8 ANALYTICAL PERFORMANCE
PREDICTION
11.8.1 Overview of Methods
The analytical methods summarized in Table 11.8-1
yield production and injection forecasts for horizontal
waterflood schemes. The Higgins-Leighton (1962)
Methodhas fewerlimitingassumptionsthanothertech-
niquesand is adaptableto varioustypes of patterns.The
method models a flood pattern as a series of parallel
streamflowtubes and is available incomputerprogram
format.
For composite injection and producingrate, WaR and
recoveryvs. time, Craig (1971g) recommended the use
of the Craig-Geffen-Morse (Table 11.8-1) Method
coupled with the Caudle and Witte (1959) correlation
for injection rates. This procedure splits a waterflood
forecast into four stages:
164
Stage I Periodprior tointerference of oil banksaround
injectors
Stage 2 Periodfrominterferenceto fill-upof gas pore
space
Stage 3 Period from fill-up to water break-through
Stage 4 Periodfromwater break-throughto flood-out
During Stage I, water injection rates are calculated
using radial flowequations. Water injection rates dur-
ing Stage 2 are calculated using the Caudle and Witte
conductanceratio. Oil production in Stages I and 2 is
assumed to be negligible or zero. If oil production is
significant, then adjustments are made to fill-up times
and volumes. Oil production during Stage 3 is equal to
water injection rates. After waterbreak-through inStage
4, the followingare calculated:
Horizontal sweepefficienciesas a functionof break-
throughareal sweep and injected water volumes
Water-oil ratios from frontal advance theory
Injectivities fromCaudle and Witte
Oil producing rates from producing WaRs and
injectionrates
The method can handle multi-layer effects by normal-
izing injection, production, and pore volume data for
each layer and multiplying the results by single layer
calculations.
All waterflood predictive methods have underlying
simplifyingassumptions. The accuracy ofthe methods
therefore relies on the validity of these assumptions in
additiontotheaccuracyof the reservoirdescription. The
Craig-Geffen-Morse Method is one of the more
rigorous methods; however, the following limiting
assumptionsapply:
Waterfloodresponse is injectivity-driven.
Gravityeffects are negligible.
There are no cross-floweffects.
There is no lateral variation in reservoir properties.
Reservoir continuityis 100 percent.
Oil productionis negligible prior to fill-up.
Capillary effects are negligible.
There is no bottomwater or gas cap.
The engineer must judge the significance and validity
of these assumptionsto the reservoir being analyzed. It
is recommended that the production profile resulting
fromthepredictive methodbe adjusted tomatchreserves
calculatedby volumetric, decline or analogymethods.
_________.a
Table 11.8-1 Classification of 33 Waterflood Prediction Methods
Basic Method
Modification
A. Methods primarily concerned with permeability heterogeneity-injectivity
1. Dykstra-Parsons (1950) (a) Johnson (1956)
(b) Felsenthal-Cobb-Heuer (1962)'
2. Stiles (1949) (a) Schmalz-Rahme (1950)'
(b) Arps ("Modified Stiles") (1956)
(c) Ache (1957)
(d) Slider(1961)
3. Yuster-Suder-Calhoun (1949) (a) Muskat (1950)
(b) Prats et al. (1959)'
4. Prats-Matthews-Jewett-Baker
(1959)
B Methods primarily concerned with areal sweep efficiency
1. Muskat (1946)
2. Hurst (1953)
3. Atlantic-Richfield (1952-1959)
4. Aronofsky (1952-1956)
5. Deppe-Hauber (1961-1964)
C. Methods primarily concerned with the displacement process
1. Buckley-Leverett (1942) (a) Terwilliger et al. (1951)
(b) Felsenthal-Yuster (1951)
(c) Welge (1952)
(d) Craig-Geffen-Morse (1954)3
(e) Roberts (1959)
(I) Higgins-Leighton (1960-1964)'
2. Craig-Geffen-Morse (1954) (a) Hendrickson (1961)
3. Higgins-Leighton (1960-1964)
D. Miscellaneous theoretical methods
1. Douglas-Blair-Wagner (1958)
2. Hiatt (1958)
3. Douglas-Peaceman-Rachford (1959)
4. Naar-Henderson (1961)
5. Warren-Cosgrove (1964)
6. Morel-Seytoux (1964)
E. Empirical methods
I. Guthrie-Greenberger (1955)
2. Schauer (1957)
3. Guerrero- Earlougher (1961)
Source: After Schoeppel, 1968.
Note: Complete citations for all of the references listed in this table are given at the end of the chapter.
I Also applies to Stiles method.
'Also applies to Yuster-Suder-Calhoun and Schauer methods.
3Also concerned with areal sweep problem. Also recognized as basic method.
165
Predictive methods are normally applied at the
waterflood design stage to assist in scoping econ-
omics and facility design rates. The methods can be used,
however, at any stage of waterflood depletion and
history-matched to actual performance by tuning reser-
voir rock properties. The reliability of the procedure
increases if this is performed.
11.9 NUMERICAL SIMULATION
11.9.1 Overview of Method
The most advanced method for determining waterflood
reserves and performance predictions is numerical simu-
lation, which can be described as the use of digital
computers to numerically solve mathematical models
representing physical reservoir systems. Simulation
techniques are discussed in Chapter 17. Aspects of'simu-
lation that are relevant to waterflooding are presented
in this section.
11.9.2 Parameters and Factors
Affecting Analysis
The following factors may affect numerical simulation
results:
Model Phases. Waterflood simulations are performed
using Beta or black oil models. When the reservoir is
above the bubble point, only two phases (oil and water)
are required. Ifthe reservoir is below the bubble point,
then three phases are required (oil, water and gas). The
relative permeability and physical properties of the
phases are required in the simulation. The physical prop-
erties are usually easily measuredand accurate; however,
the accuracy of relative permeability data is less
reliable and can significantly influence the simulation
results.
Model Dimensions. Waterflood simulations are
typically two- or three-dimensional. Three-dimensional
studies are required where there is distinct layering or
important gravitational influences. Two-dimensional
cross-sectional simulation studies are frequently used
to quantify the effects of gravity segregation. Results
may then be incorporated in 2-D areal studies on hori-
zontal waterfloods through the use of pseudo-functions.
Grid Block Sizing. Numerical simulation involves
a trade-off between calculation time and accuracy.
The more grid blocks used to define a reservoir,
the more accurate the calculated results. However,
calculation time and cost also increase, and in many
cases, prohibitively.
166
q
I
DETERMINATION OF OIL AND GASRESERVES I
Sensitivity studies on gridblock sizing should be
performedto ensure that the selected sizing is sufficiently
accurate. Increased grid definition should be used in
highly heterogeneous areas and around wellbores.
Large areal waterflood simulations should employ
several grid blocks between wells so that pattern modi-
fications and infill drilling may be studied.
If reservoir projects are fairly consistent across a
proposed waterflood area, partial pattern waterflood
simulations are frequently performed and the results
scaled up to reservoir dimensions. The examination of
a partial pattern can result in better grid definition for
more accurate results.
Grid Block Orientation. Grid blocks should be
oriented along permeability trends and geological lay-
ers. The orientation and size of the grid may affect the
manner inwhich water break-through occurs. This prob-
lem is most pronounced where there are high contrasts
in the water-oil mobility ratios. More advanced simula-
tors use variational or nine-spot finite difference
approximations to eliminate this effect.
Timestep Sizing. Also related to grid block sizing is
timestep sizing. Saturation fronts cannot pass through a
grid block in one timestep. Thus, the smaller the
gridblock, the shorter the timestep must be to ensure
this condition is not violated. A smaller timestep means
more timesteps, and hence a higher number of calcula-
tions to be performed ina simulation run. Most modem
simulators utilize automatic timestep selection to
optimize running times.
History Match. Once a reservoir description is set up
in the model, a simulation history match is run by en-
tering actual oil production, water injection, or pressure
constraint data. Calculated results such as reservoir pres-
sure, water-oil ratios, gas-oil ratios, and oil rates are
compared to actual results to judge the accuracy of the
model. Model parameters are then revised andthe model
rerun to get a better match. This process is a trial-and-
error procedure and relies on the judgement of the
simulation engineer to revise the properties in an app-
ropriate manner. The normal practice is to revise poorly
defined properties first.
The numerical simulation technique is the most
rigorous method of determining reservoir flow be-
haviour and compensates for most of the shortfalls
experienced by analytical methods. Assuming that
the model is set up appropriately to compensate for
______________________A
the numerical factors as described, the limitation ofthe
simulation results rests solely on the accuracy of the
reservoir description.
When reservoir properties are established to a high
degree of confidence by good well control, production
results, pressure tests, and core studies, and the simula-
tion history match requires very little alteration to the
reservoir description, then a high degree of confidence
may be placed on the results. As the number of alter-
ations performed to achieve a match increases and the
duration of the history-match period decreases, less
confidence can be placed on the results. Confidence is a
function of the reasonableness of the alterations made
during the history-match process.
Example
This example demonstrates the kind of problem that
simulation engineers may encounter in a history match
in an immature waterflood.
Water break-through has not occurred at a producing
oil well when the simulator predicts that the well should
be producing significant water. The engineer must
decide which of the following applies:
o The relative oil-water permeability data is wrong.
o There is directional permeability divertingwater away
from the producing well.
o The pore volume between the injector and producer
is too low.
o There is a flow barrier between the producer and
injector.
o The reservoir model has been layered when no
layering is in fact occurring.
The solution may be anyone of these. An incorrect
alteration may still achieve a history match, but will
result in incorrect forecasts.
Simulations performed in proposed waterflood schemes
will only have the primary depletion with which to
history-match. While these should give a good deter-
mination of oil in place and oil and gas flow behaviour,
they do not address directional permeability, reservoir
layering, flow restrictions or actual relative oil-water
permeability characteristics. In vertical schemes they
will not address water coning characteristics, which are
critical to flood performance.
The assignment ofproved and probable reserves from a
simulation study must address these limitations.
11.10 WATERFLOODING VARIATIONS
11.10.1 Naturally Fractured Reservoirs
Displacement of oil by water in naturally fractured
reservoirs is related to capillary and gravity forces act-
ing on individual matrix blocks. "Imbibition" is the
mechanism by which the nonwetting phase is displaced
by the wetting phase in porous media due to the effects
of capillary pressure. Oil recovery by imbibition is an
important process in waterflooding of fractured reser-
voirs. As injected water advances along the fractures
and is imbibed into the matrix, an equivalent volume of
oil is released to the fractures. A discussion ofthe theory
of waterflooding in fractured reservoirs has been
presented by de Swaan (1978).
The imbibition process is the dominant displacement
mechanism when matrix blocks are small and capillary
pressures are high. Gravitational pressure governs dis-
placement when matrix blocks are tall and capillary
pressures are low. For oil-wet rocks, external forces
(gravity and applied pressure differentials) must over-
come capillary pressures to recover oil from the matrix
blocks. It follows then that matrix blocks must be of a
certain height in order for waterflooding to be success-
ful in oil-wet reservoirs. Knowledge of reservoir rock
wettability is important in the evaluation of reserves in
fractured reservoirs. For rocks that tend to be oil-wet,
such as some dolomites, spontaneous imbibition of
water will not occur. Fortunately, most dolomitic rocks
have somewhat low capillary pressure due to large pore
sizes, and gravity dominates the displacement process.
Bridging between matrix blocks may result in a more
continuous capillary network that will improve oil
recovery.
Oil recovery by imbibition is described by a time-
dependent transfer function that is determined in the
laboratory and can be modelled mathematically as pre-
sented by Aronofsky et al. (1958). Laboratory tests on
small reservoir samples are scaled according to rules
presented by Mattax and Kyte (1962) to determine
recovery from reservoir matrix blocks contacted by
injected water.
Displacement efficiencies within the fracture system,
expected to approach 100percent, are governed by grav-
ity forces and applied pressure differentials since
capillary pressures are negligible. Often, the original oil
in place within the fracture system represents a small
fraction of the total system.
The areal and vertical sweep efficiencies in fractured
reservoirs are expected to be similar to those in
167
unfractured reservoirs provided that injection patterns
in horizontal waterfloods properly account for perme-
ability anisotropy. The water injection wells should line
up parallel to the permeability trend. The influence of
vertical fractures on areal sweep efficiency has been
presented by Crawford and Collins (1954) and Dyes et
al. (1953). It is noted that their studies were conducted
for hydraulically fractured wells, but the results can be
applied to naturally fractured reservoirs.
In vertical waterflood schemes, the oil-water contact
should be monitored to determine the in situ sweep
efficiency. The measured oil-water contact represents
the fluid contact within the fracture system and corre-
sponds to the free water level since capillary pressures
in the fractures are generally negligible. The recovery
efficiency within the water-flushed portion ofthe reser-
voir will increase with time and can be history-matched
using the model presented by Aronofsky et al (1958).
The final recovery efficiency is obtained from the
history-matched model. Waterflood reserves are deter-
mined by applying the final recovery efficiency to the
estimated gross swept volume to account for sandwich
losses at the top of the reservoir.
The accuracy ofreserve estimates in naturally fractured
reservoirs is dependent on accurate interpretation offrac-
ture characteristics such as frequency, width, orientation
and distribution, reservoir structure, laboratory tests and
reservoir monitoring. Proved and probable reserve esti-
mates must consider the uncertainties and reasonable
range of values associated with these parameters.
11.10.2 Polymer Flooding
In reservoirs with unfavourable mobility ratios, water-
soluble polymers may be added to improve displacement
and sweep efficiencies. The mobility of the displacing
phase is reduced due to an increase in fluid viscosity
and an alteration in relative permeability related to
polymer retention and modification of pore sizes.
Reduction of water mobility has the disadvantage
of reducing injectivity, so this limits the economic
application of polymer flooding to high permeability
reservoirs. Estimation ofreserves for polymer floods is
similar to that for a waterflood but with a more viscous
displacing phase. In the assignment ofproved and prob-
able reserves, the polymer slug sizing and potential
losses due to dissipation and polymer degradation must
be considered.
11.10.3 Micellar Flooding
Reduction of interfacial tensions is a major objective in
micellar flooding processes. Surfactants (or surface-
168
active agents) are added along with polymers to injected
water to reduce interfacial tension, and thereby reduce
residual oil saturation and improve oil recovery. The
reduction of residual oil saturation due to the addition
ofsurfactants is determined in the laboratory. The tech-
nical success of a surfactant flood is dependent upon
how much of the surfactant is lost due to adsorption,
precipitation, the irnmobility ofthe surfactant-richphase,
and dissipation. The estimation of reserves for micellar
floods is similar to that for a waterflood, but with a more
viscous displacing phase. In the assignment of proved
and probable reserves, the micellar-polymer slug sizing
and potential surfactant losses must be considered.
11.11 STATISTICAL WATERFLOOD
ANALYSIS SURVEY
11.11.1 Overviewof Database
In order to illustrate typical usage of various reserve
analysis methodologies and resulting recovery factors,
reserve data on approximately 200 waterflood units
in the western Canadian sedimentary basin were com-
piled from the database of an independent petroleum
consulting firm. Recovery factor statistics are pre-
sented in Table 11.11-1, and methodology statistics are
summarized in Table 11.11-2.
The recovery factors presented are proved plus prob-
able values derived by dividing ultimate recoverable
reserves by original oil in place within the unit bound-
aries. Ultimate recoverable reserves are values calculated
by the evaluators using the various assigrunent meth-
odologies. Original oil-in-place values are based on
estimates prepared by the operator, a governmental regu-
latory body, or an independent consultant. Depletion
refers to cumulative oil production at the time of the
evaluations divided by original oil in place. The ranges
presented represent 7.5 percent of the sample points.
Most of the sample points represent horizontal flood
schemes.
The data are from a sampling of waterfloods in western
Canada, and the table is intended to show typical
values and ranges of results.
11.11.2 Discussion of Results
The following general observations may be made from
a review of the data:
I. The typical total recovery factor is 30 percent; range
is 16 to 45 percent.
2. The average API gravity ofsamples is 33; range is
23t041.
-------------------_....
Table 11.11-1 Summary of Recovery Factors: A Sampling of Western CanadianWaterfloods
No. of Total Proved
Data Oil Gravity Plus Probable
Geologic Horizon Litbology Points API Recovery Factor Depletion
Range Range (%)
Average (75%) Average (75%)
Upper Cretaceous SS 42 38 37-41 23 15-35 65
Lower Cretaceous SS 16 33 20-41 29 18-40 62
Mannville SS 27 26 19-36 27 20-35 54
Jurassic SS 36 23 21-26 35 16-54 73
Triassic SS 13 40 39-42 40 25-51 76
Triassic Carb 7 37 36-42 35 25-43 67
Permian SS 3 40 40-40 28 6-34 73
Mississippian SS 5 21 14-22 17 8-22 36
Mississippian Carb 32 34 30-40 33 21-46 74
Devonian SS 3 42 41-43 38 25-51 55
Devonian Carb 22 39 37-42 32 19-53 65
Average/Total 206 33 23-41 30 16-45 67
7
Table 11.11-2 Reserve Analysis Technique
Distribution
No. of %of Depletion (%)
Data Points Samples Average Range
Volumetrics 51 25 46 25-75
Decline 110 53 72 52-87
Vol. & Decline 27 13 68 43-87
Analogies 12 6 52 30-74
Sim. Studies 6 3 35 26-44
Total 206
3. Assuming a recovery factor of 10 to 15 percent, the
ultimate recovery under waterflood is typically at
least double that of primary recovery.
4. Very few waterfloods exist for pools under200API
gravity.
Decline analysis is generally not used until depletion is
over 50 percent. The reason is the lack of definitive de-
cline trends in immature stages ofwaterflood recovery.
The data also suggest that waterflood declines start at
approximately 50 percent depletion.
References
Anderson, W.O. 1986. "Wettability Literature
Survey." JPT, Oct. 1986, p. 1125.
Aronofsky, J.S., Masse, L., and Natanson, S.O. 1958.
"A Model for the Mechanism of Oil Recovery
from the Porous Matrix Due to Water Invasion in
Fractured Reservoirs." Trans., AIME, Vol. 213,
pp.17-19.
Caudle, B.H., and Witte, M.D. 1959. "Production
Potential Charges During Sweepout in a Five-
Spot Pattern." Trans., AIME, Vol. 216,
pp. 446-448.
Craig, F.F. 1971a. "The Reservoir Engineering
Aspects of Waterflooding." SPE Monograph No.
3, pp. 29-44.
------.197Ib.pp.48-49.
------. 1971c. pp. 50-52.
----.. 1971d. pp. 108-111.
----.. 1971e. p. 64.
----.. 1971f. pp. 41-43.
--.. 1971g. p. 93.
Crawford, P.B., and Collins, R.E. 1954. "Estimated
Effect of Vertical Fractures on Secondary
Recovery." Trans., AIME, Vol. 201, pp. 192-196.
Dardaganian, S.O. 1985. "The Application of the
Buckley-Leverett Frontal Advance Theory to
Petroleum Recovery." Trans., AIME, Vol. 213,
pp. 365-368.
169
de Swaan, A. 1978. "Theory of Waterflooding in
Fractural Reservoirs." SPEJournal, Apr. 1978,
pp.117-122.
Dyes, A.B., Kemp, C.E., and Caudle, B.H. 1953.
"Effect of Fractures on Sweep-out Pattern."
Trans., AIME, Vol. 213, pp. 245-249.
Energy Resources Conservation Board. 1993. PVT
and CoreStudiesIndex. Guide G- 14, Calgary,
AB.
Gould T.L, and Sarem, A.M.S. 1989. "Infill Drilling
for Incremental Recovery." JPT, Mar. 1989, p.
229.
Higgins, R.V., and Leighton, AJ. 1962. "A Computer
Method to Calculate Two-Phase Flow in Any
Irregularly Bounded Porous Medium." JPT, Jun.
1962,pp.679-683.
170
Water Coning." OGJ, Oct. 1989, pp. 77-80.
Mattax, C.C., and Kyte, lR. 1962. "Imbibition Oil
Recovery from Fractured Water-Drive
Reservoir." Trans., AIME, Vol. 201, pp. 192-196.
Schoeppel, R.J. 1968. "Waterflood Prediction
Methods - 7, Comparative Evaluation." O&GJ,
Jul. 1968, p. 73.
Slider, H.C. 1983a. Worldwide Practical Petroleum
ReservoirEngineeringMethods. Petroleum
Publishing Company, Tulsa, OK, p. 551.
--. .l983b. p. 569.
--. 1983c.p. 557.
--. 1983d. p. 600.
--. 1983e. p. 554.
Willhite, G.P. 1986. Waterflooding. SPE Textbook
Series, Vol. 3, pp. 53-110.
_.s.... I
. ~ I
,
- 1
Chapter 12
ENHANCED RECOVERY
BY HYDROCARBON MISCIBLE FLOODING
12.2 TYPES OF HYDROCARBON
MISCIBLE FLOODS
Hydrocarbon miscible floods are the most common
tertiary EOR schemes in western Canada. They can be
subdivided into vertical or horizontal miscible floods.
Vertical miscible floods are usually implemented in
pinnacle reefs or reservoirs with a high relief angle. In
Alberta, the majority of these are in Rainbow Lake,
Brazeau River, Pembina/West Pembina, and Wizard
Lake. The solvent is injected as a blanket at the top of
the reservoir to take advantage of a gravity-stabilized
displacement. Subsequent chase gas injection drives
solvent downward.
the displaced oil. In contrast, miscible fluids are soluble
in oil, so there will be no interfacial force between oil
and solvent and the theoretical residual oil saturation
will be zero.
This chapter is limited to miscible flooding with
hydrocarbon solvents. Miscible flooding is a proven
technology that increases reserves. However, the im-
provement of the reserves estimation and the economic
viability are affected by the following:
Reservoir geology
Rock properties
Reservoir fluid properties
Solvent composition and slug size
Chase gas composition and slug size
Implementation cost
Well spacing and well patterns
Flood types
Oil, gas and condensate prices
Royalty regime
Stage of implementation
This chapter reviews recognized hydrocarbon miscible
flood processes, the methods for the estimation of re-
serves, the accuracy of these methods, and the factors
affecting this estimation as reported in the literature.
12.1 INTRODUCTION
After discovery, most oil reservoirs produce under the
natural energy of the reservoir. The primary drive
mechanism for these reservoirs varies significantly. For
pools with an initial reservoir pressure above the bubble-
point pressure, the energy is initially obtained by fluid
expansion and rock compaction. Later in the life of the
reservoir, when the pressure falls belowthe bubble-point
pressure, additional energy will result from gas libera-
tion and expansion. Usually these pools have recovery
factors ofless than 20 percent. For pools with a bottom
or edge water drive, oil is displaced by water, and the
rate of decline of the reservoir pressure is reduced by
the encroaching aquifer. The recovery factor for this
type ofreservoir can be as high as 60 percent (e.g., Fenn
Big Valley D2A Pool, Alberta, Canada).
Reservoirs with a gas cap produce oil because of gas
cap expansion. Other reservoirs may have both a gas
cap and an aquifer. The recovery factor for these reser-
voirs can be as high as 80 percent (e.g., Westerose D-3
Pool, Alberta). The high recovery factor is due to rich
gas sitting at the bottom of a thick gas pay zone because
of gravity. This rich gas effectively acts as a solvent,
and the result is a vertical miscible displacement of oil.
In most reservoirs, oil recovery may be improved by
the implementation of an enhanced oil recovery (EOR)
scheme. EOR schemes can be classified as secondary
and tertiary floods. Water injection for pressure main-
tenance, pattern waterflooding and immiscible gas
injection are secondary EOR schemes. Hydrocarbon
miscible floods and carbon dioxide miscible floods are
tertiary EOR schemes. The terms "secondary" and "ter-
tiary" indicate the EOR technology only, and not the
state of the pool being flooded. Therefore, if a project
is being miscible flooded before any waterflood, the
miscible project is deemed a tertiary EOR project.
In a waterflood or an immiscible gas flood, the
displacing fluid is not soluble in the displaced oil. The
displacement results in a residual oil saturation due to
the interfacial forces between the displacing fluid and
12.2.1 Vertical Miscible Floods
171
~ ....
.., I
DETERMINATION OFOILANDGASRESERVES I
In horizontal miscible floods, solvent and water are
injected alternately to mobilize residual oil and push it
to the producers. After the injection of solvent and
water, chase gas (which is miscible with solvent) and
water are injected to extend the solvent bank size and
complete the displacement process. After injection of
25 to 40 percent hydrocarbon pore volume (HPV) of
solvent and chase gas, the process reverts to horizontal
waterflood to depletion. In other words, inthe early stage
of the miscible project, oil is replaced by miscible sol-
vent and moved toward producing wells. Later, residual
solvent is mobilized by chase gas and moved to where
it can contact more residual oil. Through this process,
an expensive commodity, residual oil, is replaced with
a cheaper commodity, chase gas.
The majority of these floods are implemented in Swan
Hills (Swan Hills A and B, South Swan Hills, Virginia
Hills, Judy Creek A and B), Kaybob (Kaybob BHLA
and Kaybob South Triassic), Goose River and Fenn-
Big Valley areas of Alberta. The expected incremental
recovery factor of 5 to IS percent results from gravity
override, viscous fingering, and the inability to control
injection profiles.
The highest wells in the structure are usually chosen
as the injectors to maximize oil displacement, and the
producing wells are completed at the lowest porous
interval above the oil-water contact. Production rates
are controlled to restrict solvent and water production.
Horizontal wells are becoming popular in vertical mis-
cible floods. These wells are usually drilled as producers
near the water-oil contact to reduce water and gas con-
ing problems and thus increase the production rate and
reduce the sandwich loss.
Innovative completion techniques such as perforation
below or at the oil-water contact have also resulted in
reduced sandwich losses.
The expected incremental recovery compared to upward
waterflood is in the range of IS to 40 percent. The high
incremental recovery factor in vertical displacement is
due to high volumetric sweep efficiency as a result of
a gravity stable displacement. The vertical miscible
displacement is ideal in homogeneous reservoirs. In
heterogeneous reservoirs with horizontal shale barriers,
a substantial reduction in incremental oil recovery im-
provement can be expected as a result of poor vertical
sweep efficiency (e.g., Golden Spike D-3 Pool, Alberta).
Intermediate
Figure 12.3-1 Pseudo-Ternary Diagram Indicating
First-Contact Miscibility
Heavy
Solvent
\
\
\
\
\
\
\
\
\
\
..
Reservoir Oil
Light
Multiple-Contact Miscible
Process
In a condensing process, the intermediate hydrocarbons
from the injected solvent condense into the reservoir oil
to create a mixing zone. Initially, a given volume of
solvent contacts the reservoir oil, resulting in a mixture,
MI, which separates into an equilibrium gas, 01, and
liquid, Ll (Figure 12.3-2). Further injection of solvent
pushes the more mobile equilibrium gas ahead of the
liquid, and the solvent contacts liquid, LI, resulting in a
mixture, M2. The mixture again separates into equilib-
rium gas and liquid phases (G2 and L2, respectively).
This process is repeated and, after a series of chain
flashes, results in the formation of a two-phase envel-
ope on the ternary diagram. The composition of the
12.3.2
12.3 METHODS OF ACHIEVING
MISCIBILITY
12.3.1 First-Contact Miscible Process
The simplest and most direct method of achieVing
miscibility is to inject a solvent that is completely soluble
in the oil in all proportions. Such solvents are called
"first contact miscible" (FCM) and are the most expen-
sive. As the ternary diagram shown in Figure 12.3-1
indicates, combining the oil and solvent in any propor-
tion results in a single phase, i.e., no two-phase region
is developed. Cost savings can be balanced against pro-
cess risk by injecting less expensive "multi-contact
miscible" (MCM) solvents which are subdivided into
condensing and vapourizing processes.
Horizontal Miscible Floods 12.2.2
172
------------------------.
ENHANCED RECOVERY BYHYDROCARBON MISCIBLE FLOODING
equilibrium liquid travels up the bubble-point curve,
becoming richer in the components of intermediate
molecular weight as they condense out of the solvent
and into the oil. However, as the equilibrium liquid
becomes richer, the amount ofthe intermediate compo-
nents lost from the solvent into the oil at each contact
becomes less, and the vapour flashed at each contact
and pushed ahead into the reservoir also becomes richer.
Intermediate
the reservoir pushes the equilibrium gas, GI, further
into the reservoir. This gas contacts fresh reservoir
oil resulting in a mixture, M2, which separates into an
equilibrium gas, G2, and a liquid, L2. Further injection
causes gas, G2, to flow ahead and contact fresh
reservoir. In this process, the composition of the
gas at the displacing front is getting richer and
progressively moving along the dew point until it reaches
the composition that is directly miscible with the
reservoir oil.
Intermediate
L1
M2
Reservoir Oil
G ~ 2 g ~ ~
Reservoir Oil
Light Heavy Solvent
Figure 12.3-3 Development of Multiple-Contact
Miscibility Vapourizing Process
If the reservoir pressure is close to the bubble-point
pressure, small pockets of gas may be formed at the
structurally high area of the reservoir. These pockets of
gas may dilute the equilibrium gas to the extent that the
miscibility is lost.
12.4 EXPERIMENTAL METHODSTO
DETERMINE MISCIBILITY
Four methods have been widely used by the industry to
determine miscibility and design the composition of
solvent and chase gas:
1. The pressure composition diagram (P-X)
2. The multi-contact ternary diagram
3. The slim tube test
4. The rising bubble apparatus (REA)
12.4.1 poX Diagram
A typical poX diagram is perfomed as a screening test
by combining reservoir fluid with increasing mole
fractions of injection solvent, and measuring the
saturation pressure of each mixture. The cricondenbar,
critical point, and solubility limit can be determined
Figure 12.3-2 Development of Multiple-Contact
Miscibility Condensing Process
This in situ multiple contact generation of miscibility
establishes a "transition zone of contiguously miscible
fluid compositions from the reservoir oil composition
through compositions Ll, L2, L3, ... Ln on the bubble-
point curve to the injected gas composition." That is,
the solvent is in first-contact miscible with the equilib-
rium liquid LM-I, which is in first-contact miscible with
equilibrium liquid LM-2, and so on. This process domi-
nates the leading edge of the multiple transition zone.
12.3.3 Vapourizing Multiple-Contact
Miscibility
In a vapourizing process, the intermediate weight
hydrocarbons from the reservoir oil vapourize into the
injected solvent to create a mixing zone. In this pro-
cess, miscibility can be achieved with natural gas, flue
gas, carbon dioxide or nitrogen, provided that the reser-
voir pressure is above the minimum miscibility pressure.
The development of miscibility in a vapourizing
solvent drive can be explained with the help of the ter-
nary diagram in Figure 12.3-3. Initially, a given volume
of solvent contacts the reservoir oil, resulting in a mix-
ture, MI, which separates into an equilibrium gas, Gl,
and liquid, LI. Subsequent injection of solvent into
Light Heavy
173
at the operating temperature (Figure 10.2-1). The
hydrocarbon mixture is deemed acceptable for injec-
tion ifthe cricondenbar lies belowthe reservoir operating
pressure. This defines an FCM solvent.
12.4.2 Multi-Contact Ternary Diagram
The test is performed at reservoir pressure and tempera-
ture by combining the reservoir fluid with solvent. The
compositions of the resultant equilibrium vapour and
liquid are determined and become the first points on the
phase envelope. The next step depends upon which
multiple-contact miscibility (MCM) process is being
simulated. For a condensing MCM process, the equil-
ibrium gas is discarded and more solvent is added to the
equilibrium liquid.
For a vapourizing MCM process, the equilibrium
liquid is discarded and more oil is added to the equilib-
rium gas. The procedure is repeated several times;
tie-lines are defined after each step, and the appropriate
phase envelope is generated. The hydrocarbon mix-
ture is deemed immiscible if the solvent lies on the
extension of a tie-line.
12.4.3 SlimTube Test
The slim tube test apparatus consists of a long (usually
more than 20 m) coiled stainless steel tube packed with
glass beads or crushed silica. The porous medium is ini-
tially saturated with reservoir oil at the desired test
temperature and pressure. Solvent is injected at one end,
and miscibility is determined through visual observa-
tion ofthe transition zone, the recovery factor ofthe oil
and the break-through performance ofkey solvent com-
ponents (e.g., CI, C2, C3). Unlike the ternary and PoX
diagrams, which are conducted at static conditions, slim
tube tests represent a dynamic process where the de-
gree of dispersion in the reservoir is to some extent
reproduced in the lab.
12.4.4 Rising BubbleApparatus
The rising bubble apparatus (RBA) consists of a
small-diameter vertical tube mounted in a high-pressure
cell. Abubble ofsolvent is injected at the bottom ofthe
tube. The miscibility characteristic is determined by
visual observation of the bubble decay as it rises through
the reservoir oil. The rising bubble apparatus (RBA)
combines the small size and compactness of the visual
cell with the dynamic nature ofthe slimtube test. Hence,
this method can make miscibility determination much
more efficient than the other three methods.
174
12.5 SCREENING AND FEASIBILITY
STUDIES
Screening, design and implementation ofa hydrocarbon
miscible project usually involve the following steps:
I. Estimate the incremental oil reserves based on the
volumetric method.
2. Make a preliminary production forecast based on
the break-through ratio (BTR) concept (Section
12.5.2) and preliminary economic evaluation.
3. Use a detailed geological model to evaluate the
reservoir characteristics; from this model, provide
input data for simulation study.
4. History-match the pool performance with a black
oil simulation model under primary and secondary
drive mechanisms. This model will provide the
saturation and pressure distributions required for a
subsequent pseudo-miscible or compositional study.
5. Use a pseudo-miscible or compositional model
to generate a production forecast, evaluate the
reservoir's performance under miscible flood, and
design the project.
6. Use experimental and numerical model studies to
determine the optimum slug size and design the
composition of the injection fluid.
7. Make an economic evaluation and feasibility
design.
8. Obtain regulatory approvals.
9. Design facilities and implement.
10. Develop the data acquisition system, and prepare
detailed monitoring programs and detailed field
operation guidelines.
II. Monitor performance and reservoir management to
improve the pool performance under the miscible
flood.
Prior to implementationofa hydrocarbon miscible flood,
the project goes through several stages. At the early
stage of the screening, usually a crude method is used
to generate a production forecast and conduct an econ-
omic evaluation. At this stage, the incremental reserves
may be estimated by the volumetric method, and the
production forecasts may be generated by the BTR
technique. For the feasibility study, it is imperative to
conduct a detailed geological and reservoir simulation
study to evaluate the economic viability of the project.
Other methods such as statistical models have also been
used to evaluate the feasibility of a hydrocarbon
miscible flood.
______________________cn
The volumetric equation for estimating incremental oil
reserves, RE, is:
(3)
(
k, k
w
) '
-+-
J..ts u, sW
avg
M = -'----'--------""'-
(
k, kw)
M: + J..Lw oW
avg
dead end pore volume, this method requires a careful
examination of the data obtained and a comprehensive
simulation study.
For a given formation and interval, the remaining oil
saturation obtained from these methods may be differ-
ent because, besides the question of accuracy, the depth
of investigation and vertical resolutions of the various
methods are usually different. For example, the single
well tracer technique represents a capacity-weighted
average while pressure coring or logging gives a
volumetric-weighted average.
The comparison ofresults provides important measures
of the quantity and distribution of remaining oil. For
example, if the former is significantly lower than the
latter, the interval may be highly stratified or contain
dead end pore volume. In all cases, the measured re-
maining oil saturation will exceed the residual oil
saturation.
where k, = effective permeability to solvent (mD)
k; = effective permeability to water (mD)
k, = effective permeability to oil (mD)
Estimation of Residual Oil Saturation after
Miscible Flooding
Theoretically speaking, the residual oil saturation after
miscible flooding should be zero due to the lack of in-
terfacial tension between oil and solvent. However, even
ifthe miscibility criteria are met, all the oil may not be
displaced due to trapping by mobile water or dead end
pores. The average oil saturation left behind after hy-
drocarbon flooding is usually greater than that estimated
from the core flood studies. The usual expectation in
western Canada carbonates is 5 percent HPV.
Estimation of Areal Sweep Efficiency for
Horizontal Miscible Floods
Areal sweep efficiency is the fraction ofthe pattern area
that has been contacted by solvent and mainly depends
upon the mobility ratio of the displacement process in
that the areal sweep efficiency decreases as the mobil-
ity ratio increases or become more unfavourable. The
mobility ratio, M, between an oil bank and the solvent
displacing the oil bank in the presence of mobile water
is defined by Stalkup (1983) as:
(2)
residual oil saturation after
waterflood (fraction)
residual oil saturation after miscible
flood (fraction)
connate water saturation
Volumetric Method
ED= (Socw - So,,)/ (I-S
w
)
where Socw=
S =
w
The connate water saturation is the water saturation in
the reservoir at discovery, which can be determined from
resistivity logs.
Estimation of Residual Oil Saturation
The residual oil saturation is the amount of oil left
behind in a water-swept zone when the relative perme-
ability approaches zero. The residual oil saturation is a
function of wettability, adhesion, and rock properties.
Four methods are used to determine residual oil sat-
uration: core flood test, pressure coring, logging, and
the single-well tracer method. The core flood test is
discussed in Chapter II.
Pressure coring is considered to be an accurate method
for obtaining a volumetric measure ofremaining oil satu-
ration. However, this method is expensive and requires
that a new well be drilled in a waterflooded part of the
reservoir.
Logging techniques that can be used for obtaining a
volumetric measure of remaining oil saturation are log
inject log (pulsed neutron, gamma radiation, resistiv-
ity), and carbon-oxygen logging. Each method has its
own special advantages and limitations. The resistivity
logs can be run only in open holes.
The single-well tracer method (Deans and Majoros,
1980) measures an average remaining oil saturation that
is weighted according to the product of thickness and
effective permeability to brine at remaining oil satura-
tion (capacity) for the various strata sampled by injected
tracer. In carbonate reservoirs, due to the effect of the
RE=EHxEvxEDxOOIP (1)
where E
H
aerial sweep efficiency
E
v
vertical sweep
ED displacement efficiency
OOIP original oil in place
The reserves target for a miscible flood is the residual
oil saturation after waterflooding. Therefore, the dis-
placement efficiency, ED, is defined as:
12.5.1
175
~ -
where q,
dp
IJ" = solvent viscosity (m Pa.s)
Ilw water viscosity (m Pa.s)
Jlo oil viscosity (m Pa.s)
sw = solvent/water
ow = oil/water
Since solvent-oil mixtures have much lower viscosities
than oil, the solvent-oil mixing zone becomes less stable
than for waterflood, and numerous fingers of solvent
may develop and extend toward producing wells. This
is one explanation for early solvent break-through and
poor sweep efficiency. As can be seen from Equation
(3), the concept of injecting water alternately with the
miscible fluid improves the overall mobility of the dis-
placement and thus improves the areal sweep efficiency.
Areal sweep efficiency in a miscible flood is also a func-
tion of areal heterogeneity, geometry of pattern flood,
dispersion/diffusion, pore volume of solvent injected,
and water alternating gas ratio (WAG).
Craig (1971) extensively reviews lab measurements for
displacement with a favourable mobility ratio where the
displacement front is stable and the effect of viscous
fingering is insignificant. For an unfavourable mobility
ratio, Habermann (1965), Mahaffey et al. (1966), Dyes
et al. (1954), and Kimbler et al. (1969) measured areal
sweep efficiency of a homogeneous five-spot pattern
for a single-front displacement, where solvent was
injected continuously and initially oil was the only
mobile fluid. The data indicated that areal sweep
efficiency at solvent break-through decreases with
increasing mobility ratio.
Claridge (1973) developed a correlation for areal sweep
efficiency by using Dyes' data and applying Koval's
(1963) equations for linear displacement efficiency of
an unstable displacement. This correlation applies to a
confined five-spot pattern-in a homogenous, single-layer
reservoir where the gravity force is negligible compared
to the viscous forces and in the absence of movable water
or gas. Because of these assumptions, the Claridge
method can be used only for agross estimation of areal
sweep efficiency.
Estimation of Vertical Sweep Efficiency
for Horizontal Miscible Floods
In a horizontal miscible displacement, where the
density of the solvent is much less than the density of
either oil or water, vertical sweep efficiency is substan-
tially reduced as a result of gravity segregation where
solvent overrides oil. Parameters that affect vertical
sweep efficiency are reservoir stratification, vertical
distribution of flow capacity and segregation of
176
hydrocarbon phases. Obviously, a homogenous
reservoir with low ratio of horizontal to vertical perme-
ability has a higher chance of incremental recovery
reserves losses. Conversely, diffusion and convective
dispersion may allow solvent to liberate the remaining
oil from zones where water would not enter.
In a WAG process, gravity segregation will cause the
injected gas to rise to the top of the formation and water
to settle to the bottom. This will result in a lowrecovery
factor since only a thin layer at the top of formation is
solvent flooded while the bottom layer is waterflooded.
Stone (1982) showed that recovery is primarily a func-
tion of the viscous-gravity ratio, VGR, defined as:
VGR= q, (4)
dp k, a (k,. + k,,)
Jl, Jl.
= total flow rate
= density difference between water
and solvent
k, vertical permeability (mD)
A reservoir area
~ = relative permeability to water
Jl
w
water viscosity (m Pa.s)
k,., relative permeability to solvent
Jl
g
= solvent viscosity (m Pa.s)
The recovery factor is also a function of water-gas
ratio. For the same solvent slug size, higher values of
WAG may result in higher recoveries.
Based on the Stone (1982) model, Jenkins (1984)
presented a solution for estimating the vertical
sweep efficiency for a horizontal displacement in a
homogenous reservoir with either rectangular or radial
geometries. This model will provide only a rough esti-
mate of the vertical recovery due to the limitation in
ignoring capillary pressures, nonuniform saturation
distribution, and physical dispersion. Hence, this model
is recommended only for the screening study.
Okazawa et al. (1992) used the Claridge correlation for
the estimation ofareal sweep efficiency, and the Stone-
Jenkins model for the estimation of vertical sweep
efficiency to predict the performance of large-scale mis-
cible flood. The Okazawa model may be used for the
screening study or performance monitoring of a large-
scale miscible flood. However, for a feasibility study, a
detailed geological study and a simulation study are
recommended.
The volumetric method can also be used to estimate the
incremental reserves from vertical miscible floods. In
______________________a
this estimation it is important to calculate with coning
correlations the sandwich loss due to water and gas
coning.
Field Estimation of Volumetric Sweep
Efficiency
Many experimental and mathematical studies of
volumetric sweep efficiency have been presented in the
literature. However, little attention has been paid to
the field evaluation of volumetric sweep efficiency.
Asgarpour and Todd (1988) used a radioactive tracer
program along with the simulation study to estimate the
volumetric sweep efficiency for an ongoing miscible
flood in central Alberta. In the simulation study, the
historical performance of the primary natural water
drive and the first five years of solvent injection were
reproduced with a fair degree of accuracy by a pseudo-
miscible model. This information, along with the results
ofthe radio-active tracer program, was used to estimate
the volumetric sweep efficiency of 45 percent for this
flood. This study concluded that the effect of gravity
override and viscous fingering were much more
moderate than had been expected from the lab models.
12.5.2 Break-Through Ratio Method
The break-through ratio, BTR, is defined as the water
production plus free gas production at reservoir condi-
tions divided by the oil production at stock tank
conditions.
BTR =(GOR - R,) x B
g
+ (WORx B
w
) (5)
where GOR = gas-oil ratio
R, = solution gas-oil ratio
B
g
= gas formation volume factor
WOR = water-oil ratio
B; = water formation volume factor
The BTR vs. cumulative oil production plotted on
a semi-log graph for most waterfloods is a straight
line terminating at the ultimate recovery and the
economically limiting BTR. The upward trend of the
BTR line for a waterflood is due to the increase in water
production. For a miscible flood that is implemented
after a waterflood, the BTR curve is expected initially
to have a downward trend as a result of a steady decline
in water production accompanied by an increase in oil
production. This downward trend will be followed by
an upward trend primarily due to solvent and chase gas
break-through and later by an increase in water produc-
tion. The upward trend of the BTR will terminate at the
ultimate recovery and the economically limiting BTR.
The difference between the waterflood recovery and the
ultimate recovery is the incremental oil due to the
miscible flood.
The BTR method can be used to generate a production
forecast for the preliminary evaluation of hydrocarbon
miscible floods. The incremental hydrocarbon miscible
flood estimated from the volumetric method, the water-
flood reserves obtained from extrapolation ofWOR vs.
cumulative oil, and the economically limiting BTR are
used to determine the ultimate point on the BTR curve.
The BTRcurve is then constructed based on waterflood
performance and the performance of a similar pool un-
der hydrocarbon miscible floods. Finally, the production
forecast is generated using a trial-and-error procedure
(i.e., an oil rate is assumed-the total production rate
is obtained from the BTR curve and this rate is com-
pared with the injection rate for appropriate voidage
replacement).
The BTR method can also be used to estimate the
incremental reserves and monitor the performance of
ongoing miscible floods (Asgarpour et al., 1988). The
incremental reserves are estimated by the extrapolation
ofthe BTRcurve to the economically limiting BTR pro-
vided that the pool is in a mature stage (i.e., BTR >5).
12.5.3 Geological Model
For the geological study, structural and stratigraphic
cross sections are constructed to evaluate the effect of
stratification for the horizontal miscible flood or the
impact of shale barrier for the vertical miscible flood.
The determination of vertical and horizontal permeabili-
ties and the averaging method is also essential for this
evaluation. From this model, input data is provided for
the simulation studies.
12.5.4 Simulation StUdies
A black oil simulation study is conducted to reconcile
the geological and reservoir data by 'history-matching
the pool performance under primary and secondary
drive mechanisms. This model provides saturation
distribution, pressure, etc. required for a subsequent
pseudo-miscible or compositional study. Pseudo-
miscible or compositional models are used to generate
production forecasts and predict reservoir performance
under several miscible flood options. Project design is
then based on the optimum case.
The compositional simulator is capable of evaluating
and predicting changes in compositions and press-
ures of the hydrocarbon phases. Since the model is
developed to simulate flow in three dimensions, it con-
siders cross-flow between layers, gravity segregation,
channelling, and the effect of variable mobility.
177
The estimation ofincremental reserves for a hydrocarbon
miscible flood depends on several parameters: porosity,
pay thickness, areal extent, residual oil saturation to
waterflood, connate water saturation, formation volume
factor, and residual oil saturation to miscible, areal and
vertical sweep efficiency. For most ofthese parameters,
only a range may be available. In reserves estimation,
the uncertainty associated with these parameters should
be taken into account. To properly describe the risk and
uncertainty associated with the incremental reserves
of a proposed hydrocarbon miscible flood in central
Alberta, Asgarpour and Papst (1990) developed a
statistical model based on the Monte Carlo simulation
technique. The input parameters to this model are the
Simulation studies using the compositional simulator
can be used to estimate slug size requirements and the
effects of mass transfer between phases on miscibility
conditions at the leading and trailing edges of the
mixing zone. Lack ofphysical dispersion or mixing pa-
rameters in the miscible flow calculation is a major
drawback. However, this problem can be overcome by
adjusting the numerical dispersion to reflect the physi-
cal dispersion. The major problem with this model to
date has been the cost, which makes a field study im-
practical. The advent of a high-capacity PC version is
reducing this problem.
There are two types ofcompositional model: one based
on k value correlations, and the other on the equation of
state. The first is more cost-effectivebecause ofthe lower
computational cost for the flash calculations. Prior to a
simulation study, phase behaviour should be studied
so that the fluid can be properly characterized and the
equation of state can be "tuned" to experimental data.
The pseudo-miscible model was developed (Todd and
Longstaff, 1972) by modifying an existing three-phase
simulator to forecast miscible flood performance. The
simulator is capable of modeling the essential features
of miscible displacment by a fairly coarse numerical
grid. The degree of dispersion rate between solvent and
oil, which reflects the degree of viscous fingering, is
represented by an input mixing parameter. For most field
applications mixing parameters in the range of0.5 to 0.8
are used. For a system exhibiting strong gravity seg-
regation, a large number of grid blocks is required to
represent different layers.
Production forecasts from the simulation study are
used to conduct detailed economic evaluations, make
project decisions and obtain management, partner and
regulatory approval.
12.5.5 Estimation of Uncertainties
distribution ofthe parameters required for the reserves
estimation and the output is the reserves distribution.
Figure 12.5-1 shows a reserves distribution for a
proposed miscible flood in central Alberta. Based on
this distribution, a different reserves category can be
assigned. For example, this figure indicates proved
reserves of 1.375 million cubic metres with 80 percent
confidence.
100
80 ----- - - --
~
~
60
:0
t
m
.c 40
e
a.
20
o -I---.-,r-'-r----,--.---,--;:=;---.--
o 1.0 2.0 3.0 4.0
Incremental Reserves (10
6m3)
Figure 12.5-1 Reserves Distribution
12.5.6 Determination of Solvent and
Chase Gas Slug Size
In a miscible flood, the total amount of solvent used
should be enough to maintain miscibility conditions at
the displacement front in the bulk of the reservoir.
Whereas heterogeneity and stratification have a net
effect ofincreasing the solvent losses and consequently
the solvent requirements, economic considerations
dictate optimizing these amounts. The principal param-
eters determining solvent losses are the dispersion and
mixing coefficient. Unfortunately, no simple methods
for determining these coefficients are available. The
complexity of the flooding process makes the interpre-
tation of data from any of the available methods
extremely difficult. These complexities, besides hetero-
geneities and stratification, could be a result ofthe front
displacement, the geometry of flood propagation
(Asgarpour et aI., 1989), dead end pores (Asgarpour,
1987), the nature of the miscible flood (Chen et aI.,
1986), the presence of mobile water or trapped gas
(Asgarpour et aI., 1986, Tiffin, 1982), and wettability.
Furthermore, the dispersion observed in a single core
sample is different from what is observed a few metres
around a wellbore. These dispersions, in tum, could
be different from those observed over the inter-well
distance in the reservoir.
178
_____________________.--0
12.5.7
12.6 CLASSIFICATION OF MISCIBLE
HYDROCARBON RESERVES
For the purpose of estimating reserves, it is important
to identify the development stage of the project. The
stage will signify the degree of confidence in recovery
of the reserves and can be linked, therefore, to the
timing of allocation of reserves to various categories.
It is suggested that prior to classifying any miscible
reserves in the possible category, a reservoir engineer-
ing study should be completed to identify the reserves.
An economic evaluation should also be conducted based
on the present, or on a reasonable anticipated, economic
condition. A confidence level of 10 to 40 percent prob-
ability of the incremental EOR reserves being recovered
is required to allocate reserves to the possible category.
Caution should be used in estimating possible reserves
based only on analogy to similar pools under miscible
flood. The feasibility of a miscible scheme is depen-
dent upon numerous complex parameters, and simple
analogy is usually misleading.
Miscible flood reserves in the possible category serve
for easy identification of EOR potential for business
planning. Once the business opportunity is identified, it
can set in motion an action plan for implementation of
the scheme.
Possible Reserves
mature miscible floods where a large portion of solvent
has been injected, horizontal injectors can be drilled to
access the unswept layers and improve the volumetric
sweep.
In horizontal miscible floods, producers should also be
equipped with mechanical packer assemblies to control
solvent cycling. In the latter stages of miscible floods,
horizontal producers may be used to improve produc-
tion from layers with low productivity.
Poor vertical sweep efficiency caused by gravity over-
ride can also be partially improved by increasing the
solvent and water injection volumes.
The miscibility process also plays a significant role in
the success and failure of the hydrocarbon miscible
process. Usually, the first-contact and condensing
multiple-contact miscible processes have proved to
be more successful than the vapourizing process. The
poor success of the latter may be due to the presence of
pockets of gas in reservoirs with pressures near the
bubble-point pressure. This gas may dilute the solvent
to the extent that it is no longer miscible with oil.
12.6.1
Field Performance of Miscible
Floods
The performance of hydrocarbon miscible floods has
been extensively reviewed in the literature (Griffith and
Home, 1975), (Beeler, 1977), (Reinhold et aI., 1992),
(Anderson et al., 1992), (Pritchard and Nieman, 1992),
(Patel and Broomhall, 1992), (McIntyre et aI., 1991),
(Adamache et aI., 1990), (Fong et aI., 1990), (Wood et
aI., 1990), (Bennett and Geoghegan, 1990), (Okazawa
and Lai, 1989), (Dawson et aI., 1989), (Bilozer and
Frydl, 1989), (Sorenson and Griffith, 1988). In general,
vertical miscible floods have been more successful than
horizontal floods due to the gravity stable displacement.
However, in some vertical hydrocarbon miscible floods,
poor geological understanding of the reservoir has
resulted in lower than expected reserves due to the
presence of shale barriers which resulted in poor volu-
metric sweep efficiency. Sandwich loss due to gas and
water coning has also been a major factor in reducing
the incremental reserves and economics. Recently, in a
few hydrocarbon miscible floods, through innovative
completion techniques, the volumetric sweep efficiency
has been increased significantly by the reduction of
sandwich loss.
In vertical miscible floods, horizontal wells can be used
as both producers and injectors. Horizontal producers
drilled at the water-oil interface can reduce coning prob-
lems and improve the volumetric sweep efficiency.
Horizontal injectors drilled in vertical miscible floods
can provide a stable solvent transition zone, prevent the
pure solvent from fingering into oil, and improve the
volumetric sweep efficiency.
The major problems associated with the horizontal
miscible floods are gravity override and viscous finger-
ing. In addition, poor injection profile control has
resulted in a low vertical sweep efficiency in many
floods. In these, the layer with the highest capacity takes
the bulk of the solvent. Only a small portion of the
reservoir can be contacted, and solvent is cycled through
this layer without improving the incremental reserves
from the other layers. Therefore in the early stages of
floods, equipment of injectors with mechanical packer
assemblies is important to control the amount of sol-
vent injected per layer so each layer receives enough
solvent to meet the miscibility criteria. However, for
The most common method to determine solvent
and chase gas slug size is on the basis of dispersion-
diffusion calculations at the leading and the trailing
edges ofthe solvent-oil mixing zone (Asgarpour, 1987).
179
12.6.2 Probable Reserves
When the project is in the implementation phase,
tertiary EaR incremental reserves can be allocated
to the probable category provided there is sufficient
confidence (40 to 80 percent) that these reserves are
expected to be recovered.
12.6.3 Proved Reserves
The amount of incremental tertiary EaR reserves
allocated to the proved category should be based on
the performance of the miscible flood. In the year the
scheme is started, a small percentage ofthe incremental
reserves could be added to the proved category based
on the confidence level (Mukherjee, 1988).
Additional hydrocarbon miscible reserves may be
allocated to the proved category in a gradual manner
over a period of time provided there is sufficient tech-
nical confidence in the scheme that the proved reserves
figure has a high probability (80 percent) of being
recovered.
References
Adamache, I., McIntyre, F.J., Pow, M., Lewis, D.,
Davis, R., Kuhme, A., Bloy, G., Van Regan, N.,
and Butler, S. 1990. "Horizontal Well Application
in a Vertical Miscible Flood." Petroleum Society
ofCIMISPE International Technical Meeting,
Calgary, AB; Preprints V3, CIM/SPE 90-125,
Jun. 1990.
Anderson, lH., Laurie, R.A., Loder, W.R. Jr., and
Kennedy, P. 1992. "Brassey Field Miscible Flood
Management Program Features Innovative Tracer
Injection." Paper presented at 67th Annual SPE
Technical Conference, Washington, DC, SPE-
24874, Oct. 1992.
Asgarpour, S.S. 1987. "Determination of Slug Size
for Carbonate Reservoirs." Paper presented at
38th Annual Technical Meeting of the Petroleum
Society of CIM, Calgary; AB, Paper No. 38-09.
Asgarpour, S.S., Pope, J.A., and Springer, s.i 1986.
"Effect of Mobile Water Saturation on Slug Size
Determination." Paper presented at 37th Annual
Technical Meeting, Petroleum Society of CIM,
Calgary, AB, Paper No. 86-36-35.
Asgarpour, S.S., Crawly, A., and Springer, S.J. 1988.
"Re-Evaluation of Solvent Requirements for a
Hydrocarbon Miscible Flood." SPE Reservoir
Engineer, Feb. 1988.
180
DETERMINATION OF OILAND GAS RESERVES
Asgarpour, S.S., and Todd, M.R. 1988. "Evaluation
of Volumetric Conformance for the Fenn-Big
Valley Horizontal Hydrocarbon Miscible Flood."
Proc., 63rd Annual Technical Conference and
Exhibition, SPE of AIME, Houston, TX.
Asgarpour, S.S., Card, C., Singhal, AX., and Wong,
T. 1989. "Performance Evaluation and Reservoir
Management of a Tertiary Miscible Flood in the
Fenn-Big Valley South Lobe D-2 Pool." JCPT,
Nov-Dec, 1989, p. 6.
Asgarpour, S.S., and Papst, W. 1990. "A Statistical
Model to Evaluate a Hydrocarbon Miscible Flood
in an Upper Devonian Field in Central Alberta."
JCPT, May-Jun. 1990, p. 61.
Beeler, P.F. 1977. "West Virginia CO
2
Oil Recovery
Project Interim Report." Proc., US DOE
Symposium on Enhanced Oil and Gas Recovery
and Improved Drilling Methods, Tulsa, OK, Aug.
- Sep. 1977.
Bennett, F., and Geoghegan, J.G. 1990. "Monitoring
the Performance of Pembina Nisku Miscible
Floods." Paper presented at Petroleum Society of
CIMISPE International Technical Meeting,
Calgary, AB; Preprints V2, CIM/SPE 90-73, Jun.
1990.
Bilozer, D.E., and Frydl, P.M. 1989. "Reservoir
Description and Performance Analysis of a
Mature Miscible Flood in Rainbow Field,
Canada." Paper presented at 64th Annual SPE
Technical Conference, San Antonio, TX; Proc.,
G-EOR/General Petroleum Engineering, SPE-
19656, Oct. 1989.
Chen, S.M., Olynyk, L, and Asgarpour, S.S. 1986.
"Effect of Multiple-Contact Miscibility on Slug
Size Determination." JCPT, May-Jun. 1986.
Claridge,.E.L. 1973. "A Trapping Hele-Shaw Model
for Miscible-Immiscible Flooding Studies." SPEJ,
Oct. 1973, Vol. 1339, pp. 255-261.
Craig, F.F. 1971. The Reservoir Engineering Aspects
of Waterflooding. SPE Monograph Series, Dallas,
TX,No.3.
Dawson, A.G., Buskirk, D.L., and Jackson, D.D.
1989. "Impact of Solvent Injection Strategy And
Reservoir Description on Hydrocarbon Miscible
EaR for the Prudhoe Bay Unit, Alaska." Paper
presented at 64th Annual SPE Technical
Conference, San Antonio, TX; Proc., G-EOR/
General Petroleum Engineering, SPE-19657, Oct.
1989.
2
Deans, H.A. and Majoros, S. 1980. "The Single-Well
Chemical Tracer Method for Measuring Residual
Oil Saturation." Final Report for US DOE,
Contract No. DE-AS 19-79BC20006 performed at
Rice University, Houston, TX, Oct. 1980.
Dyes, A.B., Caudle, RH., and Erikson, R.A. 1954.
"Oil Production After Breakthrough - As
Influenced by Mobility Ratio." Trans., AIME.
Vol. 201, pp. 81-86.
Fong, D.K., Wong, F.Y., Nagel, R.G., and Peggs, J.K.
1990. "Combining A Volumetric Model with a
Pseudo-Miscible Field Simulation to Achieve
Uniform Fluid Levelling in the Rainbow Keg
River "B" Pool." Petroleum Society ofCIMISPE
International Technical Meeting, Calgary, AB,
Jun. 1990.
Griffith, J.D., and Horne, A.L. 1975. "South Swan
Hills Solvent Flood." Proc, 9th World Petroleum
Congress, Tokyo, Japan, Vol. 4,1975.
Habermann, R 1965. "The Efficiencies of Miscible
Displacement as a Function of Mobility Ratio."
Trans., AIME, Vol. 219, p. 264; Miscible
Processes, Reprint Series, SPE, Dallas, TX, 1965,
Vol. 8, pp. 205-214.
Jenkins, M.K. 1984. "An Analytical Model for
Water/Gas Miscible Displacements." Presented at
4th Symposium on EOR, Tulsa, OK, Apr. 1984,
SPE/DOE 12632.
Kimbler, O.K., Caudle, RH., and Cooper, H.E. Jr.
1969. "Areal Sweep-out Behaviour in a Nine-
Spot Injection Pattern." JPT, Feb. 1969, pp.
199-202; Trans., AIME, Vol. 231.
Koval, EJ. 1963. "A Method for Predicting the
Performance of Unstable Miscible Displacement
in Heterogeneous Media." SPEJ, Jun. 1963, pp.
145-154; Trans., AIME, Vol. 228.
Mahaffey, J.L., Rutherford, W.M., and Matthews,
C.W. 1966. "Sweep Efficiency by Miscible
Displacement in a Five-Spot." SPEJ, Mar. 1966,
pp. 73-80; Trans., AIME, Vol. 237.
Mcintyre, FJ., See, D.L., Mallimes, R.M., Burger,
D.H., and Tsang, P.W. 1991. "Production
Optimization of a Horizontal Well in a Vertical
Hydrocarbon Miscible Flood Reservoir."
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1991.
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Resources Ltd., Calgary, AR
Okazawa, T., and Lai, F.S.Y. 1989. "Volumetric
Balance Method - To Monitor Field Performance
of Gas Miscible Floods." 40th Annual Petroleum
Society of CIM Technical Meeting, Banff, AB;
Preprints VI, No. 89-04-4, May 1989.
Okazawa, T., Bozac, P.G., Seto, A.C., and Howe,
G.R. 1992. "An Analytical Software for Pool-
Wide Performance Prediction ofEOR Processes."
Paper presented at 43rd Annual Technical Meet-
ing of the Petroleum Society ofCIM, Calgary,
AB, CIM 92-89.
Patel, R.S., and Broomhall, R.W. 1992. "Use of
Horizontal Wells in Vertical' Miscible Floods,
Pembina, Nisku, Alberta, Canada." 8th SPEIDOE
Enhanced Oil Recovery Symposium, Tulsa, OK;
Proc., VI, 1992, SPE/DOE-24124, Apr. 1992.
Pritchard, D.W.L., and Nieman, R.E. 1992.
"Improving Oil Recovery through WAG (Water-
Alternating-Gas) Cycle Optimization in a
Gravity-Override-Dominated Miscible Flood."
8th SPEIDOE Enhanced Oil Recovery
Symposium, Tulsa, OK; Proc., V2, SPE/DOE-
24181, Apr. 1992.
Reinbold, E.W., Bokhari, S.W., Enger, S.R., Ma,
T.D., and Renke, S.M. 1992. "Early Performance
and Evaluation of the Kuparuk Hydrocarbon
Miscible Flood." 67th Annual SPE Technical
Conference, Washington, D.C; Proc., Reservoir
Eng., SPE-24930, Oct. 1992.
Sorensen, L.E., and Griffith, J.D. 1988. "Evaluation
of Solvent and Chase Gas Bank Sizes in the South
Swan Hills Hydrocarbon Miscible Flood." 39th
Annual Petroleum Society of CIM1CGPA 2nd
Quarterly Technical Meeting, Calgary, AB;
Preprints V3, No. 88-39-100, Jun. 1988.
Stalkup, F.I. 1983. MiscibleDisplacement. SPE
Monograph Series, Dallas, TX.
Stone, H.L. 1982. "Vertical Conformance in an
Alternating Water-Miscible Gas Flood." Paper
presented at 57th Annual Fall Technical Meeting,
SPE of AIME, New Orleans, LA, Sep. 1982, SPE
11130.
Tiffin, D.L. 1982. "Effects of Mobile Water on
Multiple-Contact Miscible Gas Displacement."
Paper presented at the SPE/DOE Enhanced Oil
Recovery Symposium, Tulsa, OK, Apr. 1982,
SPE/DOE 10687.
181
-I
Todd, M.R., and Longstaff, W.J. 1972. "The
Development, Testing, and Application of a
Numerical Simulator for Predicting Miscible
FloodPerformance." 1PT, Jul. 1972, pp. 874-82.
182
Wood, K.N., Cornish, R.O., Lal, F.S., Taylor, H.O.,
and Woodford, R.B. 1990. "Solvent Tracersand
the Judy CreekHydrocarbon Miscible Flood."
Petroleum Societyof CIM/SPE International
Technical Meeting, Calgary, AB; Preprints V2,
No. CIM/SPE 90-79, Jun. 1990.
...
.""'"
c
Chapter 13
ENHANCED RECOVERY
BY IMMISCIBLE GAS INJECTION
13.1 INTRODUCTION
Immiscible' gas injection (gasflood) was first used to
enhance oil recovery before the turn of the century and
actually predates the use of water as an injectant. As
with water, gases are used for both their pressure main-
tenance and their fluid displacement properties. In the
case ofgas injection, however, displacement takes a de-
cidedly secondary role. A further difference can also be
attributed to the fact that gases can have a substantial
degree of mutual solubility with crude oil and hence
can, to some extent, do the following:
Vapourize various oil components
Cause contacted oil to expand and mobilize
Reduce viscosity of contacted oil
All three phenomena may enhance oil recovery beyond
that expected from a simple gas-liquid displacement
process.
The gasflood injectant that is most commonly used is
hydrocarbon-based, not necessarily due to its effective-
ness, but rather to its availability and relatively low cost.
Other gases that have been or could be successfully
employed include (but are not limited to) nitrogen (N,),
carbon dioxide (CO,), sulphur gases, flue gas, and air.
Despite the fact that the performance of a gas injection
scheme can, under some circumstances, compete with
or even surpass that of a waterflood, the use of gas-
flooding has diminished with time particularly during
the last 25 years, when natural gas became an increas-
ingly valuable commodity. In addition to the cost of
foregone gas sales, high-pressure gas injection schemes
also carry added costs associated with high pressure
injection flowlines, compression, reprocessing, and
possibly the purchase of gas external to the project.
These additional costs often make waterflooding or even
primary recovery more economic than gasflooding.
Immiscible refers to gas and oil existingas separate phases
in all concentrations everywhere withinthe system.
Notable exceptions can occur, however, when the
subject reservoir has any of the following:
A sizable original gas cap
A remote location where gas sales are not feasible
A location that lacks a suitable or economically
attractive water source
Extremely low permeabilities, making waterflood-
ing impractical
Water-sensitive minerals
Extreme attic oil losses (e.g., due to adverse coning
characteristics)
Substantial vertical relief
If any of these conditions are present, the feasibility
of employing a gasflood for enhancing the primary
recovery mechanism should be considered.
13.2 TYPES OF FLOODS
Gasfloods have historically been categorized as being
one of two types according to where the gas is injected
in relation to the oil zone. Figure 13.2-1 schematically
illustrates an "external" or updip injection scheme, and
a "dispersed" or pattern-style flood. Although both types
are subject to similar physical processes and principles,
they have by design, different primary gas flow direc-
tions (vertical for external; horizontal for dispersed).
This can cause them to have very different performance
characteristics and hence different prediction technique
requirements.
External injection schemes are more popular and
effective as they are often used to assist a primary gas
cap drive, and because they take advantage of the natu-
ral phenomenon of gravity segregation or "override,"
a process that is detrimental to the effectiveness of
horizontally flooding with gas. External gravity
stable injection projects have exhibited incremental
recoveries as high as 40-50 percent.
Dispersed gas injection schemes are relatively rare, and
when used in the absence of a gravity stable process,
183
Oil Gas
Production Injection
EXTERNAL GASINJECTION
Oil
Production
Gas
Injection
- --
Oil
Production
DISPERSED GAS INJECTION
Gas
Injection
Oil
Production
- - ~ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Figure 13.2-1 Gas Injection
they have historically shown themselves to be only
marginally effective, with typical recoveries of only a
few percent. This is due to the adverse impact of the
strong tendency for gas to find the path of least
resistance, either vertically (override) or areally (fin-
gering). Furthermore this tendency is considerably
aggravated by the existence of almost ever-present
geological heterogeneities.
In addition to this distinction, further subsets can occur
due to the degree ofpressure maintenance invoked (full
or partial) and, in the case of vertical schemes, the ex-
istence or nonexistence of a gas cap. Combining both
ofthese variables results in vertical floods in which the
original gas-oil contact will (I) advance, resulting in a
true gas displacement process; (2) remain stable, allow-
ing for some other mechanism to be used to deplete the
184
reservoir; or (3) recede at a controlled rate with some
other mechanism employed to deplete the reservoir.
It should be noted that for a vertical gas displacement
configuration, gas need not necessarily be injected
directly into the gas cap or even the structurally highest
point as the gas will migrate to these locations of its
own accord. This is a particularly useful attribute when
flooding dipping reservoirs where considerations such
as surface topography may limit access to the structural
highs.
13.3 PERFORMANCEPREDICTION
The flood stage at which one of five basic prediction
techniques is most appropriate is treated in consider-
able detail in Chapter II. The reader is encouraged
to review this passage for the rationale behind the
recommended methods shown in Table 13.3-1.
___________________a
ENHANCED RECOVERY BYIMMISCIBLE GASINJECTION
Table 13.3-1 Recommended Performance
Prediction Methods
1 A concise set of examples utilizing classicalanalytical
predictiontechniques for both external and dispersed
injection witheither complete orpartial pressure
maintenancecanbe found in Roebuck (1987).
2 If phase behavior effects playa significant role,
compositional numerical simulation must be givenserious
consideration as thepreferred prediction technique.
Awordof caution in the use of these recommendations
is warranted: regardlessofthe depletionstageandtech-
niqueemployed, it iswisewheneverpossible tousemore
than one procedure as a cross-check or validation
process.
When gas injection is used primarily for pressure
maintenance anddisplacement," productionperformance
prediction methods areeitherfor external injectionmeth-
ods, whichare an extensionof gas cap driveprediction
techniques; or for dispersed injection schemes, which
areanextension of solutiongasdrivemethods withmany
elements similar to horizontal waterfloods.
Due to these and previously noted similarities, the
various analysis techniques will not be describedin as
completea manner as they are elsewhere. To avoidrep-
etition, only those aspects that need to be emphasized
or that are unique to gasflooding are describedhere.
13.3.1 External Injection Schemes
As notedin Chapter 9, the preferred techniquesinvolve
the use of material balance or numerical simulation
methods. The analytical Welge (1952) method is also
recommended as a shortcut approach. Further to this,
however, often it is important to include the effects of
gravitydrainage as reportedby ShreveandWelch(1956)
and Craig et al. (1957).
If decline analysistechniques are to be usedfor perfor-
mance prediction purposes, it should be noted that
gas-drive-only reservoirs, after an initial period of
sustained oil production, often exhibit harmonic de-
clines; the initial rapid decline is causedby the adverse
Stage
Exploration/discovery
Delineationthrough
early life
Middle through
late life
Prediction Technique
Analogies, volumetrics
Analogies, numerical simulation,
volumetrics, analytical methodsI
Numerical simulation.
decline analysis
mobilityratio, andthe longoil-productiontail is caused
by gravitydrainage.
13.3.2 Dispersed Gas Injection Schemes
As with external gas injection projects, the preferred
methodfor estimatingrecoveryand future performance
is numerical simulation-not an easy task as the rapid-
ity and degree of gas break-through are often difficult
to simulate. This is a direct consequence of the lowvis-
cosity and density of the gas, and its nonwetting
characteristics, which combine to generate very high
mobilityratios (50to 100times that of water) and, as a
result, poor sweepefficiencies.
Shouldthe lack of time or data not permit a simulation
to be undertaken, the analytical Pirson(1958) technique
for solution gas drive can be utilized, as can Craig's
horizontal displacement technique (Craig et al., 1955).
These methods are discussed and recommended in
Chapters 9 and II, respectively.
The volumetric analysis technique described in
Section 11.5is alsoapplicable, but particular care must
bepaidtotheestimation of horizontalandverticalsweep
efficiencies. In addition to the expected mobility-ratio-
induced reduction in areal sweep (Dyes et aI., 1954),
and the layering-induced reduction in vertical sweep
(Stiles, 1949),furtherefficiencylosses can occur dueto
both override and fingering. Analogous reservoirs and
mechanistic numerical models may be used to evaluate
the significance of these two phenomena.
References
Craig, F.F. Jr., Geffen, T.M., and Morse, RA. 1955.
"Oil RecoveryPerformance of Pattern Gas or
Water InjectionOperations fromModel Tests."
JPT, Jan. 1955, pp. 7-14; Trans., AIME, Vol.
204.
Craig, F.F. Jr., Sanderlin, J.L., Moore, D.W., and
Geffen, T.M. 1957. "A Laboratory Study of
GravitySegregationin Frontal Drives." JPT, Oct.
1957, pp. 275-81; Trans., AIME, Vol. 210.
Dyes, A.B., Caudle RH., and Erikson, R.A. 1954.
"Oil Productionafter Breakthrough as Influenced
by MobilityRatio." JPT, Apr. 1954, pp. 27-32;
Trans., AIME, Vol. 201.
Pirson, SJ. 1958. Oil Reservoir Engineering.
McGraw-HiIl Book Co. Inc., New York, NY,
pp. 484-532.
Roebuck, J.F. Jr. 1987. "SPE Petroleum Engineering
Handbook." SPEof AIME, Chapter 43, Appendix
A, pp. 10-13.
185
ShreveD.R., and Welch, L.W. Jr. 1956. "Gas Drive
and GravityDrainage for Pressure Maintenance
Operations." JPT, Jun. 1956, pp. 136-43; Trans.,
AIME, Vol. 207.
Stiles, W.E. 1949. "Use ofPerrneability Distribution
in Water FloodCalculations." Trans., AIME, Vol.
186, pp. 9-13.
186
Welge HoI. 1952. "A SimplifiedMethod for
Computing Oil Recoveryby Gas or Water Drive."
Trans., AIME, Vol. 195, pp. 91-98.
s
Chapter 14
ENHANCED RECOVERY
BY THERMAL STIMULATION
14.1 INTRODUCTION
The thermal recovery processes that have been used
extensively for the recovery of heavy oil and bitumen
from the oil sands have met with mixed success.
The term "heavy oil" is used to designate crude oils
having an API gravity range of IS to 25 degrees. Heavy
oil is literally heavier, thicker and slower to pour than
the conventional light and medium crudes. Heavy oil,
however, is relatively mobile at reservoir conditions and
can be successfully produced by primary recovery meth-
ods. Thermal recovery processes are then used to further
increase the recovery of heavy oil.
The bitumen found in the oil sands deposits is a viscous
mixture of hydrocarbons with an API gravity of less
than 15 degrees and a viscosity of several thousand
centipoise at room temperature. Thus, bitumen is not
economically recoverable in its natural state by conven-
tional primary or secondary recovery methods.
The ultimate objective of any thermal process is to
improve the mobility ofthe crude by reducing its viscos-
ity through the introduction of heat into the reservoir.
In addition, steam pressure and thermal expansion also
enhance the driving forces present in the reservoir:
gravity drainage, solution gas drive, and reservoir
compaction. The following are the thermal processes
most commonly used for the recovery of heavy oil and
bitumen:
Cyclic steam stimulation
Steam flood
In situ combustion
Electromagnetic oil heating
These are discussed in the sections that follow.
14.2 CYCLICSTEAMSTIMULATION
Cyclic steam stimulation is probably the most widely
used thermal recovery process at the present time. The
popularity of this process is mainly due to its relative
ease of application, the low initial capital required,
and the quick return on investment. The ultimate oil
recovery from this process (1520 percent) is generally
much lower than recovery from steam flood (2050
percent). However, most steam stimulation processes
may be converted to steam flood once inter-well heat
communication has been established.
Cyclic steam stimulation is a single well process with
injection and production carried out at the same well.
Steam is injected into the well for a certain length of
time, usually at a rate and steam quality that are rela-
tively constant (60.80 percent cold water equivalent at
wellhead). Generally, the steam injection rate is the
maximum rate obtainable at bottom-hole pressures be-
low the formation fracture pressure. The bottom-hole
steam quality and pressure may be predicted using
wellbore models ofthe type discussed by Fontanilla and
Aziz (1982) and others (Farouq Ali, 1981; Durrant and
Thambynayagam, 1980; Willhite, 1966).
The well is allowed to soak for a period (of at least a
few days) that depends on the volume ofsteam injected;
soaking allows the injected steam to condense and dis-
tribute the heat more evenly. At the end of the soak
period, the well is put on production. The reservoir pres-
sure during the initial production period is very high,
and fluids are able to flow back under the reservoir pres-
sure alone. The production during this flowback period
consists mostly of hot water, flashed steam, formation
gases, and traces ofoil. Upon completion ofthe flowback
period, the reservoir pressure will have dropped and a
bottom-hole pump will be required to lift the reservoir
fluids.
These injection-production cycles are repeated until the
oil production rate drops below the economic limit. At
this stage, other thermal recovery methods such as steam
flooding or in situ combustion may be considered.
14.2.1 Process Variation
The cyclic steam stimulation process is sometimes
modified in order to improve its sweep and thermal
187
> 10
400 to 1000
> 30
250 to 1000
10 to 34
efficiencies. Laboratory studies and field tests have been
conducted to investigate the addition of chemicals or
gases to the injected steam. These include surfactants,
carbon dioxide, ethane, naphtha, methane, propane,
butane, heptane, natural gas, air, and oxygen (Kular et
al., 1989; Ploeg and Duerkson, 1985; Ivory et al., 1991;
Pursley, 1974; Waxman et aI., 1980). The following are
the major mechanisms by which steam additives
improve oil recovery:
I. The diversion ofsteam to higher oil saturation zones
improves sweep efficiency.
2. The reduction in surface tension ofthe oil improves
displacement efficiency.
3. Gas expansion and flashing of solution gases
provide an additional driving force in the reservoir.
Although steam additives seem to offer some potential
under certain reservoir and operating conditions, fur-
ther research and testing are needed to improve the
recovery of the cyclic steam stimulation process.
14.2.2 Field Examples
The following are some of the steam stimulation and
steam flood projects in Canada and the United States:
Shell Peace River Thermal Pilot (Waxman et aI.,
1980)
Husky Paris Valley Cyclic Gas-Steam Pilot (Meldau
et aI., 1981)
Petro-Canada PCEl Steam Stimulation Project
(Towson and Khallad, 1991)
Amoco Gregoire Lake In Situ Steam Pilot (Kular et
aI., 1989)
Chevron Keen River Steamflood Project (Oglesby et
al., 1982)
Esso Cold Lake Thermal Project (Mainland and Lo,
1983)
Athabasca Oil Sands Project
14.2.3 Recovery Mechanisms
Cyclic steam stimulation and steam flood recovery
mechanisms are as follows:
I. Reduction ofoil viscosity due to increased tempera-
ture
2. Steam pressure providing the drive energy for oil
to flow towards the producing well
3. Gravity drainage of the liquid phases (Denbina et
aI., 1987; Cardwell and Parson, 1949; Farouq Ali,
1982)
188
4. Thermal expansion ofoil providing energy for fluid
flow (Denbina et aI., 1987)
5. Reservoir compaction maintaining reservoir
pressure (Denbina et al., 1987)
6. Steam distillation causing the lighter hydrocarbons
to separate from the heavy ends and form a
miscible oil bank ahead ofthe steam front
14.2.4 Design Considerations
Screening guidelines have been developed by many
researchers (Adams and Khan, 1969; Belyea, 1956;
Boberg and Lantz, 1966; Buckles, 1979; Bums, 1969;
Crawford, 1971; Doscher, 1966; Gontijo and Aziz, 1984;
Prats, 1978; Shepherd, 1979; Williams et aI., 1980) in
order to define the reservoir and fluid properties under
which steam stimulation processes are most likely to be
economical. The following guidelines are based on the
results of some successful projects:
Formation thickness (m)
Depth (m)
Porosity (% PV)
Permeability (mD)
API gravity (degrees)
Oil viscosity at reservoir
conditions (mPa.s) < 15,000
Initial oil saturation (% PV) > 40
The mechanisms involved in a steam stimulation
process are very complex. Methods used to predict per-
formance are only approximate at best because of the
many simplifying assumptions that have to be made.
Nevertheless, there are certain prominent factors that
may affect the oil recovery in a steam stimulation pro-
cess: the volume of steam injected, steam quality,
injection pressure, and reservoir thickness. The amount
of heat injected determines the volume of heated reser-
voir and ultimately the percentage of oil recovery. A
thick pay zone is also desirable for effective gravity
drainage (Butler et aI., 1981; Dykstra, 1978). The depth
ofthe reservoir is another important factor. Deep reser-
voirs (2000-3000 m) may not be suitable for steam
stimulation, because of the large heat losses from the
wellbore. On the other hand, shallow reservoirs (200-
250 m) may not allow high enough injection pressures
to maintain reasonable steam injection rates and
provide sufficiently high steam temperatures for the
reduction of oil viscosity.
The well patterns most commonly used for the cyclic
steam stimulation process are the 5-spot and the 7-spot,
which allow the conversion of cyclic steam stimulation
.,-1
C.', !
I
_______________________a
> 50
6 to 20
100 to 500
>30
>500
< 25
5000 to I 000 000
ENHANCED RECOVERY BYTHERMAL STIMULATION
to steam flood later if desired. Single weIl tests
(Dillabough and Prats, 1974) are generally conducted
to obtain preliminary data on recovery potential, oper-
ating costs, and other design factors. Well spacing may
vary from 0.4 to 2 hectares. Infill drilling has also been
used to exploit developed heat zones and achieve early
inter-well communication. Another common practice in
commercial projects is to drill clusters ofdeviated wells
from a single well pad in order to optimize the use of
land and surface facilities.
14.3 STEAM FLOODING
. In the steam flood process, steam is injected into the
reservoir on a pattern basis, much like a waterflood.
Various well patterns, including the 5-spot and 7-spot,
have been employed. The injected steam reduces the
viscosity of the oil and provides the driving force
required to move the oil towards the producing wells.
In the application ofthe steam flood process to oil sands
deposits, it is essential to achieve flow communication
between the injector well and the producers prior to
flooding. Frequently, the wells are produced by steam
stimulation for a few cycles until communication
between wells has been established, and then steam
flooding is started. Other naturally existing communi-
cation paths in the oil sands deposits, such as bottom
water and high permeability layers, may provide valu-
able means of improving injectivity for effective
reservoir heating. Lack of steam injectivity may require
hydraulic fracturing ofthe wells before steaming.
Steam flooding with continuous steam injection can
recover significantly more oil (up to 50 percent) than
steamstimulation alone (10-25 percent). However, there
are disadvantages associated with steam flooding. It gen-
erally results in higher steam-oil ratios than cyclic steam
stimulation because of the much larger volume of res-
ervoir that must be heated before any significant oil
recovery is realized. The amount of reservoir heating
required in cyclic steam stimulation is confined to the
near-wellbore region, and oil production is therefore
realized much earlier.
14.3.1 Process Variation
A number ofadditives have been injected with steamto
improve the oil recovery by the steam flood process.
These additives improve the thermal and sweep effi-
ciencies of the injected steam by diverting it towards
the colder regions of the reservoir.
Patzek (1988) and others (Kular et al., 1989; Ploeg
and Duerkson, 1985; Sander, 1991; Suffridge, 1991;
Butler, 1986) have reported mixed success using a
variety of surfactants. CommerciaIly available
surfactants are now chemically stable at temperatures
up to 300C. However, the in situ behaviour offoam is
still not fully understood, and field tests (Kular et al.,
1989; Patzek, 1988; Sander, 1991) indicate that its propa-
gation in the porous medium is very slow. In most cases
the cost of surfactants offsets the possible benefits.
Field pilots have been conducted to test the injection of
gas atthe boundaries ofthe steamzone to improve steam
confinement and to maintain the pressure in the steam
zone. The injection of air with steam provides another
less expensive alternative to the use of surfactants. The
steam-air process works on the assumption that low tem-
perature oxidation produces coke particles that tend to
plug the pore throats and provide resistance to flow
(Ivory et al., 1991). Thus, steam is diverted to other parts
of the reservoir, and the result is an improved sweep
efficiency.
The following guidelines may be used to screen
reservoirs for potential steam flood applications.
However, these guidelines are only approximate as
geological heterogeneities specific to each reservoir
cannot be accounted for.
Depth (m)
Porosity (% PV)
Permeability (mD)
API oil gravity
Reservoir oil viscosity (mPa.s)
Initial oil saturation (% PV)
Recovery with steam flood is approximately 40 to 50
percent ofthe original oil in place, with steam-oil ratios
in the range of 5 to 7. The steam-oil ratios are depen-
dent upon the nature of the reservoir. Very deep
reservoirs (1200-1500 m) may be impractical for steam
flooding due to the excessive heat losses in the wellbore
and the very high steam pressure required at the sur-
face. The reservoir should be at least 6 to 10 metres
thick to minimize heat losses to the overburden and
underburden. Successful steam flood processes are gen-
erally in shallow (300 m) reservoirs having reasonably
high porosity (30-40 percent pore volume), permeabil-
ity less than I darcy, and oil saturation of 85-90 percent
pore volume.
Injection rates for steam flood are generally designed to
compensate for heat losses to the adjacent formations
while providing effective heating of the reservoir.
189
During pilot testing, steam injection rates should also
compensate for the heat flowing out of the pattern due
to the lack of steam confinement. Steam flood processes
are usuaIly started at high injection rates, which are later
optimized once steam gravity override or steam break-
through occurs (Myhill and Stegeimeier, 1978; Chu and
Trimble, 1975; Ali and Meldau, 1979; Bursell and
Pittman, 1975; Vogel, 1982; Belvins, 1978; Stokes,
1978; Van Dijk, 1968). Where fluid communications
have already been developed through cyclic stimula-
tion of the wells, injection rates can be optimized at
start-up.
However, many factors must be taken into account in
designing a steam flood process: the mineral content of
reservoir rock, the availability of fuel and water, the
analysis of crude oil, sand production, water disposal
wells, water treating requirements, production facilities
to handle hot fluids, emulsion treating, and transporta-
tion of heavy crude.
14.4 CAUSES OF FAILURE FOR
CYCLIC STEAM STIMULATION
AND STEAM FLOOD PROCESSES
The following reservoir and operating limitations may
cause the cyclic steam stimulation and steam flood
processes to become uneconomical:
Lack of Injectivity. Some oil sands deposits have
such a high saturation of bitumen that the steam has
great difficulty penetrating the highly viscous oil bank.
As a result, the steam tends to channel to the poorer part
of the formation, which has lower oil saturation and
higher water saturation. Clay swelling due to incompat-
ibility between the injected water and the formation
water may also limit steam injectivity.
Bottom Water. The term "bottom water" refers to sand
layers containing mobile water that account for more
than 20 percent of the formation thickness. Such bot-
tom-water layers are detrimental to the cyclic steam
stimulation process. Due to the much higher mobility
of steam in the water zone, most of the injected steam
will be lost to the water zone, resulting in very poor
thermal efficiency. During the production cycle, the cold
water is much more mobile than the bitumen and will
tend to be produced first. In addition, the cold water
will tend to cool the oil around the wellbore and reduce
the volume of the heated zone.
On the other hand, a thin bottom-water sand can be used
effectively to heat the formation. For example, the steam
stimulation process is very successful at the Peace River
Pilot (Waxman et aI., 1980) where the oil sand deposit
190
consists of a thin highly water-saturated zone near the
bottom of the formation and a fining upward sand
sequence. This results in good thermal efficiency and
high oil production rates.
Gas Cap. The presence of a gas cap will tend to
channel injected steam to the top of the formation, re-
sulting in excess heat loss and poor thermal efficiency.
However, the extent of the gas cap is a critical factor
especially if gravity drainage is the predominan;
production mechanism (Kular et a!., 1989). Blocking
agents may be used to improve the vertical sweep
efficiency (Sander, 1991).
Shale. The presence of a substantial and impermeable
shale layer near the middle of the formation may
prevent the rise of the steam zone, resulting in poor
volumetric sweep and heat efficiencies.
Thin Formation. Very thin formations may result in
excessive heat loss to the overburden and underburden,
leading to poor heat efficiency.
Lack of Steam Confinement. If the oil sand deposit
contains natural fractures (e.g., the Carbonate Trend in
northern Alberta), a significant fraction of the injected
steam may be lost. Poor steam confinement may sig-
nificantly reduce the energy available in the heated zone
to drive the fluids towards the producing well.
Low Porosity and Permeability. Some heavy oil
deposits such as oil shales have such low porosity (less
than 20 percent by volume) and low permeability (less
than 100 mD) that the steam injectivity may be seri-
ously limited. Hydraulic fracturing is required to exploit
such heavy oil deposits (Kular and Chinna, 1988).
Poor Reservoir. Due to the high initial capital invest-
ment and operating costs of the steam processes,
reservoirs with less than 40 percent oil saturation are
not likely to be economically recoverable by these
processes. _.
Shallow Reservoirs. Shallow reservoirs with insuffi-
cient overburden will tend to limit the steam injection
pressure, and thus reduce oil productivity.
Deep Reservoirs. Very deep reservoirs have such high
reservoir static pressure that the steam injectivity may
be limited. The oil sand deposits in Alberta generally
require fracturing before steam can be injected at a rea-
sonable rate. A deep reservoir means a higher steam
injection pressure, which requires the added expense of
high pressure steam generators. Also, deep reservoirs
cause excessive heat losses from the wellbore, resulting
in the injection of poor quality steam.
______________________1
Applying D' Arcy's law for conditions of gravity
drainage, the rate of oil displacement, qo' in m
3/d
from
the steam zone may be written as:
(2)
(4)
(5)
(6)
A(t) = (HiMrhD) f(x)
4 K o b ~ T
,2 2x I
f(x) =e (erfcx) +--
.,fit
2 x 2
erfcx = I - erfx = I -- Ie' dP
.,fit,
where A(t) = area of steam zone (rn-)
x = dimensionless parameter
[
Hi<P(SOi-SO,) ] (,2 C )
qo = e errcx
M r ~ T
where <P = porosity (fraction)
So; = initial oil saturation (fraction)
Sor = residual oil saturation (fraction)
~ T = temperature difference between steam
and initial reservoir
temperature (T, - To) (0C)
T
i
= injection temperature eC)
To = initial formation temperature (0C)
erf = error function
K,b = overburden thermal conductivity
(kJ/m/d/C)
~ T = injection temperature minus initial
formation temperature (0C)
D = overburden thermal diffusivity
(m2fh)
t = time (d)
P = time (d)
A = area of steam zone (m-)
M, = volumetric heat capacity of formation
(kJ/m
3
jOC)
h = pay thickness (m)
Marxand Langenheim's solution to Equation (I) is given
in Equation (2):
= 2f'[ K o b ~ T J(dA) dP +M,hdT dA (I)
o "ltD(t-P) dP dt
where Hi = constant heat injection rate (kJ/d)
Hi =heat loss + heat accumulation
14.5 FORECASTING MODELS
A number of options are available to engineers for
predicting the performance of thermal recovery
processes. These include numerical simulation models,
analytical models and simple correlation equations.
Ideally, reservoir simulation models will provide the
most accurate answer. However, these models cannot
be utilized in cases where only limited data is available.
Time and, to some extent, cost limitations may also work
against the use of numerical simulation models. As an
alternative, analytical models may be used quite effec-
tively for process design and forecasting oil recovery.
The analytical models for steam recovery processes are
generally divided into three types. Figure 14.5-1 illus-
trates the distribution of fluids as assumed in these
analytical gravity drainage models.
Frontal Displacement Model. This model assumes a
cylindrical steam zone, with displacement of oil over
the full thickness of the oil zone.
Steam Overlay Model. This model assumes that the
steam lies directly over the oil zone, and the principal
direction ofsteam zone growth is vertically downwards.
Conical Steam Zone Model. This model assumes that
the steam zone has the shape of an inverted cone. The
steam not only rises upward but also expands outward
due to heat conduction and the drainage of the heated
oil toward the wellbore.
Some of the most commonly used models for predict-
ing the production rates of the cyclic steam stimulation
and steam flood processes include those by Marx and
Langenheim (1959), Myhill and Stegeimeier (1978),
Vogel (1982), Butler (1986) and Butler et al. (1981).
The development and applications of these models are
presented in the following subsections.
14.5.1 Marx and LangenheimModel
Marx and Langenheim developed a frontal displacement
model in which the growth of the steam zone depends
on the rate of steam injection and the loss of heat to
the overburden and underburden. The heat balance
equation used in this model is written as:
191
::::::: Cold
Zone
Frontal Displacement Model
----------------------------------------------------------
::::::::::::::: Cold Oil Zone :::::::::::::::::::::::::::
.,' .
. Steam Zone:"
T
Steam Overlay Model

---

-'.
--------
---
0,' --::.::, ..
0 -::- <:
I _
c a,i.. :: - - - - c;L 0 __-_-

"',one e ;-::----
C,/.- P, 0',- - _ - -
.: - _-_,
. =-- 0\\:
-:. z.On
e
. J'-_-_ _-
<:- --::---
"'("-,,.- ---- -
-v-z>: _-::--
e 0/1,.::: _::.:: --
..- -
Q fl--
c
.:.:
Conical Steam Zone Model
" ......
, ,
, ,
, ,
, ,
, ,
, ,
, ,
, ,
\ 0;
_\ Q o'
__ -
- _-::_.-.. 0
:: - :: - -:: o
- --
__-_- \,,0
----
_ - __ - _ - _'0 0 0 ,.
----:::.-- _"0
-- ----- _-\ e
_- _- _-- _-\0 0
-- _- -- _-"\00
-::--::.-- 0 - -_-_::t..
-;:'-::::::::--
- - -
::::--
,
,
,
,
,
,
,
,
,
,
,
,
,
,
,
,
,
,
Source: After Gontlio and Azlz, 1984.
Figure 14.5-1 Types of Analytical Gravity Drainage Models
192
c
s, =1. (e
n
erfc-F,; +2 ~ - 1) (7)
t
n
n
The dimensionless time parameter, tD' is given by:
erfc = complementary error function
(Abramowitz and Stegun, 1964)
14.5.2 Myhill and Stegeimeier Model
Myhill and Stegeimeier presented an analytical model
using a simple energy balance to calculate the steam
zone size. This energy balance approach is based on the
assumption that the oil ultimately produced from both
steam stimulation and steam flood processes is propor-
tional to the steam zone volume. Other assumptions
made in developing the model are that the steam zone is
cylindrical in shape, and that the thermal properties in
the reservoir, the heat losses, and the steam injection
rates are constant. It is also assumed that the oil-steam
ratios of any thermal process can be expressed in terms
of a thermal efficiency term, E
hs,
that is defined as the
ratio of heat remaining in the steam zone to the total
heat injected (Figure 14.5-2).
(9)
t =
D
35 040 kh,M,t
yn
Z; (M
I
) '
(8)
where khz = heat conductivity of steam zone
(kJ/m/d/C)
M
2
= volumetric heat capacity of cap rock
(kJ/m
3
/
0C)
t)TS = time of injection (years)
Z, = gross thickness of reservoir (m)
M
1
= average heat capacity of steam zone
(kJlkg/C)
Figure 14.5-2 is a graph of the thermal efficiency,
E
hs,
vs. the dimensionless time, tD' which can be
used to estimate the thermal efficiency of the steam
processes (Prats, 1986). The ratio, h
D,
oflatent heat to
total energy injected is given by:
f"L,
h = ---:=.....:...-
D CwLlT + 1
where f
sd
= downhole steam quality (fraction)
L, = latent heat of vapourization of steam
(kJlkg)
LlT= injection temperature minus initial
formation temperature (0C)
Ifthe thermal efficiency and enthalpy ratios are known,
it is possible to calculate the maximum oil-steam ratio,
OSR, using the following equation:
100 10 0.1
-
\ -
<,
""'"
h
D
is the ratio of latent heat to
I\.
'\
-,
I::-..
total energy injected
-,
-,
-,
I\-
-,
l-,
-,
I'\.,
~
-,
i'--
-,
<,
-::::
l-,
0.667
-,
.,f;o.
' I
0.5
<,
, , ~
<,
<,
r---...
<;
, o . ~
-
<,
~
- ~
<;
r::::
::::
---
0.091
----
--
0
0.0
0.01
1.0
.
~
w
oj 0.8
c:
~
E
'"
c7J 0.6
'0
1>'
c
Q)
'0 0.4
ffi
'iii
E
~ 0.2
I-
Snurce: After Prats, 1969.
Dimensionless Time, t
D
Figure 14.5-2 Thermal Efficiency of Steam Zone as a Function of the Dimensionless Time Parameter
193
14.5.3 Vogel Model
Vogel's steam overlay model is based on ultimate heat
requirements determined from simple two-dimensional
heat flow equations. The total heat requirement is equal
to the sum of the heat lost from the reservoir, the heat
conducted to the produced fluids, and the heat that
remains in the steam zone.
The heat requirement, Q,o,al' is given by:
where Pw = density of water (kg/m')
C; = specific heat of water (kJ/kg/C)
h
o
= ratio oflatent heat to total energy
injected
= thermal efficiency (fraction)
q> = porosity (fraction)
dS = difference between steam temperature
and initial reservoir temperature CC)
Z, = net thickness of reservoir (m)
Z, = gross thickness of reservoir (m)
condensate and heated oil flow by gravity to a horizon_
tal production well located at the bottomofthe chamber
and are removed continuously. The expression for the
oil drainage rate, Q, is based on the gravity drainage
theory and is given by:
14.6 IN SITU COMBUSTION
PROCESSES
(I 2)
my,
2q>S,kgo.h
Q=2
where Q oil drainage rate (ml/d/m length of
horizontal well)
q> = porosity (fraction)
So = initial oil saturation (fraction)
k = effective permeability to oil (um")
g = gravitation constant (9.81 m/s")
a. = thermal diffusivity of reservoir
material (rnvd)
h = pay zone thickness (m)
m = bitumen viscosity exponent
(usually = 3)
v, = kinematic viscosity of oil at steam
temperature (m
2
/d)
(I 0)
PwCw(l + h
D
) E"q>dS
OSR= I
M,
where A
h
PsC,
x,
Q"", = Ah (p,C,)<lT + t + 2K,A<lT- fI
1tet I "'Iitii;
(II)
= project area (m")
= thickness of steam zone (m)
= heat capacity (kJ/mlfOK)
= thermal conductivity of overburden
(kJ/m/K/d)
= time (d)
= thermal diffusivity of overburden
(m
2
/d)
K
2
= thermal conductivity of underburden
(kJ/m/K/d)
0.
2
= thermal diffusivity of underburden
(mvd)
14.5.4 Butler Model
The conical steam zone model developed by Butler
(Butler et al., 1981; Romney et al., 1991; Dugdale, 1986)
is based on the assumption of continuous steam injec-
tion into a growing steam-saturated volume or chamber.
Steam flows to the boundary ofthe chamber, condenses,
and gives up its heat to the surrounding oil sands. The
In a combustion process, air is injected into one well
and the formation is ignited. As the burnt front moves
through the reservoir, a portion of the bitumen is con-
sumed as fuel and combustion gases and steam are
generated. These hot fluids raise the temperature and
reduce the viscosity ofthe bitumen, which is then driven
towards the production wells.
In situ combustion projects in Canada and the United
States include the following:
PetroCanada Viking-Kinsella Wainwright B Oxygen
Fireflood Pilot (Dugdale, 1986; Dugdale et al., 1985)
Panf'anadian Countess Fireflood Pilot (Metwally,
1991)
BP Cold Lake Pressure-Up Blow-Down Wet
Combustion Pilot (Mehra, 1991)
Murphy Eyehill In Situ Combustion Pilot
(Farquharson and Thornton, 1985)
Amoco Athabasca In Situ Combustion Project
(Jenkins and Kirkpatrick, 1979)
Mobil Kern County South Belridge In Situ
Combustion Project (Gates et al., 1978)
Home Oil Silverdale Water Alternating Gas Project
(Hanna, 1987)
194
- ..a
Texaco Caddo Pine Island In Situ Combustion Pilot
(Horne et al., 1979)
14.6.1 Recovery Mechanisms
The following are the major recovery mechanisms of
the in situ combustion process:
Oxidation of Crude. The temperature at which
oxidation takes place depends on the concentration of
oxygen. High-temperature oxidation uses up the
oxygen and generates heat. Low-temperature oxida-
tion promotes the formation of fuel and spontaneous
ignition.
Thermal Cracking. Thermal cracking or pyrolysis of
the crude generates light hydrocarbons and leaves coke
behind as fuel.
Steam Distillation. Steamgenerated by oxidation at the
combustion front evaporates the light hydrocarbons from
the crude. These are displaced ahead of the steam front
to form an oil bank.
Steam Drive. Steam provides the energy to drive the
heated oil ahead of the combustion front.
Thermal Expansion. Thermal expansion of crude,
combustion gases, and light hydrocarbons also provide
the driving force to drive the heated oil towards the
production well.
Gravity Override. Steam, combustion gases, and light
hydrocarbons are lighter than the crude oil and tend to
rise to the top of the formation, bypassing some of the
crude oil in the middle or lower part of the formation.
Viscosity Reduction. Heat generated by combustion
raises the temperature ofthe formation and significantly
reduces the viscosity of the crude.
14.6.2 Process Variations
Although the in situ combustion process is more
energy-efficient than cyclic steam stimulation or steam
flood and can be used in thinner pay zones, the heat
efficiency of the dry combustion process is still very
low. About 70 percent ofthe heat generated at the high
temperature combustion front is left in the burnt zone.
The following modifications are required to improve
the heat efficiency of the dry combustion process:
Thermal Wave Process. This technique involves the
dilution of the injected air with combustion flue gas to
increase the heat capacity of the injected air.
Combined Thermal Drive. This is a wet combustion
process designed to improve the sweep efficiency
and reduce the volume of air required. It involves the
simultaneous injection of air and water and results in
lower air requirements and higher oil recovery. Field
results show that the simultaneous injection of air and
water is more effective than the injection of a slug of
water following air injection. The most important
consideration in this process is to ensure that sufficient
water is injectedfor conversion to steamwithout quench-
ing the combustion. The required water-air ratio (WAR)
for a given reservoir is calculated from a material and
heat balance.
Combination of Forward Combustion and Water-
flooding. In this process, referred to as COFCAW, the
water-air ratio is high enough to quench the combus-
tion. Lowtemperatureoxidation occurs inthe steamzone
to maintain the steam temperature.
Steam Stimulation Followed by Wet Combustion. In
reservoirs containing a very viscous crude oil (i.e., bit-
umen), the mobility of the crude is too low to allow
economic production rates for the combustion process.
Cyclic steam stimulation has been used in a number
of fields to increase the mobility of the crude, create a
communication path between wells and allow the com-
bustion front to move towards the production well more
rapidly.
Enriched Air Combustion Process. Oxygen-enriched
air and pure oxygen are being used in this process. The
following are the potential advantages of using pure
oxygen instead of air:
High displacement rate
Lower gas injection volumes resulting in fewer
operating problems for the compressor
Increased mobility of the cold oil due to the dissolu-
tion of carbon dioxide in the oil
Higher recovery factors
Larger well spacing, which reduces the infill drilling
Flammable produced gases may be separated and
used as fuel
An alternative to this process is to gradually increase
the oxygen content of the air from about 30 percent to
95 percent. Laboratory results show that the injection
of 99.5 percent oxygen should result in a combustion
gas primarily composed of carbon dioxide. This may
reduce the oil viscosity and cause some swelling of the
crude.
Factors influencingthe selection of well patterns include
the reservoir dip angle and the utilization of existing
wells. Because of the high mobility of air compared to
that ofoil, usually a few injection wells are sufficient to
195
3 to 15
< 3500
> 35
> 100
10 to 35
< 10,000
> 10
Sand or sandstone
and carbonates
with high porosity,
no gas cap or
bottom water
sustain the fireflood with a large number of production
wells.
In situ combustion pilots usually experiment with
different well patterns and spacings. The inverted 9-spot
pattern, inverted 7-spot pattern, confined 5-spot pattern,
line drive, and single well injection have all been com-
monly used. For example, Amoco's in situ combustion
pilot (Jenkins and Kirkpatrick, 1979) in Athabasca
started with a two-well test with a distance oDO m (100
feet) between the wells. Then different well patterns,
ranging from a 0.2 ha (1/2 acre) 5-spot to a 4 ha (10
acre) 9-spot, and finally a 1 ha (2.5 acre) 5-spot, were
tested.
The design criteria for in situ combustion processes are
as follows:
Depth (m)
Porosity (% PV)
Permeability (mD)
Oil gravity ( degree API)
Initial oil viscosity (mPa.s)
Initial oil saturation at
reservoir conditions (% PV)
Type of formation
14.6.4 Causes of Failure
An in situ combustion process may fail for any of the
following reasons:
1. Lowoil saturation in the formation may not deposit
enough fuel to support combustion. Incomplete
oxygen consumption due to the lack offuel or early
break-through of combustion gases at the produc-
tion well may limit inflow into the wellbore and
cause reduced pump efficiency.
2. Low air injectivity may be caused by a water zone
near the wellbore, formation plugging, or oil drop-
lets present in the compressed air. Low permeability
zones in the formation also cause problems in the
removal of the combustion gases, which consist
mainly of nitrogen and carbon dioxide.
3. Reservoir heterogeneities that cause channelling and
leaking of the injected air from the burnt zone will
result in poor sweep efficiencies.
4. Lowgravity oils characterized by high fuel content
may require a large volume of air for combustion.
196
5. Explosions could occur in injection lines, injection
wells, and air compressors. Tubulars may be
destroyed by high temperatures due to the break-
through of fire front at the production well or
backburn at the injection well. Corrosion may
reduce the life of pumps and surface facilities.
6. Tight emulsions are often created during in situ
combustion. Emulsified fluids cause rod fall prob-
lems and high flowline pressure because of their
high viscosities. The operation of the skim tanks
and separators may be affected because the tight
emulsions are very difficult to break.
7. Sand production problems caused by large volumes
of combustion gases may result in operating and
erosion problems in pumps and surface equipment.
Severe gas locking may also lead to dry stroking
and will accelerate pump failure due to the lack of
lubrication.
14.7 ELECTROMAGNETIC HEATING
Two different methods of electrical stimulation have
been field-tested in Canada. Both use the reservoir as a
resistive element that heats up as electrical power is ap-
plied. This reduces the oil viscosity, thus improving oil
production rates. In the first method (Romney et aI.,
1991), electrical current at a frequency of 60 Hz is de-
livered from one well to another. In the second method,
a single well acts as the electrical injector and ground
return well. This model has been applied to a number of
field tests both in Canada and worldwide, with varying
degrees of success. The mechanics ofthe second method
require electrical current to be transmitted through
the formation-pay zone and back up the production
casing. Short-circuiting is prevented by using non-
conductive materials on the casing and production
strings. Romney et al. (1991) discusses the design of
single well electromagnetic stimulation in detail.
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Steam Soak Operations." Petroleum Industry
Conference on Thermal Recovery, Los Angeles,
CA, Jun. 1966, pp. 76-80.
Dugdale, PJ. 1986. "Comparison of Recovery and
Economics For Oxygen and Air Fireflood in
Canadian Heavy Oil Areas." Paper presented at
SPE-DOEFifth Symposium on Enhanced Oil
Recovery, Tulsa, OK, Apr. 1986, SPEIDOE
14921.
Dugdale, PJ., Fabes, L., Saizew, H., and Khallad, K.
1985. "Design and Operation of the Viking-
Kinsella Wainwright B Oxygen Fireflood Pilot."
Paper presented at the South Saskatchewan
Section CIM Petroleum Conference, Regina, SK,
Sep.1985.
Durrant, AJ., and Thambynayagam, C. 1980.
"Wellbore Heat Transmission and Pressure Drop
for SteamlWater Injection and Geothermal
Production: A Sample Solution Technique." SPE
Reservoir Engineering, Mar. 1980, pp. 148-162.
Dykstra, H. 1978. "The Prediction of Oil Recovery by
Gravity Drainage." JPT, May 1978, p. 818.
Farouq Ali, S.M. 1981. "A Comprehensive Wellbore
Steam/Water Flow Model for Steam Injection and
Geothermal Applications." SPEJ, Oct. 1981, pp.
527-534.
---. 1982. "Elements of Heavy Oil Recovery."
Course notes (copyright 1982), University of
Alberta, Edmonton, AB, pp. 47-60.
Farquharson, R.G., and Thornton, R.W. 1985.
"Lessons From Eyehill." Paper presented at the
First Annual CIMTechnical Meeting, South
Saskatchewan Section, Regina, SK, Sep. 1985.
Fontanilla, J.P., and Aziz, K. 1982. "Prediction of
Bottom-Hole Conditions for Wet Steam Injection
Wells." JPT, Mar. 1982, pp. 80-88.
Gates, C.F., Jung, K.D., and Surface, R.A 1978. "In
Situ Combustion in the Tulare Formation, South
Belridge Field, Kern County, CA." JPT, May
1978, pp. 798-802.
Gontijo, J.E., and Aziz, K. 1984. "A Simple
Analytical Model For Simulating Heavy Oil
Recovery by Cyclic Steam in Pressure Depleted
Reservoirs." Paper presented at SPE Annual
Technical Conference and Exhibition Houston , ,
TX, Sep. 1984, SPE 13037.
197
Hanna, M. 1987. "The Silverdale Water Alternating
Gas Project." Paper presented at the First Annual
CIM Technical Meeting, South Saskatchewan
Section, Regina, SK, Oct. 1987.
Horne, J.S., Bousaid, I., Dore, T.L., and Smith, L.B.
1979. "Initiation of an In situ Combustion Project
in a Thin Oil Column Underlain by Water." JPT,
Oct. 1979, pp. 2233-2245.
Ivory, 1., Derocco, M., and Scott, K. 1991.
"Comprehensive Analysis of the Mechanisms by
which Air Improves Bitumen Recovery in Steam
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Jenkins, G.R., and Kirkpatrick, J.W. 1979. "Twenty
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Kular, G.S., Lowe, K., and Coonibie, D. 1989. "Foam
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Technical Conference and Exhibition, San
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Mainland, G.G., and Lo, H.Y. 1983. "Technology
Basis for Commercial In situ Recovery of Cold
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Marx, 1.W., and Langenheim, R.W. 1959. "Reservoir
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216, p. 312.
Mehra, R.K. 1991. "Performance Analysis of In situ
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SPE International Thermal Operations
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"Cyclic Gas/Steam Stimulation of Heavy-Oil
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Thermal Operations Symposium, Bakersfield,
CA, Feb. 1991, SPE 21536.
198
Myhill, N.A., and Stegeimeier, G.L. 1978. "Steam
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1978, pp. 173-182.
Oglesby, K.D., Belvins, T.R., Rogers, E.E., and
Johnson, W.M. 1982. "Status of the l O-Pattem
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---. 1978. "Current Appraisal of Thermal Recov-
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-----.1986. ThermalRecovery.SPE
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"A Preview of Ari Electromagnetic Heating
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g
Van Dijk, C. 1968. "Steam Drive Project in the
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1449.
199
Chapter 15
ENHANCED RECOVERY
BY CARBON DIOXIDE FLOODING
15.1 INTRODUCTION
Carbon dioxide flooding, in both the miscible and
immiscible modes, is one of the most widely used
enhanced oil recovery techniques today. There are over
forty carbon dioxide floods in operation throughout the
world. In Canada, several pilot and experimental floods
have been tried or are currently in operation. In addi-
tion, single-well "huffand puff' stimulations have been
tried in various fields. Carbon dioxide flooding has now
been proven in both the laboratory and the field as a
viable technology when applied to selected reservoirs.
Carbon dioxide flooding may be in miscible, near-
miscible or immiscible modes and may be implemented
before, in combination with, or post-waterflood.
Completely miscible (low tension) processes are usu-
ally considered those in which recoveries ofgreater than
90 percent occur in slim tube tests and in which there is
no visible two-phase flow in lab tests.
Carbon dioxide (C0
2
) is a very powerful vapourizer of
hydrocarbons and, as a dense-state gas, it possesses a
dissolving power for light to intermediate petroleum
fractions that is superior to hydrocarbon, nitrogen or
flue gases. This dissolving power can be utilized for in
situ fractionation of oil to develop high concentration
banks of light and intermediate components that have
high displacement efficiencies (up to 95 percent) and
lower minimum miscibility pressures (MMP). Miscible
carbon dioxide floods may also recover oil beyond low-
tension effects because ofthe extraction of components
from nonmobile oil in heterogenous rock.
Immiscible carbon dioxide gas drives are useful for both
oil and condensate reservoirs because of the effects of
swelling, viscosity reduction, vapourization, and effi-
cient gravity drainage. Medium heavy oils that may not
waterflood well and that have high intermediate frac-
tions may also be candidates for immiscible flooding.
Some evidence also exists that oil- carbon dioxide mix-
tures may improve waterflood behaviour by resulting
in phases that are rich in resins and asphaltenes. These
may stabilize fines and clays and alter wettability.
200
The following are crucial for determining reserves and
evaluating a carbon dioxide flood:
The availability and cost of the CO
2
supply
The classification of the process as miscible or
immiscible for recovery purposes
The efficiency ofthe process in termsofunits ofCO
2
injected for each incremental unit of oil recovered
(utilization rate)
In Canada, the use of carbon dioxide has been limited
by the location, size, and development and transporta-
tion costs ofthe CO
2
supplies. The use of hydrocarbon
light ends for miscible floods has been preferred in the
past because of low prices, proximity, oversupply, and
government incentives.
15.2 PROCESS REVIEW
The three classifications of carbon dioxide floods are
miscible (including near-miscible), immiscible, and
carbonated waterfloods. The latter are not currently of
interest.
Miscible processes are the most common and are
characterized by phase behaviour effects that cause a
stable miscible bank with microscopic displacement
efficiencies near 100 percent. In comparison with
waterflooding, this increase in displacement efficiency
more than. offsets the adverse mobility ratios between
the CO
2
and the oil, especially if gravity effects, alter-
nating water gas injection, or horizontal wells can be
used to advantage.
Miscible and near-miscible processes are typically
implemented in reservoirs containing oils with API
gravities greater than 27, with reservoir temperatures
less than 105C(220F) and pressures greater than 9650
kPa (1400 psi). Miscibility pressures decrease as t?e
C2-CI 0 fraction of the oil increases, and increase With
decreasing API oil gravity and with reservoir tempera-
ture. Miscibility pressures typically range from 26 200
to 9650 kPa (3800 to 1400 psi) as API gravity increases.
c
ENHANCED RECOVERY BYCARBON DIOXIDE FLOODING
Miscibilitywith oils having API gravities less than 27
have alsobeen reported. For these low-gravityoils, es-
timates of MMP become scattered, but range from a
lowofl4 620 kPa (2120 psi) to over 27600 kPa (4000
pSI). If carbon dioxide is available, it is often the "sol-
vent of choice" for miscible flooding because it is a
powerful extractor of intermediate components from
crudeoil andcanleadtoa reductioninMMPof as much
as 6900 kPa (1000 psi).
Displacement efficiencies for the miscible process in
laboratory core floods with connate water saturations
are over 95 percent of the original oil in place (OOlP).
Lab tests on waterflooded cores may recover 70
percent of the residual oil in place. In field applica-
tions implemented before waterflooding, overall oil
recoveryfactorstypically vary between 45 and 65 per-
cent for horizontal floods and 55 and 90 percent for
vertically directedgravitystable floods.
For miscible CO
2
flooding in the tertiary mode, from
20to 30percent ofthe residual oil towaterfloodmaybe
recovered in horizontal floods. In vertically directed
floods, the presence of water may inhibit fingering and
aid the areal spread of CO
2
, resulting in recoveries of
40 to 70 percent ofthe residual oil.
Immiscibleprocesses are generally less favoured than
miscible processes where a choice is possible. In the
immiscibleversion of the process, mass exchange be-
tween the oil and the injectedCO
2
, while not sufficient
to cause a 100 percent flush of oil, may result in dis-
placement efficiencies that are higher than either
waterflood or inert gas flood. However, as a rule of
thumb, immiscibleprocessesare chosenfor lowergrav-
ity oils in the 1824 API range at temperatures where
swelling andviscosity reductionareconsidered themain
recoverymechanisms.
15.3 RECOVERY MECHANISMS
The following mechanisms contribute to enhanced
recoveryby the use of carbon dioxide flooding:
Viscosity Reduction, which improves the flow
characteristics of the oil and improves the mobility
ratio in the flood
Swelling, whichreducesthe amount of stocktankoil in
the residual oil saturationand may improvethe relative
permeabilityto oil
Reduction in Interfacial Tension (1FT), which
allowsthe oil tobe releasedfromthe rock; ina miscible
flood, the 1FT is reducedtobelow0.1 dynes/em, allow-
ing displacement efficiencies of over 90 percent, but
significant reductions in 1FT can also occur in immis-
cible CO
2
floods
which is especially
In oils that have high percentages of
intermediate componentsthat can be extractedinto the
CO
2
phase; the amount of 1FTreduction that occurs is
increasedand the MMP is lowered; extraction also al-
lows the recoveryof a portion of the nonswept oil
Dissolved Gas Drive, in which the dissolved CO will
help recoveriesin the blowdownphase of the flood
Injectivity improvements can also occur because of
removal of oil saturation around the wellbore and
because of interaction between the carbon dioxide and
the rock.
15.4 DESIGNCONSIDERATIONS
15.4.1 Phase Behaviour
The recoveryof oil by carbondioxidefloodingis highly
dependent upon the phase behavior between carbon
dioxide, water and oil. The phase behaviour strongly
affectsfluidflowby alteringmobilityratios, interfacial
tensions, relative permeabilitity, and rates of mass
transfer mixing.
Carbondioxideinthe densegas state is a verypowerful
dissolverfor light andintermediate petroleumfractions.
The extraction and concentration of these fractions is
highlypressure-dependent and causes the formation of
a stable miscible or near-misciblebank. Typically, the
pressures required for the MMP are 10 350 to 13 800
kPa (1500 to 2000 psi) lower than for a methane high-
pressure gas drive.
In reservoirs withlowerpressuresandtemperatures, the
process is more complex as more phases develop.
Miscibilitymay not occur, but there will be significant
benefits due to a reduction in 1FTand viscosity, and
swellingand solutiongas effects.
15.4.2 Displacement Efficiency
The estimation of the microscopic sweep for gas or
solvent drives inreservoirswith lowor immobilewater
saturations is usually based on measured or simulated
oil recoveries that are obtained from multiple contact
displacement tests in composite cores or tubes packed
with sand (slim tubes). In reservoirs that have been
previouslywaterflooded, or where connate water satu-
rations aremobile, corefloods mayberequired toensure
that the oil is not shielded fromthe CO
2
in high water
saturationzones.
The choiceof an optimumfloodingpressure or solvent
composition is usually estimated from correlations
201
based on a combination of calculated and measured
laboratory data. In floods where shielding does occur,
optimum operating pressures may be lower than MMPs
measured by slim tubes. For CO
2
floods, the decisions
should also take into account questions such as possible
reduction of injectivity by precipitation of heavy ends
and potential flow interference effects that could ben-
efit the sweep efficiency in partially miscible floods, as
well as the presence or absence of mobile water or gas
saturations.
15.4.3 Volumetric Sweep Efficiency
Miscible processes, including CO
2
floods, unfortunately
can suffer from poor volumetric sweep efficiencies
as a result of the high mobilities of the low viscos-
ity solvents (less than 0.1 mPa.s) and chase gases.
Unfavourable mobility ratios coupled with reservoir
heterogeneities can be disastrous to miscible flood pro-
cesses that rely on maintaining the integrity of small
slugs ofsolvent during the course ofthe flood, not only
because low volumetric sweep efficiencies may result,
but also because fingering may cause premature
dissipation of the slug and result in greatly diminished
displacement efficiency between the (immiscible) chase
gas or water and the reservoir oil.
Techniques used to improve the volumetric sweep
efficiency of miscible floods include alternate gas-
water injection (WAG), presolvent water injection
to reduce permeability contrasts, infill drilling to alter
patterns, and blocking and diverting agents.
Various short-cut methods of estimating volumetric
sweep efficiency may be used by considering areal and
vertical sweep efficiencies separately. Afinal design will
require more sophisticated numerical models. The esti-
mation of sweep efficiency considerations for CO
2
floods is similar to that for other floods.
Areal sweep efficiency is a function of the mobility
ratio (relative permeability, viscosity ratio), permeabil-
ity trends, saturation distributions, well pattern effects,
solvent throughput, and production rates. In vertically
directed floods, areal sweep is also affected by density
ratios between carbon dioxide, oil, gas, and water.
Vertical sweep efficiency is often a result of stratifica-
tion in the reservoir rock in a direction parallel to the
main flow direction. The strata are swept in order of
descending permeability sequence, with the lowest per-
meabilitybeing unswept at the project termination. Other
causes of poor vertical sweep include gravity override
or underride in reservoirs with little or no stratification.
202
15.4.4 Slug Sizing
Carbon dioxide floods may be operated with essentially
horizontal displacement or, in high dip or reef reser-
voirs, with gravity stabilization. In either case, the
process usually entails the injection of a slug of CO
followed by or co-injected with water or flue gas. T h ~
volumes of CO
2
necessary for a particular application
depend on the level of gravity stabilization during dis-
placement. For gravity stable floods, the slugs of CO
2
range in size from 10 to 20 percent hydrocarbon pore
volume (HPV). In horizontal floods, the slug sizes may
range from 20 to 60 percent HPV depending on factors
such as water saturation, heterogeneity,well patterns and
spacing. A typical formation volume factor for CO
2
at 20 690 kPa (3000 psi) and 60 C (140 OF) is 266
m
3/res.
m
3
(1500 scfper reservoir barrel).
15.5 RESERVE EVALUATION
In reserves evaluation the following are important
considerations with respect to carbon dioxide flooding:
I. The availability and cost of the supply must be
evaluated. Carbon dioxide is available from natural
sources, from fertilizer plants, and as a combustion
by-product (such as from electric power generation
plants). The use of carbon dioxide in Canada has
been limited by the location, size, and development
and transportation costs of the CO
2
supplies. It
is important to consider the following when
evaluating a supply:
The maximum available rates and total volumes.
Contract terms: length, price escalators, perfor-
mance clauses, and royalty payments.
The reliability ofsupply and availabilityofbackup
or alternative volumes.
Purity: nitrogen and methane will raise the MMP,
and propane, butanes and H
2S
will lower it.
Combustion by-products like oxides may have to
be removed to avoid corrosion.
The capital required to develop the source of
carbon dioxide. Dehydration and compressionwill
be needed for a raw source, and the removal of
combustion products is expensive.
Transportation costs: These are a limiting factor,
either as pipeline length (capital cost) or as truck-
ing costs. Generally, trucking is practical only for
small pilots, one-well huff-and-puff, small slugs
such as a small vertical scheme, or as a short-term
supplement to lower cost supplies.
..
'ilt'
c
ENHANCED RECOVERY BYCARBON DIOXIDE FLOODING

2. The viability and the estimation of economically
recoverable reserves for a CO
2
flood depend on the
combinations of the following relationships:
The cost of CO
2
vs. the netback price received
for the oil
The CO
2
utilization or flood efficiency, i.e., the
amount of CO
2
injected to recover each incremen-
tal unit of oil-estimated values range from 530
to 2670 mJ/m
J
(3 to 15 mcflbbl)
The incremental production rates-the amount
and timing of the oil production vs. the capital,
the operating and injection costs, and the timing
The recovery efficiency depends on the following:
The oil composition and type-these affect
miscibility and the recovery mechanisms
The stage of the flood-the CO
2
injection can
occur before, during or after the waterflood
The normal factors that affect all floods, e.g.,
water saturations and geology
Some particular situations that may cause problems
with CO
2
floods are reservoirs with large gas caps
and water legs, depleted pools, zones with high per-
meability streaks, and low permeability reservoirs
with lower gravity asphaltic crudes.
3. Incremental production rates are more difficult to
accurately forecast than recovery factors for many
EOR projects and, especially, early in the life ofthe
project. The base production rates may be affected
by such factors as wellbore problems, injectionrates,
permeability streaks, break-through, recompletions,
and infill drilling. Computor simulators improve the
ability to handle all the variables, but may not sig-
nificantly improve the accuracy of the forecasts.
Good lab test results should be used in the simula-
tors to help define the effects the recovery processes
will have on the incremental production rates as well
as on the overall recovery factors.
4. To obtain the highest recovery efficiency, it is
important to provide the maximumcontact between
the oil and the CO
2
(both timewise and areally). The
earlier in the life of the pool that the CO
2
can be
injected, the higher the target oil saturation will
be and the lower the potential water blockage.
Provisions to increase the conformance, such as
alternate gas-water injection and diverting agents,
may be necessary.
Injectors and producers should be equipped, if
possible, to shut off high permeability zones, and
producers should be able to handle sporadic slugs
of gas (high and low gas-oil ratios).
5. Gas or miscible floods such as CO
2
floods can
be subject to early break-through, so provisions
should be made for the separation and re-injection
of the produced or break-through CO
2
, The
re-injection may also reduce the overall CO
2
require-
ments, especially if the pool is being flooded in
stages, and it will provide the maximum contact time
with the oil over the life of the flood.
6. Corrosion is a major problem in CO
2
floods. In
producers, the CO
2
can make metal water-wet and
accelerate corrosion by stripping off the protective
filmofoil. Also, water and CO
2
form carbonic acid,
which is corrosive. Chemical inhibitors and coated
tubing should be used. Injected CO
2
should be
handled in a dry state as much as possible and if a
WAG (alternating water and gas injection) is being
used, an alcohol slug should be used between the
water and the CO
2
to clean up and dry out the
injection lines and tubing.
7. Carbon dioxide flooding can cause asphaltenes to
precipitate from the crude oil and result in plugging
in the formation, downhole equipment and surface
treating facilities. This problem would require a
flush-squeeze treatment with an aromatic solvent
such as toluene to restore production or injection.
In some floods, calcium carbonate plugging at the
high water cut production wells is a problem. This
can be treated with acid jobs and the injection of
scale inhibitors.
8. Because carbon dioxide is a "greenhouse gas,"
possible goverrunent incentives may improve the
viability of a project.
15.6 FIELDAPPLICATIONS
More than forty miscible and immiscible CO
2
pilot,
experimental, and mature field applications are in
operation worldwide. Several noteworthy ones are
described here.
The Wertz Tensleep Miscible CO
2
Project
This project was undertaken in a reservoir in Wyoming
that had previously been waterflooded to 45 percent of
OOIP. The recovery of an estimated additional 10
percent incremental oorp (or 22 percent of remaining
oil in place) has been attributed to the injection of
CO
2
and water to repressure to above MMP, and the
drilling ofnew injectors and producers at key locations.
Carbon dioxide utilization is estimated at 2500 m
J/m3
(14 mcflbbl).
203
The SACROC Miscible CO
2
Flood
This project in Texas is one of the earliest and largest
applications of miscible CO
2
flooding in the world.
Despite many pioneering difficulties, including con-
troversy regarding the MMP, this flood continues. It
is expected to yield incremental recoveries of 7.5 per-
cent OOIP in selected sections of the pool with CO
2
utilization of 1780 m
3/m3
(10 mcflbbl) of incremental
oil.
The Lick Creek Meakin Sand Immiscible CO
2
Flood
This immiscible version of the process has used a
combination of cyclic stimulation, continuous CO
2
injection, alternating water and CO
2
, and continuous
water injection to recover the 160 mPa.s reservoir oil.
This project in Arkansas is currently working well and
is anticipated to yield an incremental recovery of 13
percent OOIP with CO
2
utilization of roughly 1780
m
3/m3
(10 mcflbbl).
The Hansford Marmaton CO
2
Flood
This project was initiated in an immiscible mode in
a pressure-depleted reservoir containing a secondary
gas cap. Recovery from primary was estimated at 13
percent OOIP. After the reservoir was repressured,
204
DETERMINATION OF OIL ANDGAS RESERVES
miscibility was developed, and a further 9 percent of
OOIP was recovered during an 8-year period with an
estimated utilization of 1246 to 1780 m
l/m3
(7 to 10
mcflbbl).
The literature contains textbooks and papers that
contributeto the understanding ofcarbon dioxide flood-
ing (Holm, 1982; Mungan, 1981, 1982; Stalkup, 1978;
Klins, 1984).
References
Holm, L.W. 1982. "C0
2
Flooding: Its Time Has
Come." JPT. Dec. 1982, pp. 2739-2745.
Klins. M.A. 1984. Carbon Dioxide Flooding - Basic
Mechanisms and Project Design. International
Human Resource Development Corporation,
Boston, MA.
Mungan, N. 1981. "Carbon Dioxide Flooding-
Fundamentals." JCPT. Jan.-Mar. 1981, pp. 87-92.
---. 1982. "Carbon Dioxide Flooding -
Applications." JCPT. Nov.-Dec. 1982, pp.
112-117.
Stalkup, F.r. 1989. "Carbon Dioxide Flooding: Past,
Present, and Outlook for the Future." JPT. Aug.
1978, pp. 1102-1112.
------------------------.rtia
Chapter 16
RESERVES ESTIMATION FOR HORIZONTAL WELLS
16.1 INTRODUCTION
wells provide an alternative way of draining
. 011 and gas from a pool. They allow drainage from a
larger reservoir volume (than vertical wells in the same
setting), along with production at increased rates or
reduced pressure drawdown.
Various performance analyses and theoretical studies
have shown that in certain situations, horizontal wells
can yield significantly higher (more than three times)
oil rates and reserves than vertical wells; however, they
also entail higher drilling, completion, and workover
costs. Althoughto date, the technical andeconomicsucc-
ess of horizontal wells has ranged from spectacular to
very disappointing, there is a growing consensus about
their potential to provide significant additions to the
world's oil and gas reserves (up to 2 percent of the
initial in-place volumes).
The most popular uses of horizontal wells have been
in offshore operations, pools that are prone to coning,
naturally fractured reservoirs, medium- to heavy-
gravity pools, low productivity pools, and waterflood
or enhanced oil recovery. In many cases, in addition to
an increase in the drainage area, the recovery factors
are alsoimproved. Froma recent study of Canadianhori-
zontal wells, it has been concluded that the profitability
of horizontal wells is directly linked to the reserves
drained. The increased production rate helps to offset
the increased cost of placing the horizontal wells
(Bowers and Bielecki, 1993).
Other factors, such as heterogeneities, damage, and
lateral pressure drops within the well, may retard drain-
age, andoffset the advantages mentioned. Thus, drainage
hydrodynamics (within the reservoir, and especially in
and around the well) have an important influence on
the reserves. The hydrodynamics around a horizontal
well, in turn, depend upon the geological features and
dominant production mechanisms. The hydrodynamics
also depend upon operationally induced features such
as prevailing pressure and saturation distributions due
to prior depletion, damage, well length, undulating well
trajectory, diameter, and flow rate. The interactions
between these factors are extremely complex and not
fully understood at the present time. It may be fair to
say that theoretical developments regarding anticipated
production declines under various real life reservoir
settings, production mechanisms, and completion
conditions are still in their infancy. In addition,
industry's database in terms of performance history
cost-effective trouble-shooting, and success rates for
remedial measures is extremely limited despite the fact
that in early 1993 nearly 5000 horizontal wells were
producing worldwide, including more than 1000 in
Canada. The net effect of these problems is to lower
confidence in reserves estimates for horizontal wells (as
compared to vertical wells), whether they are based on
volumetric determinations, performance, analogies,
correlations, or simulation. The challenge is not only to
come up with independent corroboration of reserves
estimates, but also to quantify uncertainty.
An ideal procedure would be to project performance to
the economic limit and verify reserves by volumetric
determination. However, sufficient data may not always
be available to accomplish both of these to the desired
level of confidence.
The volumetric method involves determination of the
range ofareas and volumes drained by a horizontal well
and recovery factors. The drainage volume would
depend upon the length, orientation and location of the
well; production mechanism; stratification; and frac-
tures. The recovery factors would depend upon the
parameters, prior depletion, nature of op-
erations, and reservoir variability. In practice, even after
placement of a horizontal well, many of the parameters
involved may not be known to the desired accuracy.
The same would be true for the other methods of re-
serves determination. Besides, various diagnostic and
remedial measures for poorer-than-expected perfor-
mance are slowly being evolved. As experience is
gained, they are gradually improving, but there are stilI
205
*Inmetric units, the constant is 542.9 andthe units areas
follows: permeability, J.lm': pressure, MPa: flow rate,
mJ/d.
life would have significant impact on the Overall
economics. In situations of marginal economics, incen_
tives could have a major impact on probable reserves.
Also, the role of horizontal wells in the overall deple_
tion strategy for the pool must be defined prior to
reserves determination.
In view of the uncertainties, reserves determination
would involve several iterations to ensure consistency,
followed by a quantification of confidence levels
(Springer et aI., 1991).
16.2 RESERVES DETERMINATION
TECHNIQUES
16.2.1 Performance Projection
Horizontal wells, as already mentioned, mainly provide
increased access to the reservoir. Placement of a hori-
zontal well by itself does not change the basic reservoir
mechanism or the type of decline to be expected,
although some variations could occur.
Producibility and declines for horizontal wells depend
upon the nature of the reservoir, the state of depletion,
and the dominant production mechanisms. Theoretical
discussions are available for only a few idealized hori-
zontal well systems. Using these as guides, it is possible
to project the behaviour of horizontal wells. Usually,
the performance of a vertical well provides important
clues to the performance ofa horizontal well in the same
setting.
Several methods for determining rates under steady-state
conditions have been proposed. Ofthese, Joshi's method
is the most widely used (Mutalik and Joshi, 1992). Oil
rate, qh' in barrels per day is expressed as:*
significant uncertainties in reserves determination. A
procedure would therefore have to be essentially itera-
tive to incorporate reasonable and consistent estimates
of various parameters and their implications on drain-
age. The evaluator would require good geological and
hydrodynamic models of the drainage volumes of a
horizontal well. One way to quantify the range of un-
certainties on production projections and reserves would
be to use a detailed Monte Carlo computer simulation
(Springer et aI., 1991). This, in tum, requires prior
knowledge of statistical distribution of various input
parameters.
The drainage to a horizontal well could be improved by
certain geological features (e.g., fractures) and impeded
by others (e.g., stratification, previously depleted
regions, and damage). Therefore, detailed geological
and hydrodynamic models for the drainage area of
a horizontal well are essential for understanding and
quantifying production performance. Interpretation of
logs and cores, well tests, or pressure data for the hori-
zontal well and any offsetting wells would assist in the
preparation of these models.
The examination of flow distribution within and around
a wellbore (as is done during the design of horizontal
wells) is of great importance. Significant implications
to reserves could be due to vertical location, strat-
ification, orientation, undulations, prior depletion,
effectiveness of completions, formation damage, and
lateral pressure drops within the well.
The overall depletion mechanism or the nature of the
production decline is not altered by the use of a hori-
zontal well. However, some changes to decline rates
may occur over time due to the effects ofchanging flow
regimes, heterogeneities, cross-flow, and interference
from different boundaries ofthe drainage area. The use
of smaller pressure drawdown (i.e., a coning situation)
or increased flow rates may help to prolong the eco-
nomic life and hence the reserves in some situations.
These may also be helped by gravity drainage to the
horizontal wells. At low pressure drawdown, gravity
may be contributing significantly to the production from
horizontal wells.
The impact on recovery of regulations concerning
horizontal wells may be hard to quantify. Depletion strat-
egy and economic reserves may change due to factors
such as allowables, spacing, offset distances, and roy-
alty regulations, so these must all be considered in
the determination of reserves. Due to higher initial
productivities of horizontal wells, production curtail-
ment or fiscal (royalty, tax) relief during their early
206
0.007078 khh Llp
J.l,B,
where k
h
= horizontal permeability (mD)
h = net pay thickness (ft)
Llp = pressure drop (psi)
u, = viscosity of oil (cp)
(1)
c
RESERVES ESTIMATION FOR HORIZONTAL WEllS

B, = formation volume factor (res. bbl/stb)
a = (L/2){O.5+ [0.25 + (2r'h/L)4]O.5}O.5
r,h = the drainage radius for the horizontal
well (ft)
L = length of the horizontal well (ft)
13 = anisotropy =-VkH/k
v
r
w
= well radius (ft)
It may be noted that the equation is valid only for single-
phase flow and uses single values for various input
parameters. The value of drainage distance, r'h' for a
horizontal well may not be known a priori. As a first
approximation, the drainage distance, r,v' for vertical
wells could be used for r,h'
For horizontal wells in reservoirs under solution gas
drive, producibility under unsteady and semi-steady
conditions has been projected by Poon (1990), Mutalik
and Joshi (1992), Babu and Odeh (1989), and others.
Poon's analysis uses an analogy between horizontal
wells and vertical fractures for projecting performance.
It is particularly useful since it provides "type curves"
for certain idealized conditions. For other situations,
flow equations could be combined with material bal-
ance and the semi-steady state treated as a succession
ofsteady states. The procedure would involve alternately
obtaining estimates of average reservoir pressure (ma-
terial balance) and flow rates (steady state) for different
periods until the economic limit was reached. It must
be kept in mind that, in some situations, uncertainties in
many ofthe parameters may render these projections of
little practical value.
Another approach could be to use Babu's method for
projecting performance and study various sensitivities
to evaluate the impact of uncertainties.
In coning and cresting situations, operations would be
discontinued at certain minimum oil rates or at certain
water cuts or gas-oil ratios. The latter parameters
may be based upon safety, equipment, economic or
regulatory considerations. Theoretically, cresting can be
avoided by producing below certain critical rates (Free-
born et aI., 1990), which themselves may change with
the changing pressures or fluid levels. Chaperon (1986)
presented an approximate method for computing criti-
cal rates for horizontal wells. This method is generally
accepted and used by the industry.
Critical rates for horizontal wells are usually much
higher than for vertical wells. In practice, only a few
kinds ofreservoirs can produce "clean" oil or gas for an
extended period. These include gas pools under active
water drive or some offshore operations with limited
platform space that do not permit installation of equip-
ment to handle large volumes ofwater or gas production.
In these cases, oil or gas reserves would be those
obtained prior to significant break-through. Break-
through may be delayedby operating at sub-critical rates.
This would involve continuously altering rates with
changing fluid contacts until the rates become uneco-
nomic. In other cases where facilities are not major
constraints, large gas-oil ratio or water cut may result in
an uneconomic oil rate. The nondrained part of the oil
column is known as the "cresting loss" or, in the case of
both bottom water and gas cap, as the "sandwich loss."
These can be estimated from the design features for.a
horizontal well, as well as from operational and reser-
voir parameters (Chaperon, 1986; Joshi, 1991). It is
generally recognized that horizontal wells could signifi-
cantly reduce these losses (by 20 to 40 percent).
Most often, the bulk of oil production would occur
under increasing water cuts or gas-oil ratios or both.
Under these conditions, reserves would again be the sum
of oil drained by the mean change of fluid contacts in
the drainage area (ignoring the effects of the crest) and
the volume of mobile oil within the crest. Correlations
are available to estimate the time for the crest to break
through at the horizontal well (Papatzcos et aI., 1991;
Yang and Wattenburger, 1991). Estimates of break-
through time would help in estimating the amount of
clean oil production. Oil cuts would harmonically de-
cline thereafter (until interference from offsetting wells
was experienced), yielding a straight line on a semi-log
plot ofoil cut vs, cumulative oil. For passive water drive
cases, reserves would essentially be due to fluid expan-
sion and drainage of the movable oil within the crest.
The latter can be estimated by a method suggested by
Butler (1989). He suggested it would be equal to mov-
able oil within half a cylinder between the horizontal
well and the fluid contact. * For an anisotropic reser-
voir, this would be modified to a half ellipsoid (Figure
16.2-1). The distance between the interface and the well
is called "stand-off', h. This would be the vertical axis
of the ellipsoid, and the horizontal axis would be given
by the expression h(k
H
!k
v)o.5.
For an undulating well or
a tilted fluid contact, the minimum distance between
fluid contacts and well trajectory would be the effective
stand-off. Similarily, ifthe lateral pressure drop caused
the rates to exceed the critical in some parts of the well,
localized cresting would tend to reduce reserves for the
entire well. In such situations, if heterogeneities could
*Butlersubsequently published moresophisticated
theoretical models.
207
Source: Joshi, 1991.
(b)
completions are not available to fully assess the reasons
for these increments. Viscous fingering, heterogeneities
or hydrodynamics within and around horizontal welIs
promoting water or gas channelling could be some of
the causes resulting in poorer recoveries.
Once the performance after break-through can be
projected, a summation of oil production will provide
estimates for reserves.
Whereas horizontal wells have proven to be effective in
minimizing water production, their effectiveness in con-
trolling gas cresting has only provided mixed results. If
gas cresting is a limiting factor, usualIy the reserves are
. much lower than the method as described would indi-
cate. The reasons could be a sharp drop in effective oil
permeability at high gas saturations or viscous finger-
ing as the result ofunfavourable mobility ofoil compared
to that of gas.
The foregoing discussion pertains to the improved
reservoir drainage by horizontal wells under solution
gas drive and water and gas coning situations. Horizon-
tal welIs can also significantly improve reserves drained
from waterfloods as well as thermal and nonthermal
enhanced oil recovery. The improvement could be the
result of increased access, injectivity or productivity,
and increased volumetric sweep efficiencies. However,
fractures or previously drained regions could seriously
limit the incremental reserves. Careful engineering of
horizontal well length, orientation, vertical placement,
and operation is needed to obtain optimal reserves
under these conditions. As in the case of primary
production, the key factors controlling the reserves
would be the hydrodynamics within the drainage region
and the economics.
The role of reservoir variability must be taken into
account in all situations. Sufficient details on certain
heterogeneities may not be known, even after a hori-
zontal well starts producing. Due to this variability,
the performance of horizontal wells tends to be
site-specific. Another consequence is the difficulty in
identifying the "average" reservoir parameters.
At this time, in terms of length of performance history
and available geological and operational details,
industry's database is extremely limited for use in de-
riving meaningful analogies and correlations. Well test
data and performance histories, besides confirming pro-
duction mechanisms, can help to quantify certain
reserves parameters. Otherwise, they do not seem to be
definitive enough for reserve estimation. In a few cases
where the data are available for a long enough duration
to be definitive, the decline curve and material balance
.,
h
I
Pi
I
I
I
I
t
I
oil
:
r
,
,
(a)
It canbe assumed that drainage distances for vertical
wells(r,,) and horizontal wells (r'h- U2) are equal.
However, experience withpartiallydepleted Canadian
pools indicates that r" couldbe larger thanr,h - U2.
Figure 16.2-1 Schematic of Horizontal and
Vertical Well Drainage Areas*
be adequately characterized, detailed numerical model-
ling might be the only way ofobtaining reliable reserves
estimates under different completion and operating
conditions. For optimizing reserves, it may be neces-
sary to ascertain that the flow along a horizontal well is
evenly distributed.
At this time, no methods other than correlations (Yang
and Wattenburger, 1991) are available in the public
domain for estimating post-break-through production
of oil and water (or gas) via a horizontal well. As a first
approximation, coning correlations of Kuo (1989)
for the vertical wells or Butler's method for horizontal
wells (Butler and Suprunowicz, 1992) may be used.
Computer-generated projections for the Suffield Jenner
pool in Alberta appear more optimistic than these cor-
relations. The actual decline ofoil cuts with cumulative
oil was not unlike that for a vertical well after allow-
ances were made for increased drainage area due to
length, and reductions in crest volume due to heteroge-
neities (Russell and Espiritu, 1992). For some horizontal
wells in the Provost Dina pools ofAlberta (Heysel, 1992)
very modest increments over vertical wells have
been reported. However, data on well trajectories and
208

---------------------_...

methodologies for conventional wells could be extended
for horizontal wells. Generally, the most fruitful
techniques for reserves in vertical wells would also
be applicable to horizontal wells. A methodology for
horizontal wells is suggested in Section 16.3.3.
16.2.2 Volumetric Method
Detailed flow distribution around a well is the most
important consideration in identifying the drainage area
for a horizontal well, which would drain a much larger
portion of a reservoir than a vertical well, depending
upon its length. Other factors determining drainage area
would be the distance to the nearest pool boundaries
and the distance to offsetting wells as well as the rate of
drainage by them. For homogeneous reservoirs under
solution gas drive, Joshi (1991) has presented methods
for estimating drainage areas based upon estimating the
time to reach semi-steady state for different drainage
geometries. From these, effective drainage area can be
estimated.
Limited experience to date suggests that drainage
distance for horizontal wells (r
eh
- Ll2 in Figure 16.2-1)
would, in many cases, be smaller than that for vertical
wells (rev)' The reasons could be heterogeneities and
prior depletion.
As a rule of thumb, a 300 m well would drain the
equivalent oftwo vertical wells, and a 600 m well-the
equivalent of three vertical wells. However, this rule of
thumb must be used with extreme caution.
It has been observed from the performance of several
Canadian oil wells that the reserves for sandstone pools
are generally proportional to their lengths (Bowers and
Bielecki, 1933). Corresponding correlations between
well lengths and reserves drained for fractured carbon-
ate pools are rather weak. It is possible that this is caused
by water influx via some of the relatively larger frac-
tures. By and large, horizontal wells in Estevan light oil
pools were draining 250 to 300 m in the lateral direc-
tion whereas for Lloydminster heavy oil, this distance
is less than ISO m and could be as low as 50 to 70 m
(Springer and Flach, 1993). In some Alberta light oil
pools, very disappointing reserves were noted (Bowers
and Bielecki, 1993), implying small drainage areas or
poor recovery factors.
16.2.3 Role of Heterogeneities
In a heterogeneous reservoir, a horizontal well is likely
to traverse many more prolific regions than a vertical
well. For a given pressure drawdown, most of the in-
flow would be from these more prolific regions. Thus,
one horizontal well would be equivalent to several indi-
vidual vertical wells placed in the path ofthe horizontal
well. The increased producibility as well as the increased
reserves would be similar to those expected for closely
spaced vertical infill wells. The accelerated drainage may
induce faster declines (as well as interference with
offsetting wells). Extreme examples of such prolific
zones are fractured regions in Austin Chalk in Texas,
Bakken Shale in North Dakota, and karstic regions in
the Raspo Mare oil field off the Italian coast in the
Adriatic Sea. Variable fracture or vug density in the
dolomitic reefs of Alberta and Saskatchewan may also
constitute prolific regions ("sweet spots"), but with less
dramatic impact on reserves. On the other hand, these
sweet spots may also act as pathways for water or gas to
break through at the wells and thus reduce volumetric
sweep and recovery factors.
The vertical and lateral extent of the drained region
would mainly depend upon geological features such as
stratification, fractures, barriers to flow, and lateral varia-
tions. Effective drainage volume for a horizontal well
would thus be smaller than the hydrocarbon pore vol-
umes contained within the drainage area if these exist.
In order to identify the drainage volume of a horizontal
well, a geological model would be very helpful. It may
be noted that even in pools with good geological
control, horizontal wells usually reveal unanticipated
features. A geological model, updated with data
from horizontal wells, would greatly aid in determining
drainage volume for the well.
16.2.4 Importance of Channelling in
Reserves Performance
In certain geological settings, it becomes apparent that
the production is dominated by water channelling rather
than the classical water coning. For instance, several
Mississippian pools in the Estevan area ofthe province
of Saskatchewan contain no bottom-water leg, and yet
they produce large quantities of water. They must cer-
tainly be receiving pressure support via numerous
fractures present in the region. Besides this post-
depositional fracturing, these carbonate deposits have
been witnesses to several events of replacement of cal-
cium carbonate by dolomite and anhydrite. Whereas
fractures act as conduits for the active waters to invade
the oil zone, dolomitization increases storage (poros-
ity), and vugs and micro-fractures increase permeability.
In addition, site-specific 3-D configuration of the res-
ervoir (intercalation of porous and dense intervals
occasionally traversed by fractures, and poor con-
tinuity of dense and porous features over inter-well
209
distances) characterize sweeping ofthe pay zone by the
influxing water. Therefore, the reserves drained by hori-
zontal wells depend upon factors such as the prior
exploitation of underlying zones within the pool (tim-
ing), the level ofheterogeneity and occurrence of dense
zones, and the stand-off above the water-oil contacts
or the base of the pay. Contrary to what might be
anticipated in a classical coning situation, most hori-
zontal wells in developed pools fail to drain significant
amounts of incremental reserves over and above what
two or three vertical infill wells might drain under
similar conditions.
In this area, the advantage of higher initial oil rates for
the horizontal wells is often negated by sharp declines
as the water production increases. Water rates and
cumulative water production are seen to increase
disproportionately to the corresponding increases in oil
production because of the existence of numerous verti-
cal fractures and the prevailing distribution of the
invaded water (due to prior operations). Under these
circumstances, lateral pressure drops within the hori-
zontal well due to two-phase (or three-phase) flow
assume special significance. Consequently, horizontal
wells may be doing a poor job of draining oil around
their "toes." The situation may be further complicated
by the specific reservoir description (porous or tight
zones and fractures along the length of the well) and
near-wellbore formation damage.
It follows then that for projecting performance, a
detailed knowledge of reservoir description and a proper
understanding ofthe geology and hydrodynamics ofthe
drainage region around a horizontal well (within the oil
pool, including any supporting aquifer) are absolutely
essential. Viscosity (temperature) of oil plays an im-
portant role by way of causing viscous fingering and
limiting volumetric sweep by the invading water.
16.2.5 Recovery Factors
Once the drainage volume has been estimated, the next
step is to estimate the upper and lower limits of recov-
ery factors for drainage via horizontal wells.
An understanding of the behaviour of vertical wells in
the same pool in terms of the dominant production
mechanisms and the factors limitingproduction provides
important clues to the production behaviour of horizon-
tal wells. As previously mentioned, some features would
help in improving recovery whereas others might hinder
efficient drainage. The three lists that follow give some
of the more important of these characteristics.
210
1. Features that improve drainage:
Enlarged drainage volume
Heterogeneities (sweet spots) within the drainage
area; barriers to the flow of bottom water or gas
into the horizontal well
Reduced pressure drawdown, which may help to
mitigate drainage restrictions (e.g., cresting, fines
production)
Effective lowering of the economic oil rate limit
(one horizontal well replacing several vertical
wells)
2. Features that hinder drainage:
Heterogeneities (stratification, barriers to substan-
tial drainage in depletion drive, by-passing of oil
in water- or gas-drive flooding)
Previously drained regions within the drainage
volume that may be at lower pressures, or higher
pressures (watered-out regions). .
Wellbore damage (lower effective well radius)
Lateral pressure drops (turbulence, multi-phase
flow, sediments or debris present inthe hole) caus-
ing effective drainage from only a part ofthe well
Undulating well trajectory or "porpoising" (some
sections may get closer to fluid contacts or the
tops or bottoms of the pay zones; in some in-
stances, some sections of wells may even be
outside the pay zone, reducing the effective well
length in a good part of the pay)
3. By examination of geological and hydrodynamic
models, some of the questions about the impact of
less than ideal conditions on recovery factors may
be clarified. These questions could be as follows:
Are small intervals contributing the bulk of the
flow?
If SO, will they continue to be recharged
adequately?
Is there more severe skin in certain parts of the
well?
Could a lateral pressure drop within the well be
restricting drainage from some parts ofthe well?
Would early break-through of water or gas be
promoted by the dominant flow routes?
Once break-through occurs at any point in the
well, would it seriously restrict subsequent drain-
age by the well?
_______________________sd
A quantification of these effects on recovery factors
could be obtained by a quick, coarse-grid simulation
study.
16.3 DETERMINATION OF RESERVES
16.3.1 Determination of Reserves
Parameters
Average reserve parameters would be difficult to
determinewithout closely examining a geological model
of the drainage region around a horizontal well. These
parameters could be porosity, permeability (vis-a-vis
orientation of the well), characterization of the aquifer
and the gas cap, net pay thickness (Reisz, 1992), thick-
ness above or below the well in the case of undulating
well trajectory, location ofpay tops and bottoms within
the drainage region, fractures, effective well length,
reservoir pressure, saturations, damage, and drainage
distances.
16.3.2 Key Elements
All of the elements of reserves determination for
horizontal wells are similar to those applicable to verti-
cal wells. However, the required analysis is usuallymore
rigorous because a detailed analysis of the hydro-
dynamics of the drainage around each horizontal well
must be included.
The procedure is iterative to ensure consistencybetween
reserves obtained from volumetric as well as perfor-
mance analysis and all available geological, reservoir,
and production data.
The procedure calls for sound engineering judgement
regarding appropriate values of parameters to be used
for performance projections and reserves estimation
and, in addition, requires a clear understanding of the
dominant recovery mechanism and the parameters that
limit reserves for exploitation of the pool by conven-
tional wells. The possible relaxation of the limiting
conditions on drainage using horizontal wells is esti-
mated based on these. A hydrodynamic model for the
drainage area incorporating reservoir variations,
current state of depletions, and qualitative visualiza-
tion of flow distribution within the drainage area of
horizontal wells is required. Finally, the implication of
operational and economic factors on reserves must be
explicitly included.
16.3.3 Steps Involved in Reserves
Determinations
The proposed procedure involves iterations of the
following steps until an acceptable determination is
achieved:
I. Prepare a geological model for the drainage region
of the horizontal well. The model should address
questions regarding the boundaries, the limits of
the drainage area due to any barriers to flow,
heterogeneities and facies changes, fluid contacts,
anisotropy, directional trends, preferred fracture ori-
entations, micro-fractures, and sweet spots.
2. Prepare a qualitative hydrodynamic model
incorporating data on the current state of drainage,
the well trajectory, the pressure and saturation
distribution prior to the placement of the horizontal
well, the effective drainage region, and the flowing
pressure distribution around the horizontal well,
including any possible interference with offsetting
wells.
3. Obtain estimates of various drainage and reserves
parameters such as effective pay thickness,
shape of the drainage area, sweet spots, drainage
distance, porosity, pressure distribution, saturation
distribution, compressibility, permeability, kH/k
v,
and skin.
4. Estimate the hydrocarbons in place in the drainage
volume and the range ofthe associated uncertainty.
5. Estimate the range of recovery factors for hori-
zontal wells from data on recovery factors for
conventional drainage, and possible relaxation of
parameterscontrollingproduction. The roles ofvari-
ous influences may be quantified using coarse-grid
simulation or engineering judgement.
6. Estimate the initial productivity from the estimates
ofdrawdown, permeability (vertical as well as hori-
zontal), compressibility, and saturations. Actual
performance or test data may be used for validating
estimates of various parameters.
7. Project the production forecast for the specific
situation. Performance data, equations, material
balance, and simulation results, if available, may
be used for validating decline performance. In the
absence ofany better data, initial productivity along
with volumetric reserves may be used for project-
ing performance. This data may then be input into
economic analysis for obtaining economic reserves.
211
Dependingupon the situation, curves of rate-time,
rate-cumulative production, volumeratios, andcu-
mulative volume of gas or water vs. cumulativeoil
or gas may help to determine the reserves.
Care must be exercised to ascertain that there is
adequate history,that theperformance is determined
by reservoir and geological factors only, and that
the performance is consistent with the known
mechanisms.
Data on the performance of horizontal wells in
analogous situations, if available, could be useful.
Some statistical data on performance of horizontal
wells in different oil zones from certain Canadian
producingareas over the first 12monthsof produc-
tion has recently been published (Springer et aI.,
1993).
Where uncertainty is high, the productionforecast
should be based upon estimates of initial prod-
uctivity and volumetricallydetermined reserves.
8. Identifyany enhancementpotential toreservesdue
to prudent operational changes, recompletions,
facilities or equipment upgrades. These datacanthen
be used for further refiningthe productionforecast.
Another fine-tuningcould be requireddue to inter-
ferencewith offset wells, if suchinterference could
be established fromtheirperformance (Springer and
Flach, 1993).
9. Ensure consistency between reserves based on
volumetricdeterminationandproductionforecasts.
A fewiterations may be requiredto achievethis.
10. Evaluate the range of uncertainties in the reserves
estimates and relevant confidencelevels. This will
depend upon geological control, the amount of
historical data from the pool, the success of cost-
effective diagnostic or remedial operations, and
the length of time the horizontal well has been
producing.
The Monte Carlo computer simulation method
for quantifying confidence levels is described in
Section22.4.4 (Springer et aI., 1991).
References
Babu, D.K., and Odeh, A.S. 1989. "Productivityofa
Horizontal Well." SPE Reservoir Engineering,
Vol. 4, No.4, Nov. 1989, pp. 417-421.
212
. Bowers, B., and Bielecki, J. 1993. "Horizontal Oil
Wells: Economicsand Potential Impact on the
Reserves and Supply of CanadianConvential
Oil." WorkingDocument, Horizontal Well
Committee of the National Energy Board,
Calgary, AB, Jun. 1993.
Butler, R.M. 1989. "The Potential for Horizontal
Wells for PetroleumProduction."JCPT, Vol. 28,
No.3, May-Jun. 1989, pp. 39-47.
Butler, R.M., and Suprunowicz, R. 1992. "Vertical
ConfinedWater Drive to Horizontal Well - Part I:
Water and Oil of Equal Densities."JCPT, Vol.
31, No.1, Jun. 1992, pp. 32-38.
Chaperon, 1. 1986. "Theoretical Studyof Coning
Toward Horizontal and Vertical Wells in
Anisotropic Formations." Paper presented at 61st
Annual Fall Meeting, SPE of AIME, New
Orleans, LA, Oct. 1986, SPE 15377.
Freeborn, R., Russell, B., and MacDonald, A.J. 1990.
"South Jenner Horizontal Wells: A Water Coning
Case Study."JCPT, Vol. 29, No.3, pp. 41-46.
Heysel, M. 1992. "Horizontal Well Performancein
the Dina Sandstonein the Provost Area of
Alberta." Presentedat Annual CIMTechnical
Meeting, Calgary, AB, Jun. 1992, CIM-ATM
92-34.
Joshi, S.D. 1991. Horizontal Well Technology.
Pennwell PublishingCo., Tulsa, OK, p. 34.
Water Coning." O&GJ, Oct. 1989, pp. 87-90.
Mutalik, P., and Joshi, S.D. 1992. "Decline Curve
AnalysisPredicts Oil RecoveryfromHorizontal
Wells." O&GJ, Sep. 1992, pp. 42-48.
Papatzcos, P., Herring, T.R., Martinsen, R., and
Skjaeveland, S.M. 1991. "Cone Break-through
Timefor Horizontal Wells." SPE Reservoir
Engineering, Vol. 6, No.3, Aug. 1991,
pp.311-328.
Poon, D.C. 1990. "Decline Curves for Predicting
Performance of Horizontal Wells." JCPT, Vol.
30, No. I, pp. 77-81.
Reisz, M.R. 1992. "Reservoir Evaluationof
Horizontal Bakken Well Performanceon the
Southwestern Flank of the WillistonBasin."
Paper presented at SPE International Meeting,
Beijing, China, Mar. 1992, SPE22389.
----------------------",.
=
Russell, B., and Espiritu, R. 1992. Personal communi-
cation.
Springer, S.1., Mutalik.P; Asgarpour, S., and Singhal,
A.K. 1991. "Risk Analysis for Horizontal Wells."
Paperpresentedat 4th Saskatchewan Symposium,
CIM, Regina, SK, Oct. 1991, PaperNo. 13.
Springer, S.1., and Flach, P.D. 1993. "A Review of
the Drainage Area/lnterwell Spacing Used in
Some Established Horizontal Well Projects."
DEA44/DEA 67 International Forum-
"Horizontal Technology - LivingWith Reality,"
Calgary, AB, Jun. 1993.
Springer, S.1., Flach, P.D., Porter, K.E., Christie,
D.S., and Scott, G.C. 1993. "A Reviewof the
First FiveHundred Horizontal Wells Drilled in
Western Canada."Paper presentedat 44th Annual
Technical Meetingof the Petroleum Societyof
CIM, Calgary, AB, May 1993, CIM93-19.
Yang, W., and Wattenburger, R.A. 1991. "Water
Coning Correlations for Vertical and Horizontal
Wells." Paperpresentedat 66th Annual SPE
Technical Conference and Exhibition, Dallas, TX,
Oct. 1991, SPE22931.
213
Chapter 17
NUMERICAL SIMULATION
17.1 INTRODUCTION
Numerical simulation is the most sophisticated tool for
estimating hydrocarbon reserves and determining meth-
ods to use for optimizing the recovery ofhydrocarbons
from a reservoir. Numerical simulation has been used
in reservoir studies since 1960. The rapid development
of digital computer technology in the early seventies
stimulated the widespread development and application
ofreservoir simulation computer programs. At first, the
high cost of software development and computing lim-
ited the use ofnumerical reservoir simulation; however,
the recent availability of powerful low-cost personal
computers and work stations has made it much more
accessible to petroleum engineers. Today, numerical
reservoir simulators are more efficient and more
accurate.
This section provides an overview of numerical
simulation practice. Readers who wish to gain an
in-depth knowledge ofthe mathematical aspects ofsimu-
lation should read the book by Aziz and Sattari (1979).
Excellent discussions on practical applications of res-
ervoir simulation may be found in books by Crichlow
(1977) and Mattax (1990).
17.2 TYPES OF RESERVOIR
SIMULATORS
Reservoir simulation is based on the physical principles
of mass conservation, fluid flow, and the conservation
of energy. From these come a set of partial differential
equations describing the behaviour of fluids in a reser-
voir. According to the type of process and the number
of components required to be modelled, reservoir
simulators may be categorized as follows:
Black oil simulators, which model multi-phase flow in
a reservoir without consideration for the composition
of the hydrocarbon fluids. The liquid phase consists of
water and the oil and gas in solution. The gas phase
consists of only free gas. Mass transfer of the oil com-
ponent from the liquid to the gas phase is not taken into
account.
214
Compositional simulators (Coats, 1980a; Nolen, 1973;
Thele et aI., 1983), which account for mass transfer be-
tween liquid and gas phase. The hydrocarbon phase is
represented by"n" components; k-values and flash equi-
librium are used to represent phase behaviour.
Enhanced oil recovery simulators, which include in
situ combustion (Youngren, 1980; Coats, 1980b), steam
stimulation, (Coats, 1978) hydrocarbon miscible (Todd
and Longstaff, 1972), carbon dioxide flooding (Chase
and Todd, 1984), and chemical injection (Todd and
Chase, 1979). These simulators apply the basic con-
cepts of both black oil and compositional simulators
with added features to model a particular enhanced oil
recovery process.
Reservoir simulators have also been developed to model
naturally fractured reservoirs. In addition to modelling
the processes described, a naturally fractured reservoir
simulator must also model the complex flow behaviour
in a matrix-fracture system.
Naturally fractured reservoirs are characterized by two
systems: a matrix system which has low permeability
and high capacity, and a fracture system which has high
permeability and low capacity. The bulk of the fluid is
contained in the matrix system, and fluid flow occurs
primarily in the fractures. A comprehensive review of
naturally fractured reservoirs is given by Aguilera
(1980).
The general approach in naturally fractured reservoir
simulation is the dual-porosity formulation shown in
Figure 17.2-I(a), in which the rock matrix is con-
sidered as a series ofdiscontinuous blocks within a con-
tinuous fracture system. The matrix blocks act-as the
source and feed into the fracture system. The fractures
can be thought of as a system of connected pipes. This
model was proposed by Warren and Root (1963).
Recent developments allow a more vigorous treatment
of fluid flow in naturally fractured reservoirs to be
incorporated into simulators. In addition to fracture-
matrix interaction, matrix-matrix flow is permitted; this
gives rise to the dual-permeability formulation (Gilman
and Kazami, 1988) shown in Figure 17.2-1(b).
Figure 17.2-1 Schematic Diagram of Matrix-
Fracture Connectivity
17.3 MATHEMATICALFORMULATION
Mathematical functions for all the cases discussed have
been presented in detail in the literature, and so will not
be repeated here. In general, the formulations involve
the use of partial differential equations that are solved
using finite difference schemes. Figure 17.3-1 shows a
small volume element ofthe reservoir with dimensions
dx, liy, and liz. Simulation involves a mass balance over
many elements similar to the one shown.
The exact solution to the partial differential equations
is rarely available. In practice, numerical techniques are
used to obtain approximate solutions to those equations.
The finite difference method is the one most commonly
used for reservoir simulation. The method transforms
the continuous differential equation into a discrete form
in both time and space. The reservoir region is subdi-
vided into elements or grid blocks similar to the block
shown in Figure 17.3-1. The solution to the system of
flow equations is obtained for each grid node. The de-
pendent parameters obtained for each grid node represent
the average value for the element.
Detailed discussion of the finite-difference method is
available in the literature (Aziz and Settari, 1979) and
will not be provided here. However, certain concepts
Figure 17.3-1 Mass Balance on Reservoir
Element
that will affect the decisions made by a simulation
engineer will be discussed.
The early approach to' solving the multi-phase flow
equations was the Implicit Pressure Explicit Saturation
(IMPES) Method, in which the flow equations were
combined into a single pressure equation. After the pres-
sure has been advanced in time, the saturations are
updated explicitly. This approach assumes that the cap-
illary pressure and transmissibility terms do not change
substantially within a timestep. The advantages of the
IMPES method are its low computer memory require-
ment and reduced computation per timestep.
The IMPES method has been found to be satisfactory
for many problems; however, in situations where high
flow rates exist, such as in water coning, gas percola-
tion problems and naturally fractured reservoir
simulation, a more stable solution method is required.
The fully implicit method, on the other hand, requires
the simultaneous solution ofthe multi-phase flow equa-
tions (Auet al., 1980). This method requires substantially
more computing time and data storage. Increased sta-
bility ofthe fully implicit method allows larger timesteps
to be used.
Most commercial simulators allow the user to specify
the method of solution. More advanced simulators of-
fer semi-implicit and dynamic implicit methods. The
semi-implicit method solves a subset of the flow equa-
tions simultaneously whereas the dynamic implicit
method switches between the IMPES and fully implicit
methods on an individual grid block according to flow
conditions. Unless computer memory and run time
limitations present a problem, it is advisable to use the
fully implicit method of solution to avoid unnecessary
numerical problems.
Lly
Llz
-
- -l-. Flow
Out
Llx
----...
Flow
In
fracture matrix
(b) Dual Permeability
I I
I I
l-
I I
l-
I I
fracture matrix
(a) Dual Porosity
I
l-
l-
l-
1
215
17.4 ANATOMY OF RESERVOIR
SIMULATION
Reservoir simulation is a complex engineering task. A
simulation study must be planned and organized to en-
sure that useful results are obtained. The objectives of
the simulation study must be clearly defined. The engi-
neer should have a list of specific questions the study
should answer, and preliminary reservoir engineering
calculations should have been completed. Before car-
rying out a simulation study, an engineer should be
thoroughly familiar with previous reservoir studies. The
results and conclusions ofprevious studies may be use-
ful to fine-tune current study objectives and help save
time.
Once the objectives and scope of the study are clear,
a reservoir simulation study generally involves the
following phases:
1. Data collection
2. Model grid design
3. Sensitivity tests
4. History matching
5. Performance prediction
The following sections describe these phases of the
simulation activity.
17.5 DATA REQUIREMENTS
A numerical simulator may be used to model any
reservoir. The input data to the simulator describe a
uniquemodel for a particular reservoir. The data required
to construct a reservoir model may be grouped as
follows:
Reservoir geometry, which describes the size, shape,
internal and external boundaries of the reservoir
Rock and fluid properties, which affect the dynamics
of fluid flow in the reservoir
Production and well data, which describe the well
locations, perforation intervals, skin factors, and flow
rates
17.5.1 Reservoir Geometry
A geometric description of a reservoir is usually
derived using a team approach involving geologists,
geophysicists and reservoir engineers. A good
understanding of regional geology and depositional
environment is necessary. Seismic sections are useful
in preparing structural maps and positions of faults.
Formation top and thickness of zones to be simulated
may be obtained from well logs and drilling records.
216
17.5.2 Rock and Fluid Properties
The important petrophysical properties of rock required
in reservoir simulation include porosity, absolute per-
meability, relative permeabilities, capillary pressure
data, rock compressibility, and fluid saturations.
The average porosity can be determined from core
analysis. The porosity is also calculated from well
logs. Porosity logs calibrated against core porosity are
generally more reliable than log data alone.
Absolute permeability is one of the most difficult
reservoir properties to define. It is also critical to the
prediction of fluid migration in a reservoir. Integrated
permeabilities from cores and well-test data should be
used in reservoir simulation.
In a reservoir where more than one fluid is present, the
relative permeability of individual fluids as a function
offluid saturationis required. Relative permeability data
are usually obtained from laboratory measurements on
core samples. The relative permeability relationships are
obtained for gas-oil, oil-water, and gas-water systems.
Most reservoir simulators use Stone's (I970) model
to approximate three-phase relative permeability
behaviour.
The capillary pressure data are determined from
laboratory analyses. Rock compressibility data are
obtained from laboratory analyses of the reservoir rock
or from published correlations.
Formation fluid saturation distributions can be derived
from log analysis. Another option is to calculate fluid
saturation distributions based on the positions of the
water-oil and gas-oil contacts. The fluids may be
assumed to be initially either fully segregated (notransi-
tion zone) or dispersed (with a transition zone). The
capillary pressure curves are used to determine the
saturation in the transition zone.
Fluid properties include formation volume factors, fluid
viscosity, solution gas-oil ratio, and fluid density. The
source ofthese data is usually laboratory PVT analysis.
Iflaboratory data are not available, correlations can be
used to generate them. For compositional simulation,
the equation of state is used for calculating fluid pr?p-
erties. The effects of temperature on viscosity, density,
relative permeability and capillary pressure are also
required for thermal simulation.
17.5.3 Production and Well Data
The data required to specify well operation include well
locations, perforation intervals, well productivity index,
skin and flowrates for each well. Sources ofproduclion
_________________.za
and well data are pressure tests, drilling records, and
well production records.
The constraints imposed on wells due to surface
facilities or economic limits must also be available.
Typical well constraints are water-oil ratio, gas-oil
ratio, bottom-hole pressure, and maximum and
minimum flow rates.
17.6 RESERVOIR MODEL GRID DESIGN
A reservoir can be modelled with !D, 2D or 3D grid
systems. Depending on the objectives of the study, one
of the following may be used:
ID models, which have limited applications
including material balance, simulation of experiments,
and interaction between two wells. In a vertical or dipp-
ing !D model, the effect of gravity override, updip gas
injection, and bottom water injection can be evaluated.
2D areal models (Figure 17.6-1), which are
commonly used in field simulation. The model is suit-
able when areal flow pattern dominates reservoir
performance, and the vertical variation in rock and fluid
properties in the reservoir is small.
Figure 17.6-2 20 Vertical Model
2D radial models, which are a special type of 20
models. While most simulation models are defined by
cartesian coordinates, the 2D radial models are defined
using a cylindrical coordinate system (Figure 17.6-3)
and have special applications in the study of near-well
effect. The 20 radial models are often called coning
models because they are used principally to study water
and gas coning behaviour. This type of model is useful
in studying single well operations to determine the op-
timal completion interval, critical flow rate to avoid
coning, well deliverability, and well test analysis.
Figure 17.6-3 20 Radial Model
Figure 17.6-1 20 Areal Model
2D vertical models, which are used to model
vertical cross sections of a reservoir (Figure 17.6-2).
The applications include gravity segregation effect,
effect of stratigraphy, frontal displacement, effects of
well completion intervals, and flow into a horizontal
well.
2D vertical models are also used to generate
pseudo-functions, which reduce three-dimensional simu-
lation to two-dimensional areal simulation (Jack et aI.,
1973; Coats et al., 1971).
,
, .
I
I
I
--
z
217
3D models, which are used to study large multiple well
reservoirs with thick reservoir pay sections, significant
vertical variation in rock and fluid properties, faults, and
partial communication between layers (Figure 17.6-4).
3D models are also used to study large reservoirs with
several noncommunicating producing horizons, multiple
completions with or without commingled production,
aquifer influx, and horizontal well development.
Figure 17.6-4 3D Model
An efficient reservoir model is one that satisfies the study
objectives at the lowest cost. Since the cost of a simula-
tion study, including engineering person-time costs and
computing costs, is proportional to the complexity of
the model, it is desirable to employ the simplest model
possible. The model, however, must be able to repre-
sent reservoir geometry and positions offaults and wells,
and be able to show fluid migration patterns. It is diffi-
cult to design an optimal grid system for a reservoir.
However, the following guidelines may be useful.
Since the parameter values for each grid node in a
reservoir model are the average values for the block,
the number of grid nodes should be increased in the
area of interest or where reservoir parameters are ex-
pected to change rapidly. Typically, smaller grid blocks
are required around wells. One caution is that abrupt
changes in grid sizes introduce truncation errors. As
a general rule, the ratio of the grid lengths for two
adjacent grid blocks should be less than two.
Local grid refinement features are available in most
reservoir simulators. This feature allows any grid in a
reservoir model to be subdivided into smaller grids with-
out adding extra blocks in other parts ofthe model. Local
grid refinement can be very useful in areas with wells
and faults. By subdividing a well block vertically into
more layers, local grid refinement provides a means to
specify completion intervals more precisely.
218
In areal simulations where the effect ofwell pattern and
infill wells is studied, sufficient grid blocks should be
used so that all the wells in the reservoir model are sepa-
rated by several grid blocks. Ifpossible, the orientation
of the grid system should parallel trends of high
permeability.
A full field reservoir simulation may not be necessary
to satisfy the study objectives. In many cases, a study
of an element of symmetry from a reservoir with
repeated well patterns may be sufficient.
17.7 RESERVOIR MODEL
INITIAL,IZATION
Preceding sections have indicated that reservoir data
are available mainly at well locations. The reservoir
simulator, however, requires reservoir parameters for
each grid node in the reservoir model. The common
practice is to construct contour maps of the reservoir
parameters. The reservoir model grid is then overlaid
on the contour map, and values are assigned manually
to each grid node.
Some simulators utilize reservoir parameters at well
locations and generate the distribution ofparameters for
each grid node using a second or higher order interpo-
lation scheme. The number of wells and their locations
can affect the quality of interpolation. The reservoir
parameters assigned to each grid node by this method
should be examined carefully and any anomalies cor-
rected. Most reservoir- simulators have the ability to
display the reservoir model and initial conditions on a
computer display screen for visual inspection.
The initial pressure and fluid saturation distributions in
the reservoir model can be defined using the interpola-
tion scheme described. Alternatively, the simulator can
be used to calculate pressure and saturation distribution
based on specified water-oil and gas-oil contacts and
reference pressure.
17.8 MODEL SENSITIVITY ANALYSIS
The numerical truncation error associated with timestep
size and grid size can affect the accuracy of simulation
results. Before a detailed history match is performed,
the sensitivity of a reservoir model to truncation error
should be analyzed.
The effect of grid size on simulation results can be
evaluated with a simple model of a representative por-
tion of the reservoir that includes an injection and
production well. A series of simulation runs with de-
creasing grid size is performed. When the reduction in
grid size does not change the simulation results beyond
__________________________c.
the accuracy required, the grid size is considered
acceptable. A smaller 2D model is often used to per-
form grid sensitivity tests because it is cumbersome to
change the grid block sizes in a complex 3D field scale
model.
The effect of timestep size should also be investigated
in the reservoir model sensitivity analysis. The timestep
size used in field scale simulation is indirectly controlled
by how often the well rates are changed. However, when
there is no change in well rates and the maximum
timestep size is not controlled, the numerical truncation
error can be significant. A few simulation runs should
be made with different timestep sizes to determine the
maximum timestep size that will produce no adverse
effect on the results.
Most reservoir simulators use automatic time step
selection algorithms to determine the appropriate
timestep size. The algorithm selects a timestep size that
will maintain pressure, saturation or temperature change
over a timestep at the level specified by the user. If
automatic timestep selection is used, the maximum
time step size determined from the sensitivity study
should be imposed.
17.9 HISTORY MATCHING
The data available to construct a reservoir model is
often limited, so it is very unlikely that the initial reser-
voir model will provide a good representation of the
reservoir. However, this data represents the best esti-
mates of the engineers and geologists. The predictions
obtained from a reservoir model are thus not very use-
ful unless the model is able to produce a performance
similar to the historical data. History matching is a pro-
cess in which the parameters of the model are adjusted
until the computed results are similar to the historical
data. The adjustment of parameters should be carried
out within reasonable orders ofmagnitude; the input of
unrealistic data for the sake ofobtaining a good history
match is never justified.
The historical data usually includes observed pressures,
gas-oil ratio, and water-oil ratio. In cases where a well
is produced at a constant pressure or total fluid rate,
the match variable can be the oil or gas rates. In some
cases break-through time may be an important match
parameter.
Before any of the historical data is used in the history
match, an engineer should analyze the data to confirm
the accuracy ofthe recorded information. The engineer
must make sure that the data is in comparable units and
the pressure data has been corrected to the proper
datum.
When long production history is available, it is
customary for simulation engineers to specify monthly,
quarterly or semi-annually averaged daily rates as input
to the simulator. These daily production rates are ob-
tained by dividing the recorded cumulative production
during the selected period by the number ofdays in that
period. The production data to be matched should also
be averaged in the same fashion.
History matching is a time-consuming exercise. It can
take more than fifty percent of the time allocated to a
reservoir SImulationstudy. There is no system for chang-
ing the reservoir parameters that would result in a good
history match, so engineers must rely on their reservoir
simulation experience and their knowledge of the res-
ervoir. The general rule in history matching is to change
the parameters that have the largest uncertainty and also
the largest effect on the results. The engineers must con-
stantly check to make sure the parameters are within
reasonable limits.
17.10 FORECASTING RESERVOIR
PERFORMANCE
Following a satisfactory history match, the reservoir
model may be used to predict reservoir performance.
From the objectives of the simulation study, a list of
prediction cases is developed. It is always useful to es-
tablish a base case for comparing different proposed
development strategies. The base case is usually the
continuation ofthe existing operating strategy. The fol-
lowing are typical questions a reservoir model may
answer:
Estimate of reserves
Well pattern and spacing
Injection well location
Drilling schedule
Critical production rates
Well completion strategy
Well deliverability
Vertical vs. horizontal well performance
Migration of fluid
Recovery mechanisms
The model provides estimates of fluids in place at
initial and current conditions. Ideally, these estimates
should compare with the results from volumetric and
material balance calculations. The results of the base
case forecast should match reasonably well with the
219
results from decline curve analysis. Any significant
differences in these results should be investigated and
an explanation included in the engineering report.
If the objectives of the simulation study include the
determination of ultimate recovery for a number of
reservoir development alternatives, these cases are
simulated to the economic limit in order to estimate re-
serves. It is necessary to define the appropriate criteria
for reservoir abandonment conditions, such as minimum
producing rates, maximum water cut, minimum pres-
sure, and other factors that determine the economic limit.
When a simulation model is used to estimate ultimate
recovery, it is important to recognize that results are
subject to considerable uncertainty, especially if the
model is developed for a reservoir with limited produc-
tion history. However, the comparison of ultimate
recoveries from different development strategies can be
very meaningful and an excellent basis for choosing
between alternative development methods for a field.
17.11 USE AND MISUSE OF RESERVOIR
SIMULATION
The discussions in the preceding sections highlight
some applications of numerical reservoir simulation.
One major advantage ofsimulation models is that it can
be used to evaluate different field development strate-
gies at very small cost and without irreversible damage
to the reservoir. The misuse of reservoir simulation,
however, can lead to erroneous conclusions and costly
mistakes.
The use ofreservoir simulators requires at least as much
experience and engineeringjudgement as routine reser-
voir calculations. In considering the results obtained
fromreservoir simulation, three questions must be asked:
I. Are the final parameters used to obtain a good his-
tory match reasonable?
2. Is the simulator used in the study appropriate for
the process under consideration?
3. Are the simulation results consistent with other
engineering calculations?
Forecasts of reservoir performance are more reliable
during the first few years. Longer term prediction tends
to be less reliable because errors caused by uncertain-
ties in reservoir description become more significant
with time. Predictions of absolute value of recovery,
for example, will be less reliable in the long term. How-
ever, comparison ofrelative differences between similar
prediction cases are less likely to change.
220
Areservoir model should not be treated as a "blackbox"
for turning out numbers. Reservoir simulation is no sub-
stitute for good reservoir engineering. Only intelligent
use of reservoir simulation can avoid costly mistakes.
17.12 SUMMARY
Reservoir simulation is a very useful tool for studying
reservoir behaviour, for comparing alternative field de-
velopment strategies, and for forecasting production and
estimating reserves. Reservoir simulation involves the
use of complex mathematical formulations, numerical
approximations, and reservoir descriptions, all ofwhich
contain many uncertainties. It is necessary to use good
engineering judgement in conducting simulation stud-
ies and in interpretating the results obtained.
The advances in computer technology show no signs of
slowing. This trend will facilitate widespread applica-
tions of reservoir simulation technology to petroleum
reservoir engineering problems in the future.
References
Aguilera, R. 1980. Naturally Fractured Reservoirs.
PennWell Publishing Company, Tulsa, OK.
Au, A.D.K., Behie, A., Rubin, B., and Vinsome,
P.K.W. 1980. "Techniques for Fully Implicit
Reservoir Simulation." Paper presented at the
1980 SPE Annual Technical Conference and
Exhibition, Dallas, TX, Sep. 1980, SPE 9302.
Aziz, K., and Settari, A. 1979. Petroleum Reservoir
Simulation. Elsevier Applied Science Publishers,
New York, NY.
Chase, C.A., and Todd, M.R. 1984. "Numerical
Simulation of CO, Flood Performance." SPEJ,
Dec. 1984, pp. 597-605.
Coats, K.H. 1978. "A Highly Implicit Steamflood
Model." SPEJ, Oct. 1978, pp. 369-83.
---. 1980a. "An Equation of State
Compositional Model." SPEJ, Oct. 1980, pp. 363-
76.
---. 1980b. "In Situ Combustion Model." SPEJ,
Dec. 1980, pp. 533-54.
Coats, K.H., Dempsey, J.R., and Henderson, J.H.
1971. "The Use of Vertical Equilibrium in Two-
Dimensional Simulation of Three-Dimensional
Reservoir Performance." SPEJ, Mar. 1971, pp.
63-71.
Crichlow, H.B. 1977. Modern Reservoir Engineering
- A Simulation Approach. Prentice-Hall, Inc.,
Englewood Cliffs, NJ.
_________________________71
Gilman, lR., and Kazemi, H. 1988. "Improved
Calculations for Viscous and Gravity
Displacement in Matrix Blocks in Dual-Porosity
Simulators." JPT, Jan. 1988, pp. 60-70.
Jack, H.H., Smith, OJ.E., and Mattax, C.C. 1973.
"The Modeling of a Three-Dimensional Reservoir
with a Two-Dimensional Reservoir Simulator-
The Use of Dynamic Pseudo Function." SPEJ,
Jun. 1973, pp. 175-85.
Mattax, C.C., and Dalton, R.L. 1990. Reservoir
Simulation. SPE Monograph, Vol. 13.
Nolen, J.S. 1973. "Numerical Simulation of
Compositional Phenomena in Petroleum
Reservoirs." Paper presented at the 1973 SPE
Symposium on Numerical Simulation of
Reservoir Performance, Houston, TX, Jan. 1978,
SPE4274.
Stone, H.L. 1970. "Probability Model for Estimating
Three-phase Relative Permeability." Trans., SPE
of AIME, Vol. 249.
Thele, KJ., Lake, lW., and Sepehrnoori, K. 1983.
"A Comparison of Three Equation-of-State
Compositional Simulators." Paper presented at
the 1983 SPE Symposium on Reservoir
Simulation, San Francisco, CA, Nov. 1983,
SPE 12245.
Todd, M.R., and Chase, C.A. 1979. "A Numerical
Simulator for Predicting Chemical Flood
Performance." Paper presented at the SPE
Symposium on Reservoir Simulation, Denver,
CO, Feb. 1979, SPE 7689.
Todd, M.R., and Longstaff, WJ. 1972. "The
Development, Testing, and Application of a
Numerical Simulator for Predicting Miscible
Flood Performance." JPT, Jul. 1972, pp. 874-82.
Warren, r.s., and Root, PJ. 1963. "The Behaviour of
Naturally Fractured Reservoirs." SPEJ, Sep.
1963, pp. 245-55.
Youngren, G.K. 1980. "Development and Application
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SPEJ, Feb. 1980, pp. 39-51.
221
Chapter 18
DECLINE CURVE METHODS
18.1 INTRODUCTION
The decline curve is a basic tool for estimating
remaining proved reserves, and can be applied once there
is sufficient history to show a trend in a performance
variable that is a continuous function of either time
or cumulative production. Forecasts are made by
extrapolating trends to an endpoint where production
is expected to cease (i.e., an economic limit or a related
parameter such as water-oil ratio). Such forecasts are
particularly useful in the latter stages of depletion when
trends are clearly evident and there is insufficient rev-
enue to justify a more comprehensive analysis.
The origin of decline curves is uncertain, but their
usefulness to monitor day-to-day operations likely
predates their use as a forecasting tool. Indeed, prior
to the general trend to centralize and use computers for
production accounting and engineering functions, it
was common practice for field offices to maintain
production graphs to assist with day-to-day operations.
Decline curve methods have a universal appeal because
they provide a simple visual representation of a com-
plex production process. In some cases a visual
interpretation is too simplistic, and some background
knowledge is needed in order to draw reliable conclu-
sions. In particular, it should be appreciated that forecasts
are usually based on linear extrapolations of historical
trends. Such extrapolations are strongly affected by any
transformation used to obtain a linear relationship. It is
also implicitly assumed that the factors causing the his-
torical decline will continue during the forecast period.
Some factors causing the decline are physical processes
(e.g., pressure depletion, coning, interface movement)
that are not easily changed. However, other factors such
as regulatory environment (e.g., well spacing, gas-oil
ratio penalties, maximum rates) and operating practices
(e.g., type and size of artificial lift, hours of operation,
frequency ofwork0 vers, gas gathering system pressure)
can quickly change from time to time and from lease to
lease.
222
18.2 SOURCE AND ACCURACY OF
PRODUCTION DATA
It is worthwhile to review the source of the basic data
used to prepare decline curves. Production accounting
functions such as royalty payments, allocation ofgroup
production to individual wells, gas plant balances, and
reports to regulatory agencies usually have a monthly
reporting and reconciliation period. Daily records of
hours ofproduction, test rates, system pressure and other
operating variables are kept to make these monthly re-
ports, but they are often discarded or placed in dead
files after a few months. The permanently accessible
record ofproduction and injection data usually consists
ofmonthly totals for gas, oil, and water production (in-
jection), operated hours, and wellhead pressure. Monthly
totals are usually converted to daily rates for graphing
purposes because facility capacity, contract rates, and
economic limits are usually expressed as daily rates.
The frequency and quality of well tests are the most
important factors affecting official production records.
For gas wells, it is common practice to measure raw gas
production for each well and to run annual deliverabil-
ity tests. The measured production helps to ensure
reliable well-by-well cumulatives; however, the seasonal
and variable demand for gas can result in highly vari-
able rates, and this tends to complicate decline analyses.
For oil wells, it is common practice to measure group
production, and test individual wells monthly. The day-
to-day demand for oil is less affected by markets, and
many oil wells are produced at capacity, which tends to
simplify decline analyses.
The least complex production facility is a single well
served by a single-well battery. In such a facility, there
is no doubt about the source of the production. The
measurement accuracy will also be reliable if the facil-
ity is properly sized. Among the most complex facilities
are central treating facilities that serve several multi-
well satellite batteries equipped with three-phase test
separators and operating at high pressure. In this case,
the total (group) production of oil, gas, and water is
5
allocated to individual wells on the basis of their
operated hours and test rates. The accuracy ofthis allo-
cation depends upon the frequency of well testing and
the variation of oil, gas, and water rates among wells. A
good indication of the allocation accuracy is given by
the quotient of theoretical production and measured
production for each fluid (e.g., oil, gas, and water).
Theoretical production is the piece-wise sum of the
product of test rate and time interval. These quotients
(called proration or allocation factors) are usually
considered to be acceptable if they are in the range of
0.95 to 1.05. It should be noted that errors in test rates
or producing hours will cause misallocations among
wells and pools. Errors in gas-oil and water-oil ratios
can be somewhat larger because the allocation factor
for each fluid may differ (e.g., an oil allocation factor
less than 1.0 and a water allocation factor greater than
1.0). Thus, gas-oil ratio and water-oil ratio curves often
showmore "noise" than their corresponding rate curves.
18.3 TERMINOLOGY
The following are definitions of terms used in this
chapter:
Decline curve: the generic label applied to many
different types of charts, graphs, and data representa-
tions. The most basic decline curves show the change
in oil, gas, or water production rate with time (rate-time
graphs). The production rate is usually expressed as
volume per day to facilitate understanding; however,
hourly, weekly, monthly, and yearly rates may also be
used. Graphs with time as the independent variable are
easily understood and the rate-time data is directly ap-
plicable to economic evaluations. The other common
independent variable is cumulative oil or gas produc-
tion (rate-cumulative graphs). The advantage of these
is that an extrapolation to the economic limit yields a
direct estimate of the proved reserve.
Calendar-day rate: the monthly total production
(injection) divided by the number of days in the month.
Operated-day rate: . the quotient of monthly
production (injection) and actual operated hours in the
month multiplied by 24. If calendar-day and operated-
day rates are plotted on the same graph, any separation
of the curves is a measure of the shut-in or down time.
Ifthere are no rate controls, the area between the graphs
is a measure of "lost production." Operated-day rates
may define a better decline trend than calendar-day rates
because they smooth out the variation caused by down
time.
Ratio curves: the gas-oil ratio (GOR) and water-oil
ratio (WOR) curves that are commonly plotted for oil
wells, These ratios are a measure of the efficiency of
the oil production process. An increase in either ofthese
ratios is usually accompanied by a decrease in the oil
rate. GOR penalties are often applied as a rate control
measure to limit the amount ofreservoir voidage caused
by high-GOR wells. For gas wells, the corresponding
ratios are condensate-gas ratio (CGR), liquid-gas ratio
(LGR), and water-gas ratio (WGR). The CGR is a mea-
sure of the richness of the raw gas. In gas cycling
schemes, the CGR decreases with increasing dry gas
break-through. The WGR ratiois a measure of'produc-
tion problems associated with liquid buildup in wells,
hydrates, and water coning.
Cut curves: the fraction of oil or water cut in the liquid
production from oil wells. These curves are another
measure of the efficiency of the oil production process.
Their fixed range (i.e., 0 to I) provides an alternative
criterion for an economic limit.
Reservoir performance charts: the composite
presentation ofrate-time graphs supplemented with res-
ervoir data (e.g., reservoir pressure, interface depth) and
performance variables (gas-oil ratio, water cut, number
of producing wells, water injection, cumulative oil).
These charts are often maintained for a lease or unit
by the operator, and for a field or pool by a regulatory
agency. Figure 18.3-1 is an example of a reservoir
performance chart for the gas-cycling and gas-cap
operations for a pool in Alberta. In the figure, IR is the
injection rate and cd is the calendar day. WGR is the
water gas ratio.
Production performance charts: charts graphed on
semi-log paper which utilize the fact that the product or
quotient of two straight lines on semi-log paper is an-
other straight line with a slope related to the slopes of
the other two. The idea is to use this slope interdepen-
dence to help estimate the decline rate. The advantage
is that the decline should be more reliable because more
ofthe data has been used to estimate it. Figure 18.3-2 is
an example of a production performance chart for a
pumping well where the production is controlled by the
artificial lift. The gas production is not shown because
it is not a factor in the decline. The slopes of the oil,
water and WOR curves are interrelated.
18.4 SINGLEWELLVS. AGGREGATED
WELL METHODS
Decline curve methods may be classified many ways;
however, any classification should recognize the diff-
erence between analyses for a single well and analyses
223
100
(I)
q. (rna/d)
- - - - - - - Operated-day Rate
--- Calendar-day Rate
d ( d q ~ d t )
-b= ---'--
dt
10
40
Figure 18.3-2 Production Performance Chart
18.5 DECLINE CURVE METHODS FOR
A SINGLE WELL
Decline curves are a visual tool, and it is easy to
overlookthat trends and extrapolations (linear or curved)
are defined by mathematical equations. The most com-
mon equations were given in classic papers by Arps
(1945,1956). Table 18.5-1 summarizesArps'rate-time
and rate-cumulative equations along with dimension-
less time and production groups proposed by Gentry
(1972). The decline relationships in Arps' first paper
were based on the loss ratios between equal time inter-
vals. While these relationships were useful for tabular
data, they are ofless interest today with the easy access
to computers and graphing programs. Mead (1956) re-
fined the loss ratio and series methods and was among
the first to attempt to associate the type of decline with
the drive mechanism. The equations in Table 18.5-1are
solutions to the following differential equation:
'C
M-
e
.Q
Me
~ ~
24
~
:E'
!;

16
~
'"
'"
E
,
'C
8
o
M .Q
e
M
e
8
24
0
~ o
G
16
~
o
E
,
8
o
Figure 18.3-1 Reservoir Performance Chart
a:
~
01::
7-';4
7=5T-
7"".
n:I
7
::' . 7"' 91""" . ",, 0 6"',T""6""26"'3T""64"T6=-=5T""9."T6=7T""66:r6=-9f:"90:r9""f:"
92:r9
::1
3
for aggregated production from a group of wells.
Decline curve analyses for single wells are widely used
and readily interpreted because they have the following
advantages:
All the raw data can be displayed.
Decline trends are easy to recognize and often
correlate with the total fluid production rate.
The economic limit can be directly applied to
estimate reserves.
The conventional decline equations have been shown
to have a strong foundation based on reservoir
engineering principles.
On the other hand, decline curve analyses and forecasts
for aggregated production from a group of wells are
also widely used, but may be misinterpreted for the
following reasons:
Only part of the raw data can be displayed.
Decline trends may be masked by the number and
variability ofthe wells contributing to the aggregated
production.
The economic limit cannot be directly applied to
estimate reserves.
The analyses are largely empirical (may be enhanced
by statistical analysis).
224
_______________________1
where b decline exponent
q = producing rate
t = time
At the time they were formulated, the equations were
considered to be empirical and were classified as expo-
nential, hyperbolic or harmonic. The classification was
based on the value of the exponent, b, used to charac-
terize the change in decline rate with the rate of
production. The classification is still widely used, but it
is now recognized that the value of b is not limited to
the range 0 b 1.
Table 18.5-1 Decline Curve Equations
18.5.1 Exponential Decline
Exponential decline is most commonly used because
both the rate vs. cumulative and the log (rate) vs, time
graphs are linear. Figure 18.5-1 is an adaptation of
a normalized rate, q/q., vs. a normalized cumulative
relationship, N'/(NP)l yr s by Schoemaker(1967) show-
ing both decline rate, d, and time, t, as parameters. The
diagram uses one year as the reference time, and
decline rates are expressed as percentage per year. The
chart illustrates a subtle difference between the slope,
a, and the annual decline rate, d. Various combinations
of decline rate and time (such as d =5%, t = 10 years;
Type of Decline
Characteristics
Exponent
Rate-time
relationship
Rate-cumulative
relationship
Dimensionless
time, t
d
Dimensionless
production, q"
Exponential
Declineis constant.
b=O
-]

N,=
q, t In
Hyperbolic
Decline varieswith
instantaneous rate
raisedto power "b."
-1
q= qJI +ba, t)'
b
-I
a.t> ---
, b
Harmonic
Decline is directly
proportional to the
instantaneous rate.
b = 1.0

In

qt m-
l
where a = decline as a fraction of producing rate (slope of line)
a
i
= initial decline rate
b = decline exponent
e = natural logarithm base 2.71828
N
p
= cumulative production
q = producing rate at time (t)
qi = producing rate at the beginning of the decline
t = time
Source: After Arps, 1956; Gentry, 1972.
225
-----=-r-/
;;"', I
Schoemaker shows how Figure 18.5-1 can be used to
solve many practical exponential declineproblems. He
points out that fiveparametersare usedin the equations
(q, q, N
p,
t, and either a or d) and, when any three are
known, the other two can be determined from the
figure. For example, if a new well has a capacity of
d = 10%, t = 5 years; and d = 50%, t = I year) do not
result in the same final rate, q/qi' Values of 0.6,0.59
and 0.5 can be read fromFigure 18.5-1. The difference
in rate is due to the number of times the annual decline
rate is applied(becauseofthe similarityof declinecurve
calculations to compound interest or depreciationcal-
culations). The slope, a, corresponds to very short
compound periods,andinthemathematical limitingpro-
cessis calledcontinuous compounding. The decline rate,
d, is related to the decline slope, a, by the expression:
d = I - e'
(2)
100 m
3/d
and is expected to decline at 10 percent per
year, what will the rate and cumulative productionbe
after 10years? The answers can be read fromthe inter-
section of the 10 percent decline and 10-year lines
(i.e., q/q; = 0.35 N/(Np)1 r = 6.18). Thus, after 10
years, the rate will be 35 m /d and the cumulative will
be 100 x 365 x 6.18 =225660 m
3
18.5.2 Hyperbolic Decline

With hyperbolicdecline, the decline is proportional to
theproductionrate raisedto thepower b. Unfortunately,
hyperbolicdeclinedoes not plot as a linear relationship
on commongraph papers (i.e., linear, semi-log, or log-
logco-ordinates). Priortothe widespread useofpersonal
computers, this lack of linearity was the main reason
for the restricted use of hyperbolic declines. Slider
(1968) preparedtransparent overlays (eachoverlayhad
a fixedb-valueand a family of declinerates) that could
be visuallymatchedto log (rate) vs. time graphs. Once
10 9 8 3 4 567
Normalized Cumulative Production, Np/(N
p)
1 y'
2
0.3 \'0'lIS
ZO'lIS
Source: After Schoemaker, 1967.
Figure 18.5-1 Exponential Decline Chart
226
---------------------_..".
f(b) = Y(x" - I) (1- b) - b (1 - x
I
) (3)
where x = q/q
y = N/(qjt)
b = decline exponent
The authors then used standard numerical techniques
to find the roots of this equation (i.e., f(b) = 0). The
equation was demonstrated to have at least two roots,
one at b =0 and another at b = 1. In general the equa-
tion behaves as a cubic equation with three real roots
including b = 0 and b = I. If the decline is truly expo-
nential or harmonic, then the data will also satisfy the
dimensionless production equations for these declines
in Table 18.5-1. The value of "b" need not lie between
oand I. Because this is a general solution, it shows that
negative values are also possible. The method is actu-
ally a numerical equivalent of Gentry's graphical
solution based on Figures 18.5-2 and 18.5-3. It should
be noted that both methods assume that any type
of decline is specified by two rates, the cumulative
production, and the actual time on production (i.e., qj'
q, N
p
' t). Ifthe production rigorously followed the Arps'
equations and there were no measurement or reporting
errors, then everyone using the method would get the
same answer. Unfortunately, because real data does not
rigorously follow the equations and has some noise, the
method is data-dependent. When different data pairs are
used, different values may be calculated for both
a and b. The method does not give a quality or
"goodness-of-fit" criterion, but if the theoretical curve
o 0.2 0.6 0.4
q, = Np/(q,t)
0.8
1.0:f- ~ ~ ~ , y
Source: AlterGentry, 1972.
Figure 18.5-3 Decline Curve Analysis Chart
Relating Production Rate to
Cumulative Production
10.0
the overlays were prepared, the visual matching tech-
nique could be applied with about the same ease as an
exponential decline extrapolation.
The next development in handling hyperbolic declines
was based on the dimensionless groups shown
in Table 18.5-1. Gentry used these groups to develop
the generalized rate-time and rate-cumulative graphs
shown in Figures 18.5-2 and 18.5-3, respectively.
Figure 18.5-2 is simply the family of rate-time graphs
for a unity decline rate (a, = 1.0). It should be noted that
the exponential decline (b = 0) plots as a straight line
as expected on the log rate vs. time co-ordinates.
Figure 18.5-3 is more difficult to understand because
the transformation to dimensionless production changes
the character of the graph. This figure is not directly
comparable to standard rate-cumulative graphs. It should
be noted that the harmonic decline (b = I) does not plot
as the expected straight line on the log rate vs. cumula-
tive co-ordinates. Figure 18.5-3 shows that the
cumulative production is strongly related to b, but some
calculations are required to quantify the sensitivity in
every case. To apply Gentry's method, two rate-time
pairs are read from a decline graph, and these values
along with cumulative production over the time period
are applied to Figure 18.5-3 to determine b. With a
knowledge of b and the time period between points,
Figure 18.5-2 is used to calculate the decline rate.
Agbi and Ng (1987) showed that the dimensionless pro-
duction equation for hyperbolic decline in Table 18.5-1
can be expressed as a nonlinear equation with "b" as
the only unknown.
Figure 18.5-2 Decline Curve Analysis Chart
Relating Production Rate to Time
Source: After Gentry, 1972.
227
is plotted on the same scale as the raw data, a visual
comparison is always possible.
In many cases the purpose of decline analysis is to
estimate the value of future production. Experienced
evaluators avoid extrapolating hyperbolic declines over
long time periods because they frequently result in un-
realistically high reserve and value estimates. The
characteristic of hyperbolic decline (i.e., continuously
decreasing decline rate) can result in extremely long
producing lives that are incompatible with experience
elsewhere and with expectations for equipment life.
Many wells are observed to trend toward an exponen-
tial decline in their later life. Figure 18.5-4 is a log rate
vs. time overlay developed by Long and Davis (1988)
to cope with this problem. Each line on Figure 18.5-4
is for a fixed b-value. The range extends from 0.3 to
I. 7, which allows handling of those wells where
b-values greater than 1.0 have been observed, e.g., in
Alberta tight gas (Milk River) and fractured and hetero-
geneous reservoirs (Austin Chalk and Spraberry). The
numbered dots on Figure 18.5-4 correspond to tangent
points where an exponential decline would start with
the specifiedexponential decline rate (slope). The power
of the method is that it uses all of the data to establish
the nature ofthe decline, but allows selection of a point
at which the decline is expected to hold the decline rate
and follow an exponential decline. The method is par-
ticularly suited where monthly production rate is plotted
on standard three-cycle graph paper.
Robertson (1988) developed the following production
rate equation, which is hyperbolic initially, but
asymptotically exponential with time:
(4)
where ~ = a dimensionless constant to control
how strongly hyperbolic the initial
decline is before asymptotically
becoming exponential
The value of ~ ranges from 0 to 1.0 and is related to
the abandonment pressure and the rock and fluid
properties. This equation provides for another slack
10' ,------------------------------------,
b=1.7 3
b = 1.3
b= 1.5
b = 1.1
b = 1.0 5
5
4
6
Hyperbolic Decline Type Curves
3-Cycle Semilog x 20 Years
95
80
60
50
40
30
10 Li-L..1-.LJe-.J.-L..1-l.2l.-L...L.LJe-.J.-L...LL..l-l..-L-L..L.l-L...L.J.:::J=--....L-L...LL.l-L...LL..l..-LJ-J
o 12 24 36 48 60 72 84 96 108 120 132 144 156 168 180 192 204 216 228
Source: Long and Davis. 1988. Time (months)
Figure 18.5-4 Hyperbolic Curve Overlay
228
_______________________ I,
parametertofit actualdataby ananalytical decline equa-
tion. Although the author did not recommend it, the
equationprovides a mathematical framework toperform
a fully numerical curve fit with results very similar to
the manual and visual process of Long and Davis (i.e.,
similar to the Agbi and Ng extension to the Gentry
graphical solution).
Lack of linearityof hyperbolicdeclines is no longer an
obstaclewhendataare displayedandprocessedbycorn-
puter. There are numerouslow-cost softwareprograms
for performingdecline curve analysis. Most programs
apply a least-squares criterion to find the value of "b"
which best fits the reported production data. Once "b"
has been determined, the productiondata are displayed
onthe samegraphwith the theoretical declineandfore-
cast. Some programs allow manual changes to the
least-square parametersto obtain a personalized visual
fit to the data.
18.5.3 Harmonic Decline
Harmonic decline is a special case of hyperbolic
decline in which the decline rate is directly propor-
tional to the instantaneous production rate. The rate-
cumulative relationship from Table 18.5-1 shows that
harmonic declinewill plot as a straight line ona lograte
vs. cumulative plot. Figure 18.55 is a production
performance graph for a Blairmore oil well, which
illustrates severalsegmentsof harmonic decline(Purvis,
1987).
The rate and ratio curves are somewhat erratic due to
measurement andbatteryprorationerrors. Thetotal fluid
productionrate, qw + qo' is determinedby the size and
operatingspeed of the artificial lift equipment. During
the past 30 years the total fluid rate has varied widely
witha fewperiodsof relativelystablerate. It is interest-
ing to note that during these dramatic changes in rate,
the WOR+ I graph has shown moderate sensitivityto
rate. This is surprisinggiventhat duringtheperiod1974
to 1976, the qw + ~ rate was about 10 times the initial
rate.
Anotherinteresting feature of Figure 18.5-5is theshape
of the cumulative water plus cumulativeoil (Q
w
+ Q
o)
graph. Thegraphisinitiallyconcavedownward, butafter
a periodof continuous waterproduction, thegraphtrends
toward a straight line. In fact, three rectilinear sections
of this graphare evident. The slopes of these three seg-
ments were transferred to the WOR+ I graph. This is
a useful characteristic of harmonic decline, which
can be applied after a period of continuous water
production. The reasonfor this particularcharacteristic
is that the derivative, d(Q
w
+ Q
o)/
d(Qo)' equals
10' 0------------------,
2 ,
Q
w+Qo(10
mid) _
q. +q, (m'/d)
10
10
o 20 40 60 80
Cumulative Oil Production (10' m')
Source: AfterPurvis. 1987.
Figure 18.5-5 Production Performance Graphs
WOR+ I. The functional relationship can be demon-
stratedas follows. Any linear segment of the Q
w
+ Q
o
graphhas the functional form
(5)
which, whendifferentiatedwith respect to Q
o
yields
d(Q. + Q,) = WOR+ I = C 10" '2Q, (6)
d(Q,) 3
where c
t
, c
2
' c
l
= data-specificcoefficients
Consequently, the dash line approximations of the ~
graphweredrawntohonour the usual slope interdepen-
dence amongthe graphs. Because the well is part of a
multi-well pool, no conclusions can be drawn on the
effect the well ratehas on pool recovery. However, it is
clear that increasedrates have increasedrecovery from
this particular well.
229
18.5.4 Dimensionless Solutions and
Type-Curve Matching
Fetkovich (1980) used simplified material balance and
inflow performance relationships for both gas and oil
wells to show that the Arps' empirical equations match
up with some ofthe classical solutions to the radial flow
diffusivity equation. Exponential decline was shown to
be the long-time solution to the constant terminal
pressure case (constant bottom-hole pressure). The
short-time (transient) solution is a function of the
reservoir size expressed as r/r
w
ratios (r, = external
boundary radius, r
w
= wellbore radius). Fetkovich dem-
onstrated that for oil wells (slightly compressible
single-phase flow) the type of decline does not change
with the drawdown. On the other hand, for gas wells
(compressible single-phase flow) it was demonstrated
that a change in back pressure changes the type of de-
cline. This finding helps explain the reliability ofdecline
analysis for oil wells. In many practical cases, wells are
produced at capacity and the bottom-hole pressure does
not change significantly over time (i.e., the well is
pumped off). Fetkovich demonstrated that empirical
decline curve analysis has a solid theoretical base.
10
Figure 18.5-6 shows his analytical transient type curves
combined with Arps' empirical depletion type curves.
The depletion type curves are essentially the same as
those proposed by Gentry; however, Fetkovich plotted
q/qj instead of q/q and used log-log coordinates to
facilitate type-curve matching. It is apparent from Fig-
ure 18.5-6that the transition from transient to depletion
behaviour occurs at a dimensionless time of approxi-
mately 0.3. Figure 18.5-6 also shows that until the
dimensionlesstime exceeds 0.3, it is impossible to know
the type of decline that ultimately develops. Thus, the
safest approach to extrapolating trends early in the life
of a well is to assume an exponential decline.
Type-curve matching was first used to interpret
pressure buildup and drawdown data. The procedure in-
volves comparing the pressure-time data from a well
with a family ofdimensionless solutions. The same gen-
eral procedure is used for decline data. Fetkovich
summarizes the procedure as follows:
I. The actual rate-time production data are plotted on
a log-log tracing paper of the same size as the type
curves to be used. Any convenient units can be
used for rate or time because a change in units
~ I : ~ , I
,
So <0
<00 100
100 1000
Transient +Depletion
1.0
r'/r
w
= 100000
Exponential
Common to Analytical
and Em irical Solutions
Analytical Type Curve Solution
10.
1
tdO
10
Source: After Fetkovich, 1980.
Figure 18.5-6 Composite of Analytical and Empirical Type Curves
230
__________________________6
simply causes a uniform shift of the raw data on a
logarithmic scale.
2. The tracing paper with the data curve is placed over
a type curve and shifted until a good match is ob-
tained. The axes of the two curves must be kept
parallel during this process. Several different type
curves should be tried to obtain the best fit ofall the
data.
3. To make a forecast, the type curve is traced onto
the tracing paper overlay. Future rates are then sim-
ply read from the real-time scale on which the raw
data was plotted.
4. To evaluate deciine-curve constants or reservoir
variables, the type of decline is noted and a match
point is selected anywhere on the overlapping por-
tion of the curves. With a knowledge of the type
of decline and the coordinates of the match point
on both sheets, the constants or variables are
evaluated from the appropriate dimensionless
relationship.
Many software programs for performing decline
analysis facilitatea computerized Fetkovich overlaypro-
cedure. These programs greatly facilitate matching
actual data to any of the numerous type curves and are
particularly useful for analyzing gas wells and other
wells with extended transient behaviour.
18.6 DECLINE CURVE METHODS FOR
A GROUP OF WELLS
Estimating the reserves for a group ofwells could be an
onerous task if a decline analysis were performed for
each well. Consequently, it is common practice to per-
form one decline analysis for the aggregated production
from all the wells in a lease or pool. While this is com-
mon practice, it is not as reliable as one might assume.
When the production from a group of wells is aggre-
gated (summed), only the total is available for plotting,
and much of the raw data is omitted from the analysis.
Sometimes the average-well rate is plotted to make the
analysis appear more like that for a single well. An-
other major difficulty is that the economic limit is not
clearly defined for aggregated production. This diffi-
culty also makes forecasts hazardous because some of
the wells will be abandoned during the forecast and will
no longer be contributing to the aggregate. Clearly, the
theoretical base for aggregated production is not as solid
as that for single wells.
Despite the foregoing problems, decline curve analysis
can be successfully applied to aggregated production.
For example, if there is a wide variation in rates, the
analysis can be improved by splitting the wells into a
few groups having similar characteristics (e.g., rates,
water c ~ t s , remaining life, well spacing, gas-oil ratios).
By making sub-groups of wells with similar remaining
lives, an economic limit can be applied with more con-
fidence. To establish a reliable decline for tight gas pools,
the wells should be grouped on the basis of their on-
production date and initial production rate. In general,
aggregate rate vs. cumulative curves exhibit decline
trends which are easier to interpret (i.e., better defined)
than those for aggregate rate vs. time curves.
Figure 18.6-1 is a production-performance graph for the
Leduc D-3 A Main Pool showing its final 19 years of
oil production. The pool had an oil zone of 11.6 m sand-
wiched between a large gas cap and an aquifer. By 1974
the oil zone's thickness had decreased to about 2.5 m
and, by the start of gas cap blowdown in November
1989, the oil zone was less than 1 m thick. Figure
18.6-1 shows that three correlation segments are required
to account for the distinct change in the slopes of the
curves related to pool oil operations. The gas produc-
tion from oil wells (solution plus coned gas) was
constrained by the portion of the Devon gas conserva-
tion plant capacity available to the pool. Thus depending
upon the available capacity, many ofthe highest-GOR
wells would be shut in. Also in September 1978, the
pool water handling (artificial lift and treating capac-
ity) became another constraint and contributed to the
change in slope of the '10, qo + qw' and oil cut curves.
From 1984 to 1988, several wells were worked over
and every effort was made to maximize oil recover;
prior to the impending gas cap blowdown. After
blowdown commenced, wells were shut in as the aqui-
fer displaced the extremely thin oil zone past the
completion intervals of the oil wells.
It is apparent from the linearity of the dash lines that
valid rate forecasts could have been made after a short
bit of history in each correlation segment. Figure
18.6-2 is the corresponding rate vs. cumulative graph.
A good estimate of ultimate recovery could have been
made from this graph as early as 1975. Note also that
the straight-line segments on Figures 18.6-1 and 18.6-2
are characteristic of exponential decline.
18.6.1 Statistical Method
Purvis (1990) showed that many of the deficiencies of
decline analysis for a group of wells can be overcome
by using a log-normal distribution to quantify the
changes in well rates over time. The method provides a
means of forecasting future well counts through proper
application of the well economic limit. The method
231
Figure 18.6-2 Rate-Cumulative Production Graph
was applied in Alberta to the Redwater 0-3, Swan
Hills BHL C, Twining Rundle A, and Viking Kinsella
Wainwright B Pools.
Figure 18.6-3 shows some historical and forecast
distributionsofwell rates for the Pembina CardiumPool.
The pool has been penetrated by over 5000 wells. In
June 1990, there were 3411 producers and 1426 injec-
tors, but only 2716 producers and 1037 injectors were
operated. The number of inactive producers and
injectors indicates the maturity of the waterflood and
the fact that, at current prices, it is uneconomic to oper-
ate over 1000 wells. In December 1970, the median well
rate was 4.25 m
3/d,
and by October 1990, it had de-
creased to 1.53 mvd. The dash lines show that the
median well rate is forecast to decline to 0.45 m
3/d
by
the year 2030. The variance of the distribution has con-
tinuously decreased, as shown by the decreased slope
of the distributions. A significant feature of the plot is
that the lines for years 1982, 1986 and 1990 tend to
focus and pivot at about 0.3 m
3/d/well
and 2 percent of
wells. This focus is taken to mean that the economic
limit is about 0.3 m
3/d/well
and that typically 2 percent
of the wells are at, or below, the economic limit at any
time.
The coordinates of Figure 18.6-3 are representative of
the log-normal distribution, the properties of which are
the subject of a classic textbook (Aitchison and Brown,
1966). The linearity of the well rate distributions indi-
cates that they are approximately log-normal. The
median for the log-normal distribution is the arithmetic
average of the logarithms of the population (i.e.,
numerically the geometric average). The small circles
at 50 percent of the wells in Figure 18.6-3 are the geo-
metric averages of the numeric values used to plot the
distributions. These values are in good agreement with
the values that would be read from the graph. Indirectly
the circles show that the distribution is approximately
log-normal. Table 18.6-1 summarizes other numerical
averages and also summarizes the results of chi-square
goodness-of-fit tests of the raw data when divided into
13 equally spaced class intervals.
The log-normal is characteristic of phenomena or
processes defined by multiplication (or division).
Examples oflog-normal distributions range from sedi-
mentary petrology (Podruski et aI., 1988) to the probit
methods used for biological assays. There are good rea-
sons to expect well production rates to have a log-normal
distribution. The radial flowequation that defines steady-
state production rates simply multiplies and
divides parameters that are constant or that change very
slowly. The two most important terms are the pay thick-
ness and permeability which are often log-normally
distributed. These actually help to ensure a log-normal
rate distribution because the product of two log-normal
distributions is another log-normal distribution.
The rate-ratio-cumulative graphs in Figure 18.6-4 show
that the pool has been on continuous decline for 20 years.
The linearity ofany rate graph on the linear coordinates
is characteristic of exponential decline. The most
33
0.1 ---
Oil Cut
q, (m'/d/well)
Producing Wells
27 29 31
Cumulative 011 Production (10
6
m
3)
.,--- ---,1
10
TImeLine(years)
-
10'
l!.
E 2
"0
Figure 18.6-1 Production Performance Graph
232
--------------- ..sa
10.1 L--J..._'----'-_'--.L-.L-.L--'---'-_-'-_----'
2 5 10 20 30 40 50 60 70 80 90 95 98
Percentage of Wells
notable change in Figure 18.6-4 is the levelling ofpool
water production at about 20 000 m
3/d
in 1975.
The levelling occurred after the pool was put on good
production practice and voidage replacement was re-
laxed. The pool oil rate exhibits different decline rates
before and after the water production rate levelled. The
median well decline rate was less affected by the change.
It is not clear from Figure 18.6-4 if the decline is sev-
eral segments of exponential decline or if the levelling
ofoil rates is due to harmonic decline. Some ofthe miti-
gation ofpool oil-rate decline from 1980 through 1986
was due to increased well count (re-activations and new
drilling) and through judicious selection of the wells
to be operated. Since 1986 the pool performance has
deteriorated significantly.
The forecasts shown by the dash line were calculated
on the basis of exponential decline rates of 3 and 4 per
cent per year for the median well rate and the pivot point
shown in Figure 18.6-3. The same forecasts on loga-
rithmic coordinates are shown in Figure 18.6-5 which
illustrates that it would not be realistic to assume a
linear (i.e., harmonic) extrapolation of either the pool
rate or median well rate. The median well rate
only changes from 4.25 to 1.53 m
3/d
so it appears linear
on both linear and logarithmic coordinates. The
calculations for Pembina support the pragmatic approach
of limiting a harmonic decline to some time period
followed by an exponential decline. Forecasts based on
harmonic declines of 3 and 4 per cent for the median
well rate resulted in ultimate recoveries of 212 and
207 million m3, respectively. These forecasts were not
+2
Standard Deviation
-1 0 +1
12 1970
12 1974
12 1978
12 1982
12 1986
10 1990
a;
roi
(])
1ii
II:
(5
1
10
Figure 18.6-3 Distribution of Well Rates,
Pembina Cardium Pool
Table 18.6-1 Statistical Parameters for Pembina Cardium Pool
Statistics for Raw Data Date (month-year)
12-1970 12-1974 12-1978 10-1982 12-1986 10-1990
Numberof wells 2681 2490 2481 2514 2658 2615
Arithmetic average 8.61 5.89 4.01 3.20 2.77 2.07
Geometric average 4.25 3.33 2.57 2.20 1.90 1.53
Harmonic average 2.43 1.88 1.58 1.45 1.30 1.13
Standard deviation 13.35 7.79 4.84 3.33 2.90 1.84
Coefficient of variation 1.55 1.32 1.21 1.04 1.05 0.89
Variation 0.68 0.65 0.60 0.57 0.58 0.54
Lorenz measure 0.59 0.55 0.48 0.45 0.46 0.42
X' Goodness-of-fit test for
log-normal (13 class intervals) 4.15 17.15 14.53 16.79 6.48 7.87
233
7
--.r
DETERMINATION OF OILAND GAS RESERVES
24 ,---,-"7"<--,-----.----r--..,.--.,.---, 105r--------- ~
o
'"
'"
o
co
'"
~
! , " ,', I" '.",1,
, , I
Oil and Water Rate (m
3/d)
~ ,
."
Oil Rate (m
3/d)
~ ,
"
\ \
\ \
" \ \
" I I
" \ 13%
\\4%
"
\I
II
Well Count (x 10') II
_______- .........~ % 1 1 3 %
"
"\\
1\
I I
113%
4%
:=><--
3 ~ -
Median Well Rate (m Id) "-, -_
, ,
\ \
\ \3%
4%
10
10
3
10'
- ~ - -
4%" '3%-
,
,
--.
"
4% ~ ~ -, 3%
g
'"
~ ~
" ""'''''11'11'
Pool Oil Rate (10' m'/d)
---
WaR (m'/m')
Pool Water Rate (10' m'/d)
Median Well Rate (m'/d)
4
2
4
a
8
2
16
16
24
220 100 140 180
220 100 140 180
aI---.--=r--,--,.-....,...---r----r--i
60
Figure 18.6-4 Rate-Ratio-Cumulative Graph,
Figure 18.6-5 Production Performance Graphs,
believed because of the extremely long producing life
for the pool.
18.6.2 Theoretical Methods
Simple theoretical models are sometimes used to make
forecasts of pool production. These models can often
be rearranged into rate-time or rate-cumulative equa-
tions to prepare a family of forecasts which have some
key, but uncertain, reservoir property such as perme-
ability as a parameter. The family of forecasts can then
be used for matching aggregated pool production (i.e.,
similar to the type curve matching of individual well
production).
The performance of pools where oil is displaced by
either natural water drive or by water injection can
often be characterized by a semi-log plot of WOR, oil
cut, or water cut vs. cumulative recovery. To provide a
theoretical basis of these cut-cum curves, Ershagi and
Abdassah (1984) proposed a co-ordinate transformation
based on fractional flow and Welge's recovery formula.
Lohec (1984a) demonstrated the effect of reservoir
geometry on production rate in reservoirs involving fron-
tal displacement mechanisms. He noted that reservoir
geometry is one of the first characteristics ofa reservoir
to be defined and understood (e.g., seismic structure defi-
nition, well control, gas-oil and water-oil contacts). If
the frontal displacement is gravity-dominated, the
remaining hydrocarbon volume often approximates a
simple geometric shape (e.g., a cone, wedge, or cylin-
der) and simple expressions may be developed for the
change in hydrocarbon volume with hydrocarbon re-
covery. Next, the rate ofproduction is assumed to have
a simple power law relationship to the remaining
hydrocarbon volume. These simple expressions provide
the theoretical basis for calculating rate-cumulative and
rate-time performance (i.e., the same role that material
balance and inflow performance relationships play in
developing type curves for wells). Lohec (1984b)
applied the method to the East Texas, Friendswood,
Conroe, and Hawkins fields.
234
7
Richardson and Blackwell (1971) showed that several
reservoir flow mechanisms have an element ofsymme-
try and a single dominant force such that a simple
mathematical model could be developed to forecast res-
ervoirperformance. Their models for gravity segregation
and water under-running are simple enough to be used
as the theoretical basis for some decline curve analysis.
18.7 SUMMARY
Decline curves are widely used to convey information
about past production performance and to forecast fu-
ture performance and reserves. The following tips and
precautions should be noted:
I. Production decline is caused by one factor or a
combination of factors including reservoir deple-
tion, equipment wear, operating practice, and
regulatory environment. It is risky to extrapolate
historical trends without understanding the factors
contributing to the decline or anticipating new fac-
tors that can come into play. For example, the
decline ofan oil well in an undersaturated pool will
change as the pool pressure decreases below the
bubble point. Failure to anticipate such a change
can negate what would otherwise be reasonable ex-
trapolation of past performance.
2. The product or quotient of two exponentials is
another exponential. This recursive characteristic
is useful for any linear functions on semi-log paper.
For example, if the oil rate and gas rate are linear
on semi-log paper, the gas-oil ratio must also be
linear, with a slope related to the oil and gas rates.
Similarly, iftotalliquid production is constant (typi-
cal of pumping wells) then both oil rate and oil cut
must have the same slope. Another example ofslope
interdependence is that a trend of increasing total
fluid production will tend to offset or mitigate an
oil rate decline.
3. The misallocation ofgroup production to individual
wells can cause ratio curves to be more erratic than
the corresponding rate curves.
4. Decline curves for single-well pools produced at
capacity have the strongest theoretical base followed
by single-well analysis in multi-well primary
production pools. Well-by-well decline trends in
multi-well pools subject to pattern floods can be
difficult to recognize and forecast due to fluid
migration.
5. Decline curves for aggregated production from a
group ofwells do not have a strong theoretical base,
but with appropriate caution and understanding, the
analysis can be reliable.
6. Experienced evaluators often use an exponential
decline to extrapolate a hyperbolic decline to pre-
vent unrealistically long lifetimes and reserve
estimates.
7. Dimensionless type curves are powerful tools for
analyzing and forecasting individual well behaviour.
These curves are particularly useful for tight-gas
and other wells with extended transient behaviour.
8. Well production rates for a group ofwells produced
at capacity can be characterized by a log-normal
distribution. Consequently, the decline rate for the
median well is the statistically significant decline
rate for aggregated production.
9. All of the available data (e.g., reservoir pressure,
gathering system pressure, injection volumes, etc.)
should be plotted and considered when extrapolat-
ing a decline trend to make a production forecast.
10. The results of simple theoretical models and
volumetric calculations may be used to constrain
and enhance forecasts starting from an observed
decline trend.
References
Agbi, B., and Ng, M.e. 1987. "A Numerical Solution
to Two-Parameter Representation of Production
Decline Curve Analysis." Paper presented at
Petroleum Industry Applications of
Microcomputers, Montgomery, TX, Jun. 1987,
SPE 16505.
Aitchison, J., and Brown, J.A.C. 1966. The
Lognormal Distribution. The University Press,
Cambridge, U.K.
Arps, U. 1945. "Analysis of Decline Curves." Trans.,
AIME, Vol. 160, pp. 228-247.
---,. 1956. "Estimation of Primary Oil
Reserves." Trans., AIME, Vol. 207, pp. 182-191.
Ershaghi, L, and Abdassah, D. 1984. "A Prediction
Technique for Immiscible Processes Using Field
Performance Data." JPT, Vol. 36, pp. 664-670.
Fetkovich, MJ. 1980. "Decline Curve Analysis Using
Type Curves." JPT, Vol. 32, pp. 1065-1077.
Gentry, R.W. 1972. "Decline-Curve Analysis." JPT,
Vol. 24, pp. 38--41.
235
s
Lohec, R.E. 1984a. "Analytic Approach Evaluates
Frontal Displacement Mechanism." O&GJ,
Vol. 82, No. 38, pp. 83-89.
---. 1984b. "Analytic Approach Applied to
Known Reservoirs." O&GJ, Vol. 82, No. 39, pp.
92-97.
Long, D.R., and Davis, M.J. 1988. "A New Approach
to the Hyperbolic Curve." JPT, Vol. 40, pp. 909-
912.
Mead, H.N. 1956. "Modifications to Decline Curve
Analysis." Trans., AIME, Vol. 207, pp. 11-16.
. Podruski, lA., Barclay, lE., Hamblin, A.P., Lee, PJ.,
Osadetz, K.G., Procter, R.M., and Taylor, G.C.
1988. Conventional Oil Resourcesof Western
Canada. Geological Survey of Canada, Paper
87-26.
236
Purvis, R.A. 1987. "Further Analysis of Production_
Performance Graphs." JCPT, Vol. 26, No.4, pp.
74-79.
---.1990. "Pool-Production and Well-Count
Forecasts." JCPT, Vol. 29, No.6, pp, 80-87.
Richardson, lG., and Blackwell, RJ. 1971. "Use of
Simple Mathematical Models for Predicting
Reservoir Behavior." JPT, Vol. 23, pp. 1145-
1154.
Robertson, S. 1988. "Generalized Hyperbolic
Equation." Unsolicited paper, Aug. 1988, SPE
18731.
Slider, H.C. 1968. "A Simplified Method of
Hyperbolic Decline Curve Analysis." JPT, Vol.
20, pp. 235-236.
Schoemaker, R.P. 1967. "Graphical Method for
Solving Production Decline Problems." World
Oil, Vol. 165, No.5, pp. 122-125.
-------- ..a
Chapter 19
RECOVERY FACTOR STATISTICS
-I
19.1 INTRODUCTION
Proper management of a hydrocarbon reservoir requires
. a reasonably accurate estimate of reserves early in the
life of a pool when important decisions are made re-
specting the depletion strategy. The notion that a simple
correlation exists between recovery factor and readily
definable parameters has considerable appeal; however,
attempts to find one have been largely unsuccessful
(American Petroleum Institute, 1984). While there is
no substitute for detailed geological and engineering
evaluations, recovery factor statistics are useful for
bracketing expected recoveries before such evaluations
are possible. Average recoveries are generally reliable
for estimating the aggregate reserves in a given geo-
logical play, but they can be very misleading if used to
estimate the reserves ofan individual reservoir. For new
discoveries, it is common practice to obtain a prelimi-
nary recovery factor from similar mature pools in the
same geological play. Unfortunately, this method of
analogy can be risky because the available pools may
be immature or a poor match for the pool in question.
When using analogous pools to estimate recovery, the
evaluator is well-advised to monitor the early perfor-
mance of the pool for deviations from expected
behaviour, and to revise recovery estimates accordingly.
This chapter focuses on natural or primary oil recovery,
which results from the natural energy sources available
in oil pools. These natural energy sources take the form
of six drive mechanisms that can operate alone or in
combination. The range of recoveries and relative im-
portance of these drive mechanisms are discussed in
Section 19.3 with reference to some Alberta pool
examples. Unfortunately, a breakdown ofrecoveries by
drive mechanism is not possible because many pools
have combination drives, and this information is gener-
ally not captured in a reserve database. Recovery factor
distributions and average recovery values are presented
for various pool groupings to examine differences re-
lated to pool size, fluid density, lithology, and geological
age. In addition, average recoveries by geological
play are included with a brief discussion of their use.
Several plots of recovery factors vs. common reservoir
parameters are also included to illustrate the problemof
finding a simple correlation for recovery. Section 19.4
covers the drive mechanism for gas pool recovery.
19.2 DATASOURCE AND RELIABILITY
The Alberta Energy Resources Conservation Board
(ERCB) maintains several databases that store a wide
variety of information useful in reserve studies. These
databases are shown in Table 19.2-1. The recovery data
presented in this chapter was taken from the ERCB's
reserve database, which contained information for about
6800 oil pools and 23 800 gas pools at year-end 1990
(Energy Resources Conservation Board, 1991). Since
most of the reserves in the western Canadian sedimen-
tary basin are found in Alberta, this reserve database is
relatively complete and, because of its size, should be
representative of other major producing basins.
Table 19.2-1 Public Data Available for
Reserve Studies
Category Types of Data
Geological Core, well logs, regional maps
Basicwell Completions, treatments, drillstem tests
Performance Production, pressures, deliverabitily tests
Analyses Pressure-volume-temperature, conven-
tional and special core; oil, water, and gas
compositions
Reserves In-place volumes of oil and gas,
recovery factors, reserves, cumulative
production, pool area, net pay, porosity,
water saturation, formation volume factor,
fluiddensity, reservoirtemperature, initial
pressure, datumdepth
Other Progress reports for enhanced oil
recoveryschemes, applications
Source: EnergyResources Conservation Board, 1993.
237
The reliability ofan individual reserve estimate is largely
a function of data quality and quantity, which are in
tum related to available technology, and the quality, size,
and stage ofdepletion of a reservoir. The reliability of a
reserve also depends on the knowledge and experience
of the evaluator. When setting a reserve, the ERCB
often has the benefit of company geological and
engineering estimates to compare with its own. Since
recovery factors are obtained from the division of re-
serves by in-place volumes, they can be no more reliable
than the least accurate of these two estimates.
In general, recovery factors for large pools should be
more reliable. Other things being equal, large pools will
have more wellbores to help define the areal extent of a
pool and other reservoir parameters. This added infor-
mation should improve in-place volume estimates. Large
pools are normally developed first in most producing
basins; therefore, they will have accumulated the most
performance data. Arps (1956) discusses how reserve
estimates improve with the addition ofperformance data.
Ofcourse, the rate and stage ofdepletion in a large pool
will depend on reservoir quality, economics, and regu-
latory constraints. Another factor that affects recovery
estimates is the cost of gathering and analyzing data.
In pools with large reserve potential, it is much easier to
justify these costs. On the other hand, advances in data
acquisition technology will benefit new discoveries
more than the large mature pools. There is one thing to
keep in mind: a small change in recovery factor can
translate into significant reserves for a large pool.
As a producing basin matures, new discoveries become
smaller. Many small pools have only a single wellbore
penetrating them. In these pools, in-place volumes are
based on an assumed area, usually some fraction of the
drilling spacing unit of the well. In the future, 3-D seis-
mic data may help to overcome this problem by
providing a much improved understanding of pool ge-
ometry. Today, when a small pool is suspended or
abandoned prematurely, it is seldom clear whether the
disappointing recovery is due to an optimistic in-place
volume or an optimistic reserve. When this situation
occurs, the ERCB sets the pool's reserve equal to its
cumulative production for administrative purposes. In
many cases, the resulting recovery factor is less than
1.0 percent, but appears in the database as 1.0 percent
due to rounding.
The importance of reservoir quality in assessing
recovery or reserves cannot be overstated. When
reservoir quality is being characterized, the first items
usually compared are average values of porosity,
238
permeability, and water saturation. Well-established
methods are used to define these parameters. Some other
important factors include layering or stratification, frac-
tures, pool geometry, and rock wettability. These factors
are not as easy to quantify using single numerical val-
ues. The inability to properly account for all these
parameters and how they vary throughout a reservoir
creates the largest errors in reserves.
19.3 CONVENTIONAL CRUDE OIL
19.3.1 Natural or Primary Drive
Mechanisms
The six primary recovery mechanisms are gravity
segregation drive, solution gas drive, bottom-water
drive, edge water drive, gas cap drive, and expansion
drive. It could be argued that there are really only five if
the water drive mechanisms are combined. In general,
the different recovery mechanisms are additive with the
proper combination of reservoir and operating condi-
tions; however, they can also compete with one another,
and they can be rate-sensitive.
Guerrero (1961) provided recovery ranges for oil pools
where each of these mechanisms dominate (Table
19.3-1). His ranges suggest that gravity segregation
drive will give the highest recoveries. While this mech-
anism operates in all pools, it requires a pool with large
vertical reliefand sufficient time for drainage to realize
these high recoveries. In Alberta, Bonnie Glen D-3
has the vertical relief, buta strong bottom-water drive
coupled with a gas-cap drive did not give the gravity-
segregation mechanism enough time to fully develop.
Table 19.3-1 Primary Oil Recovery by Drive
Mechanism
Drive Mechanism Recovery
(% OOIP)
Range Average
Expansion 2-5 3
Solution-gas 12 - 25 18
Gas-cap 20 - 40 30
Edge-water 20 -40 30
Bottom-water 35 - 60 45
Gravity-segregation 50 -70 60
Source: After Guerrero, 1961.
Solution gas drive (also known as dissolved-gas drive)
is the most common primary recovery mechanism in
Alberta oil pools. As it happens, this drive mechanism
--------------------_..
Pools = 5918
OOIP (1 Oem') = 8302
Mean = 11.67
Weighted-Mean =18.68
Median = 10.00
Standard Deviation =10.76
Co-Variance = 0.92
10
50
40
~ 3 0
~
e..-
(/)
"0
o
0.. 20
The gas cap drive mechanism can have a wide range of
recovery efficiencies depending on the relative size and
orientation of the gas cap to the oil zone. About 20
percent of Alberta's oil pools are discovered fully
saturated with an original gas cap. Secondary gas caps
may also form in pools with good vertical permeability
under solution-gas drive. One of Alberta's highest pri-
mary recovery pools (75 percent), Westerose D-3, had
a large original gas cap (64 metres), but it also had a
thick oil zone (73 metres) and a strong water drive.
Considering that most high recovery pools in Alberta
have bottom-water drives or combination drives,
Guerrero's recoveries for gas-cap drive also appear
optimistic.
Expansion drive results from fluid expansion with
pressure depletion and is only significant for highly un-
dersaturated pools. The majority of Alberta's oil pools
are discovered at or near their saturation pressure; there-
fore, expansion drive normally contributes only a small
fraction of the primary recovery. One of the most un-
dersaturated pools in the province is Snipe Lake
Beaverhill Lake. This pool had an initial pressure of26
MPa and a saturation pressure of 9 MPa. The pool's
primary recovery is only 12 percent.
19.3.2 Oil Recovery Factor Distributions
When oil recovery factors are plotted on a frequency
histogram (Figure 19.3-1), they produce a skewed dis-
tribution with a long tail at higher recoveries. This shape
is characteristic ofa log-normal distribution. McCrossan
o
o 10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP)
operates in Alberta's largest oil pool, Pembina Cardium,
which has a primary recovery factor of II percent. The
efficiency of a solution-gas drive is largely a function
ofpool production characteristics. As the pressure drops
below the saturation pressure, dissolved gas comes out
of solution and reduces oil flow in two ways: first, the
oil becomes more viscous as it loses its lighter ends;
second, the escaping gas soon reaches the point where
it becomes mobile (critical gas saturation) and competes
with the oil for access to the wellbore by lowering the
oil relative permeability. Recovery seldom exceeds 20
percent, and values in the 5-15 percent range are more
common. Guerrero's recovery range for solution-gas
drives appears somewhat high for Alberta's light and
medium density oil pools, but it is clearly too optimistic
for heavy density oil pools, as will be shown later.
Bottom-water drive is the most important recovery
mechanism for many of Alberta's Devonian (carbon-
ate) reef pools. A review of Leduc (D-3) pools along
Alberta's Rimbey-Meadowbrook reef trend is in-
structive with respect to the relative efficiency of the
bottom-water drive mechanism. Glen Park D-3 has a
high primary recovery factor of 72 percent. The pool
has a thick oil zone (39 metres), high permeability,little
stratification, and no original gas cap. On the other hand,
Homeglen-Rimbey D-3 has a recovery factor of only
9 percent with a thin oil zone (7.5 metres) and a large
gas cap (53 metres). Leduc- Woodbend D-3 is similar to
Homeglen-Rimbey with a thin oil zone (II metres), but
it has less volatile oil, a less active bottom-water drive,
and a smaller gas cap (18 metres). The primary recov-
ery factor for the pool is 56 percent, but water injection
was used to enhance the natural water drive, resulting
in a total recovery factor of 66 percent. Further updip
on the trend, Redwater has a recovery factor of 62
percent. The oil zone here is about three times as thick
as at Leduc-Woodbend and there is no original gas cap.
Of interest is the high salinity brine encountered at
Redwater. The density contrast between the advancing
water and the by-passed oil may be assisting recovery
by a buoyancy effect.
Edge water drives are less common in Alberta, and they
are not as effective as bottom-water drives. Often where
edge water is present, it is relatively inactive; where it
is active, other factors tend to reduce its effectiveness.
For example, Joarcam Viking has an edge-water drive,
a gas-cap, a thin oil zone (3 metres), and small reservoir
dip. These factors contribute to premature water and gas
coning. The pool's primary recovery is 37 percent.
Figure 19.3-1 Oil Pools
239
t
~
Figure19.3-2 Distribution of Primary Oil
Recovery Factors
12 5 10 20304050607080 90 95 98
Percent of Pools
19.3.4 Pool Size
Largepools (original oil in place over lOx 10
6m3
) that
have reached an advanced stage of depletion(over 50
percent) were used to generate Figure 19.3-3. When
comparedwiththerecoverydistributionfor thetotal oil
pool sample(Figure 19.3-1), the fractionof pools with
recoveries less than 10 percent drops considerably and
the average values are significantly higher; however,
the mode(most common)recoveryremainsat about 10
percent. While the distribution tapers off at higher re-
coveries, it ismoregradual. This supports thesuggestion
that large pools have better recoveries. However, it
The difference between the arithmetic-mean and
median recoveries is usually insignificant, but the
arithmetic-mean recovery is consistentlyhigher.
The mode, or most commonrecoveryvalue, is only 1.0
percent if the completepool sampleis considered. This
value is artificially lowbecause of the procedure men-
tioned earlier for handling small pools that become
inactive prematurely. If these pools are excluded, the
mode recoveryjumps up to 10 percent; this is a more
reasonable valuefor a viablepool, andprobablythebest
recovery toassumefor newpoolsas a lastresort. It could
be arguedthat this recovery level becomes morelikely
.as a producingbasin matures and pool size drops. This
mode recoveryof 10percent will be used in later sec-
tionsas a baselineto comparerecoveriesfromdifferent
pool groupings.
Table 19.3-2 shows average primary and enhanced
recoveries by crude oil type and recovery mechanism.
Theseareweighted-mean values. Thedatasuggests that
two-thirds of Alberta's reserves come fromnatural or
primary depletion mechanisms, and this represents 19
percent of the total oil in place. It is interestingto note
that light and medium pools under waterflood have a
lower primary recovery than those under straight pri-
mary depletion. This indicates that enhancedrecovery
is targeted for pools where the natural drives are less
effective. Solvent floods appear to be very successful
based on the enhanced recovery component. It should
be remembered that waterfloodingis a viableoptionfor
most solvent flood pools; therefore, the success of a
solvent flood should be measured against waterflood
recovery. If this is done, the averageincremental recov-
ery for the solventmechanismdropsby halfto about 14
percent. In general, vertical solvent floods, which are
gravity stable, have the highest recoveries. Horizontal
solvent floods generally sufferfromgravityoverride and
rapid break-through of the solvent. In Alberta, most
solvent floodsuse hydrocarbon-based solvents.
+2
Standard Deviation
-1 0 +1
1L
is
o
~ Primary
- 10
e
~
IJ!
the plot results fromroundingrecoveries to the nearest
5 percent for newand immaturepools.
19.3.3 Average Recovery Factors
Several average values are used to suggest the central
tendency of distributions: theweighted-mean, the arith-
metic mean, the median, and the mode. Since oil
recovery distributions are skewed, caution must be
exercisedwith any use of these average values.
The weighted-mean recovery is a value commonly
reported (EnergyResources ConservationBoard, 1990).
The weighting parameter used is usually the in-place
volume. This average recovery is particularly useful
for aggregate reserves in a geological play. A quick
methodto calculate it is to divide the total reserves for
a group of pools by the total in-place volume. This
weighted-mean recovery is consistently higher than
arithmetic-mean, median, or moderecoveries for skewed
oil recoverydistributions. One explanation is that large
pools dominate the weighted-mean recovery and that
theytendtohave higher recoveriesthan smallpools. Of
course,this generalization will not betrueineverycase.
(1969) showedthat both oil in place and oil reservesin
western Canada have log-normal distributions. A plot
of oil recovery factors on probability paper (Figure
19.3-2) gives a reasonablystraight line,whichalsosug-
gests a log-normal distribution. The stair-step natureof
240
Table 19.3-2 Average Oil Recoveries
Oil Type & Original Oil No. of Average Recovery
Mechanism In Place Pools (% OOIP)
(10' m
3
) Primary Enhanced Total
Light-Medium
Primary 3374 4485 22 na 22
Waterflood 2675 213 16 14 30
Solvent flood 844 53 27 31 58
Gas flood 69 8 41 5 46
Heavy
Primary I 184 1433 8 na 8
Waterflood 270 63 9 20 30
Total 8416 6255 19 8 27
Source: Energy Resources Conservation Board, 1990.
Pools = 4485
OOIP (10'm
3
) = 6884
Mean = 13.01
Weighted-Mean = 20.78
Median = 10.00
Standard Deviation = 11.42
Co-Variance = 0.88
10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP)
40
Pools = 374
OOIP (10
6m3
) = 5787
Mean =25.34
Median = 20.00
Co-Variance = 0.67
10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP)
40
10
~ 3 0
~
'" o
o
Cl.. 20
Figure 19.3-3 Large Mature Oil Pools
should be noted that most of the higher recovery pools
are Devonian reefpools with active natural water drives.
19.3.5 Fluid Type: Light and Medium vs.
Heavy
The density ofAlberta's conventional crude varies from
730 to 990 kg/m", Since oil density is closely related to
oil viscosity, recovery would be expected to be sensi-
tive to oil density. Figures 19.3-4 and 19.3-5 confirm
that light and mediumdensity pools will recover a higher
percentage oftheir oil in place than heavy density pools.
Figure 19.3-4 Light and Medium Oil Pools
Using the mode recovery of 10 percent for comparison,
40 percent of light and medium pools will exceed this
recovery level, but only IS percent of heavy pools do
this well. Average recoveries for light and medium pools
are about double those of heavy pools.
Most of Alberta's oil pools are classed as light and
medium density. A cutoff of 900 kg/m! generally dis-
tinguishes light and medium from heavy; however, the
ERCB may also classify a pool by the type of market in
which the crude oil is sold. Most of Alberta's heavy oil
pools are found in shallow, Lower Cretaceous rock in
241
~ I
:",
DETERMINATION OF OIL AND GASRESERVES .
Pools = 3941
OOIP (10
6
m' ) = 4865
50r----------::--:------.,
Pools = 1433
OOIP (10
6
m' ) = 1418
60,---------------,
50
40
.!Il30
o
o
a.
20
10
Mean = 7.46
Median= 5.00
Co-Variance= 0.91
10 20 30 40 50 60 70 80 90 100
Recovery (%OOIP)
40
~ 3 0
~
t.-
Il)
(;
o
a. 20
10
Mean = 8.92
Median= 10.00
Standard Deviation= 7.41
Co-Variance = 0.83
10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP)
Figure 19.3-5 Heavy Oil Pools Figure 19.3-6 Clastic Oil Pools
Pools = 1977
OOIP (10
6
m' ) = 3437
Mean = 17.14
Median = 15.00
Co-Variance = 0.81
10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP)
10
40
50..----------------,
Cardium, is an Upper Cretaceous clastic pool with a
primary recovery of II percent. The pool's recovery
dominates the calculation of the weighted-mean recov-
ery for clastics, and this explains the small difference in
average recovery values for clastic pools.
Considering the different depositional environments of
carbonate and clastic reservoir rock, it is not surprising
Figure 19.3-7 Carbonate Oil Pools
19.3.6 Lithology: Clastics vs, Carbonates
The type ofrock encountered in a reservoir can be very
important in determining the level and range of recov-
eries expected. Figures 19.3-6 and 19.3-7 show recovery
distributions for clastic and carbonate pools, respec-
tively. There is a clear difference in the shape of these
distributions; the carbonate group has more pools with
higher recoveries. Two of every three carbonate pools
exceed 10 percent recovery, but only one of every four
clastic pools do this well. Average recovery values are
consistently higher for carbonate pools. The weighted-
mean recovery for carbonates (29 percent) is more than
double the value for clastics (11 percent).
As previously mentioned, carbonate pools are very
important in Alberta. Many have very efficient primary
drives, mainly bottom-water. They represent just
one-third of the pools and have one-third of the oil in
place, but they contribute two-thirds of Alberta's con-
ventional oil reserves. Alberta's largest pool, Pembina
east-central Alberta. The initial gas in solution and the
initial pressure in heavy pools are low relative to light
and medium pools. Heavy oil pools assigned the higher
recoveries (up to 45 percent) are usually associated with
an active regional aquifer like the one found in the
Provost Dina play. In many heavy oil pools, reduced
well spacing is used to improve drainage and recovery.
It is not uncommon to have a well every two to four
hectares.
242
c
50
50,--------------,
Figure 19.3-8 Upper Cretaceous Oil Pools
Pools = 625
OOIP (10
6
m
3
) = 1982
Mean = 8.31
Median = 10.00
Co-Variance = 0.61
Poois = 2585
OOIP (10
6
m
3
) = 2111
Mean = 7.62
Median = 5.00
Co-Variance = 0.87
10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP)
10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP)
10
40
40
10
~ 3 0
~
~
'" '0
o
a, 20
~ 3 0
~
~
'" '0
o
a, 20
Figure 19.3-9 Lower Cretaceous Oil Pools
similar depositional environment). Podruski et aI.,
(1988) used this approach in a Geological Survey of
Canada paper, Conventional Oil Resources of Western
Canada. They considered only light and medium pools
and divided them into 78 plays. Table 19.3-4, taken from
this report, lists average recovery factors for each play.
The data were taken from provincial databases and
that many ofthe parameters affecting recovery are quite
different. For example, carbonate reefs tend to be quite
thick. This provides the opportunity to complete wells
in a fashion that avoids excessive coning of water or
gas. Many are connected to active regional aquifers.
With the vertical relief, gravity stable displacement by
water is common. The porosity of carbonate rocks is
generally low, in the 5-15 percent range, but permeabil-
ity is very high, especially in dolomitized rock that is
fractured. Clastic deposits are generally much thinner,
and oil recovery relies on less efficient horizontal dis-
placement processes that are controlled by viscous
forces. In clastic rock, the granular nature of the matrix
gives higher porosities; however, permeabilities tend to
be lower through the combined effects of compaction,
cementing, grain size distribution, and fines migration.
19.3.8 Geological Play
Perhaps the best way to group pools and recoveries is
by geological play. This approach is more meaningful
because it honours regional geology (e.g., pools have a
19.3.7 Geological Period
Recovery distributions are shown for eight geological
periods in Figures 19.3-8 to 19.3-15. The.most signifi-
cant variation in the shape of these distributions occurs
in the Devonian Period. Average recoveries for both
the Upper and Lower Cretaceous pools are under 10
percent and vary only slightly. The median recovery
for the Lower Cretaceous pools is only 5 percent be-
cause about halfthe pools are heavy. Average recoveries
increase to the 10-15 percent range as one moves down
the stratigraphic column to the Jurassic and Triassic
pools. Ofcourse, the sample ofpools drops to one-tenth
that of the Cretaceous Period. Although there are too
few Permian pools to be of any statistical significance,
the average recoveries are higher there as well. The
Mississippian Period breaks from the trend, with aver-
age recoveries dropping back slightly to the 6-13 percent
range. Mississippian pools are generally considered to
be in the carbonate family, but their recovery dist-
ribution more closely resembles the one for clastic
pools. Average recoveries continue to increase in the
Devonian Period to the 15-34 percent range. The
Upper Devonian group has the pools with the highest
recoveries, in particular, the Leduc (0-3) zone. Table
19.3-3 provides a more detailed breakdown by zone
for the Upper Devonian. In the Middle Devonian,
recoveries do not get as high, but the number of pools
with recoveries in the 20-40 percent range increases
significantly.
243

Pools = 7
00IP(10'm
3
) = 11
50,-------;::--:-;----..,
Pools = 220
OOIP (10'm
3
) = 162
5 0 , - - - - - - - - - - - - - ~
Mean = 11.00
Median = 10.00
Co-Variance = 0.64
40
10
o
o 10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP)
Mean = 11.68
Median = 10.00
Co-Variance = 0.73
10
40
~ 3 0
~
'" o
o
0.. 20
o
o 10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP)
Figure 19.3-10 Jurassic Oil Pools
Figure 19.3-12 Permian Oil Pools
Pools = 321
OOIP (1 0'm
3
) = 617
50
Pools = 214
OOIP (10'm
3
) = 228
50,---------------,
Mean = 10.91
Median = 10.00
Co-Variance = 0.55
10
o
o 10 20 30 40 50 60 70 80 90 100
Recovery (%OOIP)
40
-30
~
'" o
o
0.. 20
10
Mean = 7.96
Median = 6.00
Co-Variance = 0.90
10 20 30 40 50 60 70 80 90 100
Recovery (% 001 P)
Figure 19.3-11 Triassic Oil Pools
included both primary and secondary recovery; there-
fore, the average recoveries will be slightly optimistic
for primary recovery mechanisms.
An acceptable way to make a preliminary recovery
estimate ina new pool is by analogy. The success ofthe
method depends on whether or not there are sufficient
pools with reliable recovery data in the same geological
play. Once the correct play has been identified,
Figure 19.3-13 Mississippian Oil Pools
analogous pools may be found by comparing rock and
fluid properties, pool geometry, and fluid contacts. Pools
should also have a reasonable amount of performance
history before the analogy is accepted. It is important to
remember that this is only a preliminary estimate, and it
must be confirmed with performance. If the early
performance is inconsistent with the analogous pool,
the evaluator should suspect that a different drive
244
c
Pools = 1239
OOIP (1O'm') = 897
50r------------------,
Pools = 706
OOIP (10'm') = 2292
50 r---------::-----:---=-:-.,.--,
Mean = 18.59
Median = 20.00
Co-Variance = 0.63
o
o 10 20 30 40 50 60 70 80 90 100
Recovery (% 001 P)
10
40
~ 3 0
C
en
(;
o
a.. 20
Mean = 19.21
Median = 15.00
Co-Variance = 0.86
10 20 30 40 50 60 70 80 90 100
Recovery (% OOIP)
40
Figure 19.3-14 Upper Devonian Oil Pools Figure 19.3-15 Middle Devonian Oil Pools
Table 19.3-3 Recovery Factors for Upper Devonian Zones
Upper Devonian No. of OOIP Recovery Factor (fraction) Pay (m)
Pools (10' m
3
)
Avg. Min. Max. W-Avg. Avg. Min. Max. W-Avg.
Devonian System I 0.429 0.040 0.040 0.040 0.040 4.82 4.82 4.82 4.82
Wabamun (D-1) 112 44.183 0.157 0.010 0.350 0.162 33.34 0.91 108.30 40.20
Stettler I 0.053 0.200 0.200 0.200 0.200 2.80 2.80 2.80 2.80
Blueridge 5 2.432 0.096 0.010 0.200 0.125 17.12 6.43 30.20 15.27
Arcs 24 15.233 0.125 0.010 0.360 0.167 6.61 2.10 16.20 9.18
Nisku (D-2) 178 342.719 0.243 0.010 0.650 0.405 16.17 1.00 90.35 21.55
Camrose 11 1.992 0.134 0.010 0.250 0.145 7.48 3.40 10.36 7.95
Ireton 2 0.742 0.110 0.070 0.150 0.105 9.29 3.05 15.54 10.05
Leduc (D-3) 148 812.328 0.291 0.010 0.750 0.568 16.17 0.90 135.64 42.40
Cooking Lake 2 0.541 0.125 0.100 0.150 0.106 4.66 3.70 5.63 5.39
Beaverhill Lake 53 944.084 0.142 0.010 0.350 0.164 9.89 1.62 37.00 18.79
Sulphur Point 133 108.224 0.119 0.010 0.450 0.132 7.14 0.88 27.90 7.99
Totals 670 2272.960 0.198 0.010 0.750 0.343 16.18 0.88 135.64 27.46
245
T
. I
DETERMINATION OFOILANDGASRESERVES""'" '
Table 19.3-4 Recovery Factors for Geological Plays in Western Canada
Geological Period Play Recovery Factors Geological Period Play
Recovery Factors
and Plays Depth Average Small and Plays Depth
Average Small
(m) Pool (m)
Pool
Cretaceous
Carboniferous
Cardium Sheet
1000 0.20 0.10 Midale 1400 0.36
0.20
Viking-Alberta
1800 0.19 0.10 Frobisher-Alida 1100 0.24
0.20
Lower Mannville 2100 0.15 0.10 Pekisko Edge 1650 0.13
0.07
Viking-Saskatchewan 500 0.14 0.10 Elkton Edge 1700 0.28
0.10
Upper Mannville 1000 0:15 0.10 Lodgepole 1100 0.16
0.07
Belly River Shoreline 1000 0.21 0.10 Souris Valley-Tilston 1100 0.16
0.11
Cardium Scour 2000 0.19 0.10 Banff Edge-C. Alberta 1500 0.20
0.12
Cantuar 1000 0.15 0.06 Ratcliffe Stratigraphic 1800 0.20
0.10
Dunvegan-Doe Creek 750 0.09 0.09 Ratcliffe Structure 1100 0.20 0.10
Belly River Fluvial 1500 0.21 0.10 Desan 700 0.08 0.Q3
Ostracod 2200 0.15 0.10 Carb.-Sweetgrass Arch 2000 0.10
0.10
1" & 2
nd
White Specks 2000 0.10 0.10 BanffEdge-S. Alberta 1300 0.10 0.10
Debolt-Peace River 1500 0.08 0.08
Jurassic Devonian
Shaunavon 1200 0.23 0.10 Beaverhill Lake 2950 0.42 0.10
Roseray-Success 900 0.30 0.10 Leduc-Rimbey-Meadowbrook 1700 0.61 0.30
Gilby-Medicine River 2200 0.25 0.10 Keg River 1800 0.41 0.30
Sawtooth 900 0.22 0.10 Nisku-Shelf 1700 0.55 0.25
Rock Creek 2200 0.16 0.10 Leduc-Bashaw 2000 0.61 0.20
Leduc-Deep Basin 2000 0.61 0.15
Triassic
Nisku-West Pembina 2800 0.40 0.30
Boundary Lake 1300 0.27 0.10 Middle Devonian Clastics 1800 0.25 0.20
Montney 1596 0.17 0.12 Slave Point-Sawn 1600 0.20 0.10
Peejay-Milligan 1130 0.32 0.20 Zama 1600 0.17 0.17
Halfway Stratigraphic 2150 0.28 0.12 Leduc-Nisku-S. Alta 1700 0.15 0.15
Inga Structure 1600 0.15 0.10 Wabamun-Peace River 1250 0.16 0.13
Charlie Lake Sandstone 1800 0.18 0.18 Slave Point-Golden 2000 0.35 0.30
Halfway Drape 1900 0.19 0.10 Nisku-Meekwap 2000 0.40 0.15
Charlie Lake Algal 1800 0.15 0.15 Keg River-Senex 1300 0.20 0.10
Doig Structure 1900 0.08 0.05 Wabamun-Crossfield 2500 0.15
0.10
Bistcho 1600 0.15
0.07
Permian Muskeg 1600 0.20
0.20
Belloy-Peace River 1850 0.28 0.12 Wabamun-Eroded Edge 2050 0.14
0.14
Belloy-Erosional Edge 2000 0.37 0.10 Leduc-Peace River 2800 0.20
0.15
Source: Conn and Christie, 1988.
This table is reproduced with the permission of the Minister of Supply and Services Canada, 1993.
246
25
Figure 19.3-16(b) Porosity Distribution
Figure 19.3-16(a) Oil Recovery vs. Porosity
Pools = 5915
Mean = 14.42
Median = 13.00
Co-Variance = 0.52
o 4 8 12 16 20 24 28 32 36 40
Pool Average Porosity (%)
5
20
;g 15
'"
'8
a. 10
100
90
Pools = 5915
80
..
ii:' 70
;
5
..... oo
0 60
...

\,' ...
50
.:::",: .
.r., __ :"0 ... .

.
..
. .. ... >
40
... ...
.-
a

c ..
..
30
'. '0..... . .
a:
.. .. _ .._ ........._00
_.
00 : : ...:..:.,..::. ....i............
20 r : '.
.,
10
:.:.: ..
.1.; -l-....... ....- "[,"1 l. '.-1,.
W' {. II
0
. ..". . .....!-.jjijjil:.:i i ... r..
0 4 8 12 16 20 24 28 32 36 40
Pool Average Porosity (%)
the water-invaded zone can lower recoveries to 50
percent or less.
The recovery distribution for some 9000 gas pools that
have produced in Alberta is shown in Figure 19.3-19.
As expected, recovery factors are in the 50 to 90 per-
cent range. It is interesting to note that, unlike oil, the
gas recovery distribution appears to be normal (e.g.,
symmetric about a mean value of 75 percent). About
mechanism is operating and be prepared to gather or
re-examine data to revise the recovery estimate.
19.3.9 Recovery vs. Common Reservoir
Parameters
Ideally, recovery estimates should fall out of a simple
relationship between several reservoir parameters that
are readily quantifiable. Unfortunately, this relationship
continues to elude everyone. One possible explanation
is that the methods used for quantifying these param-
eters over-simplify reservoir heterogeneity. Another is
that the interplay of rock properties, fluid properties,
drive mechanisms, and production strategies is too
variable and dynamic for simple solution's to work
consistently. Whatever the reason, simple correlations
have yet to be found.
To help illustrate the problem, recovery factors were
plotted against three familiar reservoir parameters:
porosity, net pay, and water saturation (Figures 19.3-16
to 19.3-18, respectively). The parameters used were pool
average values. In each case, there is considerable scat-
ter of the data, but some general trends are evident. For
example, maximum recovery increases as porosity and
water saturation decrease. Intuition might suggest the
relationship between water saturation and recovery, but
the one with porosity is less obvious. If the data is re-
examined by rock type, clastic and carbonate, the reason
is clear. Many of the higher recovery carbonate pools
have lower average porosities and water saturations.
19.4 CONVENTIONAL GAS
The dominant natural drive mechanism that operates in
most gas pools is fluid expansion. Recovery froma volu-
metric gas reservoir largely depends on how low a
reservoir abandonment pressure can be achieved with
the production facilities available. A simple correlation
is used to estimate the abandonment pressure as a func-
tion of well depth. Normally a value around 1500 kPa
per 1000 mofdepth is used (Stoian and Telford, 1966).
Two additional corrections are sometimes required to
adjust for well deliverability, and fluid invasion at the
wellbore. This fluid invasion can be oil, but can also be
water either from an active aquifer or coning. Gas flows
through reservoir rock far more readily than oil because
gas viscosities are several orders of magnitude lower.
In general, recoveries for gas pools without an active
water drive are expected to exceed 75 percent and can
reach 90 percent or more. On the other hand, if water
invades a gas pool too quickly (e.g., with little or no
pressure depletion), the residual gas trapped behind
247
d
Pools = 5915
... i.. d,
,O,::L:.::.
10 20 30 40 50 60 70 80 90 100
Pool Average Water Saturation ('Yo)
..f;:I......... . :
....:;:,.:;1.: .1,: .
...... :,' .
:: ..... .. , .. 1.. .. 1....
Bllfu,;'u
100
90
80
a:- 70
(5
o 60
;ft.
50
"1; 40
o
" c: 30
20
10
o
o
100
90
Pools 5915
80
..
a:-
70
(5 ... .., ..
0
60
..
.. e,
..
50
0 .... 0 ... 0 ..
..
"
._.
'. ..
,
..
>
40
. .
., .
.-
. 0. : a

._......
-.. i" :" .
0
"
; __.'!'.\O:.. ........ '_0",,",:
.-
..
-
...
c:
0 .' ;0 0.
30. .------..- ..... -
.. .
0.... ' .' '.,..r___.:..:.... ':" .t: _\":..0" ,0
.. ..
20 -oo '0, ,0 .j:-=_ ,:........:..: : "1 '0' '0' .0
'!!rfi-':' i .... :. ',1 ::.. to ' .... ':.
10 ... ....:; ..;:. :.
.:7::vl.r...;:'>::....... 0:: 0:
:
0 10 20 30 40 50 60 70 80 90 100
Pool Average Net Pay (m)
Figure 19.3-17(a) Oil Recovery vs, Net Pay
Figure 19.3-18(a) Oil Recovery vs. Water
Saturation
60 25
Pools 5915
Pools = 5915
Figure 19.3-17lb) Net Pay Distribution
7600 of the pools used have an original gas in place
under 300 X10
6
m', A separate distribution was not in-
cluded for this group, but it looks very similar to Figure
19.3-19. The remaining 1400 larger pools have a
recovery distribution that is slightly skewed to the left
Figure 19.3-18(b) Water Saturation Distribution
Mean = 29.08
Median= 30.00
Co-Variance = 0.41
5
20
15
C
en
'0
o
a. 10
o
o 10 20 30 40 50 60 70 80 90 100
Pool Average Water Saturation ('Yo)
(Figure 19.3-20), unlike oil recovery distributions, which
are skewed to the right.
The same problem encountered with the reliability of
reserves for small oil pools also applies to small gas
pools. Warren (1990) discusses the impact of overly
optimistic area assignments for Alberta's growing
inventory ofsmall gas pools, and provides area defaults
for use in setting the initial reserves of single-well pools.
Mean 10.20
Median = 4.40
Co-Variance = 1.55
10 20 30 40 50 60 70 80 90 100
Pool Average Net Pay (m)
20
50
40
10
C
2! 30
s
a.
248
____________________..iII
often no better alternative until performance data
becomes available. The best approach is to find an analo-
gous pool in the same geological play, preferably nearby
the pool in question. If an analogous pool cannot be
found, it may be necessary to look at an expanded data
set; however, it should be understood that the reliability
of recovery statistics decreases each time this is done.
Recovery factor distributions will give an idea of the
range of recoveries that are possible, and the probabil-
ity ofdifferent recovery levels within the range. In cases
where the range of recovery is small, the use of average
recovery factors may be satisfactory. For new, light and
medium pools that are small, a recovery of 10 percent,
the mode, is a reasonable assumption for a solution-gas
drive mechanism. It should be less if the pool is heavy.
For a carbonate pool, there is more risk with the use of
average recovery factors because they often have a com-
bination drive at work, which can have a wide range of
efficiencies. If aggregate reserves are being assessed,
weighted-mean recovery factors should be quite reli-
able. The most important thing to remember is that
recovery statistics should only be used for a prelimi-
nary estimate until more detailed analyses are possible.
References
American Petroleum Institute. 1984. "Statistical
Analysis of Crude Oil Recovery and Recovery
Efficiency." API Bulletin, 014, 2nd ed., Apr. 30,
1984.
Arps, J,J. 1956. "Estimation of Primary Oil
Reserves." Trans., AIME, Vol. 207, pp. 182-191.
Conn, R.F., and Christie, J.A. 1988. Conventional Oil
Resources of Western Canada (Part II).
Geological Survey of Canada, Paper 87-26,
p. 131.
Alberta's Reserves ofCrude Oil, Oil Sands, Gas,
Natural Gas Liquids and Sulphur. Report ST
91-18, Dec. 1990, Calgary, AB.
---. 1993. Catalogue - Publications, Maps and
Services. Guide G-I, Calgary, AB.
Guerrero, E.T. 1961. "How to Find Ultimate
Recovery and Performance of Oil Reservoirs."
O&GJ, Vol. 59, No. 35, p. 101.
McCrossan, R.G. 1969. "An Analysis of Size
Frequency Distribution of Oil and Gas Reserves
of Western Canada." Canadian Journal ofEarth
Sciences, Vol. 6, pp. 201-211.
Pools = 1411
OGIP (10
9
m' ) = 3655
Mean = 74.89
Median =75.00
Co-Variance = 0.17
Pools = 9016
OGIP (10
9
m' ) = 4143
Mean = 71.08
Median = 70.00
Co-Variance = 0.13
Gas Pools (Producing)
40
10
40
50 ,-----------"---,--,,..,...,-::--1

so
'0
o
a. 20
10

o 10 20 30 40 50 60 70 80 90 100
Recovery (% OGIP)
50,-------------
o
o 10 20 30 40 50 60 70 80 90 100
Recovery (% OGIP)
Figure 19.3-19
These area defaults are expected to improve aggregate
reserves in a geological zone, but may not significantly
improve the reliability of an individual pool's reserve.
19.5 USINGRECOVERY FACTOR
STATISTICS
It should be clear from the data presented that caution
must be exercised in the use of recovery factor statis-
tics. Nevertheless, for many new discoveries, there is
Figure 19.3-20 Large Gas Pools (Producing)
249
-
Podruski, lA., Barclay, J.E., Hamblin, A.P., Lee, PoI.,
1988. Conventional Oil Resources of Western
Canada (Part I). Geological Survey of Canada,
Paper 87-26.
250
-.
DETERMINATION OFOILAND GASRESERVES
Stoian, E., and Telford, A.S. 1966. "Determination of
Natural Gas Recovery Factors." JCPT, Jul.-Sep.,
1966, pp. 115-129.
Warren, A. 1990. "Alberta's Small Gas Pool
Reserves." JCPT, Vol. 29, No.4, pp. 34-40.
PART FOUR
PRICES, ECONOMICS, AND MARKETS
a
Chapter 20
OVERVIEW OF PART FOUR
Technical principles, supplemented by empirical data,
form the basis for estimates ofpetroleum resources. An
estimate of.reserves, on the other hand, is based on the
principle that only a portion of these resources is eco-
nomically recoverable. Assessment of economic
viability requires information from areas such as finan-
cial analysis, regulatory guidelines, and market
conditions.
Part Four provides the basis for including these areas in
the process of estimating economically recoverable re-
serves. The impact of these parameters on the reserves
estimate is illustrated by an example from the Alberta
oil sands. While the resource is estimated at 3800 x
10
6m3
, the reserves are only 280 x 10
6m3
(Energy
Resources Conservation Board, 1991). Until the eco-
nomics become more favourable through either reduced
cost or increased revenue, the recognized reserves will
not increase.
Reserves evaluation is based on analysis ofthe cashflow.
Chapter 21 summarizes the major components ofa cash
flow analysis using the Alberta (Canada) fiscal regime
as a reference. The principal sources and uses of cash
are addressed, including some ofthe details ofAlberta's
provincial royalty regulations and federal corporate
income tax. Some aspects of accounting and business
finance that illustrate how these areas correlate with cash
flow analysis are also discussed.
In all evaluations there is a degree of uncertainty.
Indeed, it could be argued that every parameter involved
in an evaluation is more accurately defined as a range
of possible values. These uncertainties exist as a result
of everything from physical measurement to changes in
government regulation. Chapter 22 discusses the con-
cepts of risk and uncertainty and presents criteria for
identifying situations where risk analyses are warranted.
Chapter 6 in Part Two discusses stochastic modelling
of resource estimates.
The impact of government regulations on reserves
evaluations is discussed in Chapter 23, using the
regulatory environment for the petroleum industry in
Canada as an example. Reference is made to the Alberta
Energy Resources Conservation Board and its role in
defining production practices. Government policy ini-
tiatives, including tax and royalty regulations, have a
major influence on reserves evaluations.
One of the most important factors in any economic
evaluation is commodity pricing. The two major com-
modities involved in reserves evaluations are crude oil
and natural gas.
Chapter 24 provides an overview of Canadian crude oil
markets in the context of a globally traded commodity.
There is particular focus on Alberta and other western
Canadian provinces, including a description of trans-
portation networks and major markets. The basics of
price forecasting are examined, as well as price risk
management and some of the products that are
available to mitigate price volatility.
Natural gas markets in North America are addressed in
Chapter 25 with particular emphasis on the dynamics
imposed through changes in government regulations.
The chapter focuses primarily on the Canadian market,
but its virtual integration into the United States market
has effectively blurred any boundaries between the two.
Important demand forces are examined as well as
various contract options that have evolved.
The contents of reserves evaluations are available for a
variety ofuses and users. These range fromgovernments
developing resource planning policy to companies con-
templating production development or an acquisition.
Chapter 26 decribes some of the uses of reserves
evaluations.
References
Alberta's Reserves ojCrude Oil, Oil Sands,
Natural Gas Liquids and Sulphur.
ERCB ST 91-18, Dec. 1990, Calgary, AB.
253
Chapter 21
CASH FLOW ANALYSIS
21.1 INTRODUCTION
In any industry, accurate analysis of cash flow is an
essential part of investment decision-making and
optimum capital budgeting. Like all resource-based
industries, the oil and gas industry depends on such
analysis to quantify its resource base; remainingreserves
are actually defined in the context of economics.
Methodology for cash flow analysis in the energy in-
dustry is consistent with the general principles of
business finance. The purpose of this chapter is to dis-
cuss the cash flow analysis in the context of individual
property analysis as well as in the corporate context,
with particular reference to western Canada, and
specifically Alberta.
It should be noted that the chapter is an overview.
Parties utilizing cash flow analysis in contemplation
of making business decisions are advised to retain
professional advice.
21.2 MINERAL RIGHTSOWNERSHIP
Participants in the oil and gas industry lease the right to
develop the minerals from the holders of the mineral
rights. A number of different forms of property interest
evolve from the leasing of these rights, with differences
that are typically based on the sharing of risk and the
requirement to provide development capital.
Mineral Interest. Subsurface mineral rights are
usually separate from surface rights. Ownership may
be held privately, in which case it is known as a free-
hold interest, or by the government, in which case it is
known as a Crown interest.
Most of the mineral rights in Canada reside with the
Crown; however, some do reside with individuals un-
der freehold rights. These rights originate from two
sources: (I) in 1869 the Hudson's Bay Company trans-
ferred to Canada what was to become the provinces of
Alberta, British Columbia, and Saskatchewan, and the
company retained some ofthe mineral rights; (2) in the
nineteenth century, the federal government granted
254
certain mineral rights to railway companies as
construction incentives.
Royalty Interest. When a property is leased, the
interest retained by the mineral rights holder is known
as royalty interest. Freehold royalty interest would be
contractually defined. Crown royalty interest is defined
in legislation. The interest participant shares in the
revenues, but has no obligation to fund development.
Overriding Royalty Interest. This is an economic
interest that is retained by a lessee when property rights
are "farmed out" to another party. If the original lessee
retains the economic interest without obligation to
contribute to development costs, it is called a "gross
overriding royalty" (GORR). If the original lessee
allows the lessor to deduct certain defined expenses
before paying royalty, it is called a "net overriding
royalty" (NORR).
Production Payment Interest. This is similar to an
overriding royalty but would typically be limited to
either a production amount or quantity, or to a certain
time.
Working Interest. This is the most commonly held
interest. The holder receives the net benefits after the
previously mentioned interests are realized and is
responsible for development costs.
Typically, there is more than one working interest
owner. These owners would normally develop a prop-
erty under the terms of a joint venture agreement which
designates one ofthe owners as Operator. This arrange-
ment is not usually considered a partnership as all
the working interest owners are free to take their own
productionanddispose ofit on their ownterms. Whether
the business arrangement is ajoint venture or a partner-
ship can be significant from the perspective of
calculating income tax.
Carried Interest. This results when one party "carries"
the development costs of another party. Working inter-
ests of the carried party would differ before and after
payout of the carry amount. When the party has opted
c
CASH FLOW ANALYSIS

out of a development under an existing agreement, it
will likely have to wait until an additional "penalty"
amount has been earned by the other parties before
reverting to a working interest position.
Net Profits Interest. The net profits referred to will be
calculated according to a contracted accounting pro-
cedure. In this case, the holder has no obligation to share
development costs.
Pooling and Unitization. These terms refer to arrange-
ments made, voluntarily or in accordance with
government regulation, to jointly develop a resource
property. Pooling generally refers to agreements with-
in a drilling or production spacing unit, these typically
being one quarter section for oil and one section for
gas. Unitization normally has a broader context and
would address a development that extends beyond the
standard spacing units.
Individual participants can also undertake different
conventional business arrangements such as joint ven-
tures and partnerships. These structures also have tax
implications that must be addressed.
21.3 PRINCIPALSOURCES AND USES
OF CASH
Ultimately, the revenue generated by the industry as a
whole is through the sale of crude oil, natural gas, natu-
ral gas liquids (NGL) and sulphur. Estimated total
revenue for the Canadian oil and gas industry for 1991
was approximately 18.4 billion dollars (Curran, 1992),
ofwhich 61 percent was from crude oil, 27 percent from
natural gas, 10 percent from NGL, and 2 percent from
sulphur. These percentages are, of course, subject to
change as product prices and relative volumes change.
A lower average gas price in recent years has been partly
responsible for the decease in the ratio of revenue
from natural gas to crude oil from 0.54 in 1988 to an
estimated 0.43 in 1991.
Within this broader context of industry gross revenues,
cash flows originate from a variety of other sources,
including such things as overriding royalties and
processing fees.
Most cash flows are determined with the wellhead or
lease as a reference point; however, there are other uses
ofcash that have to be considered at the corporate level.
Production Revenue. Custody transfer of product
usually takes place at the lease boundary where the prod-
uct is metered. Gross revenues are then the product of
quantities sold and prices received.
It is important to differentiate between production
revenue and processing revenue as the income tax treat-
ment for these two items is different. In broad terms,
production of crude oil stops at the exit of the battery
while production of gas stops at the downstream end of
the inlet separator of a gas plant. Revenue Canada uses
the gas cost allowance calculation, from provincial
Crown royalty calculations, as the basis for determin-
ing production vs. processing revenue for tax purposes.
Crude oil prices are typically posted by the buyer ofthe
oil on a volume basis. The price is at a specific location,
either in the field or at the refinery gate, and transporta-
tion tariffs must be deducted to bring the price to the
wellhead. Future projections of price can be based on
any number of approaches, ranging from a function
of inflation to models that incorporate anticipated
international supply and demand.
Gas prices are, for the most part, set by buyer and seller
at a price per energy unit. These prices will be set in
reference to a delivery point such that a transportation
tariff correction may be required to bring the price to
the wellhead. Forecast future pricing will vary from
fixed escalation to an index reflecting current market
conditions and should include an awareness of market
dynamics, regulatory issues, and the amount of
contracted gas a buyer is likely to be able to purchase.
Natural gas liquids is a term that includes ethane,
propane, butanes and pentanes plus. Ethane, ifextracted
at source, will usually be priced on the basis of a con-
tract with the buyer. Propane and butanes (normal and
iso), known as liquefied petroleum gas (LPG), are nor-
mally soldas a mixture with pentanes plus. The wellhead
price of this mixture will be based on individual prod-
uct prices with corrections applied for transportation and
fractionation. Product price forecasts would incorporate
the basics employed in crude oil and natural gas
forecasting.
Processing Fees. In most cases, production will require
some treatment prior to sale (in a few cases, production
is sold as is at the wellhead). Oil typically requires re-
moval ofdissolved gas and produced water. Natural gas
may require removal of water, heavier hydrocarbons,
hydrogen sulphide, and carbon dioxide.
If the producing company has its own treatment
facilities, associated capital costs and ongoing operat-
ing costs will have been recognized in the economic
evaluation of the property. If the producing company
does not have the necessary facilities, it will have to
incur an expense by paying another party to provide
them.
255
Methods of determining fees range from "what the
market will bear" to a contractually defined fee and may
include minimum charges that must be paid irrespec-
tive of quantities processed. Some fees consist of two
parts: a capital recovery component, and a separate op-
erating component, which is a pro rata share of facility
operating costs.
A facility owner with spare capacity can make it
available to other producers. In this case, processing fees
become a source ofcash rather than a use ofcash. These
are processing revenues and, as discussed later, should
be included in taxable income after the resource allow-
anceand earneddepletion deductions. (These two terms
are discussed in Section 21.5).
Another source of cash for one of the parties is the
overhead fee paid by the owners of a facility to the
operator of the facility. This fee will be specified in the
operating agreement among the owners as a percentage
of direct operating costs.
Operating Costs. Field costs are typically some
combination of a fixed cost, a unit cost per volume pro-
duced, and a monthly well cost. Disposal of produced
water will sometimes involve off-lease disposal and an
associated cost which can be based On the volume of
water handled or can be a fixed fee per haul.
Facility operating costs are generally considered to be a
combination of fixed and variable costs. When facility
ownership is shared, operating costs are usually appor-
tioned on the basis of throughput or contracted
commitments.
Capital Costs. One of the more significant things to
consider about a capital expenditure is the tax treatment
of its components. This is addressed in greater detail in
Section 21.5.
Another consideration is funding. If a company can not
finance its capital requirements from cash flow, it has
to consider other sources, and the risk associated with
the planned development can affect both the source and
cost of this funding. When debt financing is contem-
plated, the development may not on its own qualify for
the balance of needed funds, and additional security or
additional equity may be required. Either alternative
could restrict the company's options On further devel-
opment.
Other avenues available include the various leasing
arrangements already mentioned.
Site Restoration and Reclamation. This aspect of oil
and gas operations has recently been receiving much
more attention, and costs for decommissioning of
256
facilities and reclamation and restoration ofthe wellsite
should be included in cash flow analysis. While t h e s ~
costs may be accrued Onan annual basis for accounting
purposes, they are not actually incurred until the end of
the economic life ofthe producing property. (Quite apart
from facility decommissioning and wellsite reclamation
and restoration costs, there may be ongoing operating
costs to satisfy regulatory requirements.)
Well abandonment costs can be estimated on the basis
ofpublished regulations. Decommissioning and site res-
toration costs depend in part on the final condition of
the site and the regulations in effect at the time. As such
they are more difficult to estimate. '
General and Administrative. Commonly referred to
as G&A, these are the costs a company incurs in other
than the direct operation of its properties, such as at a
district or head office, and they must be recognized at
some level in cash flow analysis.
If any G&A costs are allocated to a property that is less
than 100percent owned by the company, they will then
be shared by the other participants in that property. The
effect of charging this expense to the field will be to
marginally reduce field economics, with a correspond-
ing impact on company economics. While the impact
on the economics ofa particular field will likely be mi-
nor, if enough costs are allocated to enough fields, the
impact on company economics can be significant.
Interest Expense. Financial charges incurred in
funding investments are often not included in cash-flow
forecasts. From the perspective ofdiscounted cash flows,
these charges, which include interest on debt or share-
holder returns, have already been considered in the
determination of the discount rate. If they were to be
incorporated into discounted cash flow calculations,
they would effectively be counted twice.
From the perspective of annual cash flow, however, the
amount of interest to be paid and, for that matter,
principal, should be taken into account. This is particu-
larly important at the corporate level because of the
implications with respect to corporate liquidity.
One area where interest must be considered is in the
determination of income tax. Interest is tax deductible
and, as discussed in Section 21.5, it is deducted after
resource allowance and before earned depletion.
Topgas. Derived from take-or-pay (TOP) gas, this
refers to two agreements that were developed to allevi-
ate problems associated with TransCanada Pipelines'
contractual obligations to pay for natural gas which,
because of the absence of markets, the company could
_______________________11
CASH FLOWANALYSIS
not take delivery of. In exchange for reduced TOP
commitments, producers were pre-paid in excess of $2
billion.
These amounts are being repaid over a lfl-year period,
scheduled to end in 1994. A minimum of 10 percent of
the gas recovery is made annually in the period from
November to February, inclusive, that being the tradi-
tional period of highest gas deliveries. A producer's
annual payments consist of what is in effect a com-
bination of principal and interest, with the interest
netted out of its gross revenue for gas.
It should be noted that the producer does not have to
pay royalty on this gas until it is produced, even though
the producer will have already been paid for the gas.
Appropriate cash flow and accounting consideration
must therefore be given this issue ..
Working Capital. Changes in working capital are not
generally considered in cash flow analysis at the field
level; however, it must be recognized that a company
will have to fund any increase in its working capital
position. This is a particularly relevant item in a start-
up situation when funds for working capital have to be
provided.
21.4 ROYALTIES AND MINERAL TAX
Generally speaking, Canadian provincial governments
own and administerCrown lands within the provinces.
The territories are the domain of the federal govern-
ment, and the offshore is the domain of negotiation.
Responsibility for mineral rights on aboriginal lands may
lie with the aboriginal peoples. Royalties will be taken
in cash or in kind and according to the regulations and
formulae determined by the administrative authority.
O'Dell et al. (1991) provides a summary of the fiscal
regimes, addressing both tax and royalty, in the Canadian
petroleum industry. The British Columbia royalty
system is described in more detail in the British
Columbia Oil and Gas Royalty Handbook (British
Columbia Ministry of Energy, Mines and Petroleum
Resources, 1992). The Saskatchewan royalty system is
outlined in Statutes and Regulations (Saskatchewan
Energy and Mines, 1990) and in information circulars
published by the Economic and Fiscal Analysis Branch
of the Department of Energy and Mines.
Royalty regimes are administered by provincial
governments and thus are subject to change at their dis-
cretion. This is best exemplified by the present situation
in Alberta where recently announced changes have
significantly altered royalty calculations.
As an example of a provincial royalty structure, a brief
description of basic royalty calculations for the
province of Alberta follows. This description encom-
passes the changes being implemented starting in
October, 1992.
Natural Gas Royalty. Royalty is basically a function
ofage, price and production rate. Age refers to the class-
ification ofthe gas as "old" or "new," new gas effectively
being gas which is discovered or brought on stream
after January I, 1974. Price refers to the "average Alberta
market price" (AMP), as prescribed by the Minister and
published in Department ofEnergy information letters.
Price also refers now to "select price," for both old and
new gas, again as published in information letters. Pro-
duction rate refers to the average daily production for
the month, with 16 900 m
3/das
an amount below which
royalty is reduced.
Prior to October of 1992, Alberta Regulation 246/90
(Province of Alberta, 199Ia), as amended, was the
basis for natural gas royalty calculations in Alberta, and
details of the application of the regulation were
provided in Gas Royalty Guidelines (Alberta Energy,
1990). With the introduction of changes to gas royalty
calculations, these documents will require some changes
as well.
Schedule I of the regulation formerly described the
calculation of royalty for natural gas and residue gas,
and is presently being updated to reflect the royalty
changes.
Minimum royalty on natural gas, both old and new, is
now 15 percent, the rate charged when the AMP is less
than or equal to the select price. When the AMP is greater
than the select price, the royalty rate, R%, is calculated
according to Equation (I):
R = [(.15)(GSP) + (.4) (AMP.GSP)] x ~ (I)
AMP
where R = the Crown royalty share (%)
GSP = the old or new gas select price
AMP = the average Alberta market price
Maximum royalty on natural gas is now 35 percent for
old gas and 30 percent for new gas. Table 21.41 sum-
marizes the changes to calculation of Alberta natural
gas royalty as announced by the provincial government
in October of 1992.
A low productivity allowance is also available. If the
average daily production during a month is less than
16900 m
3/d,
the basic royalty is calculated according
to Equation (2):
257
Table 21.4-' Summary of Alberta Natural Gas
Royalty Changes
Base Rate Marginal Rate Rate Cap
(%) (%) (%)
Current New Current New Current New
New Gas 22 15 30 40 30 30
Old Gas 22 15 40 40 40 35
Source: News release, Alberta Energy, October 21,1992.
(5)
S
R=-xIOO
Q
where R = the royalty rate (%)
S = the basic royalty
f = the royalty factor
A = the par price
B = the select price
Q = the monthly productionrate
When the par price is less than or equal to the select
price, the equationsimplifies to Equation(5):
R= [S + fSA-B))] x 100 (4)
A Q
In Alberta, gas royalties are taken in cash with the
producer paying from the proceeds of sale. Gas cost
allowance (GCA) is an amount deductedfromthe roy-
alty obligationto account for the fact that Crowngas is
being processed. When the gas is processed by a third
party, the processingfee can be consideredthe GCA. If
the producer is processing its own gas, the GCA is
calculatedaccordingto an accepted formula which in-
cludesoperatingcosts, depreciationover remaining life
anda 15percent returnon averagecapital employed. A
gooddescriptionof GCAandcustomprocessingfeesis
provided in Chapter 6 of the Gas Royalty Gn/defines
(AlbertaEnergy, 1990).
Crude Oil Royalty. Alberta Regulation 248/90
(Province of Alberta, 1991b), as amended, was the
basis for crude oil royaltycalculations inAlberta, but it
will have to be updated after the changesannounced in
late 1992.
Crude oil royalties are a functionof age, gravity, price
and production rate. "Age" refers to the classification
of oil as old, new, or third tier. "Old oil" is basicallyoil
discovered prior to April, 1974; "new oil" dates from
after March, 1974. "Thirdtier oil" was introducedas of
October, 1992 andinitiallydescribed as oil from"newly
discovered pools," with any further definition to be
containedin revisions to regulations.
"Gravity"referstotheclassification of oil as eitherlight,
mediumor heavy with the intentionthat heavy oil will
be subject to a lower royalty. Price adjustment is based
on a "par price" and a "select price," both as published
in Alberta Department of Energy information letters.
"Productionrate" refers to monthlyproductionrate.
Crude oil royalty is calculated according to Equation
(4):
(2)
(3)
R = ::.:22'-'.(B=c),---+---,c,-,,( F,---=."B)
F
where R = the Crownroyalty share (%)
B = the select price for the month
c = the royalty factor for the month
F = the producer's averagesellingprice for
the month
Royalties on pentanes plus are presentlyunder review
and changes are potentially forthcoming in the near
future.
From Schedule3 of the regulation, royalty payable on
sulphur obtained by processing natural gas is 16'/
3
percent of the sulphur. Sulphur royalties, unlike
other royalty payments, are deductible against income
in calculating federal income tax; however, sulphur
revenues also do not qualifyfor resourceallowance, as
discussedin Section21.5.
From Schedule 4, the percentage rate of royalty
payable on any product obtainedby processingnatural
gas and to which Schedules 1,2 and 3 do not apply is
30 percent of the product. This rate is presentlyapplied
to propane and butane; however, with the royalty
review, this rate is also subject to change.
R=R _[(R,-5)(16.9-P)']
c (16.9)'
where R., = the normal royalty payable
P = the averagedaily production
Effective January 1, 1994, calculations of Crown
natural gas royalty share will be based on either the
AMP or a corporate average price, the choice having
beenmadebytheproducer. Forpurposesofthis calcula-
tion, the corporateaverageprice cannot be less than90
percent of the AMP.
From Schedule 2 of the regulation, pentanes plus
royalties are determinedaccordingto Equation (3):
258
_______________________.-sft
CASH FLOW ANALYSIS
There are two kinds of basic royalty: one defined for
new and old oil and the other for third tier oil. In turn,
the basic royalty for new and old oil is calculated by
using one of two equations: one for production rates
less than or equal to 190.7 m
3/month
and one for pro-
duction rates over that value. The basic royalty for third
tier oil has three values. It is equal to zero for produc-
tion less than or equal to 20 m
3/month
and is calculated
using one equation for production between 20 and 190.7
m
3/month
and another for production over 190.7
m
3/month.
Table 21.4-2 summarizes the equations used
to calculate basic royalty.
Table 21.4-2 Summary of Equations for Basic
Royalty
r = (O.IB+O.4 (A-B)) x 100 (7)
A
It should be noted that while the same formula is used
for all types ofoil, there is a different maximum royalty
intent set for each. This maximum is 35 percent for old
oil, 30 percent for new oil, and 25 percent for third tier
oil.
The royalty rate, R, is price sensitive only up to the par
price that causes "r" to reach its cap. Above this par
price the royalty factor is reduced to maintain R at its
maximum. Table 21.4-3 summarizes the changes to cal-
culation of Alberta crude oil royalty as announced by
the provincial government in October of 1992.
where r = the royalty intent (%)
The royalty intent is based on a well reference rate of
572.1 mvmonth and is calculated according to
Equation (7):
The par price, A, is a representative wellhead price.
There are now separate par prices for light and heavy
oils for purposes of determining royalty rates.
There is one select price, B, for old oil which applies to
both light and heavy oil. There are two select prices for
new oil with one set for new heavy and another for new
light oil. Still another select price will be set for third
tier oil.
The royalty factor, f, is further identified as k for old
oil, y for new oil, and z for third tier oil. These three
factors are all calculated using Equation (6):
Rateimvmon) NewOil TOld Oil ThirdTier Oil
0-20 0
Q2
2755.04
20 - 190.7
(Q-20)'
2207.46
> 190.7 [(Q-190.7) x 0.115385] + 13.2
Source: Newsrelease, AlbertaEnergy,October21,1992.
k z = [(r%)(572.1) -I] / (A-B)]

,y, 57.2 [A
(6)
Table 21.4-3 Summary of Alberta Crude Oil
Royalty Rate Changes
BaseRate Marginal Rate RateCap
('Yo) ('Yo) ('Yo)
Current New Current New Current New
ThirdTier n.a. 10 n.a. 40 n.a. 25
NewOil 21
2
/
J
10 30 40 30 30
OldOil 21
2
/
J
10 40 40 40 35
Source: Newsrelease, AlbertaEnergy, October21,1992.
Royalty factors, par prices and select prices are to be
listed in the Alberta Energy information letters.
The Operator, as Agent for the Crown, is responsible
for delivering Crown royalty crude oil volumes to the
Alberta Petroleum Marketing Commission (APMC), a
government-sponsored agency. The APMC markets the
crude oil and, since the buyer of the APMC crude may
not be the same as the buyer of the producers' crude,
the price received for the Crown royalty volumes will
not necessarily equal the producers' sale price.
Royalty Tax Deduction. As discussed in more detail
in Section 21.5, certain Crown charges, principally roy-
alties, are not deductible in calculating federal taxable
income. Instead, the provinces of British Columbia,
Alberta and Saskatchewan make available a royalty tax
rebate that is based on the difference between these
Crown charges and resource allowance.
Alberta taxpayers can deduct from Alberta tax payable
an amount which is essentially the product of the pro-
vincial tax rate and the "attributed Canadian royalty
income" (ACRI), the amount by which provincial
levies exceed resource allowance. Any unclaimed
259
where R tax rate: 0.269 for liquids, 0.069 for
solution gas
V = price per m
3
for liquids, or 10
3
scm for
solution gas
M = annual production
Further details on the present ARTC program are
available from the Corporate Tax Administration groUp
of Alberta Treasury.
Production Royalty. Production royalty is defined with
reference to the recipient. If the recipient is subject to
Crown charges, such as Crown royalties, provincial min-
erai taxes and road allowance levies, i.e., nondeductible
Crown charges for income tax purposes, the royalty is
termed a production royalty. This definition is impor-
tant for tax purposes because production royalty income
is eligible for resource allowance (Section 21.5).
Resource Royalty. Resource royalty is royalty received
by a recipient; it is not subject to Crown royalty charges
and is ineligible for resource allowance.
Oil Sauds Royalty. Royalty for oil sands development,
such as the Syncrude operation, is usually determined
according to contract terms negotiated between the de-
veloper and the provincial, and sometimes the federal,
government.
Freehold Royalty. Where mineral rights are held by a
party other than a government, they are classified as
freehold mineral rights, and the lands are generally
referred to as freehold lands. Royalty obligations asso-
ciated with production by other than the owner of the
rights are negotiated between the lessor and the
lessee.
Mineral Tax. In the absence of ownership rights on oil
and gas produced from freehold lands, and the con-
comitant right to impose a Crown royalty, governments
impose a mineral tax, typically calculated on an annual
basis. To illustrate, the following is a discussion of the
Freehold Mineral Rights Tax as levied on production
from nonCrown lands in Alberta. However, the mineral
tax structure is presently being reviewed with a view to
possible updating.
This tax is a function of both price and rate, and is
substantially lower than Crown royalty, to account for
the fact that the producer is paying royalty to the owner
of the freehold mineral rights. For crude oil, solution
gas and condensate, the tax formula is:
deduction can be carried forward indefinitely. Ifresource
allowance exceeds the provincial charges, no royalty
tax deduction is available; however, neither is there tax
on the excess.
Saskatchewan has a royalty tax deduction similar to
Alberta's; the rebate is the lesser of Saskatchewan tax
otherwise payable or the royalty tax credit. The tax credit
for the year is a function of the Saskatchewan tax rate
and the "adjusted attributed Canadian royalties and
taxes" (AACRT). Unclaimed credits can be carried for-
ward, and any excess ofresource allowance over Crown
charges is not taxed.
In British Columbia, a taxpayer first computes a basic
tax, using resource allowance and nondeductible Crown
charges. A notional tax is then calculated based on no
resource allowance and deductible Crown charges. The
difference between the two is the rebate, which is added
or subtracted as an adjustment to the total tax payable.
Alberta Royalty Tax Credit. As royalty is a govern-
ment program, there is opportunity for government to
make incentives available. One such incentive program
is the "Alberta royalty tax credit" (ARTC). First imple-
mented in 1974, it was updated as of January I, 1990 to
a 5-year program providing a variable percentage tax
credit. While there is now no specified limit on the re-
fund itself, there is a limit of $2,500,000 on the amount
ofroyalty base that is eligible for the credit in each year.
The credit is a function of the "par price" of oil and is
set quarterly by reference to average par prices in the
preceding quarter. It varies from a high of 85 percent
when the average par price falls below $100 per cubic
metre, to a low of25 percent when the average par price
rises above $210 per cubic metre.
A number of amendments were made to the original
program to limit the multiplication of royalty tax cred-
its that could otherwise occur if a corporation that was
claiming the maximum credit disposed of producing
properties to a party claiming less than the maximum.
Briefly, an above-limit, or restricted, corporation is one
that has a royalty obligation in excess ofthe amount on
which it can eam a credit. A restricted resource prop-
erty is an interest in a producing property that was
completed before 1989 and disposed of after 1989 by a
restricted corporation. Royalties on production attrib-
uted to that interest cannot be included in the Alberta
Crown royalty base for any of the holders of the inter-
est. Also, as a general rule, the maximum allowable
credit under the existing program must be allocated
among corporations that are associated in a taxation year.
260
tax=RxVxM
(8)
CASH FLOW ANALYSIS
tax s Ax Vx M (II)
For solution gas, M is the production in thousands of
standard cubic metres. For crude oil and condensate:
for annual production, Q, less than 2288.4 cubic
metres, and:
A ~ R _[ (R-.Ol) X (16.9-ADP)' (I 2)
(16.9)' ]
Amounts in the accumulated CDE account may be
deducted from taxable income at rates of up to 30
percent of the remaining balance.
Canadian Exploration Expense (CEE). Defined in
paragraph 66.1(6)(a) of the Income Tax Act, CEE is
exploration cost incurred after May 6, 1974 and includes
such things as geological, geophysical and geochemi-
cal expense, the drilling of exploration wells, and the
cost of dry holes. A principal business corporation, as
defined in paragraph 66(15)(h) of the Tax Act, must
deduct the lesser of the amount in the account and
the company's income for the year (exclusive of divi-
dends from foreign and Canadian corporations' that are
exempt from tax, and before any amount is deducted
for depletion.)
For all other taxpayers, deducting the full value of their
CEE pool against their income is an option.
Canadian Oil and Gas Property Expense (COGPE).
Defined in 66.4(5)(a) of the Income Tax Act, COGPE
is basically the cost incurred in acquiring a Canadian
resource property after December 11, 1979. This is
defined in paragraph 66(15)(c) of the legislation and
can include drilling and production rights and royalty
interests. Cumulative COGPE, the amount in the tax
account balance, may be deducted at an annual rate of
up to 10 percent ofthe balance in the account.
Nontangible portions of property sales are charged
directly to this account. If a negative balance results
at year end, this balance is transferred to the CDE
account. Any resulting negative balances created in the
CDE account must go into income.
Resource Allowance. With the exception of sulphur
royalties, provincial Crown royalties are not deductible
against federal income tax. While not explicitly identi-
fied as such in tax legislation, resource allowance exists
as a means of recognizing this inequity. "Resource
allowance" is a deduction against income and is calcu-
lated as 25 percent of adjusted resource profits (Table
21.5-1), using only production-related income and
deductions.
In an ongoing debate between tax authorities and
taxpayers as to what constitutes "production-related
income and deductions," it has been Revenue Canada's
position that, for principal business corporations, all
G&A expense is to be deducted in calculating resource
allowance. This interpretation has now been success-
fully challenged, and the courts do not agree with
Revenue Canada's interpretation [see The Queen v .
Gulf Canada Ltd., 92 DTC 6123 affirming 90 DTC
6622(FCTD)].
(9)
(10)
M ~ (0.0833Q)'
105.94
M ~ ( Q ) -228.04
4
where R ~ tax rate; currently 0.069
ADP ~ average daily production per well
If the average daily production for a year is greater than
or equal to 16.9 thousand standard cubic metres, the
formula is the same as that for solution gas.
21.5 FEDERAL CORPORATE INCOME
TAX
Tax rules are constantly being updated, either through
legislative change or court interpretation, and tax
planning is, at least in part, a function of corporate
objectives. Consequently, planning and calculation of
income taxes should be done with professional advice.
With the rules of the game constantly changing, it
is difficult to find an up-to-date reference for the
Canadian tax system. Nevertheless, Krukowski (1987)
provides not only a good overview, but also some
useful background on the oil and gas industry.
Canadian Development Expense (CDE). Defined in
paragraph 66.2(5)(a) of the Income Tax Act, CDE is
development-related cost incurred by the taxpayer after
May 6, 1974. The cost is an intangible cost which,
generally speaking, is expended in the drilling ofwells.
It includes the drilling, completing or converting of
any well that does not qualify as a Canadian explor-
ation expense, the cost of recompleting a well after
November 16, 1978, and the cost of any Canadian oil
and gas resource property acquired before December
12, 1979.
for Q greater than or equal to 2288.4 cubic metres.
For natural gas, ifaverage daily production for a year is
less than 16.9 thousand standard cubic metres:
261
Table 21.5-1 Cash Flow and Income Tax Summary
Income
Earned Resource
Cash
Tax
Depletion Allowance
Flow
Gross Revenue
Working Interest
XX XX xx
XX
Production Royalty
XX
XX XX
XX
Deemed Income
XX
XX XX
-
Expenses
CrownRoyalty
-
- -
yy
Mineral Tax
-
- -
yy
Production Royalty
yy
yy yy
yy
LeaseOperating yy yy yy
yy
CrownLeaseRentals
yy
- -
yy
CCA- Production
yy
yy yy
-
G&A- Production
yy
yy yy
yy
CEDOE
-
-
yy
yy
--
Adjusted Resource Profits(ARP)
ZZ
Resource Allowance (25%of ARP)
yy yy
-
Resource RoyaltyIncome
XX
XX
XX
Resource Royalty Expense
yy yy
yy
CCA-Other-Resource Profit
yy
-
-
G&A-Other
yy
yy
yy
Interest
yy yy
yy
COGPE
yy yy
-
CDE
yy
yy
-
CEE
yy
yy
-
-
Resource Profits(RP)
ZZ
EarnedDepletion (25%of RP)
yy
-
Other
ForeignIncome XX
,
XX
ForeignExpense
yy
yy
Nonproduction Income XX
XX
Nonproduction Expense
yy
yy
-
-
Net Income For Tax Purposes ZZ Cash FlowbeforeIncomeTax ZZ
Source: University of Calgary andCanadian Petroleum Tax Society, 1991.
Notes: XXrepresents an addedamount.
yy represents a subtracted amount.
ZZrepresents a sum.
262
, ,
_____________________Fi1
CASH FLOW ANALYSIS
Table 21.5-1 is a simplified summary of the federal
income tax calculation and the cash flow calculation
for an oil and gas company. The four columns illustrate
the calculation of income tax, eamed depletion, resource
allowance and cash flow by identifying the parameters
which are employed in the determination of each.
Earned Depletion. While this item has been effectively
eliminated for oil and gas producers, some companies
still have an unclaimed earned depletion base that may
be utilized as a deduction against income. A taxpayer is
permitted to deduct the lower of the earned depletion,
which would have existed under prior legislation, or the
remaining base. The calculation of earned depletion is
illustrated in Table 21.5-1.
Capital Cost Allowance (CCA). This is the tax
equivalent of accounting depreciation and in theory al-
lows a business to recover its original tangible asset
investment without having to pay tax on it. CCA accu-
mulates in pools of prescribed classes which are
deducted, at the option of the taxpayer, on the basis ofa
fixed percentage of the declining balance.
Tangible costs, which are grouped into CCA, should be
differentiated from intangible costs, which are grouped
into CDE and CEE. As a first approximation, tangible
assets are located above ground, although they would
also include production tubing and sucker rods.
Production-related assets, which reduce resource
allowance, must be differentiated from nonproduction
assets, which do not. Again, as a first approximation,
equipment which is upstream of an inlet separator is
production-related. Production-related CCA is a de-
ductible expense when calculating resource allowance,
thereby reducing its effectiveness as a tax shelter for
resource income by 25 percent. Accordingly, a taxpayer
would be motivated to maximize not only the amount
ofCCA which is deducted against nonresource income,
but also amounts of COGPE, CDE and CEE.
Disposal of a tangible asset yields a credit (not to
exceed the original cost of the asset) for the pool into
which the assets were originally grouped. If a negative
balance in the pool results, this balance must be included
in income. If the assets in question are production-
related, this income will qualify as resource profits.
Canadian Exploration and Development Overhead
Expense (CEDOE). This G&A expense is not substan-
tially directed toward exploration and development and
may be completely written off in the current year,
or capitalized. If capitalized, it would be deducted in
calculating resource allowance in the year it was
incurred, added back in the income calculation, and then
included in either CDE or CEE.
Successor Rules. Alterations in a corporation's status,
brought about by such things as mergers, acquisitions
and changes in control, receive particular treatment
within the Income Tax Act. A proper understanding of
the associated rules and regulations is best left to
professional advisors.
21.6 FINANCIAL STATEMENTS
Companies produce annual financial statements as an
accountingof their performance during the year and their
status at the end ofthe year. The information contained
in these statements can yield historical annual cash flow
numbers.
Balance Sheet. If a company follows the full cost
method ofaccounting, whereby all costs ofacquisition,
exploration for, and development ofoil and gas reserves
are capitalized, the value ofthe asset identified as "Prop-
erty, Plant and Equipment" is limited by a "ceiling
value." This ceiling value is effectively determined by
performing a cash flow analysis on the company's re-
serves. It would include the value ofthe proved reserves
plus the lower of cost and estimated value of undevel-
oped properties.
"Depletion and Depreciation," listed on the asset side
of a balance sheet, are accounting terms and are not
equivalent to "Earned Depletion" and CCA, as used in
the income tax calculation.
On the liability side, anticipated future costs for "Site
Restoration and Reclamation" are listed. These amounts
are the company's estimate of future liabilities-at
today's prices-and should be consistent with those used
in the cash flow analysis, although they will have to be
segmented into annual amounts and escalated to the
appropriate year.
Statement of Income. Revenue from petroleum and
natural gas is usuallynet ofroyalties and includes ARTC.
G&A, with the exception ofamounts capitalized, should
be similar to that used in cash flow analysis, while, as
mentioned previously, depletion and depreciation are
not. Current income tax should correlate with that used
in cash flow. Deferred income tax is a noncash item
relating mainly to the timing difference between claims
for tax purposes of CCA, exploration and development
costs, and the amounts of depletion and depreciation
listed in the financial statements.
Statement of Changes in Cash Position. This
statement can be derived from the balance sheet and the
statement of income. Typically, the amount listed
263
as "cash flow from operations," when added to the
interest expense listed in the statement ofincome, gives
the cash flow being discussed. When interpreting these
statements, the reader should also check to see how
changes in working capital are addressed.
Investments (such as capital expenditures and
acquisitions) listed on this statement may have exceeded
the company's cash flow for the year. In that case, the
company will have had to either borrow money or get
an injection of equity. These investments should have
each been the subject of an investment decision process
which would have included a cash flow analysis.
21.7 FINANCE AND ECONOMIC
CONSIDERATIONS
Cash flow analysis and investment decision-making
have a basis in theory, and to appreciate them some
understanding of this theory is important. The follow-
ing is a simplified discussion ofthe theory. For a more
in-depth review, the reader is advised to consult a busi-
ness finance text such as Lusztig and Schwab (1988).
Net Present Value (NPV) and Internal Rate of
Return (IRR). These are the two most widely used
terms in investment decision-making. "Net present
value" is the value obtained when all cash flow streams,
including the investment, are discounted to the present
and totalled. "Internal rate of return" is the discount rate
which will give an NPV ofzero, meaning the discounted
cash flow stream is equal to the cost of the investment.
For investments involving initial expenditure and
subsequent inflows of cash, a plot of NPV against dis-
count rate yields a downward slopingcurve which shows
steadily decreasing NPV with increasing discount rate.
This curve intersects the discount rate axis (NPV equal
to zero) at the IRR. The apparent drawback of using the
IRRis that it, by definition, assumes that the unrecovered
investment can be re-invested at this rate. On the other
hand, the NPV is expected to be positive, which nor-
mally implies that the IRR exceeds the cost of capital.
When NPV is used, the investment is to provide a ben-
efit beyond the cost of funding. When IRR is used, the
yield is to exceed the cost of funding. In that respect,
the two methods are complementary.
Project Abandonment. Use of NPV as a decision-
making tool should not be limited solely to the initial
investment decision. Rather, a project shouldbe checked
throughout its life to ensure that it has a positive NPV.
If at any point it does not, a sponsor should seriously
consider abandoning the project since, from that point
on, the investment will be incapable of generating its
264
funding costs. In this regard, the concept of "sunk costs"
is introduced; monies that have been spent should no
longer be incorporated into the investment decision.
Weighted Average Cost of Capital (WACC). The
"weighted average cost of capital" is the average after-
tax cost to the company of all the components of its
capital structure. These are not just loan interest costs
but the cost of all forms of debt, including the cost of
preferred shares and common shares. Lusztig includes
internally generated funds, such as retained earnings and
depreciation, when discussing a firm's WACC.
All components should be included at their current cost
since they will be used when making new investment
decisions. The proportions of each can be based on the
existing capital structure or a targeted new capital struc-
ture with total capitalization based on current market
value.
Discount Rate. By definition, an after-tax cash flow
stream that is discounted at a firm's WACC and yields
a positive NPV will pay for the project's funding costs
and generate a residual gain for shareholders. In most
situations, therefore, the appropriate discount rate to use
is the WACC.
The use of one discount rate for a firm's decision-
making presumes that all ofthe firm's projected invest-
ments carry the same degree of risk. This may not be
the case. Where a project is perceived to carry a higher
risk, an investor would reasonably expect a higher yield.
This would result in a higher WACC and a concomitant
higher discount rate for the project.
While theory suggests the derivation of a unique
discount rate based on a project's WACC, other options
are often employed. One common practice is to calcu-
late the discount rate by adding a risk premium to the
firm's normal WACC. This risk premium is usually
based on intuition and is therefore, by its very nature,
somewhat arbitrary. Nevertheless, it is often a practical
way around the difficulties inherent in calculating a
project WACC.
Apart from the problems associated with determining a
risk premium, there is normally some uncertainty at-
tached to deriving any WACC, particularly the equity
portion. This is one reason why, in actuality, the
discount rate used is often the one that is in popular
useage at the time, especially if two parties are
negotiating a value.
'-1
" !
___.-.a
CASH FLOWANALYSIS
References
Alberta Energy. 1990. Gas Royalty Guidelines.
Alberta Energy Report, Dec. 1990, Pub. No.
T/2051990.
British Columbia Ministry of Energy, Mines and
Petroleum Resources. 1992. British Columbia Oil
and Gas Royalty Handbook.
Curran, R. 1992. "Slow Out of the Gate." Oilweek,
Apr. 1992.
Krukowski, J.V. 1987. Canadian Taxation ofOil and
Gas Income (2nd ed.). CCH Canadian Limited,
Don Mills, ON.
Lusztig, P.A., and Schwab, B. 1988. Managerial
Finance in a Canadian Setting (4th ed.).
Butterworths, Toronto, ON.
0' Den, S., Pearse, J., Miller, c., and Tarvydas, R.
1991. Petroleum Fiscal Systems in Canada (rev.
3rd ed.). Energy, Mines and Resources Canada.
Province of Alberta. 1991a. Mines and Minerals Act,
Alberta Regulation 246/90. Office Consolidation,
Queen's Printer for Alberta (amendments to
33/91).
---. 1991b. Mines and Minerals Act, Alberta
Regulation 248/90. Office Consolidation, Queen's
Printer for Alberta (amendments to
31191).
Saskatchewan Energy and Mines. 1990. Statutes and
Regulations, Release No.9 (amended Ju\. 1991
and Sep. 1991).
University of Calgary and Canadian Petroleum Tax
Society. 1991. Taxation ofCanadian Oil and Gas
Companies: An Introduction. Calgary, AB.
265
Chapter 22
UNCERTAINTY AND RISK IN RESERVES EVALUATION
22.1 INTRODUCTION
There is always uncertainty in an estimate of the
volume or value of oil and gas reserves because few of
the factors involved are known with certainty. The tra-
ditional deterministic approach does not make any
allowance for uncertainty, and stochastic, or statistical,
methods are required to assess it. Stochastic methods
may be more time-consuming, but they make better use
of available data and can yield important information
that cannot be obtained from a deterministic evaluation.
The degree of uncertainty can be of critical importance
to investment and planning decisions, and an inadequate
appreciation of it can lead to costly failures. For every
evaluation, a decision has to be made as to whether the
improved understanding resulting from a stochastic
evaluation warrants the additional time that is required.
The high cost of failure for most petroleum ventures
suggests that stochastic methods should be used more
than they are at present.
This chapter examines concepts of uncertainty in the
estimation of oil and gas reserves and discusses the as-
pects of statistics and decision theory that provide the
methods for stochastic reserve assessments.
Masters (1984) reviews the background of the
approaches discussed in this chapter and emphasizes the
need for common sense in their application.
22.2 CONCEPTS
22.2.1 Definition of Risk and Uncertainty
The terms "risk" and "uncertainty" are used in many
different ways, and caution is required when using them.
In this chapter, risk is defined as the probability ofloss
or failure and is relevant only in the context of deci-
sion-making; uncertainty is defined as the spectrum of
possible outcomes of an evaluation. More complete
definitions of various types of uncertainty are given
in Section 22.2.3, and the relation of uncertainty
and risk to probability distributions is illustrated in
Figure 22.2-1.
266
22.2.2 Describing Uncertainty
The uncertainty in a reserve estimate can be described
in a number of ways, one of which is the use of the
traditional terms, proved, probable and possible. How-
ever, there is no ready way of quantifying the level of
differences expressed by such "point" estimates. Stat-
istical measures such as ranges, standard deviations,
confidence limits, and frequency, especially when shown
graphically, convey a large amount of information that
cannot be grasped readily in other ways and that is not
given by point estimates.
Expectation is the mean of all possible outcomes of an
event and is a commonly used single-value summary
measure that incorporates some of the effects ofuncer-
tainty. It is often used as a decision criterion, but the
following discussions on alternative approaches to
decision-making are worth noting: Newendorp (1975a);
McCray (I975a); and Tversky and Kahneman (1985).
22.2.3 Areas of Uncertainty
Uncertainties arise in the following areas of reserves
evaluation (Garb, 1988; Robinson, 1990):
Technical Uncertainty, which can be further divided
into the following:
Geological Uncertainty, which is concerned with
the estimation ofhydrocarbon volumes inplace. Once
established, geological parameters are not usually
changed significantly.
Engineering Uncertainty, which arises from the
recovery process. Once engineering parameters have
been established, significant changes usually occur
only as a result of technical advances.
Economic Uncertainty, which arises f;om market
forces, and includes the major uncertainties in price,
costs, taxes, and royalties. Economic uncertainty can
be difficult to estimate because changes are usually less
predictable than for the more stable technical areas.
Political Uncertainty, which includes political aspects
of local and national taxes, environmental regulations,
--------------------_...
UNCERTAINTY ANDRISK INRESSRVES EVALUATION
(a) Probability Density Function (PDF) of Net Present Values (NPV)
Risk: Loss will occur in about
20% of the possible outcomes.
0.4
0.1
Confidence Interval: There is about a
70% probability that the outcome will
fall within this confidence interval.
Chance of Success = 80%
100 -50 a 50 100 150 200
Net Present Value, NPV ($ x 10')
(b) Cumulative Distribution Function (CDF) or Expectation Curve of Net Present Values
(i.e., the cumulative area below the frequency distribution curve in "greater than" form)
0.8
1.0,----__
0.6
c:
Q)
::l
0-
u..

1ij
:;
E
::l
o
0.4
0.2
Loss ---. Gain
a.L__
-100 -50 a 50 100 150 200
Net Present Value, NPV ($ x 10')
Notes: 1. Uncertainty is represented by the fact that an outcome could fall anywhere on the NPV
axis with differing probabilities.
2. Chance of success is 80%.
3. Risk of loss is 20%.
4. The mean outcome or expectation is $50 x 10'.
Figure 22.2-1 Risk and Uncertainty
267
market control, price control, and threats of national-
ization, civil unrest, and war. Because political un-
certainty operates ultimately through the same factors
as economic uncertainty, political uncertainty may
be regarded as an aspect ofeconomic uncertainty. How-
ever, the unpredictability and the potential for abrupt
distortion of the market warrants the separate category.
It is very difficult to quantify, and an assessment of
several scenarios is often the best approach. .
Uncertainty may also be classified as:
Parameter Uncertainty, which is associated with the
numbers used for an assessment, for example, porosity
value taken as the average of core plug measurements.
Model Uncertainty, which is a consequence of the
degree to which a model used for the evaluation of re-
serves represents the real world. The effect is more likely
to be one of "bias" rather than "error." This effect can
be very significant, and may be difficult to assess.
Examples of models used in reserve valuation are geo-
logical maps drawn assuming a particular depositional
environment (e.g., beach sand or tidal channel sand?)
and the algorithms used for log interpretation or for an
economic evaluation (includingthe discounted cash flow
model). Drew's (1990) account of the evolution of meth-
ods used for estimating undiscovered hydrocarbon
volumes is a good illustration of the gradual reduction
of uncertainty as progressively better models are
adopted.
The uncertainty in a reserve estimate decreases as
production and knowledge increase until, at the time of
abandonment, there is little or no uncertainty. Figure
22.2-2 is an idealized schematic representation of this.
The range of reserves estimates is shown by the upper
and lower limits of the estimates. As time passes and
the well is produced, the range decreases and the limits
converge until the range becomes zero, and they meet
at the time of abandonment.
In a real case, there would be:
A bias in the estimates
An asymmetry in the range of uncertainty
Changes in economics and technology over the life
ofa project that would result in a curve not as smooth
as this one
22.2.4 Causes of Uncertainty
Reserve estimation is fundamentally a measurement
procedure, and the relationships that exist between
actual and estimated reserves and the associated
268
uncertainties can be summed up by the stochastic
reserve relation:
actual value of reserves = estimatedvalue uncertainty
where
uncertainty = error bias
All of the factors in the relation will change with
time and with time-dependent factors such as price
and technology. The relation applies to all param-
eters involved in the assessment of reserves, and the
individual uncertainties are combined according to es-
tablished statistical procedures to give the uncertainty
in a final result. Although it is usually not possible to
separate "error" and "bias," an understanding of these
concepts is essential to improving the quality ofreserve
valuations. The effects of error and bias are shown
diagrammatically in Figure 22.2-3.
Actual Value is never known except, perhaps, at the
time of abandonment of a property, as shown in Figure
22.2-3(g).
Estimated Value, as shown in Figure 22.2-3(a) and (b),
is determined by technical estimation procedures and
economic evaluation and reported in reserves reports.
Changes in technical and economic conditions result in
changes to estimated and actual reserve volumes and
values, even if the error and bias are zero.
Error, as shown in Figures 22.2-3(e) and (t), results
from the inherent uncertainty of measurement and ana-
lytical procedures, and can be positive or negative. The
actual value lies at an unknown position within a confi-
dence interval, the size of which is determined by the
confidence level specified as shown in Figure 22.2-3(t).
For example, "proved reserves are 250 35 x 10
3
rn'"
may mean that there is a 70 percent probability that they
lie between 215 and 285 x 10
3
m
3
. The probability of
the actual value lying within a confidence interval of a
particular size is represented by a frequency distribu-
tion (an envelope of all possible confidence intervals)
as shown in Figure 22.2-3(e). Although errors cannot
be eliminated, they can be minimized by careful techni-
cal work and quantified by statistical techniques. Errors
also result from mistakes (e.g., arithmetic, clerical), but
these are generally ofless importance and can be mini-
mized by careful work and checking.
Bias, as shown in Figures 22.2-3(c) and (d), is a
systematic deviation from the actual value or distribu-
tion and is a combination of two effects. Campbell
(1986) provides excellent examples of bias and other
factors that can affect petroleum evaluations; the
-------------- .aIIIIiI
UNCERTAINTY ANDRISK INRESERVES EVALUATION
-Exploratlon -.-,------ Production
Actual Reserves
<J)
~
Q)
<J)
Q)
a:
-<:
Ql
E
<:
o
"C
<:
1l
<t:
Time
Source: Garb, 1988.
Method of
Determining
Reserves
Analog - - - - - - .....-
- - - Volumetric - - - - - - - _ ~
- Material Balance - - - - - - - ~
- - Decline Curves - - - - -
Figure 22.2-2 Level of Uncertainty in Reserves Estimates during the Life of a Producing Property
discussion and quotation that follow are from Spetzeler
and Stael von Holstein (1975):
Displacement Bias is a shift ofthe whole frequency
distribution curve to higher or lower values. This is
shown in Figure 22.2-3(d).
Variability Bias is an alteration of the shape of
a frequency distribution curve. This is shown in
Figure 22.2-3(c). This is usually a central bias that
makes a distribution narrower than is warranted (i.e.,
represents a greater degree of certainty than is justi-
fied by the state of knowledge). Capen (1976)
convincinglydemonstrates this tendencyandsuggests
a method of minimizing the problem.
The following are the origins of bias:
Motivational Bias, which is defined as "either
conscious or subconscious adjustments in the
subject's responses motivated by a perceived system
of personal rewards for various responses. He may
want to bias his response because he believes that his
performance will be evaluated by the outcome.
Finally, the subject may suppress the full range of
uncertainty that he actually believes to be present
because he believes that someone in his position is
expectedto knowwith a high degree of certainty what
will happen in his area of expertise" (i.e., he wishes
to appear more decisive than is really warranted).
269
,'"',"'''''''''0'''''''"'_ ,
(a)
Result of Deterministic Evaluation
Estimated Value (May not coincide with the peak
of the frequency distribution)
-
(b)
Result of Stochastic Evaluation
Positive Displacement
+Central Variability Bias
(c)
/Broadening"" "
/ (Less common) " "
Variability Bias
(d)
(e)
Negative Displacement Bias
~ " ' ~ ...
,
,
,
,
,
,
-
Positive Displacement Bias
Displacement Bias
Error (Frequency Distribution)
(f)
Range of Uncertainty
Introduced by Error
I I
Actual Value
Confidence Limits
(g)
______t _
Reserve Volume
Figure 22.2-3 The Effect of Error and Bias on a Reserve Estimate
270
c
for 73% of the companies
for 27% of the companies
100
Figure 22.2-4 Expectation Curves: Comparison
of Results
Project B
Risk
(%)
o
15
\ __- Project A
EMV'
($ x 10
3
)
100
100
20
~ 6 0
~
.c 40
e
0..
Project A
Project B
'Expected Monetary Value
I. Project evaluation, for which there would be an over-
all improvement ifthere were a better understanding
of the risks involved.
2. The comparison of projects in order to select the
more appropriate one. For example, Figure 22.2-4
shows the expectation curves
1
for the evaluations
of two projects with the same median NPVs of
$100,000, but with very different risk profiles.
Project A is a low-risk venture that will not lose
money, but has little chance ofmaking a great profit.
Project B has a 25 percent risk that it will lose
money, but it has a potential for a higher reward
(e.g., a 20 percent probability of a net present value
(NPV) greater than $250,000). Without the addi-
tional information provided by an analysis of the
uncertainties, there is no objective way to choose
between the two projects. Which of the projects is
preferred will depend upon the risk acceptance level
ofthe decision-maker and the budget available. This
approach can also be used to analyze a portfolio of
projects in order to avoid "Gambler's Ruin.'? With
-100 -50 0 50 100 150 200 250 300
3
Net Present Value, NPV ($ x 10 )
22.2.5 Magnitude of Uncertainty
The uncertainty in an evaluation ofhydrocarbon reserves
depends on the particular property. However, for a single
property in western Canada, at the start of production,
the uncertainty in volume will typically be about
25 percent. Uncertainty generally decreases as cumu-
lative production increases and as more information
becomes available (Figure 22.2-2).
A feeling for the magnitude of uncertainty in volume
estimates can be gained from a study of the revisions in
the reported proved reserves of 70 oil and gas compa-
nies over a period of7 years (Campbell, 1984, 1988) in
which 86 percent of the companies displayed positive
bias for oil (i.e., proved reserves were initially overesti-
mated, and annual reductions were needed). The average
annual reserve revision (mostly downwards)
for oil was as follows:
o- 10% for 72% of the companies
10 - 50% for 26% ofthe companies
> 50% for I % of the companies
Companies generally displayed neutral to negative bias
for proved gas reserves. Average annual reserve re-
visions (almost equally up and down) for gas were as
follows:
1-10%
10 - 34%
Cognitive Bias, which depends on an individual's
mode ofjudgement. This arises from factors such as
hislher knowledge base, method ofprocessing infor-
mation (e.g., a judgement may be biased to a recent
piece of information because it is the most easily re-
called), or the representative nature of an analog used
to make an assessment. Cognitive bias is probably
an important source of model uncertainty.
Specific, clear procedures, quality control, experience
(i.e., a large knowledge base), competent technical work,
the use of statistical techniques and third-party review,
common sense, and a determined effort to maintain
objectivity are all required to minimize the effect ofbias
on reserves evaluation.
22.2.6 Use of Uncertainty
An appreciation of uncertainty and the associated risk
of a reserve volume or value estimate is an important
element in making decisions. Many ventures would
benefit from a more thorough analysis that included
estimates of uncertainty; for example, the elimination
of one dry hole would justify a substantial amount of
time spent on risk analysis. Other applications include:
1 An expectation curveis a cumulative distribution
function showing the probability that a valueon the
x-axis will be exceeded.
2 Gambler's Ruinis the probability that in a series of
ventures that will be profitable in the long run, a short
runoflosses will exhaust the financial resources of tbe
participants.
271
Sources
of Funds
100
80
;?
~
60
>.
.""
:0
<U
-"
40 0
~
0-
20
~ - - Debt . - - - ~ - - - - - - - - - Equity
Low Risk
Low Reward
Banker
Development Engineer
-;
mell!
---------------------
High Risk
High Reward
Development Geologist
Low-Risk Exploration
(Western Canada Basin)
High-Risk Exploration
(Frontier)
-Proven
Probable --Possible ---
Hydrocarbon Volume or Value
Figure 22.2-5 Expectation Curve: Reconciliation of Different Views of Hydrocarbon Volumes
and Values
a strong enough budget, for example, the probabil-
ity of Gambler's Ruin may be sufficiently low that
a series ofhigher risk ventures like Project Bcan be
attempted in the hope of a larger reward.
3. The reconciliation of different views of hydrocar-
bon volumes or values, arising from different levels
of risk acceptance. This is illustrated schematically
in Figure 22.2-5, which shows, for example, that
the views of a banking organization, although dif-
ferent from that of a frontier explorer, are part of
the same spectrum of possible results ofa venture.
This figure is schematic and, in reality, there will
be considerably more variation, but it shows the
following:
The probability ranges within which development,
appraisal and exploration take place
Typical levels ofactivity for various professional
groups
Risk acceptance levels for different funding
sources
Typical probability cutoffs for proved, probable,
and possible reserves
272
4. The analysis of options for risk reduction. The
strategies for this will be varied, for example:
The acquisition of additional information (e.g.,
shooting more seismic before drilling a well)
Cost reduction as a result of spending more on
project design
Forward contracts at a guaranteed price for prod-
uctsales
Carrying out a project in partnership, rather than
at full interest
Some of these can be analyzed deterministically,
but a stochastic analysis will yield a deeper level of
understanding and consequent better decisions.
5. The estimation of undiscovered hydrocarbon vol-
umes on undeveloped lands. This is discussed
further in Section 22.5.
6. Classification of reserves. Although there is
considerable debate on the definitions of various
classes of hydrocarbon volumes, stochastic meth-
ods provide the only fully consistent approach.
Without such an approach, there is only a limited
-------------------_....
UNCERTAINTY AND RISK INRESERVES EVALUATION
" Asubjective approach is essentially an opinion basedon
previous experience, whereas anobjective approach relies
on the analysis of data(e.g., core dataor previous well
results).
understanding of the probability of recovering a
quoted volume.
Further examples ofthe uses ofuncertainty can be found
in several of the references cited.
Most of the parameters used to estimate reserve values
are derived using a combination of subjective" and ob-
jective methods. All evaluations require ownership and
fiscal information, but the technical parameters depend
on the evaluation method being used. Volumetric evalu-
ations require reservoir parameters (pay thickness,
porosity, water saturation), drainage area, and recovery
and formation volume factors. Produced volumes and
pressures are needed for material balance and decline
curve methods. More complex evaluations will require
additional factors to be estimated, for example:
High, medium and low case maps or alternative
interpretations, to estimate reservoir areas
A histogram of core porosities to represent reservoir
porosities
A price forecast, with a spread of values at any
particular time
Production decline curve parameters estimated by
analogy with nearby wells
Market volumes that depend on predictions of
weather and levels of economic activity
The availability of pipeline capacity
The probability of war or embargo
Tax levels
The sources of data used to estimate uncertainty are the
same as those for deterministic estimates although
stochastic methods generally make better use ofthe data.
The sources vary from proprietary to public. In Canada
they include federal agencies (National Energy Board;
Energy, Mines and Resources; Geological Survey of
Canada), provincial agencies (Alberta Energy Resources
Conservation Board; Alberta Petroleum Marketing
Commission; and their equivalents in other provinces),
business organizations (Canadian Association of
Petroleum Producers; Canadian Energy Research
-
22.3
22.3.1
ESTIMATION OF UNCERTAINTY
Parameters to be Estimated
Institute), businesses whose purpose is the provision of
this informationand, ofcourse, internally generated data.
Much of the data used in reserve valuation is obtained
in quantitative form (e.g., well log data, production),
and a wide variety of statistical techniques can be used
for the assessment of the data. Although objective quan-
titative approaches should be used as much as possible,
there will always be a major subjective component to
any assessment. For data not available directly, and
especially for geological parameters, analogy is particu-
larly important. The selection of appropriate analogs is
a critical element of the skill of a professional involved
in a reserve valuation.
22.3.2 Empirical Classification
Time limitations mean that, despite the availability of
more rigorous methods, most oil and gas volumes are
classified as proved, probable and possible using a
predominantly subjective empirical approach. Examples
ofthis are the assignment of a one-section square drain-
age area for a gas well, or the classification as proved,
of an undrilled spacing unit lying between two proved
units. The major problem with this approach is consis-
tency; what is reasonable to one person in one reservoir
is not necessarily reasonable to another person, or even
to the same person in another reservoir. An individual,
or a group, may be consistent if clearly defined rules
(i.e., in a "Reserves Manual") are prescribed and foll-
owed, but the results will almost invariably differ from
other individuals or groups. Despite the advantages of
the empirical approach, an inconsistent application of
empirical rules is undoubtedly the source of many of
the differences between reserve evaluations.
When empirical methods are used, the probability
associated with their recovery is, at best, poorly known.
As an example, it is common to visually fit a straight
line to the pressure decline in a gas reservoir, and ex-
trapolate it to an abandonment pressure in order to
determine the reserves. The value obtained in this way
is usually called proved but, if quantified, it is often
claimed to represent a 80 percent probability level (i.e.,
there is a 80 percent probability that a greater volume
will be recovered). However, by definition, a best-fit,
straight-line extrapolation will yield a value close to the
mean (usually near a 50 percent probability level). This
is a substantial inconsistency that is probably present
in many, if not most, gas reserve estimates. Similar
inconsistencies occur for other empirical approaches
used for both oil and gas reserves evaluation.
273
22.3.4 Quantitative Estimation
The quantitative determination of uncertainty us.es
the concepts of statistics and probability. Details
on methods mentioned here and also on other methods
Verbal
Description
Almost never
Seldom
Infrequent
Sometimes
Less than an even chance
Even chance
More often than not
Often
High probability
Very high probability
(Virtually) certain
The criticism must be placed in perspective. A full-scale
stochastic exercise can be time-consuming and is often
neither practicable nor necessary. Sometimes, for in-
stance, a reserve classification is not required, merely
the assurance that a particular cutoff value or volume
will be exceeded. The empirical approach is common
because it is relatively easy to apply and, in many cases,
will give an adequate answer. However, it should not
be used carelessly or uncritically, and more sophisti-
cated methods should be used when warranted.
22.3.3 Quantifying Subjective Estimates
A subjective estimate is essentially the opinion of the
person making the estimate. Although it depends ulti-
mately on this person's expertise and objectivity, some
measures can be taken to improve the quality of a sub-
jective estimate.
The Delphi Method uses the consensus of a team of
"experts" to generate the required data. Estimates ofthe
probability distributions of the parameters are made
independently and perhaps anonymously by the experts
and combined either by averaging or by consensus.
The opinions ofthe experts can be weighted (that ofthe
"expert in a related field" receiving the greatest weight
in some schemes), and a number of iterations can be
made. The Delphi method reconciles different opinions,
including quantitative estimates, and the methods that
the experts use can vary from entirely subjective to
highly statistical.
Familiarity with a problem will often allow the direct
subjective estimation of a frequency distribution, and
questions such as, "What are the maximum, minimum
possible, or most likely values?" or "Is it likely to be
log-normally or normally distributed?" are helpful. Sev-
eral types of distribution can be used, although the
normal, log-normal and triangular distributions, histo-
grams, and some discrete distributions will cover most
cases. These distributions are described in most statisti-
cal books and, more specifically in the context of
reserves evaluation, in Newendorp (1975a) and McCray
(l975a). A graphical sketch of a frequency distribution
can sometimes be made; interactive graphical computer
displays are particularly useful for this purpose.
Subjective estimates can be "disciplined" to some
extent. For instance, if the distribution is considered
to be normal or log-normal, then an estimate of the
probability confidence interval corresponding to a
particular range (or vice versa) can be made and plotted
on the appropriate probability paper (e.g., if data is
274

-,
DETERMINATION OFOILANDGAS
considered to be log-normally distributed, and the
values estimated cover 20 percent on either side ofthe
median, then the high at 70 percent and the low at 30
percent are plotted on log-normal paper). From the line
drawn through these points, the range at other levels of
probability (e.g., at 90 percent to 10 percent) can be
read and a decision made as to whether it is reasonable'
ifnot, revisions can be made. Tests have shown that the

range at a particular probability level is usually under-
estimated (i.e., there is usually a central bias). This
method is described by Capen (1976), whose paper
should be consulted for details.
Qualitative expressions such as "good chance of," "low
risk," "very unlikely," or "probable" may be adequate
for everyday use, but the lack of a common standard
means that they are oflimited use for describing uncer-
tainties in reserve estimation. Attempts have been made
to interpret these terms quantitatively, and a useful sum-
mary is given by Mosteller and Youtz (1990). It is
interesting to note that their study showed that different
perceptions of the word "possible" are so varied that
the word is virtually useless.
A table presented by Kadane (1990) in a comment on
the paper by Mosteller and Youtz is a useful codifica-
tion of terms that can be used as.a guide to quantifying
qualitative expressions. It is not ideal for oil and gas
volume estimation, and questions would have to be
framed appropriately, for example, "Will the porosity
fall in the range of 10 to 12 percent?" This is an active
area of statistical research, and improvements may be
expected.
Range of
Probability (%)
oto 5
5 to 15
15 to 25
2'5 to 35
35 to 45
45 to 55
55 to 65
65 to 75
75 to 85
85 to 95
95 to 100

______________________..n
22.4
22.4.1

(e.g., Bayesian statistics," time series, sampling,
regression) may be found in statistical texts and in
Megill (1984 and 1985), Newendorp (l975a), and
McCray (1975a), who describe their use in the
evaluation of petroleum projects, and more generally
in Rock (1988) and Davis (1986).
Methods of determining factors such as reservoir
volume, petrophysical parameters, reservoir volume fac-
tors, and production forecasts are described in other
chapters in Parts Two and Three. From the point ofview
of estimating uncertainty, the traditional deterministic
approach to these factors must be expanded to generate
the required distributions, ranges, and high-medium-
low values, primarily using the methods of classical
statistics.
Alternative maps (e.g., high, medium and low case) can
be drawn to derive some of the geological parameters
needed. Geostatistical methods that incorporate spa-
tial relations have recently become available. These
methods generate a weighting function that is used to
interpolate or extrapolate reservoir parameters and also
to provide an estimate ofthe uncertainty. The resulting
data is relatively objective and is particularly useful for
applications such as unitization or building models for
reservoir simulation. Details can be found in Clark
(1979), Hohn (1988), and Isaaks and Srivastava (1989).
Estimates of uncertainties in costs rely on subjective
estimates, analogy, engineering analysis, and bid
quotations. The type of estimate will depend on the
evaluation scenario that is adopted and, in some cases,
contingency costs and associated probabilities are re-
quired. The time that production starts or the phasing of
expenditure in a major venture can affect the economic
viability of a project. Improved estimates may require
the use of techniques such as Critical Path Method
(CPM) and Program Evaluation and Review Technique
(PERT). CPM is a deterministic method for which high,
medium- and low-case estimates can be generated, while
PERT is a probabilistic technique that generates a
frequency distribution (McCray, 1975a).
Product pricing is usually the most important factor in
the valuation of an oil and gas project. The forecast-
ing of oil and gas prices is notoriously difficult, and
methods range from purely subjective "guesses" to
sophisticated, analytical probabilistic models that may
include the effects of weather and levels of economic
Bayesian statistics considers the ideaof conditional
probability in whichthe probability of an eventdepends
on preceding events, as in decision tree analysis.
activity. Alternative scenarios can be used to assess the
effects of different price forecasts, although a prolif-
eration of scenarios can make the results meaningless.
METHODS OF ANALYSIS
Carrying Out a Stochastic
Evaluation
Stochastic evaluation methods use values that are ex-
pressed by probability distributions, not by single values.
The approach taken for a particular evaluation depends
on the magnitude of the expenditure, the data, the time
and expertise available, and also the environment in
which decisions are made. There are no hard and fast
rules that prescribe the use of a particular method but,
in general, the less familiar and the more complex, ex-
pensive or risky a venture is, the more sophisticated an
evaluation will need to be.
At least one scenario must be established for every
project, and several scenarios may have to be constructed
to examine sensitivities or to determine the most profit-
able course of action. Scenarios should be constructed
with care as the same activities carried out under differ-
ent scenarios can yield different results. For example,
when several wells are to be drilled, the order of
drilling and timing can make a difference to the prob-
able outcome, as could a decision to reduce the risk by
shooting seismic.
Although scenarios can vary greatly, there are usually a
number of common steps in an evaluation. The follow-
ing steps (modified after Megill, 1984) assume that a
decision has been made to assess uncertainties and carry
out a stochastic evaluation:
I. Collect data. The old adage of"garbage in, garbage
out" is relevant, and time spent on ensuring that
necessary data has been collected and is of good
quality is usually well spent.
2. Isolate the key variables. Which parameters
contribute most to uncertainty? Trial runs may have
to be carried out. It is always better to spend more
time on the assessment of a critical parameter than
on a less important parameter.
3. Decide on the scenario and on the types and
parameters of the distributions (high-medium-low,
triangular, log-normal) and the method to be used
(e.g., decision tree, Monte Carlo). Several scenarios
may be evaluated and sensitivities investigated in
order to optimize a project or reduce risk.
4. Carry out the evaluation.
5. Ask "Does the result make sense?" Ifnot try again.
275
DETERMINATION OF OILANDGASRESERVES
22.4.2 Decision Matrices
6. Express the answer in the fonn of a cumulative
distribution (expectation curve) or probability
density function although a single-value answer
(e.g., an expectation or a cut-off value) may also be
required.
A sensitivity analysis, which shows the effect of
variation in individual parameters, may also be
appropriate.
Area Low Medium
High
(m'x 10
3
)
Net Oil Value 0.5 1.5
2.5
(m) Probability 0.30 0.6
0.10
Low 50 25 75
125
OJ 0.09 0.18
0.03
Medium 200 100 300
500
0.5 0.15 0030
0.05
High 300 150 450 750
0.2 0.06 0.12
0.02
Nine values of So<l>h x area and associated probabilities
result from the calculation. New high-medium-lowcase
values are generated by combining the three lowest (25,
75, 100), the three medium (125, 150, 300), and the
three highest (450, 500, 750). These may not be in the
same row or column of the matrix. If preferred, reser-
voir parameters and probabilities may be laid out in
separate matrices or programmed using simple matrix
algebra.
Low Case
Checksum: Sum of probabilities = I
The following matrix contains the calculation for the
factor So<l>h x area:
(25 x 0.09) + (75 x 0.18) + (100 x 0.15)
0.09 + 0.18 + 0.15
=73.214x 10'm'
with a probability of 0.09 + 0.18 + 0.15 = 0.42
Medium Case
Probability
0.30
0.50
0.20
Low
Medium
High
Not everyone has the capabilities for sophisticated
simulation procedures, nor does every project warrant
such an approach. In many cases, a simple manual or
spreadsheet method of calculating an expectation can
be used.
A decision matrix is a simple method of combining
probabilities that can be used when a computer pro-
gram is not available. The simple example given here
is the calculation of an oil-in-place expectation from
three parameters: net oil column (Soq,h), area, and
recovery factor).
High, medium and low case estimates and their
associated probabilities are as follows:
Net Oil Column (Soq,h) in metres
Estimate Probability
0.5 0.30
1.5 0.60
2.5 0.10
Area in square metres x 10
3
Estimate
Low 50
Medium 200
High 300
Recovery Factor
Estimate Probability
Low 0.10 0.30
Medium 0.20 0.40
High 0.25 0.30
Calculations are performed using a matrix layout with
one parameter and probabilities across the top and one
parameter down the side. Each cell of the matrix con-
tains the value of the parameter at the top left and the
probability at the bottom right. The products ofthe par-
ameters and probabilities are placed in the appropriate
cell of the matrix. This method may be used for more
than three-point (high-medium-low) estimates, but
becomes more laborious.
(125 x 0.03) + (150 x 0.06) + (300 x 0.30)
0.03 + 0.06 + 0.30
= 263.462 x 10
3
m'
High Case
(450 x 0.12) +(500 x 0.05) +(750 x 0.02)
0.12 + 0.05 + 0.02
= 494.737 x 10' m'
These values are entered into a matrix with recovery
factor (RF) as the other parameter:
276
________________________1
UNCERTAINTY AND RISK IN RESERVES EVALUATION
Recovery Low Medium High
Factor
Net Oil x Value 73.214 263.462 494.737
Area
(10' m') Probability 0.420 0.390 0.190
Low 0.10 7.321 26.346 49.474
0.3 0.126 0.117 0.057
Medium 0.20 14.643 52.692 98.947
0.4 0.168 0.156 0.076
High 0.25 18.304 65.865 123.684
0.3 0.126 0.117 0.057
Checksum: Sum of probabilities = I
If the result of this calculation is to be used for further
calculations (e.g., for economic high-medium-low
calculations), new high-medium-low values would be
generated:
Low 13.545x 10' m' Probability0.42
Medium 42.795 x 10' m' Probability 0.33
High 89.105 x IO' m' Probability0.25
However, if this is the end point of the exercise, an
expectation can be calculated:
(13.545 x 0.42) + (42.795 x 0.33)
+ (89.105 x 0.25) = 42.088 x 10
3
m
3
While this method does not have the sophistication of a
full stochastic simulation and requires some simplify-
ing assumptions, it will usually provide a reasonable
answer.
22.4.3 Decision Trees
A decision tree is a graphical summary of the possible
outcomes and probabilities of the events that comprise
a project. It is a powerful analytical tool that allows the
calculation of expectations and various risk-related
parameters.
There are several types, varying from simple trees with
the decision nodes absent, to trees with stochastic
decision nodes. The type chosen will depend on the par-
ticular problem being investigated; a simple tree that
can be solved manually will suffice for most problems.
McCray (1975a) and Newendorp (1975a) provide a de-
tailed discussion ofthe construction and use ofdecision
trees.
22.4.4 Probabilistic Simulation
Probabilistic simulation (often referred to as Monte
Carlo computer simulation)' is the combination of
frequency distributions ofvariables in order to produce
the frequency distribution of a final outcome. Decision
matrices and most trees are relatively crude approaches
to combining distributions, and this can be done much
more thoroughly using simulations. Analytical app-
roaches have also been developed that, under the right
conditions. produce a similar result to simulation.
They depend on the transformation ofthe frequency dis-
tributions of the various parameters to normal (or
log-normal), the mean and variance of which can be.
easily manipulated. Care must be taken to ensure that
the transformations are valid, as significant errors can
be introduced if they are not.
For simulation, frequency distributions are generated
for the significant parameters, a value is randomly sel-
ected from each one, and a calculation is carried out
using these randomly selected values. The process is
repeated many times (typically 300 - 1000), and the re-
sult is presented as a frequency distribution or an
expectation curve. The most common method of select-
ing a random value is Monte Carlo sampling; the Latin
Hypercube method/ has computational advantages, but
is less commonly used. Programs of various levels
of sophistication have made simulation a much easier
process.'
1 "Monte Carlo" is a probabilistic simulation method.
Probabilitydistributionfunctions are prepared for the
parameters inanevaluation and, usingrandom numbers
generatedby a Monte Carlo (or similar) sampling
process, values are selected from the distributions. A
calculationis carriedout using the selected values, and
the process is repeated many times (typically 300 - 1000).
The resultingvalues define a probability distribution
functionfromwhich parameters such as median, mean,
and mode maybe determined.
2 Latin Hypercubeis a method of sampling a probability
distribution by a stratified randomsampling process. It
performs the same functionas Monte Carlo sampling, but
with fewer samples required for the same result.
3 Computerprograms are commercially available
(PalisadeCorporation's sophisticated stand-alone PRISM,
or spreadsheet add-on, @RISK) or can be found in the
literature (McCray(1975b) p. 215, gives a program in
FORTRAN: Garb (1988) presents a simple Monte Carlo
programin BASIC; Crovelli and Balay (1991) describe a
PASCALprogramthat is available from the USGS).
277
The parameters being simulated must be mutually
independent (e.g., pay thickness should not depend on
porosity), or results may be seriously wrong. Methods
of handling dependent parameters include combining
them (e.g., using tbe product <l>h rather than and h sepa-
rately) or setting up dependencies as part of the
simulation. This facility is available in some of the
programs.
Simulations can be carried out for different purposes,
for both technical and financial reasons, and at differ-
ent levels of complexity. It is possible, for example, to
simulate a gas field development project that, in addi-
tion to the technical aspects, includes tbe possibility of
different market levels or the impact of an embargo on
price.
A more detailed discussion of simulation for project
evaluation is given in Newendorp (1975b) and McCray
(1975c).
22.5 EVALUATION OF UNDEVELOPED
LANDS
Uncertainty plays a major role in the estimation of
undiscovered hydrocarbon volumes and their values. A
variety of methods is available, many of which-
especially the statistical approaches-are still under
active development. Details and further references can
be found in Haun (1975); McCray (1975d); Newendorp
(1975a); Megill (1984, 1985), Masters (1984); Rice
(1986); Drew (1990); and Campbell (1970).
Estimates of undiscovered hydrocarbon volumes are
required at scales ranging from poorly known basins to
single well offsets in known pools. The method adopted
will depend on tbe scale and the information and time
available for making the estimate. Most estimates will
be for relatively small projects using a subjective
estimate based on analogy. Larger projects will usually
warrant the use of a more sophisticated approach.
The methods available can be summarized as follows
(after Miller, in Rice, 1986):
Areal and Volumetric Yield Methods with Geologic
Analogy. The area or volume of the petroliferous sedi-
ments in an unknown area is multiplied by the volume
of hydrocarbons per unit area or volume in a known
analogous area. This method depends critically on the
identification and the validity of an appropriate analog.
It is always difficult to know how good an analog is,
and the result is uncertain, usually to an unknown de-
gree. Areal and volumetric methods are of the most
use when there is little other information, but once
278
informI' abtilon is available, other methods will
provi e more re ra e results.
Delphi or Subjective Consensus Assess
M th d
Thi h i " ment
e 0 s, IS approac IS descnbed 10 Section 22.3.3.
Historical Performance or Behaviouristic Meth d
These methods are based on the extrapolatio 0 Sf'
hi . I d n 0
Iston.ca ata, such as discovery and drilling rates and
field The data are entered into mathematical mod-
els WhICh are then used to make extrapolations. D
(1990) gives an interesting account of their
d k

an new wor continues to appear.
Geochemical Material Balance Methods. These
methods estimate the volume of hydrocarbons gener-
ated, the volume involved in migration and loss, and
the volumes trapped and lost. By their nature, geochemi-
cal material balance methods are useable only on a
relatively large scale. Considerable information and an
appropriate model are required for this method to be
successful, and it has had limited use (Sluijk and Parker
1986). '
Combined (Integrated) Methods. Combinations ofthe
above methods, often with sophisticated statistical and
mathematical models, are becoming more common. In
general, they involve the following:
Geological basin analysis
Play or prospect analysis techniques
Statistical, economic and supply projection models
More comprehensive petroleum province analog
systems
The Geological Survey of Canada (GSC) review
of petroleum potential (Podruski et a!., 1987) used two
approaches to the estimation ofremaining undiscovered
volumes in western Canada.
The discovery process model described by Lee and
Wang (1983, 1985, 1986) and also described in a less
mathematically daunting way by Drew (1990) is a
statistical model that assumes that discoveries made to
date represent a biased sample of the underlying pool
population. To understand the characteristics of the
population and make predictions, the discovery process
is modelled, using the pool size and sequence of dis-
covery. Economic cutoffs can be built into the model to
determine the undiscovered volumes at various price
levels. Both Podruski and Drewclaim this to be tbe most
reliable method.
The second approach used by the GSC was a subjective
probability model, using probabilistic (Monte Carlo)
simulation. This may incorporate an assumption that
s
the underlying pool population has a log-normal
distribution.
A recent series of papers, in a thematic issue of the
AAPG Bulletin in 1993, which includes papers by
Masters (1993), Houghton et al. (1993), Drew and
Schuenemeyer (1993), Root and Mast (1993), Root and
Attanasi (1993), Attanasi et al. (1993), provides an
extensive summary ofthe current practices ofthe USGS
on petroleum resource assessment. It is interesting to
note that one of these papers (Houghton et aI., 1993)
recommends the use of a modified Pareto distribution,
as being better than the more traditional log-normal
distribution for modelling pool sizes.
The development ofmethods ofestimating undiscovered
reserve volumes and values is an active field, with new
papers continuing to appear in the literature.
References
Attanasi, E.D., Bird, KJ., and Mast, R.F. 1993.
"Economics and the National Oil and Gas
Assessment: The Case of Onshore Northern
Alaska." AAPG Bulletin, Vol. 77, No.3, p. 491.
Campbell, A.D. 1984. "An Analysis of Bias and
Reliability in Revisions of Previous Estimates
of Proved Oil and Gas Reserve Quantity
Information: Replication and Extension."
Petroleum Accounting and Financial
Management, Summer 1984.
---. 1988. "An Analysis of Bias and Reliability in
Revisions of Previous Estimates of Proved Oil
and Gas Reserve Quantity
Information: An Update." Petroleum Accounting
and Financial Management, Spring 1988.
Campbell, J.M. (ed.) 1970. Oil and Gas Property
Evaluation and Reserve Estimates. SPE Reprint
Series, No.3.
---. 1986. "Nontechnical Distortions in the
Analysis and Management of Petroleum Invest-
ments." JCPT, Dec. 1986.
Capen, E.C. 1976. "The Difficulty of Assessing
Uncertainty." SPE Journal, Aug. 1976, pp. 843-
850; also in Megill, 1985.
Clark, I. 1979. Practical Geostatistics. Applied
Science Publishers, London, UK, p. 129.
Crovelli, R.A., and Balay, R.H. 1991. "A Micro-
computer Program for Energy Assessment and
Aggregation Using the Triangular Probability
Distribution." Computers & Geosciences, Vol.
17., No.2, pp. 197-225.
Davis, lC. 1986. Statistics and Data Analysis in
Geology (2nd ed.). Wiley, New York, NY.
Drew, LJ. 1990. Oil and Gas Forecasting:
Reflections ofa Petroleum Geologist.
International Association for Mathematical
Geology Studies in Geology, No.2, Oxford
University Press, Oxford, UK.
Drew, LJ., and Schuenemeyer, lH. 1993. "The
Evaluation and Use of Discovery Process Models
at the US Geological Survey." AAPG Bulletin,
Vol. 77, No.3, p. 467.
Garb, FA 1988. "Assessing Risk in Estimating
Hydrocarbon Reserves and in Evaluating
Hydrocarbon- Producing Properties." JPT, Jun.
1988,pp.765-778.
Haun, J.D. (ed.) 1975. Methods ofEstimating the
Volume ofUndiscovered Oil and Gas Resources.
American Association of Petroleum Geologists,
Studies in Geology No. I, p. 206.
Hohn, M.E. 1988. Geostatistics and Petroleum
Geology. MacMillan, New York, NY, p. 264.
Houghton, J.C., Dolton, G.L., Mast, R.F., Masters,
C.D., and Root. D.H. 1993. US Geological
Survey Estimation Procedure for Accumulation
Size Distributions by Play." AAPG Bulletin, Vol.
77, No.3, p. 454.
Isaaks, E.H., and Srivastava, R.M. 1989. An
Introduction to Applied Geostatistics. Oxford
University Press, Oxford, UK, p. 561.
Kadane, J.B. 1990. "Comment: Codifying Chance."
In: Mosteller, F., and Youtz, C., 1990.
Lee, PJ., and Wang, P.C.c. 1983. "Probabilistic
Formulation of a Method for the Evaluation of
Petroleum Resources." Jour. ofthe Int. Soc.for
Math. Geol., Vol. 15, pp. 163-181.
---.1985. "Prediction of Oil or Gas Pool Sizes
when Discovery Record is Available." Jour. of
the Int. Soc.for Math. Geol., Vol. 17, pp. 95-113.
---. 1986. "Evaluations of Petroleum Resources
from Pool Size Distributions." In: Rice, D. D.,
1986.
Masters, C.D. 1993. "US Geological Survey
Petroleum Resource Assessment Procedures."
AAPG Bulletin, Vol. 77, No.3, p. 452.
---. (ed.) 1984. Petroleum Resource
Assessment. International Union of Geological
Sciences, Publication No. 17.
279
McCray, A.W. 1975a. Petroleum Evaluations and
Economic Decisions. Prentice-Hall, Inc.,
Englewood Cliffs, NJ, pp. 3-4.
---. 1975b. Petroleum Evaluations and Economic
Decisions. Prentice-Hall, Inc., Englewood Cliffs,
NJ, p. 215.
---,. 1975c. Petroleum Evaluations and Economic
NJ,Ch.8.
---. 1975d. Petroleum Evaluations and Economic
NJ, Ch. 7.
Megill, R.E. 1984. An Introduction to Risk Analysis
(2nd ed.). PennWell Publishing Co., Tulsa, OK.
---. 1985. Evaluating and Managing Risk: A
Collection ofReadings. SciData Publishing,
Tulsa, OK.
Miller, B.M. "Resource Appraisal Methods: Choice
and Outcome." In Rice, 1986.
Mosteller, F., and Youtz, C. 1990. "Quantifying
Probabilistic Expressions." Statistical Science,
Vol. 5, No. I, pp. 1-34.
Newendorp, P. 1975a. Decision Analysisfor
Petroleum Exploration. Petroleum Publishing
Company, Tulsa, OK, Ch. 6.
---. 1975b. Decision Analysis for Petroleum
Exploration. Petroleum Publishing Company,
Tulsa, OK, Ch. 7 & 8.
280
Podruski, J.A., Barclay, J.E., Hamblin, A.P., Lee, PJ.,
1987. Conventional Oil Resources of Western
Canada. Part I: Resource Endowment. Geologi_
cal Survey of Canada Paper 87-26, Minister of
Supply and Services Canada.
Rice, D.O. (ed.). 1986. Oil and Gas Assessment:
Methods and Applications. American Association
of Petroleum Geologists, AAPG Studies in
Geology #21.
Robinson, J.G. 1990. "Determination of Reserves and
Values and Application of Risk." JCPT, Nov.
1990 Supplement.
Rock, N.M.S. 1988. Numerical Geology. Springer-
Verlag, New York, NY.
Root, D.H., and Attanasi, E.D. 1993. "Small Fields in
the National Oil and Gas Assessment." AAPG
Bulletin, Vol. 77, No.3, p. 485.
Root, D.H., and Mast, R.F. 1993. "Future Growth of
Known Oil and Gas Fields." AAPGBulletin, Vol.
77, No.3, p. 479.
Sluijk, D., and Parker, J.R. 1986. "Comparison of
Predrilling Predictions with Postdrilling Out-
comes, Using Shell's Prospect Appraisal System."
In Rice, D.O. (ed.), 1986.
Spetzeler, C., and Stael von Holstein, C. 1975.
"Probability Encoding in Decision Analysis."
Management Science, Vol. 22, No.3, Nov. 1975,
pp.344-347.
Tversky, A., and Kahneman, D. 1985. "The Framing
of Decisions and the Psychology of Choice." In
Megill, R.E., 1985.
Chapter 23
THE REGULATORY ENVIRONMENT
23.1 INTRODUCTION
This chapter describes the regulatory environment for
the petroleum industry in Canada. The regulatory ac-
tivities, functions and objectives of both the provincial
and the federal levels of government are described, as
well as the necessary legislationandorganizationalstruc-
tures. The focus is on Alberta, which is Canada's largest
producer of oil and gas. The regulatory environment in
the other producing provinces would, in general, be
similar.
Governments are involved in a number of different
functions that have a direct influence on the develop-
ment of oil and gas reserves:
Resource inventories
Mineral ownership
Economic development policies
Conservation control
Development, operating, and environmental
regulation
Domestic supply assurance
Fiscal policies
Business regulation
International policies
The provincial governments have jurisdiction over all
aspects of the petroleum industry within provincial
borders, except for lands under federaljurisdiction, such
as Indian reservations and national parks. The federal
government has jurisdiction over all frontier lands,
including the Yukon and Northwest Territories,
Hudson's Bay, and most of Canada's offshore areas.
The federal government signed accords with the gov-
ernments of Newfoundland and Nova Scotia, giving
these provinces joint control with the federal govern-
ment over offshore petroleum. The federal government
has jurisdiction over interprovincial and international
trade and commerce, which are of major importance to
the petroleum industry.
Basic policy direction in all of the functions is
established by political elements of government. At
the provincial level these include the Legislature,
the Premier and Cabinet, and the Minister of Energy; at
the federal level, the Parliament, the Prime Minister
and Cabinet, and the Minister of Energy, Mines and
Resources. The basic policies are embodied in the acts
and regulations that are administered by specialized
government agencies.
In Alberta, the principal agencies are the Energy
Resources Conservation Board (ERCB), the Alberta
Department of Energy, and the Alberta Petroleum
Marketing Commission. The principal federal agencies
are the Department of Energy, Mines and Resources,
the National Energy Board (NEB), and the Department
of Indian and Northern Affairs. Under the accords with
NewfoundlandandNova Scotia, management and regu-
lation are carried out by the Canada-Newfoundland
Offshore PetroleumBoard and the Canada-Nova Scotia
Offshore Petroleum Board, which have equal represen-
tation from the federal government and the particular
province.
Reserves estimates are an important factor in many
regulatory functions and policies. The government
sources of reserves estimates, how these are used, and
their effect on reserves development are discussed in
this chapter.
23.2 RESOURCE ASSESSMENTS
Assessments of petroleum resources and reserves are
needed by governments in order to carry out their func-
tions relating to exploration, development, and the use
of these resources.
Both the provincial and federal governments conduct
their own assessments of ultimate potential, recover-
able reserves, and supply (rate ofproduction). Alberta's
assessment is done primarily by the ERCB, which car-
ries out continuing detailed evaluation of reserves and
periodic assessments of ultimate potential. The Alberta
Geological Survey also does some assessments.
281
The Geological Survey of Canada evaluates ultimate
potential for the federal government, andthe NEBevalu-
ates reserves and supply. These two agencies also work
with the Energy Sector of the Department of Energy,
Mines and Resources in the Petroleum Resources
Appraisal Panel.
Because reserves assessments are frequently quite
subjective and interpretive, and evolve as a result of
emerging technology and changing economic condi-
tions, governments seek comparative estimates from
external sources. These sources include reserves assess-
ments supporting gas removal and export licence
applications, assessments by other organizations,
and voluntary submissions by oil and gas companies.
Governments are also very interested in reserves esti-
mates for other jurisdictions (i.e., other provinces and
other countries) with whom they compete for invest-
ment capital and for markets.
23.3 MINERAL OWNERSHIP
The majority of mineral rights in Canada are owned by
either the provincial or the federal Crown. The remain-
der are held privately by individuals or corporations
whose ownership originated from land and mineral
rights granted a century or more ago to certain parties,
notably the Canadian Pacific Railway Company and
the Hudson's Bay Company. The Province of Alberta
owns about 80 per cent of the mineral rights within its
borders. The federal government is responsible for min-
eral rights in the territories (Yukon and Northwest
Territories) and offshore (arctic, east coast, west coast,
Hudson's Bay, and St. Lawrence), as well as in federal
lands and Indian Reserves within the provinces.
Governments manage these mineral rights on behalf of
the citizens.
The mineral rights are leased to private operators for
development. Leasing is done by a competitive bidding
process involving an initial acquisition cost (bonus), plus
annual rental fees and royalties (share) on production.
Decisions regarding initial acquisition costs usually take
into account estimates of reserves under the tracts
involved.
In Alberta, the Department of Energy is responsible for
mineral rights disposition, rentals and royalties under
the Mines and Minerals Act. The department relies on
competitive bidding in the initial disposition of rights
(Crown sales). Ifa well has not been drilled during the
initial term ofthe lease, under certain circumstances the
lease may be extended if the lands are considered to be
capable of economic production.
282
-..,
Government's royalty interest can be taken in-kind (the
actual oil or gas, rather than monetary proceeds of its
sale), which results in direct involvement in marketing
of the product. In Alberta, the marketing of Alberta's
royalty oil is carried out by the Alberta Petroleum
Marketing Commission (APMC), which has a mandate
to ensure that the greatest possible benefits are secured
from the sale of Alberta's oil and gas. Royalty on gas
is not taken in-kind, but the APMC closely monitors
all gas sales from Alberta under the Natural Gas
Marketing Act. The APMC also represents Alberta at
national and international regulatory proceedings.
The Alberta government has an interest in acting to
maintain or increase petroleum product prices because
of the direct royalty income and also because of the
overall economic development benefits. In the early
1970s,the Alberta government brought about an increase
in the price of its gas, which at that time was signifi-
cantly underpriced on a heating value basis relative to
oil. In the subsequent energy crisis, Alberta sought to
have the price of its oil and gas follow the rapidly esca-
lating world prices.
Leasing of federal oil and gas rights is done under
terms of the Canada Petroleum Resources Act. Rights
to explore are granted after competitive bidding based
on the proposed exploration expenditure during the
initial term of the licence. The Department of Indian
and Northern Affairs has the responsibility of man-
aging these rights in frontier lands north of the 60th
parallel, and the Department of Energy, Mines and
Resources has responsibility south of the 60th, except
for the east-coast offshore accord areas, which are
under the Canada-Newfoundland and Canada-Nova
Scotia Offshore Petroleum Boards. The Department of
Indian and Northern Affairs assists in the management
of mineral rights in Indian Reserves.
The levels of royalties can affect whether a particular
reserve is developed and becomes proven, or remains
in a less certain category of reserve. Royalty reduction
or royalty holidays are commonly used to promote de-
velopment of the petroleum industry or a particular
sector of the industry. Similarly, the oil and gas price
levels, which can be influenced to some extent by gov-
ernments, significantly affect the rate of development.
When prices are restrained, the rate slows; when prices
escalate, the rate increases.
23.4 ECONOMICDEVELOPMENT
POLICIES
Most governments have an interest in overall economic
development, and the governments usually concentrate

on the development of industries having a large
potential. Decisions regarding the promotion of petro-
leum industry development are based on estimates of
ultimate potential, including assessment of conditions
necessary for these to be economic viable reserves.
Petroleum development is very capital-intensive. The
methods used by governments to attract capital include
the following:
Minimizing of royalty and taxation
Subsidization
Loan guarantees
Equity participation by government
Funding of infrastructure construction
Funding of research
Assistance with market development
Maintenance of petroleum product prices
Maintenance ofpolitical, business, fiscal, and social
stability
Provision of business and technical information
Publication of estimates of available resource
potential
Industrial diversification and decentralization are two
other usual government objectives that are embodied in
many policies that affect oil industry development.
As an example of a government policy meant to
stimulate the development ofthe Canadian oil industry,
the National Oil Policy (196I) reserved the Canadian
market in Ontario and westward for Canadian oil at
a time when cheap offshore supplies were available.
An example of government financing support was the
construction of the TransCanada gas pipeline (1957) to
stimulate development of the then-fledgling gas indus-
try and provide an alternative energy source to Ontario.
Development of the Athabasca oil sands has been
supported in a variety of ways including equity partici-
pation, loan guarantees, reduced royalties and taxation,
and the direct funding ofresearch and testing ofvarious
recovery methods.
When world petroleum prices were rapidly escalating
during the 1970s, Alberta and the producing provinces
sought to have their petroleum prices follow world
levels, but the federal government, reflecting the
interests ofthe consuming provinces, wanted to restrain
the rate of price increases to domestic consumers.
Therefore, from 1975 to 1985, natural gas prices were
controlled by agreements negotiated between the
federal government and the governments of the pro-
ducing provinces. Oil prices were controlled in a similar
fashion. In 1985the two levels ofgovernment agreed to
deregulate and allow market-responsive pricing.
23.5 CONSERVATION CONTROLS
23.5.1 Field Development and Production
Conservation
Oil and gas reserves can be lost both in the reservoir
and on the surface as a result of wasteful production
practices. The governments of the producing provinces
have the following kinds of legislation to minimize
wasteful practices:
Limits on excessive gas production from oil
reservoirs
Requirements to implement enhanced recovery
schemes
Production rate limits from wells or pools
Requirements to gather and conserve solution gas
produced with oil
In Alberta, conservation requirements are stipulated in
the Oil and Gas Conservation Act and Regulations,
which are administered by the ERCB. The application
of specific measures to individual wells and pools fre-
quentlydepends onthe reserves estimates for those wells
and pools.
Conservation controls serve to increase proved reserves
in developed pools, but can slow the development of
other projects that are competing for limited available
capital. Regulation is necessary because the economic
rate of return of a conservation project is sometimes
less than for the same project without controls.
23.5.2 Consumer Demand Conservation
Particularly during the energy crisis of the 1970s, all
levels of government were involved in programs to
reduce the demand ofpetroleum products. Many ofthese
were in the form of advertising campaigns and incen-
tive programs to reduce waste and increase efficiency
by the individual consumers. Development of alterna-
tive fuels was actively supported. In Alberta, the ERCB
regulates manufacturing industries that use natural gas,
and requires gas useage to be efficient.
23.6 DEVELOPMENT, OPERATING,
AND ENVIRONMENTAL
REGULATIONS
The provincial and federal governments impose a
variety of detailed regulations relating to the construc-
tion and operation of oil and gas production facilities.
These regulations are aimed at achieving safe, orderly,
efficient, and equitable development and operation of
283
---I
facilities, and minimizing their social and environmental
impacts. Some of these regulations are specific to the
petroleum industry while others apply to all industries.
In Alberta, the regulations specific to the petroleum
industry include the following acts and the regula-
tions pertaining to them: the Energy Resources
Conservation Act, the Oil and Gas Conservation Act,
the Oil Sands Conservation Act, and the Pipelines Act.
The regulations are administered by the ERCB and ap-
ply to all oil and gas wells, pipelines, and production
and processing facilities. The regulations cover such
aspects as demonstration of need, sites and routes, siz-
ing and design, construction and operational practices,
monitoring and reporting, and ultimate decommission-
ing offacilities. Applications for each individual facility
and operation must show that all regulations and stan-
dards will be met. The applications are also subject to
scrutiny by the public, including affected landowners
and residents, special interest groups, and competing
oil companies. Public hearings are held when issues dic-
tate or when the issues cannot be resolved by private
negotiation. When all requirements and concerns have
been met, approvals, permits and licences are issued.
Further specific approvals are required from other
provincial government departments. Department of
Environment authorizations are required for pollutant
emissions and waste disposal, watercourse crossings,
and land surface disturbance and reclamation. Where
public lands are involved, land use authorizations must
be obtained from the Department ofForestry, Lands and
Wildlife. Development permits must be obtained from
municipal authorities. Generic provincial regulations
regarding worker and public safety, building and con-
struction standards and codes, and industrial water usage
apply to all industries including the oil industry.
The ERCB, the Alberta Department of Environment,
and other provincial agencies do regular inspections and
compliance monitoring during the operating lives ofoil
and gas facilities and operations.
In federal lands, similar functions are exercised under
the Oil and Gas Production and Conservation Act by
the NEB and the Offshore Petroleum Boards. The NEB
is also responsible for regulation of pipelines that
cross provincial and international borders. The Federal
Environmental Assessment and Review Process
(EARP) applies to projects that are on federal lands,
receive federal funding, require approvals from federal
departments, or are undertaken directly by a federal
department. For hydrocarbon development projects
284
requiring NEB approval, the NEB coordinates the EARP
reviews carried out by all the federal departments that
are involved.
Development regulations often result in increased
development costs for reserves. In particular, pollution
and environmental control requirements are becoming
an increasingly significant factor in the cost of
petroleum development and production.
23.7 DOMESTICSUPPLY ASSURANCE
The provincial and federal governments both review
proposals for removal or export of certain energy prod-
ucts from their jurisdictions, to ensure that domestic
long-term needs are provided for and that the export is
in the best interests of their jurisdictions.
In Alberta, the removal of natural gas is subject to the
Gas Resources Preservation Act, which is administered
by the ERCB, and is subject to subsequent further ap-
proval by the provincial government. Alberta's current
removal criteria requires that a IS-year supply be
reserved for the core market within the province (prin-
cipally residential and commercial consumers) in the
form ofestablished reserves ("proven" plus a portion of
"probable") before removals are permitted. The entire
amount ofgas approved for removal must be in the form
of established reserves and under the contractual con-
trol ofthe permit holder at the time the permit is issued.
This requirement causes reserves to be moved from the
"possible" category to "proven" and "probable." In the
absence of this criterion, the supply for the later stages
of some long-term supply contracts would likely rely
on "possible" reserves. Gas removal from Alberta is
subject to further approval by the Minister of Energy
or the Provincial Cabinet, both of which consider
such matters as gas pricing and market practices,
commitments, and destinations.
At the federal level, the National Energy Board is
responsible for deciding export applications. One of its
current criteria is that sufficient established reservesmust
be under contract to cover the volume licensed for ex-
port. In addition, gas purchasers in Canada are given an
opportunity to formally complain about any proposed
export if they have been unable to obtain gas on terms
and conditions similar to the proposed export.
The ability to control cross-border movement of gas
allows some capability to control prices. Both Alberta
and Canada acted to ensure higher prices for exported
oil and gas during the "energy crisis" ofthe 1970s when
prices were escalating worldwide.
------- iiI
23.8 FISCAL POLICIES
Governments can vary taxation levels, apply special
taxes, and grant tax incentives to achieve the objectives
of deficit or balanced budgets, and to stimulate
economic growth (especially in localities, areas and
regions of lagging economies) and industries of
specific importance.
Anumber ofdifferent taxes are levied on the producing
sector of the petroleum industry by municipal, provin-
cial and federal governments. Municipal governments
levy property taxes on petroleum facilities and real
estate. Both the provincial and federal government levy
tax on all corporate income. In addition, the Alberta
government collects a freehold mineral tax on all free-
hold mineral leases (mineral rights not held by
government), based on their production. The federal and
provincial governments both have the ability to apply
special taxes to the petroleum industry.
The Alberta government grants a special royalty tax
credit of up to 2.5 million dollars annually, which is a
significant benefit to small petroleum companies.
During the period 1972 to 1984, the Alberta govern-
ment provided exploratory seismic and drilling
incentives through drilling credits and royalty holiday
programs. These were designed to promote exploration
for new reserves and to maintain industry activity dur-
ing periods of economic downturn. During this same
period, Alberta significantly increased its royalties on
oil and gas.
The federal government offered tax incentives for
frontier exploration in the 1960s and 1970s. The
National Energy Program brought in by the federal gov-
ernment in 1981 provided incentive payments for
exploration and development expenditures (Petroleum
Incentive Program) giving particular advantage to com-
panies of predominantly Canadian ownership. The
National Energy Program also significantly increased
federal taxation of oil and gas production, particularly
through the Petroleum and Gas Revenue Tax.
Fiscal policies affect the timing of reserves develop-
ment. Governments within Canada and throughout
the world are in competition to attract and retain
investment capital. A high economic rent may cause
exploration capital to move to other provinces or other
countries where the economic rent is lower. Petroleum
industry capital is quite mobile. Even small companies
tend to look on a worldwide basis, and they can invest
away from their home operating area by taking a min-
ority working interest in a project sponsored by a larger
company.
23.9 BUSINESS REGULATIONS
Price- or fee-setting regulation is necessary where
normal business competition is not present. This is the
case with many pipelines. For field gathering systems
and for gas processing plants in Alberta, a production
owner may apply to the ERCB to have these facilities
declared to be "common" and then to the Public
Utilities Board to have useage fees set. Tolls and tariffs
on interprovincial transmission lines are under the
jurisdiction of the National Energy Board. The prices
for natural gas distributed to end-users by local utility
companies are subject to the approval by some type of
public utilities board in each of the provinces. These
boards protect the interests of the consumer and ensure
that rates are justified.
Right-of-entry and land compensation legislation has
been established by the provinces so that mineral own-
ers cannot be prevented by surface owners from
recovering the minerals. In Alberta, this function is
carried out by the Surface Rights Board.
The provinces each have some type of securities and
exchange commission that regulates corporate matters.
Public corporations are required to publish annual
financial statements listing, among other things, the
assets of the corporation. Oil and gas reserves are the
primary assets of most petroleum companies. Con-
sistency in the method of estimating the volume and
value of these reserves is important.
The Federal Competition Act (FCA) protects and
promotes competitive processes, and is administered
by Consumer and Corporate Affairs Canada. The act
has both criminal and non-criminal provisions. The
latter are prosecuted by the Attorney General ofCanada.
Criminal offences include conspiracy, bid-rigging,
price discrimination, predatory pricing, price maint-
enance, misleadingadvertising, anddeceptivemarketing
practices.
Certain other activities and practices are subject to
review, but are not criminal matters. For example,
companies proposing to merge must notify Consumer
and Corporate Affairs Canada if the companies exceed
a certain size of assets or gross revenues. If a proposed
merger is found to prevent or substantially lessen
competition, the merger may be conditioned or
prohibited.
23.10 INTERNATIONAL POLICIES
Petroleum is usually considered to be a strategic
commodity. Hence, countries try to protect themselves
fromany serious supply disruptions that may result from
285
business, political, or natural events. Canada has a large
oil and gas potential and has followed the strategy of
developing supply through the incentive ofallowing ex-
ports to the USA. Exploration and development of
frontier areas could not proceed on the basis of the
domestic Canadian market alone.
Canada has exported oil and gas to the USA for
decades, and the US views Canada as a secure supplier.
Currently, approximately one-third ofCanada's oil pro-
duction goes to the USA. Oil is being exported to the
west and midwest regions of the USA at the same time
offshore oil is imported into Quebec and the Maritimes,
resulting in a near balance ofexports and imports. More
than 40 percent of Canada's gas production is exported
to various parts of the US including California, the
midwest, and recently the northeast.
The producing provinces are usually more anxious to
increase exports than are the consuming provinces. The
federal government has the challenge of balancing the
interests of both groups.
Canada's close political and economic ties to the US
led to the Free Trade Agreement which came into effect
in January 1989. For Canadian oil and gas producers,
this agreement provides access to US markets free of
export or import taxes or duties. Except in national de-
fence emergencies, export restrictions may be applied
only under limited circumstances and in a proportion-
ate manner. Incentives for exploration and development
are still allowed.
Recently, Canada, the USA, and Mexico negotiated the
North American Free Trade Agreement (NAFTA) which
is scheduled to come into effect on January I, 1994.
286
~ DETERMINATION OF OIL AND GAS RESERVES ......:,.:,.. : i
This agreement will allow for relatively free movement
of oil and gas between these three countries and will
allow the Canadian and US companies to participate in
supply and services ofthe Mexican petroleum industry
but not ownership of Mexican oil and gas resources. '
The review of company take-overs and mergers by
Consumer and Corporate Affairs Canada described in
Section 23.9 applies even if foreign-owned companies
are involved.
Canada is signatory to the Agreement on an
International Energy Program, along with the USA and
a number of European countries. This group has a plan
for distribution of available oil in a supply crisis.
In issues of worldwide public concern, Canada seeks to
do its part. Energy conservation was such an issue dur-
ing the energy crisis of the '70s. Environmental
concerns, including petroleum transport failures and
atmospheric emissions, are issues at the current time.
In a similar vein, Canada feels obligated to provide
technical assistance to developing countries to develop
their petroleum industries. Canada and the producing
provinces provide expert advisers and trainers in
response to specific requests and under on-going inter-
national aid programs. Government interfacing with
more developed countries is often in the form oftechni-
cal exchanges and discussions about business and
regulatory systems. Some countries seek assistance from
Canada specifically, not just because it has a high level
ofexpertise and technological development, but because
the country seeking aid wants to avoid a tie to the USA.
Both the federal and provincial governments are active
in trade development initiatives in other countries.
s
Chapter 24
CRUDE OIL MARKETS
24.1 INTRODUCTION
This chapter provides an overview of Canadian crude
oil markets, with particular focus on Alberta and other
westem Canadian provinces. More detailed information
can be found in the references cited in this chapter.
Despite the slump in activity since 1986, the Canadian
oil industry is an important element of the domestic
economy in terms of direct employment, total revenue
and trade surplus. Crude oil satisfies nearly 40 percent
of the total domestic energy demand. According to the
Petroleum Communication Foundation (1992), the bulk
of crude oil was used for various modes of transporta-
tion (65 percent), heating and electricity generation (25
percent), and manufacture of oil-based products such
as asphalt, lubricants and various petrochemicals (10
percent). In the global context, Canada is a medium-
size oil producer, supplying less than 3 percent ofworld
production.
The history of the Canadian oil industry dates back to
1947, when the discovery ofthe Leduc field triggered a
resurgence of exploration activity in Alberta. During
the 1950s, the industry operated in a free market en-
vironment characterized by essentially no government
regulation. The period of the laissez-faire approach to-
wards the oil industry came to an end in 1961, when the
National Oil Policy divided Canadian markets along the
Ottawa Valley line. Markets to the east of the line were
to use cheaper imported crudes, while markets to the
west were to be supplied with domestic crudes.
The oil crisis in 1973-74 precipitated further market
regulation involving an oil price freeze, an export
tax, reductions in exploration write-offs and depletion
allowances, and the establishment of Petro-Canada as a
national oil company. Market intervention reached its
peak in 1980 when, on the heels ofthe second oil crisis,
the federal government introduced the National Energy
Program (NEP), which provided for oil price controls,
several new federal taxes, Canadian ownership targets,
and incentives for fuel switching. This first federal
attempt to tax resources under provincial jurisdiction
was countered by very strong opposition from Alberta.
Election of the conservative government in 1984 and
the decline in oil prices paved the way for the Western
Accord between the federal government and the energy-
producing provinces. The signing ofthe accord on June
I, 1985 marked the dawn of crude oil deregulation and
the demise of both the NEP and 12 years of adminis-
tered pricing. All NEP taxes were either phased out or
eliminated, and oil price controls were lifted. Canadian
producers were free to compete in the international
market place and reap the rewards of unrestricted sales
opportunities through the direct negotiation ofcontracts
with refiners and marketers. In the process, Alberta
modified its prorationing program, virtually returning
control of production levels to producing companies.
In Canada, the term "conventional" crude oil usually
refers to light, medium and heavy crudes from the west-
ern Canadian sedimentary basin-the traditional source
for most Canadian production. The distinction among
these three classes ofcrudes is based mainly on gravity,
with specific gravity cutoff rates differing regionally
in the absence of one widely recognized international
standard.
For instance, the minimum gravity for light crude ranges
from 28API in Canada to 32API in the US and 36
API overseas. Medium oil is defined by the World
Energy Conference as having gravity between 22 and
31API (Petroleum Communication Foundation, 1992).
In Canada, generally no distinction is made between
light and medium oil. Heavy oil is typically defined as
crude with the API gravity between 12 and 28API,
although Alberta's Energy Resource Conservation
Board (ERCB) uses a lower maximum of25API. Since
Canadian pipelines generally require oil to have a grav-
ity of at least 21API, some of the heaviest grades must
be blended with condensate or natural gas liquids to be
shipped by pipeline.
287
~
Figure 24.2-1 Major Alberta Pipeline Systems
lnterprovlncletto
Eastern Canada andU.S.
Continental
ToU.S. Rock MIn. States
Calgary
Rainbow
Interprovinclal
From Norman Wells
Great Lakes region of the US Midwest. In addition,
IPL is linked to the Wascana system, which provides
access south to the Rocky Mountain markets of
Wyoming and Colorado. During 1992, average through-
put on the IPL system was 1.45 million barrels per day,
with deliveries split almost evenly between domestic
and export markets.
~
TMPL extends over 1300 kilometres from Edmonton
to delivery locations in the Vancouver area. The system
can transport up to 190 thousand barrels per day ofcrude
oil, partially processed oil, and petroleum products from
Alberta. TMPL also receives small volumes of crude
from northern B.C. via the West Coast Pipe Line con-
nection at Kamloops. TMPL's marine terminal at
Westridge, B.C. is capable of loading barges serving
the US West Coast and small tankers providing access
to Pacific Rim markets. TMPL also operates a lateral
link from Sumas, B.C. to Anacortes, Washington, where
four refineries are located. In 1992, the system deliv-
ered 161 thousand barrels per day to domestic locations
"Nonconventional crude" comprises synthetic and
frontier oil. "Synthetic" oil is heavy oil and oil sands
bitumen refined to make a product similar to high-qual-
ity light crude oil. "Frontier" oil includes resources off
the eastern coast or north of the 60th parallel in
the Arctic. Nonconventional crudes differ from conven-
tional in that they are more difficult to recover and
cannot be shipped to a refinery without processing or
preparation.
Geographically, oil production is heavily concentrated
in the western Canadian sedimentary basin. In 1992,
Alberta, which is by far the largest oil producing prov-
ince, accounted for 8I percent ofthe 1.73million barrels
per day produced in Canada. Saskatchewan accounted
for another 13 percent and the remainder came from
British Columbia, Northwest Territories, Manitoba and
Ontario and Nova Scotia. Conventional light oil domi-
nates the Canadian crude slate, representing halfoftotal
production. The other half comprises heavy oil (29 per-
cent), synthetic oil (13 percent) and pentanes (8 percent).
Historically, Canadian crude oil production has
been relatively stable since 1980, hovering closely
around the 1992 level. Underlying this almost flat over-
all performance were divergent trends for conventional
and nonconventional crude oils, conventional declin-
ing at 5 percent per year (mainly light crude) and
nonconventional increasing by more than half since
1988.
24.2 TRANSPORTATION NETWORK
Canadian crude reaches domestic and export markets
through a vast network of pipelines. In Alberta, a
capillary-like system of gathering lines throughout the
province collects and transports field crude production
to a smaller number of feeder pipelines. Trucking is a
marginal mode of transportation and is used locally in
areas where batteries are not connected to the gathering
lines. Most ofthe feeder pipelines conjoin at Edmonton
(Figure 24.2-1) to serve the Alberta refining market and
further link to two major interprovincial pipeline
systems: Interprovincial Pipe Line (IPL) and Trans
Mountain Pipeline (TMPL). These and most other
Canadian pipelines are "common carriers", that is, pub-
lic utilities for hire obligated by lawto provide equitable
and nondiscriminatory pipeline access to all interested
parties.
IPL operates the largest and most complex crude oil
pipeline system in North America, stretching over 3700
kilometres from Edmonton to Montreal (Figure
24.2-2). It transports up to 35 different types of liquid
hydrocarbons to refineries in eastern Canada and the
288
s
CRUDE OILMARKETS
SaintJohn
(27000)
,
t-: ...'b " ,',,'
" ,.,.-
' .. ,
,-JI
<::::;:::::> Come-By-Chance
(15100)
"
Wood River I
I
I
Loydminster ;
,,(3700) :
Regina
(7200)
-Moose
Jaw
(2110)
Beaufort
Sea
Taylor " \
(2860)'" ,
. ,
Edmonton I
.: (56300)
Prince George':... r .....
'\,
__ Calgary
Vancouver- .. -(5180) .
(22700)
Legend
Refinery Locations (m3/d)
Rainbow Pipeline
--- Interprovincial Pipeline
Portland-Montreal Pipeline
TransMountain Pipeline
Proposed Pipeline
Loop/Capline/Chicap from Gulf Coast
Source: National Energy Board. 19918.
Figure 24.2-2 Maior Crude Oil Pipelines and Refining Areas
and another 41 thousand barrels per day to export
destinations.
A smaller pipeline, the Rangeland, transports oil south
from Edmonton into the Montana market. The line has
a capacity of approximately 90 thousand barrels per
day and has recently operated at rates approaching that
capacity.
The Portland-Montreal pipeline is the main oil import
line that brings offshore crudes to the Montreal market.
In 1992, the line delivered 166 thousand barrels per
day of oil, equivalent to 67 percent of its maximum
capacity and over 90 percent of Montreal's oil
requirements. Marginal volumes of US and overseas
grades are alsoimportedintoOntariovia IPL's Lakehead
portion, which ties in at Chicago with two major US
pipeline routes: the Capline/Chicap system from
Louisiana Gulf Coast and the Arco system from Texas
Gulf Coast via Cushing, Oklahoma.
Since the beginning of deregulation in 1985, pipeline
capacity constraints have had occasional impact on
Canadian crude oil pricing and production. Prior to
IPL's 1987 expansion, insufficient capacity of the sys-
tem necessitated diversions of Canadian crude to lower
289
valued markets and even to the shut-in of wellhead
production. More recently, in March 1991, a leak on
Lakehead's Line 9 restricted the throughput and caused
persistent prorationing of the nominated volumes.
Apportionment continued through 1991 and early 1992,
as the capacity was restricted to 80 percent by an order
from the US Department of Transport and, addition-
ally, by line closures during hydrostatic tests.
In the face of these unprecedented high levels of
apportionment, producers and shippers attempted to
protect their access to IPL capacity by over-estimating
crude supply. That practice led to even higher levels of
apportionment. which, in tum, resulted in inequitable
pipeline and market access. By mid- 1991, the forecast-
ing and nomination systems used to schedule feeder
pipelines and IPL broke down. Subsequently, an indus-
try working group was formed to address the problem.
The group developed modified procedures designed to
eliminate overnominations through stricter monitoring
of batteryproduction and penalties for inflated forecasts.
These procedures came into effect in March of 1992,
reducing IPL apportionment only temporarily.
Among other developments, IPL's extension from
Sarnia to Montreal was re-opened in July of 1992, after
being mothballed for one year. The initiative came from
a group of Alberta producers and marketers who de-
cidedtomove 20 to 30 thousand barrels per day ofheavy
crudetoMontreal. Around the same time, the BowRiver
Pipeline completed construction of a 55-mile pipeline
across the US border, to ease access from the southern
Alberta fields to the Billings market. This pipeline ex-
pansion was triggered by the addition of a heavy crude
coker at Conoco's Billings refinery. The current cap-
acity is around 24 thousand barrels per day, but can be
expanded to about 42 thousand barrels per day.
With the exception ofa fewprivately owned feeder lines
that are not common carriers, Canadian pipelines are
regulated by a host of government agencies. Pipelines
crossing the US or provincial boundaries, such as IPL
and TMPL, come under the jurisdiction ofthe NEB. As
an independent federal regulatory tribunal, the NEB is
responsible for the issuance of export licences for oil,
natural gas and electricity; the certification of
interprovincial and international pipelines and power
lines; and the setting of pipeline tolls and tariffs
(National Energy Board, 199Ib). Pipelines functioning
within provincial boundaries are generally under
provincial jurisdiction. For example, the construction
and operation of the province's feeder pipelines are
regulatedby Alberta's ERCB and Public Utilities Board.
290
Setting tolls and tariffs is a key component of
regulation and is intended to protect public interest
against monopolistic or discriminatory practices ofpipe-
line companies. That protection is aimed at establishing
"just" and "reasonable" tolls, which "under substantially
similar circumstances are charged equally to all persons"
(National Energy Board Act, 1985). The main standard
of reasonable tolls is the cost of service, meaning nec-
essary cost, reasonably or prudently incurred, inclUding
the cost of capital. This involves consideration of the
capital structure of a pipeline company and its operat-
ing costs and of the necessity to attract capital through a
fair rate of return. The ancillary rules of cost-causality
and user-pay imply that costs should be assigned di-
rectly to specific classes of service or customers or
geographic areas, and that the users bear financial re-
sponsibility for the costs caused by the delivery of their
particular commodity.
24.3 MAJORMARKETS
Crude oil must be refined to the various forms of
petroleum products before it can be utilized by the end-
users. Thus, the refineries are essentially the only direct
recipients of crude oil and, as such, determine the mar-
ket for it. The refinery requirements are in tum driven
by the level of inventories and sales of petroleum prod-
ucts to the consumers. The main product categories
include motor gasoline, middle distillates, heavy fuel
oil, and petrochemical feedstock. Seasonal nature of
demand for these products dictates seasonal variations
in refinery modes of operation and the optimal compo-
sition offeedstock crudes.
During the 1980s, Canadian refiners faced volatile
feedstock costs, reduced oil demand, changing product
specifications and demand slate. The industry responded
through rationalization, which included plant closures
and refinery upgradings. As a result, eleven refineries
were closed and two reduced in size. Over the past few
years, Canada's refining capacity has stabilized at around
1.9 million barrels per day, down from 2.3 million bar-
rels per day in 1980. In the process, the Canadian refining
industry has become highly competitive and capital-
intensive, resulting in the gradual erosion of the profit
margins. In 1992, the refinery utilization rate dropped
to 80 percent, down from 85 percent in 1990, as slug-
gish demand forced refiners to trim their crude runs
(Energy, Mines and Resources Canada, 1993).
Traditionally, Canadian refining centres west of
Montreal have been supplied exclusively with western
Canadian crude oil, while those east of Montreal have
--------------------_.",.,
CRUDE OIL MARKETS
relied heavily on water-borne imports of mostly light
crude from offshore sources. The reliance of Atlantic
refineries on imports has increased steadily, reaching
almost 100percent in the past fewyears. Montreal re-
finers have obtained their feedstock crude from both
domesticandoverseassourcesbut, most recently, have
increasingly favoured cheaper overseas crudes from
theNorthSea, West AfricaandLatinAmerica. Overall,
Canada has been a net oil exporter, with the surplus of
mainly heavy crudes declining gradually through the
late 1980s, before increasing to 190 thousand barrels
per day in 1991 and 289 thousand barrels per day in
1992on the heels of sluggish domestic demand.
The bulk of Canadian refining capacity is located in
Ontario and the prairie provinces (Figure 24.2-2).
Consequently, these two regions are the largest domes-
tic markets for Canadianoil, with the receiptsreaching
26 and 21 percent of total 1992production respective-
ly. British Columbia consumed another 9 percent of
Canadian crude in 1992 (mostly from Alberta), while
deliveriesto Quebecand the Atlanticprovincesconsti-
tuted a mere0.3 percent (Energy, Mines and Resources
Canada, 1993). The remaining44 percent of Canadian
crude was destined for exports. The US Midwest was
theprimaryexport market for Canadiancrude, account-
ing for approximately three-quartersof all exports. The
US Rocky Mountain and the US East Coast accepted
the bulk of the remaining export barrels.
In 1992, Canadian crude oil exports were split almost
evenlybetweenlight andheavycrudes.However, heavy
oil producerswere substantially moredependent onfor-
eignmarketsthanlight oil producers. Heavyoil exports
amounted to three-quarters of total supply, while the
comparable figure for lightoil was only38percent. This
strong dependence on export markets for heavy oil is
caused by limited demand from Canadian refineries,
which are designedto run predominantlylight crudes.
Although a large number of northern tier American
refiners useCanadian heavycrudes,overhalfof thetotal
exports is purchased by three large refiners: Koch at
Minneapolis, and two Chicago refineries owned by
Mobil andAmoco (Table24.3-1). Sincelate 1980s, these
and other refineries (including Newgrade at Regina)
have gonethroughdebottlenecking, which has resulted
in increased demand for Canadian heavy crudes. This
growthhas beenpartiallyoffset by the shutdown of the
Sarnia-Montreal line, and a switch by the Uno-Ven
(Union) refinery in Chicago to Venezuelan feedstock,
following a 50 percent acquisition of the refinery by
Petroleosde VenezuelaSA (PDVSA).
Canadiancrude is sold to the end-users directly by the
producers, or throughthe AlbertaPetroleumMarketing
Commission (APMC) and several commercial mar-
keting entities. The APMC is a provincial crown
corporationand the largest marketer of Canadiancrude
oil, supplying it to a wide base of refiners throughout
Canada and the northern tier of the United States. As
agent for the Alberta Crown, the APMC is responsible
for gatheringand marketingcrude oil royalty taken in-
kind from provincial Crown leases. It also markets
Alberta's 16.74percent equity share in Syncrude, and
offerscontract marketingservices to Alberta producers
(AlbertaPetroleum MarketingCommission, 1992).
TheUSRockyMountain regionis oneof fivegeographi-
cal districts, delineated in 1950 by the Petroleum
Administration for Defense (PAD) for the purpose of
administration, and is oftenreferredto as PADDIV. In
recentyears, PADDIVhas offeredthe highest netbacks
forAlbertacrude, but relatively limiteddemand. Bycon-
trast, the US Midwest (PADDII) and Ontario markets
havebeenthe mainrecipientsof Albertacrude, together
accounting for over half of Albertaproduction. The US
EastCoast(PADD I) andparticularly theUSWest Coast
(PADD V) have been the marginal markets, both in
terms of relativevolumes and netbacks.
Closureof the Sarnia-Montreal extension in mid-1991
andIPL's persistentcapacityconstraints sincethenhave
led to the development of oil surplus in the traditional
markets for Canadiancrudes. This encouraged Alberta
producers to pursue opportunities in nontraditional
markets in order to stabilize prices and avoid shut-in.
Consequently, increased volumes of light crude were
moved to Wyoming, the US West Coast and the
PacificRimcountries. For example, inits annual report
the Alberta PetroleumMarketing Commission (1992)
reported selling 900 thousand barrels of light royalty
crude to the Chinese PetroleumCorporationin Taiwan
during the fourth quarter of 1991.
24.4 NORTHAMERICAN PRICING
Deregulationcoincidedwithaneraof substantially lower
worldoil pricesinthe aftermathofthe 1986price crash.
AverageOECDI import prices have fallen froman av-
erage of over US $26 per barrel in 1985 to US $14 per
barrel in 1986, and fluctuated in a US $15-20 range in
recentyears. TheOPEC' "basket"price-another global
indicator representing the average price for a basket of
'Organization forEconomic Co-operation and
Development.
'Organization of Petroleum Exporting Countries.
291
seven OPEC crudes and one Mexican crude-moved

in tandem with OECD import prices.
In North America, prices of West Texas Intermediate
(WTI) crude have followed the world trend, falling from
over US $30 in late 1985 to below US $12 in the sum-
mer of 1986, and fluctuating between US $15 and 23
through the summer of 1990 (Figure 24.4-1). In late
1990, WTI prices briefly soared over US $40 (on a daily
basis), the highest level since 1982, on the heels of the
Middle East tensions. Since March of 1991, WTI prices
have exhibited remarkable stability, hovering in a nar-
rowrange around US $20. WTI enjoyed price premiums
against major international crudes, particularly against
heavier and more sour grades. These premiums have
more than doubled since 1987, reflecting falling WTI
output, US pipeline and refining bottlenecks, wider
sweet/sour differentials and higher tanker rates.
Table 24.3-1 Importers of CanadianHeavy Crude
DETERMINATION OFOIL ANDGAS RESERVES
Since the establishment of the New York Mercantile
Exchange (NYMEX), WTI has been the benchmark for
North American and overseas light crudes. WTI is the
deliverable grade of crude oil specified in the NYMEX
futures c o n t r a ~ t . WTI prices are quoted at Cushing,
Oklahoma, which IS the mam gathenng terminus for
pipelines shipping US domestic crudes north to
Chicago and other Midwest refining centers.
With Chicago constituting the key export market for
Canadian crude, WTI is also the benchmark for
Canadian light sweet oil. Since 1986, Canadian refiner
postings have tracked WTI spot prices very closely. The
FOB parity value for Alberta crude of equivalent qual-
ity has been based on WTI price at Chicago, netted back
to Edmonton. In 1992, this value fluctuated around the
transportation cost differential of US $0.85 per barrel
below WTI (Figure 24.4-2), modified occasionally
by "market discounts" reflecting local pipeline and
Company Location Rated Capacity (bed x 10
3
) Canadian Heavy Crude
Crude Coking Cracking Asphalt Usage in 1991
(bed x 10
3
)
Indiana Amoco Whiting 350.0 28.0 145.0 45.0 62.1
Laketon Laketon 8.3
- - 3.5 5.4
Illinois Clark Wood River 57.0 14.5 26.0
- . 0.0
Mobil Joliet 180.0 38.0 98.0 - 84.8
Uno-Yen Lemont 177.0 27.9 58.0 3.6 8.1
Michigan Marathan Detroit 70
-
27.0 18.0 4.0
Minnesota Koch Rosemount 218.5 58.0 55.0 35.0 157.6
Ashland St. Paul 67.1
-
23.0 14.0 3.4
Montana Cenex Laure 40.4
-
12.0 10.0 14.8
Conoco Billings 49.5 14.0 19.0 6.5 0.0
Exxon Billings 42.0 7.7 25.9 11.0 10.0
Montana
Refining Great Falls 7.0
-
2.4 1.2 2.3
Ohio BP Toledo 120.7 15.0 90.0 7.0 1.0
Ashland Canton 66.0
-
25.0 12.0 2.3
Washington US Oil Tacoma 32.8 - -
8.0 2.7
Wisconsin Murphy Supedor 32.0
-
11.0 13.5 5.6
Source: Scott, 1992.
Coker startup in 1992.
292
s
CRUDE OIL MARKETS
refining constraints. That price relationship is expected
to hold in the near future, as the positive impact of the
phase-out of US import duties will be offset by rising
IPL pipeline tariffs.
Unlike sweet crude prices, the Canadian postings for
sour and heavy grades have not consistently tracked their
US and international benchmarks. Canadian prices for
heavier grades have typically been lower and more
volatile due to the limited Canadian market, seasonal-
ity of demand, aggressive competition from Mexican
and Venezuelan heavy grades, and lower desirability of
heavy feedstock. In 1991, the situation was further ex-
acerbated by increased Canadian production of heavy
crudes.
Lower prices for heavy crudes reflect their inferior
physical characteristics as compared to light crudes.
J93 JaB JaB a so J91 J92
Trading Month Averages
0,00+---+---<----+---+-->---+--_-
JaB J87
Source:Reuters.
10.00 -------------------------. --_ . ------------ . -------- --_
30.00 ---------------. ---- .-------------------.-- - --_ -------- __ --
US$Jbbl
40.00 ._----
Figure 24.4-1 NYMEX WTI Prices at Cushing
CHICAGO
WTI + $US 0.52
$US 1.26
$US 0.07
$US 1.33
Tariff & loss
Carryingcost
Total
$US 0.02
$US 0.02
$US 0.04
$US 0.48
$US 0.04
$US 0.52
Tariff & loss
Carrying cost
Total
U.S. import fee
Custom user fee
U.S. import fees
1.1917
5.94%
5.00%
$US 1.22
$US 0.06
$US 1.28
Tariff & loss
Carrying cost
Total
Price used in pipeline loss
and carrying cost calculations
$US 21.74/bbl
Exchange rate
Canadianinterest rate
U.S. interest rate
(Prime rate =1%)
Source: Alberta Petroleum Marketing Commission, 1992.
Figure 24.4-2 Alberta Crude Oil Pricing, Chicago Market (July 1992)
293
.
Heavy crudes yield significantly higher volumes of
heavy components at the standard distillation cuts.
Heavy components can be used either to produce low-
priced heavy oil products (i.e., residual fuel oil or
asphalt) or run through sophisticated catalytic. or
thermal conversion units to obtain lighter products (i.e.,
gasoline or jet fuel). Since lighter products fetch higher
prices, but are also more expensive to produce from
heavy crudes, the refiners' choice ofthe feedstock crudes
is determined by relative product values and operating
costs.
The refinery coking differentials between light and
heavy crudes, which represent the difference in "gross
product worth" net of operating costs, constitute a floor
for light/heavy crude price differentials. When the ex-
isting heavy oil conversion capacity is fully utilized and
the demand for heavy products is limited, processing of
incremental heavy oil requires installation of new con-
version units. The refiners will consider such an
investment ifthey can expect to recover associated costs
through low prices of heavy oil feedstock. This thresh-
old differential is more difficult to pinpoint as it is
contingent on the type of conversion unit and location.
The National Energy Board (I991c) estimates that the
additional cost of upgrading ranges from US $6 per
barrel for existing US refineries to US $10 per barrel
for a stand-alone upgrader in Alberta.
In summary, the price differentials for light and heavy
crudes are driven primarily by the supply of heavy
crudes, the demand for heavy products, and the eco-
nomics of converting these crudes to lighter products.
The demand for heavy products is related to economic
activity, weather patterns, environmental regulations,
competition from natural gas, and technological
progress. These differentials are also affected by changes
in world crude slates, available conversion capacity
(planned vs. required), and transportation logistics.
The refinery posted prices are typically set for heavy
oil blends rather than for pure heavy crudes, which of-
ten require diluent to be shipped through the pipelines.
Differentials against the reference light crude for
Canadian heavy oil blends such as Bow River or
Lloydminster have typically been around US $5-6
per barrel. These differentials widened to US $9 per
barrel in early 1991, due to such factors as increased
supply of domestic heavy crudes, the closure of the
Sarnia-Montreal pipeline, warm winter weather, and
natural gas substitution. By the summer of 1992, the
differentials narrowed close to the typical levels, as a
result of incremental demand by the newly constructed
294
'-' DETERMINATION OF OIL AND GASRESERVES "".".. c>
Lloydminster upgrader and the new coker at Conoco's
Billings refinery.
24.5 PRICE RISK MANAGEMENT
With the deregulation and commoditization ofcrude oil
in Canada, the producers have been exposed to inter-
national price volatility, thus creating the need to
minimize price risks through the use of various instru_
ments that spread the risk over a large number ofmarket
participants. The reduction ofthe price risk over a speci-
fic period of time is commonly referred to as hedging.
The main hedging instruments include energy futures,
options, and swaps.
24.5.1 Futures
Futures are developed from forward contracts, that is,
individually negotiated contracts for the future delivery
of commodities. The uniqueness of each forward con-
tract, limited transferability, and the lack ofa third-party
guarantee of performance led to the creation of futures
contracts. A "futures" contract is an agreement to buy
or sell a standard quantity and quality ofa specific com-
modity at a fixed price, time and place, under the rules
of a recognized exchange, guaranteed by a third party
known as a clearing house (Arshi, 1992). The energy
futures were established on the NYMEX in 1978. These
were followed by the gasoline futures in 1981, crude oil
futures in 1983 and propane futures in 1987. At present,
NYMEX futures are the main short-term risk manage-
ment vehicle for oil prices, with more than 30 million
contracts traded annually.
Each NYMEX crude oil futures contract represents an
obligation to deliver one thousand barrels ofWTI crude
at Cushing on a specified future date. A company wish-
ing to protect its cash flow can use the futures to pre-sell
a specified portion of its annual production by taking a
short position on NYMEX. The company can sell fu-
tures contracts ifprices rise above target levels or when
prices are expected to decline. If, subsequent to sellin.g
these contracts, the prices fall, lower prices from physi-
cal sales are offset by profits from the futures "paper"
trade. Alternatively, if prices rise, futures losses are
offset by higher prices from physical sales.
The NYMEX contract owes its popularity to relatively
high liquidity (the highest number of contracts traded)
and transparency (prices are broadly disseminated to the
industry and quoted in the press). For these reasons, the
NYMEX contract is the most accepted by the buyers
and sellers as the benchmark for North American and
international oil transactions. In particular, close corre-
lation ofCanadian oil prices with NYMEX futures prices
____________________A
CRUDE OIL MARKETS
makes the futures contract an excel1ent hedging vehicle
for Canadian producers. WTI futures contract prices are
available on a real time basis up to 36 months out and
provide participants with the opportunity to lock in oil
prices any time during the trading hours.
24.5.2 Options
Futures protect against unfavourable price movements
at the expense oflost opportunity to benefit from favour-
able price movements. Crude oil options expand the
range of hedging strategies by offering limited quanti-
fiable risk and the potential to gain from favourable price
movements as wel1. The first NYMEX option contract
was launched in November 1986 for crude oil futures,
fol1owed in June 1987 by an option on heating oil
futures. These powerful financial instruments comple-
ment the energy futures and greatly enhance liquidity
and trading opportunities at futures and options
markets.
A "put option" buyer pays a premium for the right to
sel1 at a specific price for a specific period oftime. There-
fore, a put option strategy can provide a guaranteed price
floor. A "call option" gives the holder the right to pur-
chase a futures contract at a specified price during the
life of the option which, in effect, provides a guaran-
teed price ceiling. The simplest hedging strategy is to
purchase put options to be exercised if WTI futures
prices fal1 below a predetermined strike price. This strat-
egy establishes a guaranteed floor price without
sacrificing potential upward price gains. A more soph-
isticated strategy cal1ed a "fence option" involves
establishing both a floor and a ceiling price.
24.5.3 Swaps
"Swaps" are over-the-counter financial transactions that
allow producers and consumers to transfer price risk to
a financial intermediary. Liquidity problems associated
with the purchase or sale offutures contracts in the more
distant months have led to the development ofthese so-
cal1edoil price swaps. The intermediary can either hold
the unbalanced risk portion, match the position to an
opposite counterpart, or use futures and options to
balance the risk. The provider of swaps offers custom-
tailored price insurance in a variety of crudes and
products, with guaranteed maximum or minimumprices,
according to the need, and protection from other
market uncertainties.
Oil swaps took off in 1988 when oil prices were falling
and oil producers wanted a guaranteed revenue. The
swaps market is now wel1-developed with brokerage
companies and banks providing forward pricing in
crude oil for terms of up to ten years. Although most
transactions are limited to less than two years. The vol-
ume ofswap market is difficult to estimate due to close
competition and the secrecy of swap business.
24.6 OUTLOOKAND CHALLENGES
Canada has a large resource base and enhanced access
to the world's largest energy-consuming market, but the
industry is facing chal1enges from deteriorating geol-
ogy and rising production costs. There are strong
indications that conventional oil production from the
mature western Canadian basin may be in an irrevers-
ible decline. Hence, future supplies will have to come
increasingly from nonconventional sources or imports.
As a result, it is expected that the quality of crude and
the regional distribution of supply will shift dramati-
cal1y. Heavy oil will increase its share at the expense of
light oil, while conventional supplies from western
Canada will be increasingly replaced by nonconven-
tional supplies of synthetic and frontier oil. Based
on the latest projections by the National Energy Board
(1991c), synthetic oil is expected to account for 18 per-
cent of Canadian production by year 2000, while crude
oil from the East Coast offshore (mainly Hibernia) is
expected to provide about 12 percent. Consequently,
the share of western Canadian conventional light oil in
total supply may fal1 from over three-quarters in 1991
to only one-third by year 2010.
Growing supplies of heavy oil will require equivalent
growth in easily accessible markets, posing serious
chal1enges for Alberta producers in the areas of trans-
portation (reduced pipeline space, increased demand for
diluent), marketing and refining (limited upgrading fa-
cilities and environmental concerns). There is some
opportunity to increase sales to the established major
export markets. New capacity could also be added in
these markets, but this would require substantial up-front
investment. Optimization of current available capacity,
fol1owed by conversion of current light refining capac-
ity to handle heavy crudes, seems to offer the lower cost
solution to expected heavy oil refining bottlenecks.
Some additional "grass roots" upgraders may also be
required early in the next decade.
The outlook for world oil prices is rather bleak. There
is growing consensus that future world capacity addi-
tions will be more than sufficient to satisfy the world's
sluggish demand for oil, which will be increasingly
constrained by environmental regulations. As a conse-
quence, real oil prices are general1y expected to show
little, if any, growth over the next decade. Low oil prices
295
-
will have a detrimental impact on the size of established
reserves, as well as on future production and industry
cash flows.
To survive in the continued soft price environment,
Canadian producers will be hard-pressed to minimize
production costs by employing leading edge technol-
ogy and focusing on narrower areas of expertise. As
well, vast amounts of capital will be required both up-
stream and downstream to meet increasingly stringent
environmental standards. Marketing efforts will likely
continue to be frustrated by growing refining and pipe-
line constraints, while governments will be faced with
shrinking attainable economic rents and growing
pressure to soften their crude oil royalty terms.
References
Alberta Petroleum Marketing Commission. 1992.
Annual Report (1991). Calgary, AB, p. 8.
Arshi, A.A. 1992. "Energy Swaps as Profit Motive
Instruments in Oil Markets". OPEC Review,
Summer 1992, pp. 201-212.
Energy, Mines and Resources Canada. 1993. The
Canadian Oil Market. Vol. IX, No.1. Minister
of Supply and Services Canada (1993), ISSN
0829-3732, p. II.
296
National Energy Board. 1991a. Canadian Energy.
Supply and Demand 1990-2010. Minister of
Supply and Services Canada, Calgary, AB, June
1991, Cat. No. NE 23-15/199IE, ISBN 0-662-
18956-6, p. 232.
---. 1991b. Annual Report. Minister of Supply
and Services Canada (1992), Cat. No. NE 1-
1991E, ISBN 0-662-19372-5.
---. 1991c. Canadian Energy. Supply and
Demand 1990-2010. Minister of
Supply and Services Canada (1991), Cat. No. NE
23-15/1991E, ISBN 0-662-18956-6, p. 228.
National Energy Board Act. R.S. 1985. c.N-?, Cat.
No. YX76-N7/1992, ISBN 0-662-58945-9, Part
IV, par. 62, p. 37.
Petroleum Communication Foundation. 1992. "Crude
Oil." The Backgrounder Series, Calgary, AB.
Scott, G.R. 1992. "Canadian Heavy Oil and
Bitumen-Some New and Old Ideas." Paper
presented at AOSTRA-Heavy Oil Assoc.
conference, Calgary, AB, Jun. 1992.
---------------------_..
Chapter 25
NATURAL GAS MARKETS
25.1 INTRODUCTION
Since the deregulation of gas markets in 1986, a very
rapid evolution has occurred in the marketing, trans-
portation, and government regulation ofnatural gas. The
environment of gas markets has developed from that of
a virtual monopoly held by a very small number of
aggregators into a large spectrum of sales opportunities
for producers falling into three general categories:
direct purchases, aggregator purchases, and hedging op-
portunities such as storage purchases and participation
in futures markets.
Similarly the role of reserves estimates has changed
considerably. No longer do the reserves provide the sole
underpinning ofa contractual arrangement between the
buyer and the seller; reserves are now frequently only
one of the supply characteristics providing the buyer
with assurance that his requirements will be met.
Production forecasting is the synthesis of all of the
factors and variables that drive the producer activities
of exploring, developing, and selling natural gas.
The market factors that affect production forecasting
will be defined and discussed in this chapter by review-
ing the Canadian and US market environment during
the following periods: (I) the pre-deregulation era,
before November, 1986 in Canada and before the
mid-1980s in the United States, (2) the current era, and
(3) the (expected) future. Demand forces exerted by
various types of markets and buyers will be described
followed by a discussion of production forecasting.
25.2 THE MARKET ENVIRONMENT
25.2.1 Reviewof Pre-Deregulation Era
Market demand forces had a very strong, but somewhat
indirect, role during the years prior to deregulation. Gas
was purchased from producers by a small number of
aggregators in the United States and Canada, and these
aggregators were usually affiliates of pipeline com-
panies or utilities. The aggregators pooled the producers'
volumes and then resold them to utilities and local
distribution companies (LDCs), who in turn supplied
the core and noncore markets. "Core markets" are
defined for purposes of this discussion as "the group of
consumers who have no ability to use alternative
energy sources, primarily use gas for space heating, and
have a high security requirement." In addition, the
aggregators performed all of the intermediate steps be-
tween producer purchase and burner tip including
transporting the gas from gas plant to end user and ob-
taining governmental regulatory approvals (such as
Alberta Energy Resources Conservation Board (ERCB)
removal permits, National Energy Board (NEB) export
licences, and US import authorizations). Most impor-
tantly, the aggregator provided the contractual link that
joined producer and end user. This contractual link
coupled with the regulatory permits provided security
of supply for the end user and for the exporting and
importing geographical regions.
The producer was given the assurance that the take
levels and prices under his purchase contract would be
maintained, often through some sort of "take-or-pay"
or "take-or-release" mechanism. The end user was pro-
vided with assurances as to security of supply through
the reserves pool that the aggregator had under contract.
The exporting provincial and federal governments were
provided with assurances ofsupply security through the
surplus test mechanisms.
This arrangement worked well enough considering the
overall philosophy of the end users and regulators at
the time who regarded the gas reserves of western
Canada and the United States as a finite resource, lim-
ited entirely by the technology then currently available.
The issue of supply security was paramount and was
met entirely by the known reserves inventory. Accord-
ingly, producers' contracts with aggregators were
usually long term and had a daily contract quantity based
on a 15to 20 year reserve life. The end user did not deal
directly with the producer, but the aggregator's purchase
and sales contracts and regulatory mechanisms acted as
a buffer that filtered market signals. This regulatory
297
mechanism has now been viewed as partially

responsible for creating the large productive capacity
surpluses during the last two decades, otherwise known
as the infamous "gas bubble."
This era came to an end with the following changes to
regulatory approvals:
Canada
I. NEB amendments to export licences in 1984, which
allowed US purchasers to negotiate prices subject
to the Toronto City Gate Price as a floor
2. The federal - provincial agreement on "Natural Gas
Markets and Prices" ofMarch, 1985, which dropped
price tests in favour of a price monitoring mecha-
nism
United States
1. The enactment of the Natural Gas Policy Act
(NGPA) of 1978, which commenced a phased
decontrol of wellhead gas prices
2. Various amendments by the US Federal Energy
Regulatory Commission (FERC) to the Natural Gas
Act (NGA) in the form ofFERC orders. The inten-
tion of these orders was as follows:
To ensure that producing states would regulate
the physical production of gas and control
intrastate marketing matters
To protect overall public interest where gas pro-
duction transportation sales to end users involves
two or more states
To establish a framework for contract demand
conversions by merchant pipelines and for the
creation ofgas inventory charges that would ulti-
mately allow customers to purchase gas in a
reliable and competitive fashion from as many
suppliers as they wished
The more important FERC orders that furthered the
process were as follows:
May, 1984. FERC Order 380, which outlawed
the collection ofminimum commodity bills, leav-
ing LDCs free to reduce their minimum purchase
obligations from the merchant interstate pipelines.
October, 1985. FERC Order 436, which intro-
duced a voluntary open access program allowing
LDCs to convert their service from sales to trans-
portation, but ignored any resulting take-or-pay
implications.
298
~
i'i'.".... ','
June, 1986. FERC Order 451, which adminis_
tratively commenced deregulation ofinterstate gas
as defined in the NGPA.
December, 1986. FERC Opinion 256, which
addressed the problem of different pipeline rate
calculations utilized by US and Canadian pipe-
lines. Most Canadian pipelines use the "full fixed
variable" rate design whereby all fixed costs
namely, operating, maintenance, depreciation'
debt costs, income taxes, and return on equity are
included in the demand charge, and variable costs
are included in the commodity charge. Most US
pipelines utilize the "modified fixed variable" rate .
design whereby income taxes and the retum on
equity are included in the commodity charge
rather than in the demand charge. This FERC
opinion attempted to solve this problem by dis-
allowing the pass-through of Canadian pipeline
charges except for the ''prebuild'' portions of the
Alaska Natural Gas Transmission System (i.e., the
Foothills Pipeline System).
August, 1987. FERC Order 500, which
addressed the take-or-pay implications in pipe-
line company-producer contracts that were
unresolved in FERC Order 436. Open access
pipelines were ordered to offer volumetric take-
or-pay credits to shippers on their pipelines. The
entire gas producing and transmission industry
had to absorb the large take-or-pay liabilities
which had been incurred from 1987 onwards as
market forces forced the process ofreforming gas
purchase contracts.
1991. Proposed Mega-NOPR (Notice of
Proposed Rulemaking), which forces mandatory
unbundling on all pipeline companies, thus
requiring them to offer transportation, storage,
and balancing services on an individual basis to
shippers.
1992. FERC Order 636A, which implements
the unbundling process by specifying the steps
pipelines can go through to offer transportation,
storage or merchant services to customers as well
as offering rights on upstream pipelines.
25.2.2 Review of Current Era
Deregulation in Canada commenced officially on
November 1, 1986, and pent-up market forces were
unleashed that caused structural changes to supply con-
tracts, markets, transportation, and government
regulatory requirements. The most obvious change
---------------------
NATURALGASMARKETS
occurred with prices: export prices from Canada were
no longer set by the federal govermnent, but rather re-
flected competitive market forces. The customers and
producers were now to be closely linked, without the
artificial buffers that blurred market forces.
Deregulation has progressed at different rates in the
areas of marketing, supply, and transportation and in a
different fashion in the US as compared to Canada.
United States Deregulation
Deregulation in the US is occurring at a somewhat
uneven pace. The end users themselves have adopted
deregulation fairly quickly; for several years various
end-users have purchased volumes directly from
producers. However, transportation deregulation has
been much slower than in Canada, and a number of US
pipelines still retain their merchant function while a
number of others are not yet open-access carriers. This
appears largely due to the industry responses to FERC
Orders 380 and 436, which gave LDCs and shippers
options as to purchases and transportation.
Another significant factor is, of course, that Canada has
only one interprovincial carrier, TransCanada Pipelines,
whereas a large number of pipelines exist in the US.
One of the more significant events taking place in the
US during 1991 was the California Public Utilities
Commission's (Cpuq move to dismantle the Pacific
Gas and Electric (PG&E) monopoly in northern
California. This is an example of an individual state
commission overturning freely negotiated contracts bet-
ween two parties: PG&E with its affiliated purchasing
arm Alberta and Southern, on the one hand, and the
Alberta producer group on the other. It appears that this
action is being taken by the CPUC in order to expedite
the transition of Pacific Gas Transmission (PGT) to a
competitive open access carrier.
The same process is occurring with other US pipelines;
however, the process was much more disruptive in the
case of PGT due to the unique northern California gas
system, where a large dedicated Alberta supply is
connected to a single pipeline owned by an end user
with a complete sales and distribution monopoly.
Historically the US domestic supply-demand balance
has reflected more of a market approach than in Canada
where a mandatory surplus test created an artificial
supply-demand ratio. The current US reserves-to-
production ratio, RIP, is approximately 8 to 10; the
Canadian equivalent RIP is approximately 15 to 20.
Approximately 40 to 60 percent of US sales volumes
and approximately 20 to 40 percent of Canadian sales
volumesarepurchasedthrough short-termcontracts (less
than one year). Thus a significant number of sales ar-
rangements are not based on traditional reserve-based
contracts; instead, term, interruptible or deliverability
types of contracts may be used. This reserves-to-
production philosophy, coupled with the clear reliance
byend-userson short-term"spot market" price contracts,
demonstrates the deregulated nature of the end-user
segment of the industry. However, a significant num-
ber of merchant pipelines are not yet deregulated. The
pace of this deregulation will be a function of the
implementation speed of the Mega-NOPR and the
progress of individual states-the most visible being
California-towards full deregulation. This will not be
a straightforward process; literally thousands of LDC-
merchant contracts will be ultimately replaced with the
following:
Direct LDC-producer sales contracts
LDC or producer transportation service contracts
LDC or balancing service contracts
Combinations of all of these
Canadian Deregulation
The market environment in Canada is significantly
different than in the US. Intraprovincial transportation
is virtually fully open access from a contractual sense.
The same is true of interprovincial pipelines; however,
there is less physical access due to the fact that only one
pipeline services markets east ofthe Alberta border, and
a small number of pipeline systems carry volumes into
the US market areas. Domestic markets, with the ex-
ception of some restrictions on core markets, are fully
open to all producers, but there is limited access due to
the magnitude ofthe long-term purchase contracts cur-
rently in place between the LDCs and their suppliers.
A further restriction on open access is political: Alberta
has not yet developed a policy of allowing producers to
directly sell to eastern Canadian core markets on terms
of less than 10years. The intention is to maintain secu-
rity of supply and prevent further erosion ofthe historic
core sales arrangements by only allowing long-term
contracted supplies to sell to the eastern Canadian core
market. However, the net effect has been market dis-
placement via the acquisition of direct short-term
purchase supplies from Saskatchewan (and to a certain
extent from B.C.) by eastern Canadian end users.
The mix of markets now available covers a full
spectrum ranging from short-term with no reserves
dedication, to long-termunderpinned by corporate warr-
anty (with or without reserves dedication). The trend
299
towards shorter term sales and faster pool depletions
has caused Canada's RIP to steadily decline during the
last decade from approximately 25 tojust below20. This
phenomenon will likely continue during the 1990s,
approaching a stable value in the range of 8 to 10 by
the tum of the century.
Many events currently underway will ultimately playa
role in determining the market demand forces discussed.
These events need to be viewed in the context of the
preceding discussions.
I. US storage continues to mask the true daily supply-
demand relationships. The actual US deliverability
capability is still difficult to determine'.
2. Canada and US statistics show sizeable replace-
ments of production during the last 3 to 4 years, in
spite of dropping prices and oversupply signals.
3. The phenomenon of "overmarketing," i.e.,
producers being very aggressive in marketing has
led to:
NOVA excess receipt capacity
Over-subscription of NOVA export capacity
4. Supply distortions such as the US subsidy of coal
seam gas development result in producer netbacks
currently higher than current spot prices for natural
gas.
5. Futures markets monthly closing prices are
correlating consistently with actual monthly spot
prices.
6. The political and regulatory "out of sync"
phenomenon; the Alberta government is still
proceeding slowly to establish a core market
definition with Ontario.
7. Producer price expectations vs. marketplace price
expectations. Very recently cogeneration projects
have been proposed with fixed-price, 20-year
contracts, i.e., no formulae, no "openers."
8. The FERC Mega-NOPR and subsequent implemen-
tation orders are an attempt to complete the full
deregulation of gas from wellhead to burner tip by
forcing pipelines to completely unbundle their sales
and transportation services.
9. The "prorationing experiment" being tested by the
states ofTexas and Oklahoma is an attempt to force
gas supply and demand into a closer balance. This
is an interesting attempt at re-introducing govern-
ment regulation at the same time as the effort
towards complete deregulation is still continuing.
300
25.2.3 Preview of Future Era
The current era in Canada and the US appears to be a
transition phase. The role ofthe traditional marketers is
changing rapidly; market types are becoming less
definable; and producers are reacting in different ways
to this changing environment.
It is expected that the next era of gas markets will
commence when the following occur:
Canadian core markets can purchase supplies from
any source under freely negotiated terms, as opposed
to terms set by regulatory bodies.
US pipelines become mostly open access carriers
which allow capacity brokering.
Sufficient export pipelines are constructed out of
Alberta to reduce the excess deliverability inside the
province.
Buyers and sellers in the US and Canada can effect
gas sales arrangements, and pipeline systems canpro-
vide transportation arrangements on a com-mercial
basis only without regulatory impediments.
An equilibrium phase may then be in place, to the
extent that any market can be accessed by any source of
supply, subject only to "ordinary" economic supply-
demand relationships.
As a result of the experience of the last three decades,
the remaining reserves in Canada and the US may be
viewed as an inventory that is continuously being
replaced rather than as afixed entity.
25.3 MARKET MECHANISMS AND
MARKET FORCES
This section discusses market forces in the context of
a North American reserves base dependent only upon
economics.
25.3.1 Market Types and Market
Mechanisms
Markets are generally of two types: core and noncore.
Various Canadian provinces and US states have yet to
establish formal definitions for core markets although
they have been attempting to do so for several years.
The definition of core markets developed in Section
25.2.1 will be used throughout this discussion.
Market mechanisms are illustrated in Figure 25.3-1,
which illustrates the basic steps that a producer must go
through to place gas onstream to an ex-Alberta market.
The following are the fundamental requirements:
1. Establish reserve deliverability; in other words,
define the volume to be sold.
______________________1
NATURAL GASMARKETS
Short-
Alberta-ERCB
Producer
NOVA Term Ex-Alberta Pipeline
Eastern
(Alberta)
Pipeline (Less than
Removal
I
Canadian
Permit
Market
2 Years)
E x - c a n a ~ Pipeline
(Federal)
US DOE
US
NEB Short-Term
f-- Short-Term Import
f-
Export Licence
Authorization
Market
Long-Term
Ex-Alberta
Pipeline
,
,
Consuming
Eastern
,
,
,
Province
Canadian
,
Import Review
Market
,
,
required
L
NEB
FERC
US DOE
Review
Long-Term
Import
US
Export Licence
Authorization
If facilities
Market
Ex-Canada Pipeline
Basic Requirements
I. Transportation in Alberta
2. ERCB Removal Permit
3. Transportation Ex-Alberta
4. NEB Export Licence
5. DOE Import Authorization
6. FERC Review
7. US Transportation
8. Markets
Figure 25.3-1 Commercial and Regulatory Mechanisms for Ex-Alberta Markets
2. Identify a market and negotiate a purchase contract.
3. Procure transportation in Alberta to move the gas
from the production point to the Alberta border.
4. Obtain an ERCB removal permit, either short-term
(less than 2 years) or long-term, which requires a
demonstration of reserves, market details, trans-
portationarrangements, and an analysis ofthe social
and economic impact on the province.
5. Obtain transportation outside of Alberta, either to
eastern Canada or to the United States.
6. Obtainan NEBexport licence, either short-term(less
than 2 years) or long-term, which requires demon-
strationofmarkets, transportationarrangements,and
reserves and an assessment ofthe impact (optional)
on the effect on Canadian energy markets of this
export plus an estimate of project revenues.
7. Obtain Department of Energy (DOE) import
authorization, either short-term (2 years or less) or
long-term, which requires identification of the
market and specifics of the sales contract.
8. Obtain FERC approval if interstate transportation
facilities are required.
The foregoing very briefly outlines the mechanics
involved in selling volumes to an ex-Alberta market.
The degree of complexity of regulatory approval appli-
cations, will obviously be a function of the size of the
market and the amount, if any, of new transportation
facilities required in Canada or the US.
The marketing options are illustrated in Figure 25.3-2,
which shows some of the options available to a pro-
ducer. Most important from a reserves point of view is
the degree to which liabilities are passed through to the
producer and whether the liabilityis satisfied by reserves
dedication alone or whether a corporate guarantee must
be made as to supply make-up should a shortfall occur.
The manner in which reserves and markets are linked
is shown in the simple examples of Figure 25.3-3. In
301
Aggregator End-User
Pro
Residential
Takes title
ducer
Commercial
I
Pooled supply & markets
Industrial
Market swings levelled out
Electrical utilities
Regulatory permits
Cogenerators
Transportation
May hold transportation
Markets
Broker / Agent
ucer
Pass-through title
Core or noncore
I
Obtains permits in
producer's name
may hold
Mayor may not hold
transportation
transportion
Prod
Figure 25.3-2 GasMarketing Options
Figure 25.3-3a, the reserves of an individual producer
(or producers) provide the underpinning or supply
security to the customer either directly or through
an aggregator, broker or agent. This supply security
mechanism can be one of two main types: a reserves
underpinning or a financial warranty. The reserves com-
fort is based upon the pooling procedure ofan aggregator
or, if long-term (greater than 2 years in Alberta's case)
export licences are required, then the appropriate
regulatory bodies will be "inserted." The effect of a
regulatory "screen" in the sales arrangement is to
provide a second security blanket for the customer.
Regardless of the particular mechanism in place, the
producer's reserves still provide the overall supply
assurances.
In Figure 25.3-3b, the customer is provided not with a
reserves base for security but rather with a financial
guarantee on the part of the supplier to pay for replace-
ment volumes in the event of a supply failure. In this
case, the assumption is that sufficient gas supplies are
available and the question ofobtaining replacement vol-
umes is simply a matter of paying for them. Therefore,
provided that there is overall comfort as to the reserves
stock, and total daily delivery capability, there is no
apparent need for a direct connection between the
producer's reserves and the customer.
By choosing a more direct contractual link to the end
user, the producer has done several things:
Established more direct control over the value of his
reserves.
Reduced the "aggregated pool" effect, i.e., the
individual producer's particular reserve entity will
not be rolled into a pool where it would share in the
take level and price characteristics of a basket of
markets which the aggregator has. Thus the specific
reserve entity will enjoy a unique price-and/or-take
level market.
Placed a portion of his assets, either from a reserves
value or other financial asset point of view, at risk
for the market. Failure to deliver either on a daily or
contract term basis will make a producer liable and
directly impact the producer's financial situation.
Thus the upside of direct marketing vis-a-vis take level
and price must be balanced off against the downside,
namely, corporate warranty costs and demand c ~ a r g e
payments to pipelines, all of which impact negatIvely
on the value of the producer's reserves.
25.3.2 Market Demand Forces
The foregoing discussion has laid the groundwork for a
discussion of market demand forces and their specific
effect on reserves and reserves value. From a global
perspective, the North American reserves-market
connection takes on a "chicken and egg" charactenstIc
(as indicated also in the diagram that follows):
302
_____________________c.
NATURAL GASMARKETS
(a) Reserves Underpinning
Individual
Volumes Directly Dedicated
Customer
Producer Reserves
or via Broker or Agent
(Individual
or Pool)
Producer Volumes
Aggregator
Volumes
Customer
Reserves
Pooled (Individual
Reserves or Pool)
Aggregator
Producer
Volumes Volumes
Regulatory
Volumes
Customer
Reserves
Pooled Body (Individual
Reserves Licences, Permits or Pool)
(b) Deliverability Warranty or Corporate Warranty Underpinning
Producer
Deliverability Warranty
Customer
(Payment For Replacement Deliveries)
Figure 25.3-3 Reserves Connection to Markets
The market actions establish the value of the reserves,
and affect exploration, development, and acquisitions.
The reserves characteristics provide the quality
assurances that will support a high quality (meaning
high price) contract.
The size of the reserves stock pushes on the market,
creating the forces that re-establish the value of the
reserves.
~ Price and Price Trends :-I
I Demand and Demand Trends I
Producer Actions Market Actions
- Technology ~
- Cost rationalization
Reserves Stock and
'----- Delivery Capability
Commencing with Canadian deregulation in 1986, and
continuing with the issuance of key FERC orders from
1984 onwards, the market forces have triggered a series
of continuous downward revisions to asset values
throughout North America. This overall loss of value
has not been quantified here, but amounts to a sizeable
dollar figure.
It is reasonable to assume that reserves in remote
geographical locations, such as Canada's arctic regions,
have likely been discounted severely during the last
5 years. This loss in value translates directly into a
real loss of proven reserves. In other words, reserves
formerly classified as potential and probable and any
quantities of proven reserves burdened with a high de-
velopment cost have been removed from the reserves
stock.
During this same period of time, however, significant
cost reductions and technological improvements in ex-
ploration and development have resulted in newreserves
additions and reserves appreciation to existing pools;
these have mitigated and perhaps even outweighed
the discounting effect of decreasing market prices. The
net effect has been a virtual replacement of gas prod-
uction each year in the United States (which is evidenced
by the static RiPratio during the 1980s), and replace-
ment of a significant fraction of Canadian production
each year during the 1980s. Therefore, the quantum of
the ultimate stock of North America's remaining proven
303
!...
plus probable plus possible reserves acts as an overall
dampener.
This apparently endless supply reduces the quality and
hence the degree of force that an individual producer or
group ofproducers can exert on the market, resulting in
stronger market forces and forcing the seesaw in the
market's favour.
25.3.3 Production Forecasting
Production forecasting is the act of reconciling the
expected market demand environment with the expected
supply environment. The market demand scenario has
already been developed in this chapter on the assump-
tion that the North American gas supply base is large
enough to be considered unlimited. Thus production
forecasting, from a global point ofview, appears to be a
reasonably simple task. One need only assimilate and
accurately forecast the interactive effects of all of the
regulatory and political market demand phenomena
described in this chapter, and then match production
capability to this complex model!
A simplistic total North American production forecast
would be based upon the following:
An established forecast ofrequirements and expected
market price
An estimate of established reserves and productive
capability
An estimate of supply costs
An estimate of future finding rates-perhaps best
derived by statistical analysis ofdrilling activity, dis-
covery rates per well, drilling costs-all modified by
gas market prices
It follows that a supply-demand curve can then be
drawn as the intersection of consumer gas demand with
supply capability.
A more sophisticated forecasting model would incor-
porate such variables as:
Pipeline restrictions
Political decisions or government edicts that set
prices, production rates, or fuel substitution
Complex demand forecasts for each type of gas user
Individual forecasts for major pools or producing
regions
Regardless of the degree of sophistication of the
production forecast mode, simplifying assumptions must
be made regarding price, consumer demand, and
304
"".,""'""osOL '"'"",,::-;III'
overall producing sector responses to changes i
demand and price. n
Developing a production forecast on an individual_
producer-of-individual-field basis is somewhat more
straightforward. Aproducer would have to consider the
following variables in developing a production forecast:
I. Gas purchase contract conditions
Price expectations
Take level expectations
Daily volume nomination levels and modifica_
tions to this level (i.e., restoration ofvolume levels
previously reduced by deliverability testing)
Some expectation ofthe purchaser's performance
in view of all of the global market demand and
regulatory items
2. Existing field conditions
Reserve and deliverability information
Drilling, completion, and well tie-in costs
Operating costs
3. Undeveloped field conditions
Capital and operating cost expectations
4. Producer corporate objections
Financial health and corporate economic guide-
lines
Type of reserves available to produce, e.g., raw
land, which requires "full cycle" costs, including
land; geophysical drilling, including risk; and
surface facilities costs or acquired reserves, which
may have been purchased at a discount from the
full cycle costs and thus may be connected at
relatively less cost
The field forecast can then be prepared by matching
individual well or field physical capability and market
demand with corporate economic criteria. The producer
can then use this forecast to make the appropriate drill-
ing and other capital expenditure decisions.
25.4 THE ROLE OF RESERVES
The foregoing discussion of market forces and produc-
tion forecasting has provided at least a "thumbnail"
sketch of the process. It is worth noting what has hap-
pened to the role ofreserves since deregulation. Reserves
are one of the cornerstones, directly or implied, of a
sales contract between a buyer and a seller. Any user of
gas must have some degree of assurance as to supply
continuity. Reserves can take on different roles in the
marketplace, as follows:
c
NATURALGASMARKETS
Negotiating Tool. A large reserves stock owned by a
producer or controlled by a broker or aggregator carries
a significant weight in sales contract negotiations.
Supply Indicator. A buyer would naturally be
interested in the seller's reserves supply, but the abso-
lute size of the reserve base may be ofless importance
than the seller's replacement ability.
Security. An adequate reserves supply, or adequate
assurance of replacement ability, provides support for
financing the construction of facilities such as pipelines
and end user equipment.
Reserves-to-Production Ratio Yardstick. The
reserves-to-production ratio, RIP, of a seller provides
an indication of efficiency, longevity, and marketing
strength as well as perhaps relative financial health. The
RIP ratio for a region or country gives a picture ofover-
all security of supply, as well as an indication of
emerging trends such as oversupply or undersupply
problems.
An understanding by buyers of the RIP for producers
and aggregators or brokers and countries as a whole is
crucial to establishing sound contractual arrangements.
A buyer's needs for supply security need to fit
a producer's needs for economic turnover of his
inventory ofreserves. Currently, most producers have a
need to sell reserves at approximately a 7 to 12 year
turnover rate, or a I :3000 to I :4500 RIPratio.
Sellers, on the other hand, can have a need for 20 or
even 30 years of dedicated reserves. Thus, sales arrange-
ments need to satisfy both these needs.
25.5 CONCLUSIONS
Market demand forces are obviously the very basis for
the gas industry; markets are simply the demand for the
commodity the gas producers are trying to sell. The
demand forces are not necessarily in balance, from a
classical textbook supply-demand law consideration,
with either the customers' or the producers' needs.
Production forecasting is becoming an increasingly
difficult task. A forecaster needs to consider all of the
following: regulatory and political uncertainties, mer-
chant pipeline deregulation, government jurisdictional
disputes over market deregulation, market price uncer-
tainties, and changing relationships between finding
costs, technology, and producers' corporate objectives.
The complexities of the physical characteristics of the
reservoir may be ultimately less difficult to forecast than
the market factors.
305
Chapter 26
USES OF RESERVES EVALUATIONS
26.1 INTRODUCTION
The estimates of reserves and forecasts of production
from those reserves are widely used within the oil and
gas industry and by organizations working with
the industry. The users fall into two well-defined
groups: the first uses only the volumes resulting from
the process (Section 26.2); the second uses the values
derived from the cash flows generated from the fore-
casts ofproduction and other variables (Section 26.3).
The development of various economic yardsticks is
explained in Section 26.4.
26.2 USERSOF RESERVESVOLUMES
AND PRODUCTION FORECASTS
A wide range of users requires only estimates of
reserves and forecasts of production to operate their
businesses and make their decisions. The users with
this requirement would include the following:
Producers, who use the forecasts of production and
life of facilities to size the equipment put in place
to produce the reserves and to deliver them to their
market
Pipeline companies, who require estimates of both
current and potential reserves, together with forecasts
of current and potential maximum future production,
to decide whether new or extended pipelines could be
justified and, if so, the sizes needed
Governments, who need information on reserves and
production to implement and modify legislation and
policy on resource development and security of
energy supply
Gas marketers, who need to know how much gas
they have under contract and the physical limits on
the way in which their contracted gas can be produced
26.2.1 Producers
Producers of oil and gas must have realistic estimates
of recoverable reserves and forecasts ofproduction to
plan the development of hydrocarbon discoveries.
306
The sizing of equipment, from the diameter of the well
drilled to the size of the plant required to process the
production stream, and everything in between, depends
upon the level of reserves and the resulting production.
It is important that the estimates be as realistic as poss-
ible, as over-enthusiastic estimates result in unneeded
capacity and expense, while low estimates result in
bottlenecks that limit production and are costly to over-
come. It is important to use reserves estimates based on
detailed engineeering studies.
26.2.2 Transporters
Companies (either producing or pipeline) that transport
oil and gas to their final markets need to know both the
current level of reserves and the production their facili-
ties will handle, and also the ultimate reserves and
production their facilities may be required to move.
Pipeline companies need reserves and production data
not only for their own planning and development, but
also for supporting government applications to build new
pipelines or expand existing ones.
The building ofpipelines requires government approval
to prevent their unnecessary proliferation and, as a con-
sequence, their tariffs are set by the government in
dollars, recognizing their operating costs, the recovery
of capital, and a return on any unrecovered capital costs.
Projectionsof future tariffs require forecasts ofproduc-
tion to estimate the amount ofproductthat will be moved
through the facilities; from this, charges per unit ofprod-
uct moved can be predicted. Pipelines that are under- or
over-sized may result from inadequate estimates of
current and future reserves and production.
26.2.3 Governments
Governments must have detailed knowledge of the
currently developed resource base and also the ultimate
resource that is available for development in order to
plan the best legislation and policies for resource
developments.
s
A knowledge of both present and future reserves is
necessary for the best resource development legislation
and policies, and also for the development oflong-range
energy policy. Identifying sources of supply to meet
future demands is dependent upon realistic forecasts of
current and potential reserves.
26.2.4 Gas Marketers
Brokers of natural gas must know with the greatest
precision possible the reserves they have under contract
and the changing rate at which the reserves can be pro-
duced, so that they can match these reserves with the
markets they are servicing.
Marketers also need estimates ofreserves and forecasts
ofproduction for government approvals ofexports from
the producing provinces and also of exports to other
countries.
The use of unrealistic estimates of reserves can lead to
either excessive reserves with no markets or a shortage
of supply, so that markets are lost.
26.2.5 Other Users
Many other groups benefit from estimates of hydro-
carbon volumes, including stockholders, the investment
community in general, and consumer groups.
26.3 DEVELOPING VALUES FROM
RESERVES ESTIMATES
The cash flows that result from estimating reserves and
forecasting production, prices, royalties, costs, and taxes
are discounted to provide a range of net present values.
This provides a very powerful tool for investment deci-
sions, whether they are internal capital investment
decisions regarding land, drilling, or production facili-
ties; decisions to buy or sell producing properties;
decisions to acquire or merge with other corporations;
or decisions to lend money using future production as
the security.
If realistic discounted forecasts offuture cash flows are
not included in the information on which investment
decisions are made, the investments are not likely to be
intelligent or successful. The Canadian oil and gas in-
dustry runs on discounted dollars. This situation is not
unique to the Canadian oil and gas industry. It must
always be remembered that the estimation of reserves
should never be considered as the end of the evaluation
process. Unless the resulting economics are understood,
reserves may be incorrectly estimated, and the risks and
uncertainties may not be fully understood. The result
may be reserves that are incorrectly classified as proved,
probable or possible.
In corporate investment decision-making, the most
common internal investment decisions involve the drill-
ing ofdevelopment wells and the building ofproduction
facilities. While risk may exist with these investments,
it is usually not addressed explicitly, but the minimum
value used to accept or reject an opportunity is set to be
sufficiently conservative to allow for the risk. In this
way, the targeted rate of return can be achieved on a
corporate basis.
26.3.1 Profitability Indices
The following are some ofthe profitability indices used
in Canada (but certainly not the only ones):
Payout period
Return on investment
Rate of return
Discounted return on investment
Net present value
The use and limitations of each index are described in
the following subsections.
Payout Period
Payout period is the time required to recover the
investment in a project. It can be calculated on a dis-
counted or undiscounted basis. In some cases discounted
payouts are used in the evaluations.
It is important to note that payout is measured from the
time ofthe first significant investment, not from the time
at which production starts. Payout period is usually one
of the indices used in the selection of investment op-
portunities. A commonly used index is a payout period
that is a maximum of 3 years for a development project
(where there is some risk) orno more than 4 to 4Y2 years
for fully developed producing properties (where the risk
is considered to be minimal). The choice of payout
period, however, varies from investor to investor.
Ifthe payout period for a development project is greater
than 3 years, it should not necessarily cause the project
to be rejected, but should be a warning that the project
must be better than average to overcome the longer
period required to recover the investment.
A useful rule of thumb is that projects with payout
periods ofgreater than 3 years should not represent more
than 10 percent, or at a maximum 20 percent, of the
total investment budget in anyone year. The company
has to be able to stay in business until payout is
complete.
307
~ I
' ~ , I
,
I
becomes the rate of return at which the cash flow must
be discounted to give a present worth value of zero.
This index takes the time value of money into account
,
but suffers from two serious deficiencies. First, the rates
of return can be very high (in the order of 30 to 70 per-
cent) with the result that little weight is given to any
cash flow after 10years. This causes projects with high
cash flows in the short term to appear to be more desir-
able and may cause long-life projects to appear to be
less desirable, with the result that the wrong investment
decisions may be made.
Second, each project has a different ROR, so that
different weights (discounted values) are given to dol-
lars earned at the same time in the future. Projects being
compared also have different lives so it becomes a prob-
lem to decide if a project with a ROR of 50 percent and
a IS-year life is better or worse than a project with a
ROR of 40 percent and a 25-year life. Assumptions on
re-investment can be made for the project with the short-
er life to try to solve the problem; however, a better
measure of the relative desirability of investment op-
portunities is to calculate the discounted return on
investment (DROl), as described in the next subsection,
in which a constant discount rate is used.
The ROR is a good and commonly used hurdle for
culling projects that are to be rejected from those that
are acceptable. In Canada, the minimum RORnormally
required would be in the range of 15 to 20 percent, us-
ing the after-tax cash flow, the most common minimum
being 18 percent after taxes. The rate ofreturn required
is a function of the cost of capital and the overall risk
involved in investing in oil and gas.
Discounted Return on Investment
The discounted return on investment (DROl) is defined
as the present worth value ofthe future income using an
externally- derived discount rate, divided by the
investment, or:
present worth
DROI= .
mvestment
This index is also known by many names including the
discounted profit-to-investment ratio (DPR), the present
worth ratio (PWR), and capital productivity index (CPI).
The discount rate that should be used is whatever the
marketplace is using to determine the value of oil
and gas assets. This rate is currently in the order of 12
to 15 percent, applied to the after-tax cash flow stream;
however, the rate will change as the following change:
Only those investments required prior to payout are
included in the calculation of payout period. It is
usually calculated using the before-tax cash flow.
Return on Investment
Return on investment (ROI) is also known as the
undiscounted profit-to-investment ratio. It is simply
defined as the undiscounted net revenue (also called cash
flow) divided by the initial investment. It has the seri-
ous disadvantage of ignoring the time value of money,
but is still used by some in selecting suitable invest-
ments. It can draw attention to projects with short lives
or unusual cash flow profiles if it yields a value that is
not in keeping with the other indices calculated.
The ROI may be calculated for a project requiring
investment on either a gross basis (the investment is not
included in the cash flow) or a net basis (the investment
is included in the cash flow). The normal procedure is
to calculate the net ROI, but the gross ROI will be ex-
actly 1.0 more than the net ROJ. A hurdle of $4.00 per
$1.00 invested (ROI =4.0) is often used for the net ROI,
but this may vary between companies. A net ROI of
less than 3.0 should raise questions about the desirabil-
ity of an investment project.
The reason that the ROI is not recommended as a limit-
ing index is that the cash flow profiles for oil industry
investments usually vary significantly over their lives;
consequently, the relationships between cash flow in
each year vary widely. In industries where the annual
cash flow relationships from various projects remain
relatively constant, the time value of money may be
downplayed. This is not the case in the oil industry.
The ROI can be calculated using the gross cash flow
(without deducting the investment), or the net cash flow
(after deducting the investment), or the total investment
required, or only the initial investment, but there is no
one "correct" way. The important thing is to calculate
all ROIs in a particular company in the same way.
Rate of Return
In recent years, rate of return has been one of the more
widely used profitability indices and has been called by
many different names, including internal rate of return,
internal yield, discounted rate ofreturn, discounted cash
flow rate ofreturn, profitability index, and marginal ef-
ficiency ofcapital. In this chapter, the term rate ofreturn
(ROR) will be used, and it is defined as the rate at which
the future cash flow must be discounted to give a present
worth value that is equal to the investment. If the in-
vestment is included in the cash flow, then the definition
308
-----------------_."....
USES OFRESERVES EVALUATIONS
the cost of capital, the perception of risk in forecasting
prices, and the supply of and demand for properties.
The DROI is a very powerful index for the ranking of
investment opportunities. If the current marketplace-
derived discount rate is used, then the value of the
numerator in the DROI ratio represents the market value
of the investment being considered. The denominator
is the investment required to generate this value.
Consequently, the index is the number of dollars of
asset value to be added per dollar of investment.
The DROI overcomes the problems inherent in the ROR
as a ranking tool since the same discount rate is used for
all projects, and the discount rate is realistic.
If the investment is included in the cash flow stream
(from which the value in the numerator is derived), then
a value of zero indicates a rate of return equal to that
used to discount the cash flow. Any positive value indi-
cates a rate ofreturn greater than the discount rate used.
Conversely, a negative value indicates a rate of return
that is less than the discount rate used and does not
necessarily indicate a loss.
Sometimes, the DROI is increased by \.0 ("DROI plus
1.0") to calculate the index when the investment has
been included in the cash flow stream. In this way, the
investment is removed from the cash flowstream, which
in effect is adding an amount equal to the denominator
(the investment) to the numerator (the value). It is mea-
suring the value of the asset after the investment has
been made as a function ofthe investment required. The
"DROI plus 1.0" index is the multiplier to be applied to
the investment to give the value of the asset expected to
be developed as a result of the investment.
Ifthe "DROI plus \.0" index is used, then a result of \.0
means that $\.00 of value is being added for each $\.00
spent. Ifthe value is greater than 1.0, then an asset with
more value than the investment being made is expected.
Because there is some risk with most investments in the
oil business, a DROI that is considerably greater than
zero ("DROI plus \.0" considerably greater than \.0)
would usually be required before an investment would
rank above other investment opportunities. Capital
availabillity certainly sets the minimum DROI, but the
usual range would be from \.0 to 3.0 (2.0 to 4.0 for
"DROI plus \.0"). A low risk opportunity, such as the
purchase of producing reserves, would usually have a
DROI of \.0, if the investment is not included in the
numerator; that is, the value ofthe asset acquired is equal
to the investment.
The value in the numerator is the asset value and,
therefore, all future investments must be included in the
cash flow; however, there is some argument as to
whether the investments used in the denominator should
be only those required to start the project or the total of
the investments (suitably discounted) required during
its life. The DROI is used as a ranking tool and is used
to select projects for inclusion in the current budget and,
for this reason, it can be argued that only the funds to be
budgeted to the star! of production should be used in
the denominator. Ifthis is correct, then the use ofall the
investments (discounted, ofcourse) in the denominator
could causethe rejectionofdesirable projects. This could
be a serious problem with the use of the DROI.
It should be remembered that the DROI is the value of
the asset added divided by the cost required to add that
asset. If the "DROI plus \.0" is used, then none of the
investment in the denominator is included in the nu-
merator, if only the investment to the start ofproduction
is used as the divisor.
Net Present Value
The present value equation compares income and costs
at time zero. Net present value (NPV) is equal to the
present value calculated at a selected discount rate
minus the investment.
Using Cash Flow Forecasts in Investment
Decision-Making
When the value of an investment opportunity is being
determined, sunk costs are never taken into account. If
they are, the wrong investment decision may be made.
An example ofthis would be the decision to complete a
well uphole when the lower target is found to be dry.
The well may have cost $1,000,000 to drill, but the
completion of an uphole zone for $100,000 would add
an asset worth $200,000. Ifthe sunk costs are included,
a request to spend$1,I00,000 for a $200,000 asset would
be rejected. The correct request would be for $100,000
to develop the $200,000 asset. At the end of the day, if
the $100,000 is approved, the net out-of-pocket cost
would be $900,000 ($1,000,000 plus $100,000 less
$200,000), but if the additional $100,000 is not spent
then the cost would be $1,000,000.
Sunk costs cannot be recovered so they are never
included. Only future revenue and costs should be
included in the basis for an investment decision.
An interesting down-side check on an investment
opportunity is to use trial and error to determine, using
constant prices and costs, the minimum product price
309
that will yield an acceptable rate of return, usually 10
percent after taxes, because ofthe use ofconstant prices
and costs. This test will give an indication of the sensi-
tivity of a project to price variations. If a project cannot
tolerate much reduction in price, it may be too risky to
pursue.
Most cash flow forecasts used to justify an investment
opportunity consider the incremental effect that the new
project will have on the total corporation. For this rea-
son, only those incremental costs and revenues that result
from the project are included in the cash flow forecast.
General and administrative expenses (G&A) usually will
not increase as a result of the addition of the incremen-
tal charges created by a new project (such as a well or
gas plant) and, therefore, no G&A costs are included.
However, if the incremental charge being considered
will result in increased or even decreased G&A charges,
then these charges should be included in the cash flow
forecasts.
There is an argument that some G&A should be
included, ifnot in the first year, certainly after that time.
While the current wells (excluding the incremental in-
crease being contemplated) will meet the current G&A,
the new project will be charged with its share in the
future. Of course, those entities currently meeting the
G&A cost will disappear with time and only the new
investments will be available to meet the G&A. This
point should be considered, as ignoring future G&A
costs could present a more optimistic basis for a new
incremental investment than is really justified.
It is important to note that charges for depreciation,
depletion and amortization (DD&A), which are included
in financial statements, are noncash items and are, there-
fore, not included in the cash flow forecast. DD&A is
an accounting means of charging the revenue stream
with a share of the capital required to generate the rev-
enue stream. Any capital costs are included in the cash
flow forecast in full at the time at which they are
incurred.
26.3.2 Incremental Economics
This section does not refer to the incremental nature of
most investment opportunities analyzed from a cor-
porate perspective, but deals with the method that should
be used to evaluate an additional investment that may
enhance the performance of an existing project. For
instance, a waterflood will increase the recovery from
an existing pool as the result of additional investment
in injection wells and water-injection facilities.
310
DETERMINAnON OF OIL AND GASRESERVES
How should the incremental effect of the additi I
. bd ined? ona
investment e etermine .
The procedure is simple. A forecast of cash flow'
d
e h . if . IS
prepare lor t e project 1 no mvestment is made (pri-
mary case). A cash flow forecast is then prepared fo
the project ifthe investment is made (waterflood case)f
with the investment being included in the cash flow f o r e ~
cast. In the next step, the cash flow for the primary case
is subtracted fromthe cash flow for the waterflood case.
The resulting incremental cash flow provides the basis
for making the investment decision. Because the invest-
ment is included in the incremental cash flow forecast,
the rate of' return is the discount rate which gives a
present worth value of zero.
Incremental investment opportunities often yield high
rates of return.
The incremental annual cash flow determined by
subtracting one cash flow from the other will usually be
negative for some of the life ofthe incremental project.
This does not mean that the project is losing money and
should be discontinued, but that the upgraded project,
after the investment, has lower cash flows in later years
than would have been the case had the incremental
investment not been made.
26.3.3 Acceleration Projects
An acceleration project is one in which an investment
is made, not to get any additional revenue, but merely
to get the same, or even a reduced, cash flow sooner:
then on a discounted cash flow basis, the investment
has the potential to earn a rate of return.
The big problem is that true acceleration projects
usually have at least two rates ofreturn. The investment
made only brings the cash flow ahead. It does not add
any extra cash flow and, in fact, the cash flow may be
less through lower prices and higher costs. Coupled
with the'Tnvestment, this will result in a negative
undiscounted cash flow for the incremental accelera-
tion investment. The investment required for the
acceleration project is evaluated in the same way as any
incremental investment; the cash flow forecast for the
project without the investment is subtracted from the
cash flow for the project if the investment is made.
As the discount rate is increased, the present worth value
goes from negative to positive. Experience has shown
that this usually occurs at discount rates of 5 to IS per-
cent. As the discount rate is further increased, the present
worth value continues to increase (the opposite of the
normal effect of discounting) until the discount rate
generally gets to the range of 35 to 50 percent, at which
------------------------
point the present worth value begins to decline. It
returns to zero at a discount rate usually in the order of
100 to 300 percent. These general ranges do not apply
to all projects.
By definition, the rate of return is the discount rate
required to give a present worth value of zero, which
occurs usually between 5 and 15 percent and between
100 and 300 percent; that is, there are two rates of re-
turn. Which is the "correct" rate ofreturn? Well, no one
has answered that question yet. One appears to be too
low and the other too high.
The only practical way to check an acceleration project
appears to be to determine its sensitivity to price reduc-
tions. If a small reduction in price results in no positive
values for the discounted cash flow, then the project
may not be worthwhile.
The problem is to make sure that an acceleration project
is recognized as such by the people making the analysis
and the investment decision. If a present worth value at
a selected discount rate is used as the ranking index (such
as a DROI at a 15 percent discount rate), an accelera-
tion project might not qualify, but if a higher discount
rate is used, the DROI would increase and the project
could become acceptable. For this reason, all projects
(whether acceleration or not) should have a profile of
present worth values calculated for a range of discount
rates (usually from 0 to 50 percent), so that multiple
rates of return and increasing present worth values with
increasing discount rates can be recognized.
Most acceleration projects are masked by the inclusion
of additional cash flow with the accelerated cash flow;
in fact, most incremental projects include an element of
acceleration. A waterflood project includes increased
rates of production (that is, acceleration) as well as
additional recovery of reserves,
The most common acceleration project in Canada is one
in which infill wells are drilled. Such an opportunity
could be a true acceleration project if it only results in
getting the same reserves sooner with the increased well
count. Normally, there is also an increase in the reserves
to be recovered and this will mask the acceleration as-
pects of the project. The main thing to remember is that
the new wells will affect the production performance
and reserves to be recovered from the existing wells.
For this reason, the economics of the new infill wells
should never be looked at on a stand-alone basis. The
project should be evaluated by looking at the perfor-
mance ofthe total project without any infill drilling and
subtracting that cash flow from the cash flow that will
result from the total project when the infill wells are
drilled. This incremental cash flow is the way in which
the investment should be analyzed.
26.4 USES OF THE VALUES DERIVED
FROM RESERVES ESTIMATES
26.4.1 Valuing Oil and Gas Companies
The assets of an oil company consist of its inventory of
reserves of oil, gas and related products and its land
holdings. The balance sheet of an oil company records
the value of the reserves and lands as the price paid to
acquire or develop those assets. However, the price paid
to develop reserves or purchase unexplored lands is
unlikely to be an indication of their current value.
To overcome this problem, the value carried under
"Property, Plant and Equipment" on the asset side of
the balance sheet should be replaced with the going con-
cern value of the remaining reserves and lands.
Goingconcern value(GCV) is the value assigned to an
asset that is already owned and that will be kept for fu-
ture exploitation. It is not the value to be expected ifthe
asset is sold directly.
The determination of the GCV of reserves would be
based on a projection of future cash flow, using esti-
mates of reserves and forecasts of production, costs,
prices and royalties for each separate interest. These cash
flows would then be summed and an after-tax calcula-
tion made, using not only future investments to protect
income from taxes, but also any unused tax pools held
by the company such as:
Canadian exploration expense (CEE)
Canadian development expense (CDE)
Canadian oil and gas property expense (COGPE)
Tangibles subject to capital cost allowance (CCA)
Any prepayments to be repaid in the future, and all
abandonment and reclamation costs, would also be in-
cluded in the cash flow forecasts. The after-tax cash flow
discounted at an acceptable rate, currently between 12
and 15 percent, would give the value to replace the re-
maining undepreciated investment carried under
"Property, Plant and Equipment."
All future taxes and costs are included in the cash flow
forecast, as well as any repayments of prepayments
received, so the amounts carried as "Deferred Taxes,"
"Site Restoration Costs" and "Deferred Revenues" on
the liability side ofthe balance sheet should be removed.
The value of any unexplored lands would then be
determined and added to the value of the reserves. No
311
where MV market value ($)
GCV = going concern value ($)
F = multiplier
In Alberta, where the current total tax rate is 44.34
percent, the multipliers would be:
1.2711 for a 12 percent discount rate
1.2349 for a 15 percent discount rate
With the value of the COGPE adding 23 to 27 percent
to the value of the reserves (or lands), it is too big to be
ignored. Similarly, if a COGPE is not created because
the corporation, not the resource property, is purchased,
a value that includes the COGPE will be far too high.
These distinctions must be understood if the correct
values are to be assigned.
The seller of properties that create a COGPE for the
buyer is required to take the total proceeds of the sale
(not just the gain in value) into income for the purpose
of calculating the taxable income in the year in which
the sale occurs, and it is income that is not eligible for
the resource allowance; however, up to 100 percent of
any unused Canadian development expense or COGPE
balances may be used to offset the proceeds ofthe sale,
in addition to 100 percent of any unused CEE balances.
Often a seller ofproperties will buy properties with app-
roximately the same value before or in the same year as
the sale. Ip this way, he has a COGPE balance that he
can use to render the sale a tax-free event.
A complicating factor in the determination of MV is
the fact that part of the price paid is classified as the
price of the tangible assets (generally, the production
facilities) acquired with the resource properties. These
tangible assets can usually be written off at the rate of
12.5 percent of the value in the year of acquisition and
at 25 percent ofthe declining balance each yearthereaf-
ter. Some tangible assets are written off at other rates.
The multiplier for this higher write-offrate would be in
the order of 1.32 to 1.38 for discount rates ofl5 and 12
percent. The fraction of the total price considered to be
value would be assigned separately to the production
facilities, such as gas plants and treating facilities, as
the value of these facilities is included in the value as-
signed to the reserves. The only time that a facilitywould
be valued separately would be when the interest in the
facility is not the same as the interest in the reserves
being processed through it.
The sum of all the assets less all the liabilities would
then give the GCV of the corporation. The value per
share would be this value divided by the number of
shares outstanding. This would be the basis used to make
an offer to acquire an oil and gas company.
26.4.2 Sale of Resource Properties
The Canadian definition of resource properties for
income tax purposes includes oil and gas reserves (and
the wells to produce them) and unexplored lands. The
direct purchase of resource properties (but not the pur-
chase of the shares of a company that owns resource
properties) creates a tax advantage for the buyer in the
form of the Canadian oil and gas property expense
(COGPE). This is equal to the price paid and may be
written off at the rate of 10percent ofthe declining bal-
ance each year against all taxable income from any
source.
The creation of the COGPE by the act of buying the
resource property means that a buyer is acquiring two
income streams, one from the production and sale of
the oil or gas, and the other from the tax savings gener-
ated by the write-off of the COGPE. Because of the
competitive nature of the marketplace, the buyer must
be prepared to pay the full value ofboth the reserves (or
potential reserves in the case of unexplored lands) and
the COGPE, ifhe expects to acquire the property. This
value would be described as the market value (MV) of
the asset.
A term often used isfair market value (FMV) which is
defined as the price that a willing buyer would pay to a
willing seller, ifneither is under any compulsion to buy
or sell and both are competent and have reasonable
knowledge ofthe facts. Because all of these limitations
are seldom met, the termmarket value (MY), rather than
fair market value, has been used.
The value of the COGPE is a function of the value of
the reserves (or lands) and the write-off rate, tax rate
and discount rate. Equation (I) gives the multiplier, F,
to be applied to the value of the reserves (or lands) to
determine the value of both income streams (using mid-
period discounting):
312
F= I
1-(WRxTR)x (I +i)'"'
WR+i
where WR fractional write-off rate
TR = fractional tax rate
= fractional discount rate
Thus MV GCVxF
0)
(2)
-----------------------
for the purchase of tangible assets is negotiated by the
buyer and the seller, but the fraction must be reasonable
to be acceptable to the taxman.
Because of the different tax consequences of a direct
purchase and a purchase of a company owning oil and
gas assets, it is not recommended that GCV and MV be
determined from before-tax cash flows. The MV for oil
reserves in Alberta is generally found to be equal to a
before-tax cash flow discounted at 20 percent (this is
the same value that would normally be determined by
discounting the after-tax cash flow at 12 percent). In
Saskatchewan, a cash flowbefore taxes froman oil prop-
erty would have to be discounted at 25 to 30 percent,
depending on whether the Crown royalty is new or old,
to give a 12 percent after-tax rate of return. Similarly,
the cash flow before taxes for gas properties in both
Alberta and Saskatchewan should be discounted at 18
percent to give a value equal to the after-tax cash flow
discounted at 12 percent.
If GCVs are to be based on before-tax cash flows, the
discount rate would range from 22 to 34 percent, de-
pending on the province and royalty classification. It is
dangerous to ignore taxes when determining the values
of Canadian resource properties.
26.4.3 Evaluation of Unexplored Lands
and Exploration Wells
The procedure for estimating the value of interests held
in unexplored lands by oil and gas companies starts by
determining the value of discoveries of oil or gas re-
serves that could be made on each spread oflands. After
this value is determined, the probability of success is
determined. Then, the cost of failure is estimated; the
probability of failure is equal to one minus the prob-
ability of success. The difference between the product
of the value and probability of success and the product
of the cost and probability of failure gives the risk-
weighted value, or expected monetary value (EMV) of
the land on which oil or gas may be found. It must al-
ways be recognized that the prices at which lands that
are close to those being evaluated have traded may dif-
fer greatly from the value determined using this
procedure because of variations in the geological
prospects under the lands.
The value of success would be determined in the same
way that reserves are valued. The size of the reserves
that can be expected to be discovered would be esti-
mated, the production forecast, and an after-tax cash
flow forecast prepared and discounted as previously
described. The cost of failure would be the cost of a dry
hole, after taking into account the value of any
tax advantages resulting from the expenditure.
The values of unproved properties are based on after-
tax values and costs. Consequently, the value ofany tax
advantages to be gained by exploring for and develop-
ing reserves in the future is either included in the values
assigned to the lands presently held or will be included
in the prices paid for lands that are acquired in the fu-
ture. If the values assigned to the reserves ofa company
are based on the assumption that future investments in
exploration and development will eliminate any tax pay-
ments on income from the production of the reserves,
then the value of these future tax advantages will have
been taken twice.
When unexplored lands are purchased, the price paid
not only represents the risk-weighted value these lands
are expected to contribute, but also includes the value
of the COGPE created by the acquisition. Consequent-
ly, iflands already held are being evaluated, their value
will be equal to the price currently set in the market-
place less the value of the COGPE, which can be
determined using the formula set out in Section 26.4.2
on the sale of resource properties. If the price paid in
Alberta is $100 per acre, it would represent $78.70 for
the land and $21.30 for the COGPE if a 12 percent dis-
count rate were used. These values would change to
$81.00 and $19.00, respectively, with a 15 percent
discount rate.
Exploratory wells would be evaluated in the same
manner. The value and probability ofsuccess would be
determined and the cost offailure, after taxes, estimated.
Then, the EMV would be calculated as the difference
between the product ofthe value and probability ofsuc-
cess and the product ofthe cost and probability offailure
(i.e., one minus the probability of success), The EMV
is the risk-weighted contribution the exploration well
could be expected to make to the assets of the corpora-
tion, in excess ofthe investment required. If the exercise
is repeated frequently .and the probabilities of success
are assessed realistically, then the sum of all the EMVs
for a year should be the level ofvalue ofthe assets added
by exploration in the year, in excess of the investment
required.
A possible index for ranking exploration wells would
be to divide the EMV by the after-tax dry hole cost.
This is similar to the DROI (Section 26.3.1) and is
commonly referred to as the profit/risk capital ratio.
Another index that can be used for project ranking, the
profitability index (P/I), is calculated by dividing the
EMV by the maximum capital exposure (present worth
313
c
value of total capital, after taxes), which indicates the
expected net dollar value to be received for each
after-taxdollar of capital expended.
26.4.4 Lending and Borrowing
Financial institutions are permitted by law to take a
pledge of reserves and assignment of productionpro-
ceeds as security for funds advancedto the production
owner.
Thefollowing discussion effectively assumes that a term
loan is made available for a particular reserve. (In the
case of a company with diverse production interests,
annual principal payments may not be required.)
To assess the maximum loan that can be secured by
production, the lender may look at a series of valuesto
determinethe amount of the loan. Alendermay require
the production offered as securityto come frommore
than one well, each of which has a productionhistory.
Forecasts of reserves, production, and cash flow, usu-
allysupplementedby an independent engineer's report,
are used by the lender.
The loan life is normally limited to no more than the
periodrequiredtorecoverhalf thereserves (thereserves
half-life), with the loan amount as a percentage of the
discountedvalue of production.
Loans securedby productionwouldnormallybe based
on reserveshalf-life witha maximum termthat is estab-
lishedbythe lendingpolicyof the financial institutions.
Reasons for including the reserves half-life are (I) to
ensure that when the loan is repaid, the property will
still have sufficient value that the borrower will look
after it while repaying the loan, and (2) to ensure that
the loan will still be repaid if the reserves estimate is
not accurate. If there is little value left whenthe loan is
repaid, the lender cannot expect the borrower to have
much interest in the property.
When the amount and the term of the loan have been
determined, the annual minimumprincipaland interest
payments are determined under different repayment
optionsandpossiblyunderdifferent priceforecasts. Due
to the risk of changes inlegislationand tax, anyAlberta
royaltytax credit is calculatedseparately.
The price to be expected from a distressed sale of the
properties may be estimatedby the lender in a number
of ways. It may range from using 80 percent of the
after-tax cash flow discounted at 15 percent, with the
COGPEadded in, to taking 50percentof thebefore-tax
cash flow discounted at 15 percent. Whatever method
is used, the end result is a reasonably consistent
314
estimate of the price to be received under distr d
diti esse
con itions.
Lenders may ignore income taxes in determin'
I
di I" I mg
en mg irmtsun ess the companyis fullytaxablea d
I
. f i n a
arge portion0 Itstotal cash flowis beingdedicated t
loanrepayments. Underthesecircumstances, thetax
ligations of the company will be forecast,
that all interest payments would reduce the taxable i _
come. It is realistic to assume that only the cash flo:
after taxes wouldbe available to repay principal.
Theactual loansizeis negotiatedbetweentheborrower
and the lender, using the foregoing calculations as a
guide.
26.4.5 Auditing Evaluations
For manyyears, the industryhas attempted to introduce
auditing techniques as the basis for an independent
evaluatorto offer an opinionofthe reservesdetermined
internally by a company. In the auditing of financial
statements, procedures are established andthenchecked
to see if they are being followedby reviewing random
and material samples of the various financial transac-
tions. If thesamplesshowthat the procedures arebeing
followed, then the financial statements, after adjust-
ments, are considered to reflect the finances of the
company.
The lack of the development of an equivalent system
for reserves reportssuggests that theauditing procedures
used for financial accounts may not be applicable to
reserves reports. Procedurescancertainlybe established
and checked,but because of the need for interpretation
ofthe datainthe estimationof reserves,the checking of
a sample could lead to an erroneous conclusion con-
cerningthe accuracyofthe reservesestimates. It would
be veryeasyfor a comparisonof a sampletoleadtothe
conclusion that the reserves should be half or double
those determined bythe companybecauseeachevalua-
tor could interpret the available data differently.
Of course, it would also be possible to agree after
reviewing a sample, but disagree significantly after
reviewing the total reserve base.
Because of this problem of interpretation leading to
different answers using the same data by different
engineers who are both knowledgeable and objective,
it is common for external evaluators, when asked to
offeranobjectiveopinionofthe reservesof a company,
to independently evaluate the reserves whichrepresent
70 to 80 percent of the total reserves (or value) of the
company. This would normally require 20 to 30
percent of the properties in which the company has
------------------------_.,.
interests to be evaluated. The ratio of external to
internal reserves determined for the 70 to 80 percent of
the reserves is then applied to the internal total to give
the order ofmagnitude ofreserves that the auditor would
expect to determine if he carried out a complete, inde-
pendent evaluation. The anticipated difference should
not be more than plus or minus 10 percent, with a de-
sired difference of less than plus or minus 5 percent.
These are the differences that can be expected as the
result of interpretation by different evaluators. Differ-
ences in the total of greater than 10 percent would
normally require review and explanation.
No two evaluators will agree on the reserves for all of
the properties of a company, but the differences will be
higher for some properties and lower for others so that
the sum of all the estimates by each evaluator will usu-
ally be within the 10 percent range suggested. Two
evaluators will seldom estimate the same reserves for a
given property. The best opinion that can be expected
from an audit is that any differences would be within an
acceptable range.
Attempts are still being made for external evaluators to
use samples to develop an opinion ofthe "correctness"
of the reserves estimates by company staff. This does
not appear to have a statistically sound basis for draw-
ing such a conclusion due to the need for data
interpretation.
It is a reality that no one can accurately predict the
reserves that will be recovered from a well until it has
been abandoned. This lack ofprecision appears to limit
the use of audits based on small samples to arrive at
a soundly based opinion of the accuracy of reserves
estimates.
26.4.6 Securities Reporting
The agencies regulating public companies in both the
US and Canada require annual reporting ofreserves and
may require additional information on the future cash
flows expected from those reserves. The US agency is
the Securities and Exchange Commission (SEC), and
the most important agency in Canada is the Ontario
Securities Commission (OSC), which regulates the
Toronto Stock Exchange on which a number of
Canadian companies are listed.
US Securities and Exchange Commission
The SEC requires companies listed on a US stock
exchange to submit annual reports that include a recon-
ciliation of the changes in the net (after royalties)
remaining proved reserves of the company. This
information is reported on SEC Form 10Kand includes
the opening and closing net proved reserves volumes,
together with an analysis of the change broken into the
following:
Revisions
Discoveries and extensions
Purchases
Sales
Production
Net proved developed reserves are also to be disclosed.
Form 10K also requires disclosure of the discounted
future net cash flows, which are based on a forecast of
production fromthe proved reserves with constant prices
and constant costs and after deducting income taxes,
using any remaining tax pools and all future investments
required to produce the proved reserves. The discount
rate used is 10 percent.
A quarterly report is also submitted to the SEC on Form
10Q, but this report does not require reserves to be dis-
closed or the basis for the ceiling test, even though one
is required in the preparation ofthe financial statements
reported in Fonn IOQ.
Recently, the SEC has agreed to accept the disclosure
made to the Canadian equivalent ofthe SEC (generally,
the OSC), instead ofFonn 10K, for companies listed in
both Canada and the US. The Canadian disclosure does
not include a discounted cash flow; however, reconcili-
ation to US accounting principles, including the ceiling
test, will be required at least to the end of 1993.
In a prospectus issued by an oil and gas company listed
on a US exchange, net remaining proved reserves at a
date generally within 12 months ofthe date of the pros-
pectus must be included. Any material changes in
reserves since their determination must be disclosed. A
discounted cash flow, using constant prices and costs,
after taxes, and at a discount rate of 10 percent, must be
included.
The reserves reported in the prospectus must be
supported by a detailed report on the determination of
those reserves. The SEC does not require an indepen-
dent reserve report; however, in practice, except for the
major companies, underwriters usually insist on an
independent report.
Ontario Securities Commission
The OSC requires an annual report in which the gross
(before royalties) remaining proved reserves must be
included. It includes the opening and closing balances
and a reconciliation that breaks the change in reserves
315
into the same five categories used for the report to the
SEC.
A prospectus for an oil and gas company listed on the
OSCmust include a statement ofgross remaining proved
and probable reserves at a date generally within 12
months of the date of issue of the prospectus. Material
changes in reserves, since their determination, must be
disclosed. The OSCalso requires a discounted cash flow,
after taxes, using constant prices and costs and a dis-
count rate of 10 percent. A cash flow, after taxes, using
escalated prices and costs and higher discount rates may
also be included, at the choice of the issuer.
The reserves reported in the prospectus must be
supported by a detailed report on the determination of
those reserves. The report must be prepared by a regis-
tered professional engineer, or a registered professional
geologist, who is independent of the issuer of the pro-
spectus, but in-house reports may be acceptable from
large, well-established companies at the discretion of
the OSC.
26.4.7 Accounting Requirements
Accountants use reserve estimations and subsequent
evaluations inpreparing financial reports and audits. The
main uses of evaluations by accountants are for the
purposes of ceiling tests and depletion calculations.
Ceiling Tests
Two methods ofreporting the costs ofexploring for and
developing oil and gas reserves are available to cor-
porations: "full-cost" accounting and "successful
efforts" accounting. In full-cost accounting, all costs as-
sociated with exploration and development are
capitalized and written off over the life of all the re-
serves in each country. With successful-efforts
accounting, only those investments in exploration and
development that are successful in finding reserves are
capitalized and written off over the life of the reserves
on a property-by-property basis; all costs ofunsuccess-
ful wells are expensed in the year in which they occur.
Full-Cost Accounting
Full-cost accounting, presents a less conservative, but
perhaps more accurate, picture of the financial results
of a company. It is justified by the argument that all
investments, both successful and unsuccessful, lead to
the development of the company's total "inventory" of
oil and gas reserves.
The users of full-cost accounting could experience a run
of bad luck that results in costs which are greater than
316
~ I
:""" ':
DETERMINATION OF OIL AND GASRESERVES . .
the value of the reserves added or are even greater th
the total net income to be earned by producing the ::
serves. To ensure that the balance sheet does t
include highly overstated values for the company'sn ~ 1
and gas reserves, a "ceiling test" must be performed
quarterly for US registered companies and at least
annually for Canadian registered companies. This test
determines the maximum value that can be carried
for the net cost of reserves under "Property, Plant and
Equipment" on the balance sheet and, ifthe actual value
carried is in excess of the ceiling test value, then the
actual value must be written down to the ceiling test
value. This is a one-way street, so that ifthe ceiling test
value is greater, there is no change to the value carried.
In Canada, a company using full-cost accounting is
subject to a ceiling test with a value based on a cash
flow forecast prepared from the forecasts ofproduction
fromthe proved reserves, using constant prices andcosts.
The company's estimated future interest and adminis-
trative costs and income taxes are deducted. Income
taxes take into account the remaining tax pools and any
future investments. The resulting undiscounted cash
flow is then compared with the value of the net cost of
the reserves carried on the balance sheet (less deferred
income taxes) and, ifthe cash flowis lower, then a write-
down to the lower amount must be made. This ceiling
test is a cost-recovery test, as it limits the value
of the reserves on the balance sheet to no more than
the net estimated cash flow to be recovered from the
production of those reserves.
The constant price used may be either the price at the
end of the reporting period or the average price for the
period.
In the US, the ceiling test is a value comparison test for
companies using full-cost accounting. The ceiling test
value for a full-cost company is determined by taking
the estimates of proved reserves and forecasts of pro-
duction for the company and preparing a cash flow
forecast using constant prices and costs. This cash flow,
after taxes, is then discounted at 10 percent per annum
and, ifthe value carried for the net costs of the reserves
on the balance sheet (less deferred income taxes) is more
than this present worth value, a write-down to this value
must be made.
It is a rough estimate of the value of the reserves, and
this constant price and cost-based cash flow, discounted
at 10percent, must be reported in the annual report sub-
mitted to the SEC. The 10 percent discount rate used
recognizes that inflation is not included in the cash flow
forecast because constant prices and constant costs are
---------------------_..
used. The price used is that in effect on the last day of
the reporting period.
The volatility of oil and gas prices over the last five
years has resulted in significant write-downs, especially
in the US where the price to be used must be the price
on the last day of the reporting period and the ceiling
test must be applied quarterly. A very low price at the
end ofone period can cause an extreme write-down that
can never be recovered even if prices bounce back in
future quarters.
Successful-Efforts Accounting
Canadian and US companies using successful efforts
accounting are subject to a ceiling test, but the constant
price, constant cost cash flow used is not discounted or
reduced by any interest, administrative, or income tax
costs.
In both Canada and the US, unproven properties are
included in the ceiling test value. The value included is
the cost, reduced by any impairment of value due to
either exploration on the lands or to declines in market
values.
Depletion Calculations
Accountants also employ estimates of proved reserves
as the most commonly used method of amortizing
or writing off the cost of capital investments.
This "depletion" calculation divides the remaining
undepleted or undepreciated capital costs by the remain-
ing reserves to determine a depletion rate. These net
capital costs are depleted (that is, reduced) by the prod-
uct of the production during the depletion period and
the depletion rate. In this way, all the capital costs are
written off by the time the last production is received.
To calculate the depletion rate and charge, all the
reserves and production must be converted to the same
units, usually barrels of oil equivalent (BOE), which
must be based on either heating values (6 x 10
3
cf per
BOE) or relative selling prices. Having determined the
rate per BOE, then the rate per barrel of oil and per
thousand cubic feet of gas can be back-calculated.
The depletion charge is calculated at the end of the
period, using the remaining net investment, and before
the current period charge for depletion and remaining
proved reserves plus production for the period are calcu-
lated. Depletionis usually calculated on a quarterlybasis,
and the annual charge is the sum of the quarters. The
depletion calculation must be updated whenever there
is a material change to the rate, as a result of either new
investment or changes in reserves quantities.
26.4.8 Establishing Finding and
Replacement Costs
One of the important uses of estimates of reserves is in
determining the average cost of replacing reserves. It
must be determined whether the exploration and devel-
opment expenditures are adding reserves for a cost that
is less than or equal to their value. Ifthe cost ofreserves
additions is in excess of their value, then the company
will not be making a rate of return that is equal to or
greater than the discount rate used to determine value.
The finding cost that is often calculated as a measure of
exploration success is determined by dividing the ex-
ploration costs by the proved reserves discovered. A
calculation that only includes exploration costs gives a
completely useless (and possibly misleading) result as
discovered reserves are of no use until they are fully
developed. The cost ofa fully developed unit of reserves
ranges from 1.3 to 3.0 times the cost of finding the re-
serves. For this reason, a low finding cost could lead to
the mistaken conclusion that the exploration program
was successful even though the fully developed cost was
in excess of the value of the reserves added. The oppo-
site is also true, where high exploration costs might
indicate an apparent lack of success, but low develop-
ment costs, in fact, develop reserves with a cost that is
less than their value.
Only replacement costs give a useful measure of
success. They are calculated by dividing the total
of all exploration and development costs (including all
plants and production facilities) by the proved reserves
added. The reserves other than oil would be converted
to barrels of oil equivalent (BOE) to make this calcula-
tion. This conversion is discussed in Section 26.4.9.
Replacement costs are calculated on before-tax costs,
but values are based on after-tax calculations. Using a
mix of tax write-offs for an average program of explo-
ration and development, the after-tax cost ofreplacement
would be in the order of 65 percent of the before-tax
cost for a company that can use all the tax write-offs.
The current average going concern values of oil and
gas reserves in Alberta are approximately $7.00 per
barrel and $0.35 per thousand cubic feet. This means
that the before-tax replacement cost ofreserves must be
less than $10.00 per barrel and $0.55 per thousand
cubic feet if a rate of return of 12percent is to be earned,
after taxes. In recent years, only 60 percent of the
companiesdevelopingreserves in Canada have been able.
to add reserves at costs that are this low.
Proved reserves may be added before all the costs of
development have been incurred or may be added after
317
7
the investments are made, such as with enhanced
recovery schemes. Because costs and reserves additions
may be out of synchronization, it is preferable to calcu-
late replacement costs on a three- to five-year rolling
average.
Studies have shown that annual replacement costs for a
company can range from $4.00 per barrel one year to
$280.00 per barrel the next year, while on a five-year
rolling average, the costs are $10.00 per barrel, which
means that the company is earning an acceptable rate of
return. If replacement costs are higher than values for
an extended period, it is an indication that serious fin-
ancial problems will probably develop for the company
some time in the future.
The average values set out in the foregoing discussion
may not be applicable to reserves added by particular
companies; consequently, the actual value ofthe reserves
added by a company should be determined in detail for
comparison with the replacement cost.
26.4.9 Estimating Barrels of Oil
Equivalent
From time to time, it becomes necessary to divide costs
among reserves of oil, gas and related products, or to
report reserves ofoil, gas and related products asa com-
mon unit. This is done by converting reserves that are
not oil to barrels of oil equivalent (BOE).
Often the reason for the conversion is not understood
and, therefore, the conversion is made incorrectly.
Conversions to BOE are. usually made for one of the
following reasons:
1. To calculate the depletion charges used to write off
the investment in reserves
2. To report reserves volumes using a common unit
3. To calculate the replacement cost per unit ofreserves
added
4. To calculate the acquisition cost per unit ofreserves
purchased
The conversion for the first reason must use either
heating value (6 x 10
3
cf per BOE) or relative selling
prices, as established by accounting principles. Each of
the other three reasons is for the purpose of making a
value comparison and, therefore, conversions based on
the relative values of the reserves to be converted com-
pared to the value of oil reserves should be used, if
possible. Energy equivalence should not be used for
the purpose of value conversion, as energy equivalence
is only of significance at the burner tip. It costs
approximately five times as much to move a unit of
318
energy as gas from the well.head to the burner tip as it
costs to move the same unit of energy as oil. Conse_
quently, the value at the wellhead (or in the ground) is
in no way related to energy content.
The energy equivalent often (but incorrectly) used is
6 x 10
3
cf per BOE, but it actually ranges from about
5.8 x 10
3
cf per BOE for light oil to approximately
6.3 x 10
3
cfper ~ O E for h e a ~ oil. The. use of energy
content as the basis for conversion can give misleading
results which, in turn, could lead to wrong decisions
about success and value. It is recommended that
this BOE never be used for the purpose of value
conversion.
Because most conversions to BOE are for the purpose
of value comparison, the values of oil and gas reserves
should be used to calculate the conversion ratio.
Currently, "average" values for fully developed res-
erves of oil and gas in Alberta are in the order of $7.00
per barrel and $0.35 per thousand cubic feet. This
gives a conversion ratio of 20 x 10
3
cf per BOE. The
equivalent barrel of oil is a barrel oflight oil.
The value-based conversion rates have varied as shown
in Table 26.4-1 over the last eight years for "average"
reserves. No company owns average reserves, so that
the conversion rate for a particular company could be
higher or lower, depending on the actual reserves owned.
Table 26.4-1 Conversion Rates
Year BOE
(10
3
cf/stb)
1984 20
1985 17
1986 17
1987 18
1988 16
~
1989 14
1990 16
1991 20
Price is not the most desirable basis for determining
conversion to BOE, as the cost of producing energy in
the form of gas is usually different per dollar of income
than the cost of producing oil. Therefore, value, which
is the difference between price and cost, will usually
yield conversion rates that are different from those based
solely on price. If values are available, they are to be
preferred; however, values are not generally available
for related plant products and, therefore, price provides
the only useful way to convert reserves of ethane,
propane, butanes, pentanes plus and sulphur to BOE.
---------------------_..
Conversion Factors
USES OF RESERVES EVALUAnONS
Example
Reserves ofcrude oil, gas and related products as shown
in the following table were purchased several years ago
for $197.8 million.
Reserves Purchases
Product
Wellhead
Price
Conversion to BOE
Value-Equivalence
(Crude Oil Price
IProduct Price)
What did this price represent in the way of value per
unit of reserves? At the time, the conversion of gas to
BOE on a value-equivalence basis was 14 x 10
3
cf of
gas for each barrel of oil. No value data was available
for the related gas products, so the wellhead price had
to be used to determine the conversion ratios. At the
time, the prices shown in the table ofconversion factors
were in effect.
Using these conversion factors, with the conversion
factor of 14 x 10
3
cfper BOE for gas and the reserves
set out earlier, the total reserves in barrels of oil
Company Interest
Gross Reserves
(before deducting royalties)
equivalent were calculated. These are shown in the
following table.
By using the BOE at 23,966,233 barrels and the
purchase price at $197.8 million, the value paid per BOE
was $8.25 per BOE. The purchase price can be allo-
cated to each product to determine the respective value
per unit of reserves. The table on the next page shows
the value per unit of reserves.
The assignment of value is extremely sensitive to the
conversion ofother products to BOE. Ifthe price equiva-
lence for gas had been used instead of the value
equivalence to convert to BOE, the conversion factor
would have been 12 x 10
3
cf per BOE and the price
paid for the crude oil reserves would be reduced from
$8.25 per barrel to $7.65 per barrel, but the price paid
for the gas reserves would be increased from $0.59 to
$0.64 per thousand cubic feet.
Product
Crude oil
Natural gas
Ethane
Propane
Butanes
Pentanesplus
Sulphur
8,200,000
165,400
740,000
610,000
370,000
670,000
670,000
bbl
X 10' cf
bbl
bbl
bbl
bbl
It
Crudeoil
Ethane
Propane
Butanes
Pentanes plus
Sulphur
$19.70/bbl
7.00/bbl
7.50/bbl
11.50/bbl
19.50/bbl
75.00/1t
2.81
2.63
1.71
1.01
0.26
Total Reserves in Barrels of Oil Equivalent
(1) (2) Barrels of Oil
Product Company Conversion Equivalent
Interest toBOE (BOE)
Reserves Col (1) + Col (2)
Crude oil 8,200,000 bbl 1.00 8,200,000
Natural gas 165,400,000 x 10' cf 14.00x 10' ef/BOE 11,814,286
Ethane 740,000 bbl 2.81 bbl/BOE 263,345
Propane 610,000 bbl 2.63 bbl/BOE 231,939
Butanes 370,000 bbl 1.71 bbllBOE 216,374
Pentanes plus 670,000 bbl 1.01 bbl/BOE 663,366
Sulphur 670,000 It 0.26 It/BOE 2,576,923
Total 23,966,233
319
iM
Value per Unit of Reserves
Product ROE Purchase Company
Value
Price Interest
Per Unit
of Reserves Reserves
Crudeoil 8,200,000 $67,676,885 8,200,000 bbl
8.25/bbl
Natural gas 11,814,286 97,506,595 165,499,000 x 10' cf
0.59/10' cf
Ethane 263,345 2,173,460 740,000bbl
2.94/bbl
Propane 231,939 1,914,257 610,000bbl
3.14/bbl
Butanes 216,374 1,785,795 370,000bbl 4.83/bbl
Pentanes plus 663,366 5,474,944 670,000bbl
8.17/bbl
Sulphur 2,576,923 21,268,064 670,000It 31.74/lt
Total 23,966,233 $197,800,000
il'1
Although it has no relevance except at the burner tip,
the energy equivalence is used from time to time to con-
vert reserves of gas to BOE. The equivalence used is
usually 6 x 10' cfper BOE. Ifthis had been used in this
case, the price paid for the oil reserves would be
reduced from $8.25 per barrel to $5.00 per barrel, but
the price paid for the gas reserves would be increased
from $0.59 to $0.83 per thousand cubic feet. This is
quite an unrealistic assignment of the price paid to the
different reserves.
If the values for related products were included with
the value of the natural gas, then the value of the gas
and related products at $130,123, 115 ($197,800,000 less
the value of oil at $67,676,885) divided by the natural
gas reserves of 165,400,000 x I OJ cfwould yield a unit
value of$0.79 per thousand cubic feet.
These values are market values, not going concern
values, as the value ofthe COGPE created by the direct
purchase was included in the price paid.
It is easy to understand why reserves quoted in BOE
that are calculated using a conversion of 6 x 10J cf per
BOE would vastly overstate the apparent reserves of
the company, when the conversion should have been
based on a conversion rate of 20 x 10J cf per BOE.
Reserves are usually used as a proxy for value and the
use of a 6 to I conversion ratio, instead of a 20 to I
conversion ratio, will yield gas reserves in BOE that are
more than three times what they should be.
Conversions to BOE are really being made to barrels of
light oil equivalent. Because reserves of medium and
320
heavy oil have values which may be only 25 percent (or
less) of the value of a barrel of light oil, it is perhaps
time for the industry to break out oil reserves into light,
medium and heavy categories, or convert medium and
heavy oil reserves to "barrels oflight oil equivalent," as
a better indication of the real value of the inventory of
oil and gas reserves.
26.4.10 Estimating Net-Back Calculations
A calculation used from time to time takes the price
received for a unit ofproduction at a particular time and
deducts from it all production costs, royalties, and taxes
to give the net-back to the producer from each barrel or
thousand cubic feet. This net-back calculation is a dan-
gerous way to identify value or to determine the effect
of changes in price, costs, royalties or taxes.
A net-back calculation only looks at the situation at one
time and ignores anything that may occur at some other
time. It is also difficult, if not impossible, to make real-
istic tax calculations because the write-off of tax pools
is not a function of a unit of production. Net-back
calculations ignore changes in the future in production
rates, royalties and operating costs and also ignore any
capital costs.
A net-back calculation merely looks at the revenue per
unit of production at a particular time and some of the
costs at that time. For this reason, the results can be
manipulated to give the answer being sought. It is a poor
measure of what is likely to happen over a period of
time and, consequently, is not recommended as a useful
basis for making investment decisions.
BIOGRAPHIES OFAUTHORS
Complete names of technical societies are givenin the Acronyms.
Dr. Roberto Aguilera
- B.Sc., Petroleum Engineering, Universidad de
America, Bogota, Colombia; M.Eng. and Ph.D.,
Colorado School of Mines, Golden, CO
- Currently, President, Servipetrol Ltd.
- Authorof Naturally FracturedReservoirs and
co-author of The Technology ofArtificial Lifl
Methods andHorizontal Wells, and papers in
technical journals
- International lectureron naturallyfractured
reservoirs
- Memberof AAPG, ACIPET, APEGGA, CWLS,
Petroleum Societyof CIM, SPE, SPWLA; past
Directorof Petroleum Society, Calgary Section
Dr. Soheil Asgarpour
- B.Sc., Mechanical Engineering, Tehran
University, Tehran, Iran; Ph.D., Rice University,
Houston, TX
- Currently, Technical Leader of Northern Alberta
and BritishColumbia Group, Gulf Canada
Resources Limited
- Authorof over 35 technicalpapers on heat
transfer, solar energy, reservoirengineering,
enhanced oil recovery, production engineering,
and riskanalysis
- Memberof APEGGA, Petroleum Society of
CIM, PNA, SPE; National Directorof
Petroleum Societyof CIMsince 1990; Chairman
of Editorial Board of JCPT 1991-1993
BarryR. Ashton
- B.Sc., Chemical Engineering, University of
Alberta, Edmonton, AB
- Currently, SeniorPartner, AshtonJenkinsand
Associates Ltd., which specializes in reservoir
studies and reserveevaluations
- Experience includes Chairman of Reserve
Evaluation Committee of Encor Inc. as part of
the $1 billionpropertyrationalization agreement
reached between Encor, AmocoCanada, and
Maligne Resources in 1992
- Member of APEGGA, SPE, PetroleumSociety
ofCIM
Dr. Anthony D. Au
- Ph.D., ComputerScience, University of Utah,
Salt LakeCity, UT
- Currently, Vice-President, Servipetrol Ltd.
_ Specialties include fractured reservoirs and
reservoir simulation
- Co-author of over 20 technicalpapers on
reservoir simulation technology
- Memberof APEGGA, PetroleumSocietyof
CIM, SPE; Directorof PetroleumSocietyof CIM
C. BrentAustin
- B.E., Mining Engineering, Technical University
of Nova Scotia, Halifax, NS
- Currently, Advisor, Petrophysics, PanCanadian
Petroleum Limited
_ Experience includes international consulting in
areasofformation evaluation and economic
analysis
- Memberof APEGGA, CanadianInstitute
of Management, Petroleum Societyof CIM,
SPWLA
321
l
N. Guy Berndtsson
B.Sc., Chemical Engineering, University of
Currently, Board Member, Energy Resources
Conservation Board
- Experience includes formation evaluation and oil
and gas reserves determination
Co-author and presenter of technical papers on
crude oil reserves, enhanced recovery techniques
and economics, water and waste disposal wells,
and well servicing
Member of APEGGA, Petroleum Society of
CIM, Technical Advisory Committee for the
Petroleum Recovery Institute
Robin G. Bertram
- B.Sc., Petroleum Engineering, University of
Currently, Operations Engineer, Talisman
Energy Inc.
Experience includes formation evaluation, oil
and gas reserves determination, and project
management
- Member of APEGGA, Petroleum Society of
CIM, SPE
Janusz Bielecki
Masters Degrees in Energy Economics,
University of Calgary, Calgary, AB, and
International Law, University of Warsaw, Poland
Currently, evaluator of supply costs and the
impact of new technologies (i.e., horizontal
drilling) on petroleum reserves and supply,
National Energy Board
Experience in economic evaluation, market
analysis, price and supply forecasting, energy
regulation and strategic planning
- Member of International Association of Energy
Economists
322
'''-1
DETERMINAnON OFOILANDGASRESERVES I
Keith M. Braaten
B.Sc., Mechanical Engineering
(Distinction), University of Saskatchewan
,
Saskatoon, SK
Currently, Technical Consultant and Partner
Coles Gilbert Associates Ltd. '
Specialties include reservoir engineering and
economic studies of secondary and tertiary
enhanced oil recovery schemes, fractured
reservoirs, gas cycling schemes, heavy oil
reservoirs, and shallow gas reserves
CIM, SPE
Keith D. Brown
B. Chern. Eng., Technical University of Nova
Scotia, Halifax, NS
Currently, Manager, Oil and Gas Evaluations,
Royal Bank of Canada, directing the technical
evaluation of the bank's energy portfolio
Experience includes gas processing, construction,
and economic evaluations
Member of APEGGA
Mike J. Brusset
B.Sc., Geological Engineering, University of
Oklahoma, Norman, OK
Currently, President, Brusset Consultants Ltd.
Specialties include formation evaluation, oil and
gas reservoir performance studies, and economic
evaluations of oil and gas reserves
Lecturer for 13 years on economic evaluations
in petroleum exploration and engineering at
U ofC
Member of APEGGA, Petroleum Society of CIM
s
- B.Sc., Geology, University of Alberta,
Edmonton, AB
- Currently, Executive Vice-President, Sproule
Associates Limited
- Specialties include geological interpretation of
oil and gas reservoirs, reserves estimates, and
analysis of exploration prospects based on
assessmant of geological risk and economic
evaluation
- Co-author of papers and course notes on
subsurface mapping of oil and gas reservoirs,
potential oil and gas resources, economic
evaluation and risk analysis of Canadian oil and
gas
properties
- Member of APEGGA, CSPG, Petroleum Society
ofCIM
Graham R. Campbell
- B.Sc., Physics, University of Waterloo,
Waterloo, ON; M.Sc., University of British
Columbia, Vancouver, BC
- Currently, Director-General, Energy Resources,
National Energy Board, responsible for assess-
ment of Canada's oil and gas supply, monitoring
of upstream industry activity and new resource
extraction technologies, and regulation of
geological and geophysical activities in the north
- Member of AAPG, APEGGA
Noel A. Cleland
- B.E. (Honours), Mining Engineering, University
of Sydney, Australia
- Currently, Senior Engineering Consultant and
Director, Sproule Associates Limited
- Author of papers on petroleum economics and
the Canadian petroleum industry and lecturer on
petroleum economics at U. of C.
- Member of APEGGA, Austro-Asian Institute of
Mining and Metallurgy, Petroleum Society of
CIM, SPEE; Past President of APEGGA
- Recipient of Frank Spragins Award from
APEGGA in 1990, and Petroleum Society's
Distinguished Service Award in 1984; CIM
Distinguished Lecturer in 1974
- B.Sc., Mineral Engineering (Petroleum) and
MBA, University of Alberta, Edmonton, AB
- Currently, Director, Natural Gas Business
Centre, Shell Canada Limited, responsible for
natural gas marketing and business development
activity
- Experience includes technical and managerial
positions in petroleum engineering, as well as
assignments in economics and corporate
strategies
CIM, SPE
G.J. (Gerry) DeSorcy
- Currently, Energy Consultant
- Formerly, first Chairman of Alberta Natural
Resources Conservation Board, and previously,
Manager of Gas Department, Board Member,
and Chairman, Alberta Energy Resources
Conservation Board
- Member of APEGGA, Petroleum Society of CIM
John Drury
- B.A., Honours Science, University of Toronto,
Toronto, ON
- Currently, independent consultant and technical
consultant to the Ontario Securities Commission
- Experience includes mining geology and the
regulatory industry
- Member of APEO, CSEG, GAC; Life Member of
CIM
Dr. David C. Elliott
- B.Sc. and Ph.D., Geology, University of
Birmingham, U.K.; B.Math., University of
Waterloo, Waterloo, ON
- Currently, Consultant, Geosgil Consulting
- Experience includes oil and gas field develop-
ment in Canada and overseas; statistical,
geostatistical and mathematical applications
- Member of AAPG, APEGGA, CSPG, Geological
Society (UK), IAMG, Petroleum Society of CIM
323
Robert V. Etcheverry
- B.Sc., Mechanical Engineering, University of
Saskatchewan, Saskatoon, SK
- Currently, General Manager, Production and
Engineering, CN Exploration Inc.
- Experience includes technical, research, super-
visory, and managerial positions in the oil and
gas industry in Canada and the US
- Member of Petroleum Society ofCIM, PNA,
SPE; Director, Calgary Section, Petroleum
Society of CIM
Merlin B. Field
- B.Sc., Petroleum Engineering, Oklahoma
University, Norman, OK
- Currently, Consulting Reservoir Engineer
- Specialties include petroleum property
optimization, project evaluations, numerical
simulation, computer applications, and
enhanced recovery
- Member of APEGGA, SPE
RonM. Fish
- B.Sc., Geological Engineering, University of
Manitoba, Winnipeg, MB
- Currently, Reservoir Engineering Advisor, New
Pool Development Group, Imperial Oil Limited,
Resources Division
- Experience includes reservoir engineering,
production engineering, development, operations,
research and oil sands
- Member of APEGGA
J.D. (Joe) Giegerich
- B.Sc., Mining Engineering, University of British
Columbia, Vancouver, BC
- Currently, retired from Chevron Canada
Resources
- Experience includes drilling, production, and
reservoir engineering, and estimating hydro-
carbon reserves
CIM; past Chairman, Edmonton Section and
two-term Director, Petroleum Society of CIM
324
Mam Chand Gupta
B.Sc. and M:Sc., Physical Chemistry, University
of Agra, India; D.LC., all Technology and
M.Sc., Petroleum Reservoir Engineering,
Imperial College, University of London, London
UK '
- Currently, President and Consultant, GM
International Oil and Gas Consulting
Corporation
- Experience includes supervisory, advisory and
technical positions in reserves determination
formation evaluation, oil and gas well testing, oil
and gas field development, enhanced oil and gas
recovery studies, economic evaluation, oil and
gas property evaluation
Instructor of drilling and production engineering
courses at SAlT and U. of C.
Co-author of one technical paper
Dave Hemphill
- B.Sc., Mining Engineering, University of
- Currently, Petroleum Engineering, Shell Canada
Limited
- Experience includes uranium mining industry,
development geology, oil and gas reserves
definition, and field development optirriization
- Member of APEGGA, CSPG, SPE
John M. Hewitt
- M.A., Mechanical Science, Queens' College,
Cambridge University, UK
Currently, Consulting Partner, Martin Petroleum
& Associates
Experience includes oil and gas property and
company evaluations, reserves determination,
reservoir engineering and enhanced recovery
studies, royalty and regulatory problems, govern-
ment presentations, and acquisition analysis
- Member of APEGGA
--------------------------d
William E. (Bill) Kerr
- B.Sc. (Honors), Petroleum Engineering,
University of Wyoming, Laramie, WY
Currently, Operations Manager, Joss Energy
Experience includes production, operations,
drilling, reservoir, evaluations, and enhanced
recovery
CIM, SPE
Harold R. Keushnig
- Currently, Manager, Gas Department, Alberta
Energy Resources Conservation Board, res-
ponsible for well spacing, reservoir recovery and
recovery estimation, conservation, processing,
and removal of gas from the province
Member of APEGGA, CGPA, Canadian
Potential Gas Committee, Petroleum Society of
CIM
Gobi Kular
Montana, Missoula, MT; course work toward
M.Sc., University of Calgary, Calgary, AB
- Currently, President, Advanced Petroleum
Technologies
- Experience includes international consulting on
major reservoir studies in Canada, North Africa
and the Middle East
- Author and presenter of several technical papers
on pressure transient well-test design and analy-
sis, fracture design, project monitoring, and
enhanced oil recovery
CIM, SPE
Craig F. Lamb
- B.Sc. and M.Sc., Geology, University of
Manitoba, Winnipeg, MB; M.B.A., University of
Calgary, Calgary, AB
- Currently, President of Lonach Consulting Ltd.
- Specialities include core analysis, fractured
reservoir studies, design of technical training
programs, and geoscience management
- Author of nine publications
- Member of AAPG, APEGGA, CSPG, Petroleum
Society of CIM, SCA
R.V. (Bob) Lang
- Currently, independent petroleum consultant
- Specialties include reserves determination and
reserves reporting
CIM, SPE
- Recipient of two merit awards from CPA, one
service award from AGA
Dana B. Laustsen
- B.Sc. (Distinction), Mechanical Engineering,
University of Calgary, Calgary, AB
- Currently, Consultant and Director, Coles Gilbert
Associates Ltd.
- Specialties include economic analyses and
reservoir engineering studies of waterflood
optimization, miscible flood performance, gas
storage, and tight gas deliverability models
William V. Mandolidis
- B. Applied Science and Chemical Engineering,
University of Toronto, Toronto, ON
- Currently, Coordinator, Corporate Planning and
Business Development, Saskatchewan Oil and
Gas Corp.
- Experience includes surface and subsurface
petroleum engineering, reserves evaluation and
reporting, economic and business analysis, and
corporate strategy development
325
Michael E. McCormack
- Currently, Founder and Consultant, Fractical
Solutions Inc.
- Specialties include the application of fractal
mathematics and computer solutions to pet-
roleum engineering problems, fluid dynamics,
heat transfer, well design, and surface facilities
optimization
- Author and presenter of several papers on well
engineering
CIM, SPE
Raymond A. Mireault
- B.Sc., Agricultural Engineering, University of
Manitoba, Winnipeg, MB
Currently, Senior Engineer, Southern Business
Unit, Reserves Additions Team, Gulf Canada
Resources Limited
Experience includes conventional oil and gas
exploration, development and production, coal
bed methane, horizontal drilling, and super sour
gas
Member of APEGGA, CSEG, CSPG, Petroleum
Society of CIM
Margaret Nielsen
- B.sc., Mechanical Engineering, University of
Currently, Business Planning and Performance,
Petro-Canada
Experience includes evaluating and developing
gas, oil and heavy oil reserves under primary
recovery, waterfloods, cycling schemes, miscible
floods, and fire floods.
Member of APEGGA
326
David C. Poon
- M.Sc., Chemical Engineering, University of
Currently, Engineering Consultant, D.C. Poon
Consulting Inc.
Specialities include geostatistics, reservoir
simulation, well testing, and horizontal wells
International lecturer on enhanced oil recovery,
thermal well testing, and water management
- Member of APEGGA, CHOA, CSChE,
Petroleum Society of CIM, SPE
- Recipient of best paper award in 1990 from
Petroleum Society of CIM
Dr. Ross A. Purvis
B.Sc., University of Oklahoma, Norman, OK;
M.Sc., University of Wyoming, Laramie, WY;
Ph.D., University of Alberta, Edmonton, AB
- Currently, Manager, Oil Department, Energy
Resources Conservation Board
- Experience includes production engineering and
the development of technical software for phase
behavior, petrophysics, decline curve, and other
reservoir engineering applications, and teaching
CIM, SPE
Tim J. Reimer
B.Sc., Chemical Engineering, University of
- Currently, Manager, Gas Contracts and Supply,
Pan Alberta Gas Ltd.
Experience includes gas plant design and
operations, joint interest, economic evaluations,
exploitation and development.
- Member of APEGGA, CGPA, Petroleum Society
ofCIM,PNA
W.D. (Bill) Robertson
_ B.Comm., University of Alberta, Edmonton, AB
_ Currently, Co-Chairman and Partner, Oil and Gas
Industry Specialist Group, Price Waterhouse
Specialty is oil and gas accounting
- Member of Petroleum Society of CIM; past
Director and Officer, Petroleum Accountants'
Society; Council Member, Institute of Chartered
Accountants of Alberta
- - - - - - - - - - - - - - - - - - _ . ~
J. Glenn Robinson
- B.Sc. (Honours), Civil Engineering, Queen's
University, Kingston, ON
- Currently, President, Sproule Associates Limited
- Experience includes exploitation engineering,
production geology, petrophysical engineering,
reservoir engineering, mathematical reservoir
simulation, economic evaluations, and risk
analysis
- Lecturer on evaluation and risk analysis of
Canadian oil and gas properties
- Member of APEGGA, CWLS, Petroleum Society
of CIM, SPE, SPEE, SPWLA
Darlene A. Sheldon
- M.Sc., Statistics and M.Eng., Chemical
Engineering, University of Calgary, Calgary, AB
- Currently, Manager, Strategic Action Planning,
Petro-Canada
- Experience includes reservoir engineering, oil
and gas development and evaluations,
information systems, economics, and asset
rationalization
- Author ofthree technical papers
Member of AWES, Petroleum Society of CIM,
SPE
Dr. Phillip M. Sigmund
- B.A.Sc., Chemical Engineering, University of
Waterloo, Waterloo, ON; Ph.D., Chemical
Engineering, University of Texas, Austin, TX
- Currently, designing specialty oil extraction
processes and building associated research
equipment
- Experience includes contract research and
consulting projects related to improved reservoir
management and fluid extraction processes
- Author of several technical papers
- Member of AIChE, APEGGA, Petroleum
Society of CIM
Dr. Ashok K. Singhal
- Ph.D., Petroleum Engineering, University of
California, Berkley, CA
- Currently, Group Leader, Gas Flooding,
Petroleum Recovery Institute, Calgary, AB
- Experience includes horizontal well applications,
enhanced oil recovery, and reservoir engineering
CIM, SPE
David W. Turt
- B. App. Sc., Civil Engineering, University of
Toronto, Toronto, ON .
- Currently, Vice-President, Engineering, Oil and
Gas Department, Bank of Montreal, responsible
for assessment of large domestic and inter-
national oil and gas project loan packages
CIM, SPE, SPEE
George A. Warne
- B.Sc., Electrical Engineering, University of
- Currently, Energy Resource Consultant and
Secretary-Treasurer of the Canadian Association
of the World Petroleum Congresses
- Experience includes energy resource regulation
and management, and reservoir engineering
- Lecturer on energy resource regulation and
management
CIM, SPE
Andy Warren
- B.Sc., Civil Engineering, Queen's University,
Kingston, ON
Currently, Assistant Manager of Engineering,
Oil Department, Alberta Energy Resources
Conservation Board
- Experience includes tight gas, shallow gas, small
gas pools, oil pool reserves, well testing, and
pool depletion strategies
CIM,SPE
327
d
----------------1
ACRONYMS
Acronyms for technical terms used in the monograph are listed first, followed by the acronyms for technical journals
and societies, then for universities and colleges, and last, for countries, provinces and states.
AACRT adjusted attributed Canadian royalties and EARP
Environmental Assessment and Review
taxes
Process
ACRI attributed Canadian royalty income EMV expected monetary value
ADP average daily production EOR enhanced oil recovery
AMP .Alberta market price
FCA Federal Competition Act (US)
APMC Alberta Petroleum Marketing Commission FDC compensated formation density
AOF absolute open flow FERC Federal Energy Regulatory Commission
AOS Alberta oil sands
(US)
AARTC adjusted Alberta royalty tax credit
FOB freight on board
BHT bottom-hole temperature
FVF formation volume factor
BOE barrels of oil equivalent
G&A general and administrative (costs)
BTR break-through ratio
GCA gas cost allowance
CAL caliper
GCV going concern value
CCA capital cost allowance
GOR gas-oil ratio
CDE Canadian development expense
GORR gross overriding royalty
CEC cation exchange capacity
GPSA Gas Processors Suppliers Association
CEDOE Canadian exploration and development
GR gamma ray (API)
overhead expense GSC Geological Survey of Canada
CEE Canadian exploration expense GSP gas select price
CDF cumulative distribution function HClP hydrocarbon in place
CGR condensate-gas ratio HPV hydrocarbon pore volume
CGL conglomerate 1FT interfacial tension
CNL compensated neutron log lLd deep induction resistivity
COGPE Canadian oil and gas property expense lLm medium induction resistivity
CPI capital productivity index IMPES Implicit Pressure Explicit Saturation
CPM Critical path method
Method
CPUC California Public Utilities Commission
IPL Interprovincial Pipe Line
CSU cyber service unit
IRR internal rate of return
DD&A depreciation, depletion and amortization
K.B kelly bushing
DNPBI discounted net profit before investment
LDC local distribution company
DOE Department of Energy (US)
LGR liquid-gas ratio
DPHI density porosity
LPG liquefied petroleum gas
DPR discounted profit-to-investment ratio
MCM multiple-contact miscibility
DROI discounted return on investment
MMP minimum miscibility pressure
DST drillstem test
MV market value
329
t
,.1
reserves-to-production ratio
a carbonate unit on the Kelly-Snyder field
in Texas
Securities and Exchange Commission
(US)
spherically focused laterolog
specific gravity
sidewall neutron porosity
spontaneous potential
Trans Mountain Pipeline
take-or-pay (gas)
true vertical depth
township
United States Bureau of Mines
viscous gravity ratio
weighted average cost of capital
water alternating gas injection
water-air ratio
wireline formation test
water-gas ratio
water-oil ratio
West Texas Intermediate
API
AWES
CHOA
CIM
APEO
AlME
Technical Journals, Societies, and Institutions
AAPG American Association of Petroleum
Gologists
ACIPET Association of Colombian Petroleum
Engineers
American Gas Association
American Institute of Chemical
Engineering
American Institute of Mechanical
Engineering
APEGGA Association of Professional Engineers,
Geologists and Geophysicists of Alberta
Association of Professional Engineers of
Ontario
American Petroleum Institute
Association of Women in Engineering and
Science
Canadian Heavy Oil Association
Canadian Institute of Mining, Metallurgy
and Petroleum
AGA
AIChE
SEC
SFL
SG
SNP
SP
TMPL
TOP
TVD
TWP
USBM
VGR
WACC
WAG
WAR
WFT
WGR
WOR
WTI
RIP
SACROC
North American Free Trade Agreement
National Energy Program
natural gas liquids
Natural Gas Policy Act (US)
nuclear magnetic log
Notice of Proposed Rulemaking
net overriding royalty
an Alberta corporation
neutron porosity
net present value
New York Mercantile Exchange
Organization for Economic Co-operation
and Development
original gas in place
original oil in place
Organization of Petroleum Exporting
Countries
a consortium of companies
Ontario Securities Commission
Petroleum Administration for Defense
(US)
Petroleum Administration for Defense
District (US)
Program Evaluation and Review
Technique
probability distribution function
Petroleos de Venezuela S.A.
Pacific Gas and Electric
petroleum and gas revenue tax
Pacific Gas Transmission
profitability index
pore volume
pressure-volume-temperature
present worth ratio
pressure composition diagram
rising bubble apparatus
recovery factor
repeat formation tester
range
return on investment
resource profits
PADD
PDF
PDVSA
PG&E
PGRT
PGT
PII
PV
PVT
PWR
P-X
RBA
RF
RFT
RGE
ROI
RP
OSLO
OSC
PAD
OGIP
OOIP
OPEC
NAFTA
NEP
NGL
NGPA
NML
NOPR
NORR
NOVA
NPHI
NPV
NYMEX
OECD
PERT
330
- - - - - - - - - - - - - - - - - - - - - - ~
ACRONYMS
CSChE
CGPA
CSPG
CSEG
CWLS
GAC
GPSA
IAMG
IHRDC
JCPT
JPT
O&GJ
OGCI
PNA
SCA
SPE
SPEE
SPEJ
SPWLA
Canadian Society of Chemical
Engineering
Canadian Gas Processors Association
Canadian Society of Petroleum Geologists
Canadian Society of Exploration
Geophysicists
Canadian Well Logging Society
Geological Association of Canada
Gas Processors Suppliers Association
International Association for
Mathematical Geology
International Human Resource
Development Corporation
Journal of Canadian Petroleum
Technology
Journal of Petroleum Technology
Oil and Gas Journal
Oil and Gas Consultants International
Petroleum Joint Venture Association
Society of Core Analysts
Society of Petroleum Engineers
Society of Petroleum Evaluation
Engineers
Society of Petroleum Engineers Journal
Society of Professional Well Log Analysts
Universities andColleges
U of A University of Alberta
U of C University of Calgary
SAlT Southern Alberta Institute of Technology
Countries, Canadian Provinces, American States
AB Alberta
AZ Arizona
CA California
CO Colorado
MB Manitoba
MT Montana
SK Saskatchewan
NS Nova Scotia
OK Oklahoma
ON Ontario
TX Texas
UK United Kingdom
US, USA United States of America
WY Wyoming
331
t
---------------------------a
GLOSSARY
Acidizing. A method of well stimulation using acid (to
increase productivity); conducted mostly in
carbonates.
Acoustic log. Ameasurement ofthe interval transit time
of compressional seismic waves in rocks near the
wellbore of a liquid-filled borehole; used chiefly
for estimating porosity and lithology; also referred
to as sonic log.
Analogous fields. Fields having similar properties that
are at a more advanced stage of development or
production history than the field of specific inter-
est, and that may provide concepts or patterns to
assist in the interpretation of more limited data.
Anhydrite. A granular, white or light-colored evapor-
ite mineral (CaSO.), often found together with rock
salt.
Annulus. The space around the tubing in a wellbore,
the outer wall of which may be the wall of either
the borehole or the casing.
Aquifer. A stratum or zone below the surface of the
earth capable of producing water.
Arithmetic mean. The average obtained by dividing
the sum of a distribution by the number of its
addends.
Asphaltene. Any ofthe dark solid constituents ofcrude
oils and other bitumens that are soluble in carbon
disulphide but insoluble in paraffin naphthas.
Beta model. Anumerical simulator used to model black
oil systems; also referred to as black oil model.
Bias. A systematic deviation from the actual value
or distribution; a combination of two effects:
displacement bias and variability bias.
Bitumen. Refer to Crude bitumen.
Black oil. Refers to a system in which the volume of
fluid is primarily a function of reservoir pressure
and constant temperature. A system that is not a
black oil system includes compositional variables.
Black oil model. Refer to Beta model.
Bomb. A thick-walled container, usually steel, used to
hold samples of oil or gas under pressure.
Bottom-hole pressure. The pressure in a well at a point
opposite the producing formation as recorded by a
bottom-hole pressure recorder.
Bottom-hole temperature. The temperature in a well
at a point opposite the producing formation.
Bottom water. Sand layers at the bottom of a forma-
. tion which contain mobile water that appreciably
affects reservoir performance; water in strata
underlying an oil- or gas-bearing formation.
Bourdon tube. A mechanical pressure-measuring
instrument employing as its sensing element a
curved or twisted metal tube, flattened in cross
section and closed.
Bubble point. In a solution oftwo or more components,
the pressure at which the first bubbles of gas
appear; same as saturation pressure.
Bulk deusity. Density of the combined pore volume
and rock volume; measured, for example, by a
density log.
Bulk volume. Total volume of a formation including
the pore volume and the rock volume.
Butanes. In addition to its normal scientific meaning of
C.H
IO
(a mixture of two gaseous paraffins, normal
butane and isobutane), a mixture mainly ofbutanes
that ordinarily may contain some propane or
pentanes.
Capillarity. The effect of surface attraction forces
among oil, gas, water, and rock in retaining fluid
saturations within the pore structure of a porous
medium. Refer to Capillary pressure.
Capillary pressure. A force per unit area resulting
from surface forces at the interface between two
immiscible fluids.
Carbonates. Sedimentary rocks primarily composed
of calcium carbonate (limestone) or calcium
magnesiumcarbonate (dolomite), whichformmany
petroleum reservoirs.
Carbon dioxide flooding. A recovery process
in which carbon dioxide is injected into an oil
reservoir to improve recovery.
333
...
Heavy:
Medium:
less than 870 kg/m' (greater
than 31.10 API)
870 to 920 kg/m'' (31.1 to 22.3
API)
920 to 1000 kg/rrr' (22.3 to 10
API)
Extra-heavy: greater than 1000 kg/rrr' (less than
10 API)
Heavy or extra-heavy crude oils, as defined by
the density ranges given, but with viscosities
greater than 10 000 ml'a-s measured at original
temperature in the reservoir and atmospheric
pressure, on a gas-free basis, would generally be
classified as crude bitumen.
Conventional natural gas. Natural gas that occurs
in a normal, porous, permeable reservoir rock and
that, at a particular time, can be technically and
economically produced using normal production
practices.
Cricondentherm. Maximumtemperature at which two
phases (for example, liquid and vapour) can exist.
Critical gas saturation. Saturation at which free gas in
a reservoir becomes mobile.
Critical pressure. The pressure required to condense
a gas at the critical temperature, above which
regardless of pressure, the gas cannot be liquefied:
Critical temperature. That temperature above which
a substance can exist only in the gaseous state, no
matter what pressure is exerted.
Crude bitumen. A naturally occurring viscous
mixture consisting mainly of pentanes and heavier
hydrocarbons. Its viscosity is greater than 10 000
ml'a-s measured at original temperature in the
reservoir and atmospheric pressure, on a gas-free
basis. Crude bitumen may contain sulphur and other
nonhydrocarbon compounds and in its natural
viscous state is not normally recoverable at a
commercial rate through a well.
Crude oil. A mixture, consisting mainly of pentanes
and heavier hydrocarbons, that exists in the liquid
phase inreservoirs and remains liquid at atmospheric
pressure and temperature. Crude oil may contain
small amounts of sulphur and other nonhydrocarbon
compounds, but does not include liquids obtained
from the processing ofnatural gas. Classes ofcrude
oil are often reported on the basis of density, some-
times with different meanings. Acceptable ranges
are as follows:
Light:
Cementation. The process of precipitation or growth
of a binding material around grains or fragments of
rock.
Chase gas. Gas used to displace another phase in an
enhanced recovery process.
Chemical flooding. A recovery process in which
chemicals added to water are injected into an oil
reservoir to improve recovery.
Choke. An orifice installed in a line to restrict the flow
and control the rate of production.
Clastics. Sedimentary rocks composed of fragments of
. pre-existing rocks; sandstone is a clastic rock.
Clay lattice. A three-dimensional pattern of clay parts
in space.
Compaction. A decrease in volume of sediments as a
result of compressive stress, usually resulting from
continued depositional loading by accumulation of
overlying sediments.
Compressibility. The rate of change in volume of rock
and fluids with decrease in pressure. Compressibil-
ity is a major contributor to recovery efficiency and
a cornerstone of reservoir performance.
Condensate. A mixture of pentanes and heavier
hydrocarbons recovered as a liquid from field sepa-
rators, scrubbers or other gathering facilities, or
at the inlet of a processing plant before the gas is
processed.
Conductivity. A property of an electrical conductor
defined as the electrical current per unit area divided
by the voltage drop per unit length.
Conformance efficiency. The fraction of total
reservoir volume that is contacted by injected fluid
as a result of discontinuities in the reservoir; also
referred to as continuity factor.
Conglomerate. A sedimentary rock composed of
coarse-grained rock fragments, pebbles or cobbles
cemented together in a fine-grained matrix.
Coning. A cone of gas or water that forms in the
reservoir due to pressure drawdown at the
perforations.
Connate water. The original water ofdeposition trapped
in the interstices of the reservoir rock.
Conventional crude oil. Crude oil that, at a particular
time, can be technically and economically produced
through a well using normal production practices
and without altering the natural viscous state ofthe
oil.
334
________________________1
GLOSSARY
D' Arcy's Law. The basic law of fluid flow through
a porous medium that expresses how easily a fluid
of a certain viscosity flows through a rock under a
pressure gradient.
Decision tree. A graphical summary of the possible
outcomes and probabilities of the events that
comprise a project.
Density. The ratio of the mass of an object to its
volume.
Density log. A radioactivity log for open-hole survey-
ing that responds to variations in the specific gravity
of formations; an excellent porosity-measuring
device, especially for shaly sands. It is a contact log
(i.e., a detector held against the wall of the hole).
The tool emits neutrons and then measures the sec-
ondary gamma radiation that is scattered back to
the detector.
Depositional environment. The conditions under which
sediments were laid down.
Differential liberation. The liberation of gas from oil
as pressure is reduced wherein the evolved gas is
separated from its associated oil; usually the physi-
cal model related to transport ofoil and gas through
the formation during the majority of the primary
depletion life.
Dip. The angle at which a stratum is inclined from the
horizontal.
Discounted cash flow. Future cash converted to present
conditions using an appropriate discount rate.
Displacement bias. A shift of the whole frequency
distribution curve to higher or lower values.
Displacement efficiency. The fraction of initial oil
saturation that is displaceable by a given injection
fluid.
Displacement process. The process by which oil is
displaced by water, gas, or another fluid.
Disposal well. A well used for the disposal of salt
water. The water is pumped into a subsurface forma-
tion sealed offfrom other formations by impervious
strata of rock.
Dolomite (CaMg(CO
J
)2)' A common rock-forming
mineral.
Dolomitization. The process whereby limestone is
altered to dolomite by the substitution of magne-
siumcarbonate for a portion ofthe original calcium
carbonate.
Drillstem test. The procedure used to gather data on a
formation to determine its potential productivity
before installing casing in a well. In the drillstem
testing tool are a packer, valves or ports that may
be opened and closed from the surface, a sample
chamber and a pressure-recording device. The tool
is lowered in the wellbore on a string of drill pipe
and the packer set, isolating the formation to be
tested from the formations above and below and
supporting the fluid column above the packer. A
port on the tool is opened to allowthe trapped press-
ure below the packer to bleed off into the drill pipe,
gradually exposing the formation to atroospheric
pressure and allowing the well to produce to the
surface, where the well fluids may be sampled and
inspected. From a record ofthe pressure readings, a
number offacts about the formationmay be inferred.
Efflux. Quantities of hydrocarbons, water or other
fluids that leave a reservoir or zone of interest via
permeable formation boundaries.
Electrical conductivity. Used for estimating reservoir
properties; reciprocal ofelectrical resistivity. Refer
to Conductivity.
Electrical resistivity. The reciprocal of electrical
conductivity; used for estimating properties such
as water saturation and fracture porosity. It is
one of the most useful measurements in borehole
geophysics.
Enhanced oil recovery. Refer to Recovery-
enhanced.
Established reserves. Those reserves recoverable
under current technology and present and antici-
pated economic conditions, specifically proved by
drilling, testing or production, plus that judgement
portion of contiguous recoverable reserves that is
interpreted, from geological, geophysical or simi-
lar information, to exist with reasonable certainty.
This is a term that has been used historically in
Canada, particularly by regulatory agencies, and
typically comprises proved reserves plus one-half
probable reserves.
Ethane. In addition to its normal scientific meaning
of C
2H6
(a colourless, odourless gas of the alkane
series), a mixture mainly of ethane that may
contain some methane or propane.
Evaporite. Deposits of mineral salts from sea water or
salt lakes due to evaporation of the water.
Expectation. The mean of all possible outcomes of an
event.
335
..
Facies. Part of a bed of sedimentary rock of similar
depositional environment, composition, appearance
and properties.
Fault. A break in subsurface strata. Often strata on one
side of the fault line have been displaced (upward,
downward, or laterally) relative to their original
position.
Fault plane. A surface along which faulting has
occurred.
Filtrate. A fluid that has been passed through a filter.
Fines migration. The dislocation and movement of fine
particles within a reservoir. Fines migration can
cause damage or impair permeability by blocking
pore throats.
Flash liberation. The liberation of gas from oil as
pressure is reduced wherein the evolved gas remains
in contact with the liquid phase.
Flow test. A test of the ability ofa well to produce flu-
ids usually at a constant rate.
Fluid saturation. The fraction of the pore volume
occupied by fluid.
Fluid viscosity. Internal friction of a fluid, caused
by molecular interactions, that makes it resist a
tendency to flow.
Fold. A flexure of rock strata into arches and troughs,
produced by earth movements.
Formation heterogeneity. Variation both laterally
and vertically of properties such as porosity,
permeability, and formation thickness.
Formation imaging. Logs that generate images (or
"pictures") of the borehole from various sources
including sonic and resistivity devices.
Formation pressure. The pressure in a formation at a
defined depth.
Formation temperature. The temperature at a given
point within a formation. Temperature usually
increases with depth. .
Formation volume. The volume of fluid, at formation
pressure and temperature, that results in one barrel
of stock tank oil.
Fractional flow. Phase flow rate as a fraction of total
flow rate.
Fracturing. A stimulation to increase productivity that
results in the formation ofa fracture in the wellbore
area; conducted mostly in clastics.
336
Free-water I ~ v e l . The level or depth at which capillary
pressure IS equal to zero and which, in rocks ofvari_
able pore structure, is the only truly level referenc
line between hydrocarbons and water. e
Friable. Describes a substance that is easily rubbed,.
crumbled, or pulverized into powder.
Gamma ray detector. A device that is capable
of sensing and measuring the amount of gamma
particles emitted by certain radioactive substances.
Gas. Refer to Natural gas.
Gas chromatography. The process of separating
constituents of a mixture by permitting a solution
of the mixture to flow through a column ofadsorb-
ent on which the different substances arc selectively
separated into distinct bands or spots.
Gas compressibility factor. A factor used to correct
the Ideal Gas Law (pv = nRT) to actual measure-
ments.
Gas-oil ratio. The ratio of gllll in solulion to the 011
volume in which it is dissolved, u.ually expretled
in cubic feet of gas per barrel of liquid It 101.325
kPa (14.65 psia) and 15.6'C (60F).
Genetic sand unit. Formation consisling ofsand. from
the same origin.
Geostatistlcs. Aspecific statistical technique (based on
the statistics of regionalized variables) that uses the
position as well as the magnitude of a parameter;
classical statistics' docs not generally use position,
Other spatial statistics methods also exist.
Gravity drainage. The movement of oil in a reservoir
toward a wellbore resulting from the force of
gravity.
Gravity override. Preferential movement of one fluid
over another due to density differences.
Gross pay. The gross economically productive thick-
ness of a formation containing hydrocarbons.
Gross swept volume. The reservoir rock volume that
is swept by injected fluid.
Heterogeneity. A lack ofuniformity in formation prop-
erties such as permeability, porosity and thickness.
Homogeneity. Uniformity ofreservoir properties in all
directions.
Horizontal sweep efficiency. The areal fraction of a
pattern contacted by the injected fluid; also referred
to as areal sweep efficiency.
---------------------
GLOSSARY
Horizontal waterflood scheme. The injection ofwater
in a pattern of wells with oil production from wells
completed between injectors.
Hybrid sand unit. A formation with sands from
different origins.
Hydrate. A hydrocarbon and water compound that
forms under reduced pressure and temperature in
gathering, compression, and transmission facilities
for gas; flakes of hydrate resemble snowor ice and
impede fluid flow.
Hydrocarbon pore volume. The pore volume in a
reservoir containing hydrocarbons; the product of
hydrocarbon-filled thickness, porosity, and hydro-
carbon saturation usually expressed for a unit area.
May be represented on a contour map as a type of
volumetric map.
Hydrodynamic flow. The motion and action of water
and other liquids in the subsurface.
Hydrodynamic trap. An oil or gas reservoir trapped
by surrounding water movement; usually leads to
tilted water-oil contacts.
Hydrodynamics. The study of the motion of a fluid
and of the interactions of the fluid with its bound-
aries, especially in the incompressible ideal
(frictionless) case.
Hydrostatic head. The pressure exerted by a body of
water at rest.
Hysteresis. A change in process path in successive
experimental tests.
Ideal Gas Law. The volume occupied by an ideal gas
depends only upon temperature, pressure, and the
number of molecules (moles) present (pv =nRT).
Imbibition. The increase in saturation of the wetting
phase in a porous medium with time.
Improved recovery. Refer to Recovery-
improved.
Influx. Quantities of hydrocarbons, water or other
fluids that enter a reservoir or a designated portion
ofa reservoir through permeable formation bound-
anes.
Initial reserves. Atermoften used to refer to reserves
prior to deduction of any production. Alternatively,
initial reserves can be described as the sum of
remainingreserves and cumulativeproductionat the
time of the estimate.
Initial volumes in place. The gross volume ofcrude
oil, natural gas and related substances estimated,
at a particular time, to be initially contained in a
reservoir before any volume has been produced
and without regard for the extent to which such
volumes will be recovered.
Injection. The pumping of fluids into the reservoir via
wellbores, for wellbore conditioning or stimulation
or for improved recovery operations.
In situ recovery. A term that is used, when referring
to oil sands, for the process of recovering crude
bitumen from oil sands other than by surface
mmmg.
Intercalation. Insertion of a bed or stratum of one
material between layers of another material.
Interfacial tension. The force per unit length existing
at the interface between two immiscible fluids.
Irreducible water saturation. The minimum water
saturation that can be obtained in a reservoir under
normal operations.
Isochrone. A line on a chart connecting all points
having the same time of occurrence of particular
phenomena or of a particular value of a quantity.
Isolating packers. Devices used for isolating an
interval in a well.
Isopach map. A geological map of subsurface strata
showing contours of the thickness of a given for-
mation underlying an area; one type of volumetric
map.
Isotherm. A line connecting points of equal
temperature.
Isothermal. Having constant temperature; at constant
temperature.
J function. A dimensionless grouping of the physical
properties of a rock and its saturating fluids pro-
posed by Leverett.
Kerogen. A solid bituminous substance occurring in
certain shales that decomposes to oil and natural
gas when heated.
Klinkenberg. Mathematical correction oflaboratory air
permeability measurements (made on formation
material) intoequivalent liquidpermeability values,
necessitated by gas slippage in pores.
Laterolog. A resistivity measuring device using
electrodes in which a current is forced through the
formation in a sheet ofpredetermined thickness, so
that the measurement involves a limited vertical
extent.
337
.
Liquefied petroleum gases. A term commonly used
to refer to hydrocarbon mixtures consisting pre-
dominantly of propane and butanes. In Canada,
ethane is also frequently included.
Lithification. The conversion of unconsolidated
deposits into solid rock by compaction and cement-
ing together of the individual rock grains.
Lithology. The description ofthe physical character of
a rock as determined by eye or with a low-power
magnifier; based on color, structures, mineralogic
components, and grain size.
Mandrel. A cylindrical bar, spindle, or shaft around
which other parts are arranged or attached, or that
fits inside a cylinder or tube.
Marketable natural gas. Natural gas that meets
specifications for its end use, whether it occurs
naturally or results from the processing of raw
natural gas. Field and plant fuel and losses are
excluded, exceptingthose related to downstreamre-
processing plants. The heating value of marketable
natural gas may vary considerably, depending upon
its composition, and therefore quantities are usu-
ally expressed not only in volumes, but also in terms
of energy content.
Material balance method. An engineering method of
defining project performance wherein expansion of
in situ rock and fluids is related to influx-efflux and
production-injection streams; may be arranged to
determinefluids inplace or productionperformance.
Matrix. The continuous, fine-grained material in which
large grains of a sediment or sedimentary rock are
embedded.
Mean. The most commonly used measure of central
tendency; the average value of repeated trials. The
mean represents the most probable value of an
estimate of reserve volume or value.
Median. A measure of central tendency; the middle
value or the arithmetic mean of the two middle
values of a list of numbers, for a list containing an
odd or even number of members, respectively.
Geometrically, the value that divides a histogram
or frequency distribution into two parts of equal
area; also the 50 percent probability level on a
cumulative distribution function or expectation
curve.
338
Methane. In addition to its normal scientific mean-
ing of CH. (a light, odourless, colourless gaseous
hydrocarbon), a mixture mainly of methane that
ordinarily may contain some ethane, nitrogen
helium or carbon dioxide.
Miscibility. The tendency or capacity of two or more
liquids to form a uniform blend, that is, to dissolve
in each other; degrees are total miscibility, partial
miscibility, and immiscibility.
Miscible flooding. Arecovery process inwhicha fluid
(a "solvent") that is capable of dissolving into the
crude oil it contacts is injected into an oil reservoir
to improve recovery.
Micellar flooding. The addition of surfactants to
injected water to reduce interfacial tension.
Micro-fractures. Fractures not easily seen by
the naked eye; might be seen in thin sections. They
usually feed macro-fractures.
Microlog. A wellbore resistivity log recorded with
electrodes mounted at short distances from each
other in the face ofa rubber-padded microresistivity
sonde and with different depths of investigation.
Comparison of the two curves identifies mudcake
which indirectly identifies the presence of perme-
able formation.
Microporosity. Porosity that is visible only at high
magnification and that is generally not effective.
Mobility. The ratio ofthe permeability ofa given phase
to the viscosity of that phase. Phase mobility is an
indication of how easily that phase moves in the
reservoir.
Mobility ratio. The ratio of the mobility of the
displacing phase behind the flood front to the
displaced phase ahead of the flood front.
Mode. A measure of central tendency; the most
commonly occurring value of a set of numbers.
Mole. An amount of substance of a system which
contains as many elementary units as there are
atoms of carbon in 0.012 kilogram of the pure
nuclide carbon-12; the elementary unit must be
specified and may be an atom, a molecule, an ion,
an electron, a photon, or even a specified group of
such units.
Morphology. The observation of the form oflands.
ii\f
." , ~ , ~ ,"
.
GLOSSARY
Mudcake. The residue that forms on the wall of the
borehole as the drilling mud loses filtrate into
porous and permeable formations; also called well
cake or filter cake.
Mud-gas log. The recording of information derived
from examination and analysis offonnation cuttings
made by the bit and mud circulated out of the hole.
A portion of the mud is diverted through a gas-
detecting device and examined under ultraviolet
light to detect the presence of oil or gas. Often
carried out in a portable laboratory set up at the well.
Natural fracture. A discontinuity in rock caused by
diastrophism, deep erosion of the overburden, or
volume shrinkage. Examples would include shales
that lose water, the cooling of igneous rock, and the
desiccation of sedimentary rock.
Natural gas. A mixture of lighter hydrocarbons that
exist either in the gaseous phase or in solution in
crude oil in reservoirs but are gaseous at atmospheric
conditions. Natural gas may contain sulphur or other
nonhydrocarbon compounds.
Natural gas liquids. Those hydrocarbon components
that can be recovered from natural gas as liquids
including, but not limited to, ethane, propane,
butanes, pentanes plus, condensate, and small quan-
tities of nonhydrocarbons.
Net present value. The value obtained when all cash
flow streams, including the investment, are
discounted to the present and totalled.
Neutron log. A radioactive device that emits high
energy neutrons and records a curve which responds
primarily to the amount of hydrogen in the forma-
tion. Thus, in clean formation where the pores are
filled with water or oil, the neutron log measures
the amount of liquid-filled porosity.
Nonconventional crude oil. Crude oil that is not
classified as conventional crude oil. An example
would be kerogen contained in oil shale deposits.
Bitumen is also generally included in the non-
conventional crude oil category as a matter of
practice, although some wells may produce at
commercial rates without steam injection. Also
referred to as unconventional crude oil.
Nonconventional natural gas. Natural gas that is not
classified as conventional natural gas. An example
would be coal-bed methane. Also referred to as
unconventional natural gas.
Nuclear magnetism inject log. A tool that uses a pulsed
nuclear magnetic resonance analyzed to determine
fluid content, total and free fluid porosity, and
permeability.
Oil sands. Deposits of sand or sandstone or other
sedimentary rocks that contain crude bitumen.
Oolite. A spherical to ellipsoidal body, 0.25 to 2.00 mm
in diameter, which mayor may not have a nucleus,
and has concentric or radial structure or both; usu-
ally calcareous, but may be hematitic or of other
composition.
Pentanes plus. A mixture mainly of pentanes and
heavier hydrocarbons, which ordinarily may con-
tain some butanes, and which is obtained from the
processing of raw gas condensate or crude oil.
Permeameter. A device for measuring permeability by
measuring the flow of fluid through a sample across
which there is a pressure drop.
Petroleum. A naturally occurring mixture consisting
predominantly of hydrocarbons in the gaseous,
liquid or solid phase.
Petroleum reservoir (pool). A porous and penne-
able underground rock formation that contains a
natural accumulation ofcrude oil or natural gas and
related substances, or combinations ofthem, that is
confined by impermeable rock or water barriers, and
that is individual and separate from other reservoirs.
Phase behaviour. The equilibrium relationships
between water, liquid hydrocarbons, and dissolved
or free gas, either in reservoirs or as separated
aboveground in gas-oil production facilities.
Polymer flooding. The addition ofpolymers to injected
water to improve mobility ratios and increase oil
recovery.
Pore volume. The pores in a rock considered collec-
tively; the product of porous thickness times
porosity. May be represented on a contour map, a
type of volumetric map.
Porosimetry. The measurement of the porosity of
reservoir rocks.
Porosity. The volume of the pore space expressed as a
percentage of the total volume of the rock mass.
Pressure depletion. Pressure decline in a reservoir due
to oil or gas production.
Pressure transient analysis. The estimation ofreservoir
properties from measurements offlow, buildup and
drawdown pressures.
339
-
Primary recovery. Refer to Recovery - primary.
Production tests. Tests conducted to determine the
productivity of a given reservoir.
Propane. In addition to its normal scientific meaning
of C,H. (a heavy, colourless hydrocarbon of the
paraffin series), a mixture mainly of propane that
ordinarily may contain some ethane or butanes.
Pseudo-critical and pseudo-reduced properties
(temperature and pressure). Properties of pure
hydrocarbons are often the same when expressed in
terms oftheir reduced properties. The same reduced-
state relationships often apply to multi component
systems if "pseudo" critical temperatures and pres-
sures are used rather than the true critical properties
of the systems. The ratios of the temperature and
pressure of interest to the pseudo-critical tempera-
ture and pressure are called the pseudo-reduced
temperature and pressure respectively.
Pulsed neutron log. A special cased-hole logging tool
that uses radioactivity reaction time to obtain mea-
surements ofwater saturation, residual oil saturation,
and fluid contents in the formation outside the cas-
ing of an oil well.
PVT data. Information describing the physical
inter-relationship ofpressure, volume, and tempera-
ture of reservoir fluids and various production and
injection streams.
Pyrobitumen. Any of various dark-colored, relatively
hard, nonvolatile hydrocarbon substances often
associated with mineral matter, which decompose
upon heating to yield bitumens.
Pyrolysis. The breaking apart of complex molecules
into simpler units by the use ofheat, as in obtaining
gasoline from heavy oil.
Raw natural gas. Natural gas as it is produced from
the reservoir prior to processing. It is gaseous at the
conditions under which its volume is measured or
estimated and may include varying amounts of
heavier hydrocarbons (that may liquefy at atmos-
pheric conditions) and water vapour. May also
contain sulphur and other nonhydrocarbon com-
pounds. Raw natural gas is generally not suitable
for end use.
Recovery - enhanced. A term that, in Canada, is
equivalent to improved recovery.
340
Recovery - improved. The extraction of addif al
d
'1 Ion
cru e 01 , natural gas and related substances fr
. hr h om
reservoirs t oug a production process other th
depletion. Includes both secondary a:
tertiary recovery processes such as pressure main-
tenance, cycling, waterflooding, thermal methods
flo?ding, and the use of miscible and
immiscihls displacement fluids.
Recovery - primary. The extraction of crude oil
natural gas and related substances from reservoirs
utilizing only the natural energy available in the
reservoirs.
Recovery - secondary. A term frequently used to
describe the extraction of additional crude oil
through pressure maintenance schemes such as
waterflooding or gas injection.
Recovery - tertiary. A term frequently used to
describe the extraction of additional crude oil.
using recovery methods other than natural deple-
tion or pressure maintenance. Atertiary proeClllcan
be implemented without a precedinll prinwy or
secondary recovery scheme.
Remaining reserves. Initial reserves less cumulative
production at the time of the estimate.
Reservoir. Refer to Petroleum reservoir.
Reservoir continuity. No interruption of a reservoir
by faults, facies changes. or any other type of
heterogeneity.
Residual 011 saturation. Following a recovery process,
the oil saturation at which oil will no longer flow in
a normal immiscible water-oil system.
Resin. Any of a class of solid or semisolid organic
products of natural or synthetic origin with no
definite melting point, generally of high molecular
weight; most resins are polymers.
Resistivity. The electrical resistance offered to the
passage of current; the inverse of conductivity.
Resistivity log. The measurement of subsurface
electrical resistivity accomplished either by send-
ing current into the formation and measuring the
ease of electrical flow or by inducing an electrical
current into the formation and measuring how large
it is.
Risk. The probability ofloss or failure.
GLOSSARY
Salt dome intrusive. A subsurface mound or dome of
salt.
Sandwich loss. The volume of oil remaining unswept
at the top of a reservoir after water flooding or at
the bottom of the reservoir after gas or miscible
flooding.
Saturation. Refer to FluidSaturation.
Saturated oil. Oil that contains all the gas that is
capable of dissolving given the compositions of
that oil and gas at the particular temperature and
pressure.
Saturation pressure. Also known as bubble-point
pressure; the pressure at which the first bubble of
gas comes out of solution.
Secondary recovery. Refer to Recovery-
secondary.
Seismic. The measurement of the response to energy
waves travelling through rock layers. The energy
waves may be created by earthquakes, explosives
or by dropping or vibrating a heavy weight. Some
energy is reflected whenever the waves cross an
interface ofrock layers of distinctly different prop-
erties. Measurements can be made at the surface of
travel time, which may be relatedto depth, andwave
amplitude variations, which may relate to changes
in rock properties (porosity, etc.).
Separator. An oilfield vessel or series of vessels in
which pressure is reduced so that the dissolved gas
associated with reservoir oil is flashed off or re-
moved as a separate phase. Also known as gas
separator, oilfield separator, oil-gas separator, and
oil separator.
Shrinkage. The decrease in volume of a liquid phase
caused by the release of solution gas or by the
thermal contraction of the liquid; the reciprocal of
Shrinkage factor. The reciprocal of the formation
volume factor expressed as barrels ofstock tank oil
per barrel of reservoir oil.
Solution gas. Natural gas that is dissolved in crude
oil in the reservoir at original reservoir conditions
and that is normally produced with the crude oil;
also known as dissolved gas.
Solvent flooding. Refer to Miscible flooding.
Sonde. A logging tool assembly, especially the device
in the logging assembly, that senses and transmits
formation data.
Sonic log. A device that measures the time required for
a sound wave to travel through a definite length of
formation. Refer to Acoustic log.
Sour gas. Natural gas that contains corrosive, sulphur-
bearing compounds such as hydrogen sulphide,
sulphur dioxide, and mercaptans.
Specific gravity. The ratio of the density of a material
to the density of some standard material, such
as water at a specified temperature, 4'C or 60'F or
(for gases) air at standard conditions ofpressure and
temperature.
Spontaneous potential. A recording of the difference
between the electrical potential of a movable elec-
trode in the borehole and the electrical potential of
a fixed surface electrode.
Stock tank cubic metre. One cubic metre of oil at
standard temperature and atmospheric pressure.
Static gradient. Pressure measured in a wellbore at
various depths while a well is shut in.
Stratification. A structure produced by deposition of
sediments in beds or layers (strata), laminae, lenses,
wedges, and other essentially tabular units.
Stratigraphic trap. A type of reservoir capable of
holding oil or gas, in which the trap is formed by a
change in the characteristics of the formation-
which could be loss ofporosity and permeability or
a break in its continuity.
Stringer. A narrow vein or irregular filament of
mineral traversing a rock mass of different
materials.
Structure map. A map showing contour lines drawn
through points ofequal elevation on a stratum, key
bed, or horizon, in order to depict the attitude ofthe
rocks.
Structural trap. Atype ofreservoir containing oil and!
or gas, formed by deformation of the earth's crust
that seals off the oil and gas accumulation in the
reservoir, forminga trap. Anticlines, salt domes, and
faulting of different kinds form structural traps.
Sulphur. As used in the petroleum industry, the
elemental sulphur recovered by conversion of
hydrogen sulphide and other sulphur compounds
extracted from crude oil, natural gas or crude
bitumen.
Surface loss. The quantity of natural gas removed
at field processing plants as a result ofthe recovery
of liquids and related products and the removal of
nonhydrocarbon compounds, plus the gas used for
fuel; also referred to as shrinkage.
341
-
Surfactant. A soluble compound that reduces the
surface tension of liquids, or reduces interfacial
tension between two liquids or a liquid and a solid.
Sweep efficiency. The volume swept by a displacing
fluid divided by the total volume being flooded.
Sweet gas. A petroleum natural gas containing no
corrosive components, such as hydrogen sulphide,
sulphur dioxide, and mercaptans.
Synthetic crude oil. A mixture of hydrocarbons
derived by upgrading crude bitumen fromoil sands,
and kerogen from oil shales or other substances
such as coal. May contain sulphur or other non-
hydrocarbon compounds and has many similarities
to crude oil.
Tertiary recovery. Refer to Recovery - tertiary.
Thermal conductivity. The heat flow across a surface
per unit area per unit time, divided by the negative
of the rate of change of temperature with distance
in a direction perpendicular to the surface.
Tilts. Blocks that have received a marked tilt in regions
of block faulting. Regional tilts occur on the mar-
gins of basins of subsidence in the earth's crust.
Tool resolution. The precision of a tool to investigate a
given property.
Transition zone. The interval directly above the free
water level in a reservoir where capillary effects
result in significant changes in water and hydro-
carbon saturations in response to pore structure
variations and elevation.
Transmissibility. The ability of a reservoir to conduct
fluids spatially in response to pressure differentials.
Depends upon permeability and formation flowge-
ometry. Production potential depends heavily upon
reservoir transmissibility.
Trap. A mass of porous, permeable rock that is sealed
on top and down both flanks by nonporous, imper-
meable rock that prevents the free migration of
hydrocarbons and concentrates them in a limited
space.
Uncertainty. The spectrum ofpossible outcomes of an
evaluation.
Unconformity. Lack of continuity in deposition
between rock strata in contact with one another
corresponding to a gap in the stratigraphic record;
the surface of contact between rock beds in which
there is a discontinuity in the ages of the rocks.
342
Unconsolidated sand. A sand formation in who h
individual grains are not cemented together.
unconsolidated sandstone produces oil or g
it will produce sand if not controlled or
Undersaturated oil. Oil that is capable of absorbin
han is nresenr l g
more gas t an IS present in the reservoir. Under-
saturated typically displays relatively low
compressibility and hence a rapid pressure decline
with production.
Undersaturated oil reservoir. A reservoir that is above
the bubble-point pressure.
Ultimate potential recovery. Atermsometimes used
to refer to an estimate at a particular time of the
initial reserves that will have become developed in
an area by the time all exploratory and development
activity has ceased, having regard for the geologi-
cal prospects of the area, the known technology,
and the anticipated economic conditions. It includes
cumulative production; remaining proved, probable
and possible reserves; and future additions to re-
serves through extensions and revisions to existing
pools and the discovery of new pools. It may also
be described as initial reserves plus those other re-
sources that may be recoverable in the future.
Unitization. A term denoting the joint operation of
separately owned producing leases in a pool or
reservoir.
Upgrading. The process ofconverting crude bitumen
or heavy crude oil into synthetic crude oil.
Utilization rate. In an enhanced oil recovery process,
the amount of gas or fluid injected per incremental
oil recovered.
Variability bias. An alteration in the shape of a
frequency distribution curve.
Vertical sweep efficiency. The vertical fraction of
reservoir swept by injected fluid.
Vertical waterflood scheme. The injection of water at
wells completed at the bottom of the formation; oil
production is fromwells completed at the top ofthe
formation.
Vesicle. Acavity in lava formed by entrapment of a gas
bubble during solidification.
Viscous fingering. Faster advance ofa displacingphase
as compared to the displaced phase due to an
unfavorable mobility ratio.
GLOSSARY
Volumetric estimation. An estimate of hydrocarbon
or water volume based on a combination of volu-
metric maps and other data which in total must
account for the reservoir area, thickness, porosity,
and hydrocarbon and water saturation.
Volumetric mapping. A contour map of a parameter
or combination of parameters that relate to
reservoir volume.
Voidage. The reservoir volume of hydrocarbons and
water removed from the formation via wellbores
during a term of producing operations.
Voidage replacement. The volume at reservoir
conditions of fluids injected into a producing pool
to offset fluid withdrawals during depletion.
Voidage replacement ratio. The quotient of voidage
replacement divided by reservoir voidage.
Vugs. Pore spaces that are larger than would be expected
from the normal fitting together of the grains that
compose the rock framework. Vugs are often formed
during dolomitization.
Water channelling. Preferential movement of water
towards a wellbore due to unfavourable mobility
ratio and pressure drawdown at the wellbore or due
to the presence of higher permeability streaks.
Waterflooding. An improved recovery process in which
water is injected into a reservoir to increase oil
recovery.
Water injector. A well in which water has been
injected into an underground stratum to increase
reservoir pressure.
Water saturation. Portion of the pore volume
occupied by water. .
Weighted-mean. The number obtained by multiplying
each value of x by the probability (or probability
density) ofx and then summing (orintegrating) over
the range ofx.
Well density. The intensity of drilling in a given area.
Wetting phase. The liquid phase (oil, gas or water) that
"wets" reservoir rock.
Wire line. A rope composed of steel wires twisted into
strands that are in turn twisted around a central core
of hemp or other fiber to create a rope of great
strength and considerable flexibility; used as
drilling, coring, servicing, and winch lines.
343
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Vol. 222; SPEJ, Mar. 1961.
Claridge, E.L. "Prediction of Recovery in Unstable
Miscible Flooding." SPEJ, Apr. 1972.
---. "Design of Graded Viscosity Banks
for Enhanced Recovery Processes." Ph. D.
Dissertation, University of Houston, Houston,
TX, Jul. 1979.
q
r
BIBLIOGRAPHY
Craig, F.E. Jr. "A Laboratory Study of Gravity
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Koval, E.J. "A Method for Predicting the
Performance of Unstable Miscible Displacement
in Heterogeneous Media." Trans., AIME, Vol.
228; SPEJ, Jun. 1963.
Peaceman, D.W., and Rachford, H.H., Jr. "Numerical
Calculation of Multi-dimensional Miscible
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Dec. 1962.
Pozzi, A.C., and Blackwell, R.J. "Design of
Laboratory Models for Study of Miscible
Displacement." SPEJ, Mar. 1963.
Shelton, J.L. and Yarborough, L. "Multiple Phase
Behaviour in Porous Media During CO, or Rich
Gas Flooding." JPT, Sep. 1977.
Thermal Stimulation
Edmunds, N.R. "An Analytical Model of the Steam
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34th Annual CIM Technical Meeting, Banff, AB,
May 1983.
347
-
Abdassah, D., 234, 235
Abramowitz, M., t93, 196
Adamache, I., 179, 180
Adams, R.H., 188, 196
Agbi, B., 227, 235
Aguilera, R. 214, 220
Aitcheson, 1,107,119,232,235
AlbertaEnergy, 257-259, 265
Alberta Petroleum Marketing Commission,
291,293,296
Alexander, L.G., 345
Ali, S.M., 190, 196
Amaefule, J.O., 48, 52
American Petroleum Institute, 53, 54, 55,
64,78,80,237,249,345
Amyx, J.W., 96, 100, 345
Anderson,J.H., 179, 180
Anderson, J.R., 346
Anderson, W.G., 161, 169
Archer, J.S., 345
Archie, G.E., 66, 74
Aronofsky,lS., 167-169
Arps, J,J., 224, 225, 235, 238, 249
Arshi, A.A., 294, 296
Asgarpour, S.S., 177-180,206,213
Attanasi, E.D., 279, 280
Au, A.D.K., 215, 220
Aziz, K., 92, 95,187,188, t92, 197,214,
215,220
Babu, D.K., 207, 212
Balay, R.H., 277, 279
Bankhead, C.C., Jr., 345
Barclay,J.E., 232, 236, 243, 246, 250, 278,
280
Bass, D.M., 96, 100, 345
Bebout, D.G., 346
Beeler, P.F., 179, 180
Behie, A., 215, 220
Belvins, T.R., 188, 190, 197, 198
Belyea, H.R., 188, 197
Bennett, F.. 179, 180
Bielecki,1, 205, 209, 212
Bilozer, D.E., 179, 180
Bird, K.I., 279
Blackwell, R.I., 235, 236, 346, 347
Bloy, G., 179,180
Boberg, T.C., 188, 197
Bobrowski, F.P., 96, 100
Bodily, S.E., 108, 119
Bokhari, S.W., 179, 181
Bournazel, C., 139, 144
Bousaid, 1., 195, 198
AUTHOR INDEX
Bowers, B., 205, 209,212
Boyd, W.E., 153
Bozac, P.G., 176, 181
Brigham, W.E., 346
British Columbia Ministry of Energy, Mines
andPetroleum Resources, 257.265
Broomhall, R.W., 179, 181
Brown, J.A.C., 107, 119,232,235
Brown, S.L., 188, 199
Bruskotter, J.F. 152, 153
Buckles, R.S., 102,105, 188, 197
Bujnowicz, R., 345
Burger, D.H., 179,181
Burns, lA., 188, 197
Bursell, C.G., 190, 197
Buskirk, D.L., t 79, 180
Butler,R.M., t88, 189,191, 194, 197,207,
208,212
Butler, S., 179, t80
Calhoun, i.c, Jr., 345
Campbell, A.D., 271, 279
Campbell, J.M., 268, 278, 279, 345
Canadian Petroleum Association, 346
CanadianWell Logging Society,79, 80
Cao, S., 85
Capen,E.C., 108, It9, 274, 279
Card, C., t 78, 180
Cardwell, W.T., 188, 197
Carter, R.D., 125, 127, 138, 144, 153, 164,
169,170,176,181,185
Celbuliak,N., 345
Chaney, P.E., 139, 144
Chaperon.L, 207, 212
Chapman, D.S., 82, 83, 85
Chase, C.A., 214, 220, 221
Chen, S.M., 178, 180
ChevronCanadaResources, 94, 96, 97
Chierici, G.L., 139, t44
Chin, T., 96, 100
Chinna, H., 190, 198
Christian, L.D., 153
Christie, D.S., 212, 213
Christie, J.A., 243, 246, 249
Chu, C., 190, 197
Ciucci, G.M., 139, 144
Claridge,E.L., 176, 180,346
Clark, I., 275, 279
Clark, N.I., 145, 153
Closmann, P.J., 188, 190, 199
Coats, K.H., 188, 198,214,217,220
Collins, R.E., 168, 169
ComputalogGearhart Ltd., 49, 52
Conn, R.F., 243, 246, 249
Cook, A.B., 96, 100
Coonibie, D., 188-190, 198
Cooper, H.E., 176, 181
CoreLaboratories, 345
Cornelius, A.J., 139, 144
Cornell, D., 146, 153
Cornish, R.G., 179, 182
Craft, B.C., 97, '100, 125, 127, 147, 153,
345
Craig, F.E., Jr., 347
Craig, F.F., 138, 144, 155-161, 164, 169,
176,180,185
Crawford, P.B., 168, 169, 188, 197
Crawly, A., 177, 180
Crichlow, H.B., 214, 220
Cronquist, C., 83, 85
Crovelli, R.A., 277, 279
Curran, R., 255, 265
Dalton, R.L., 214, 221
Danielsen, C.L., 153
Dardaganian, S.G., 161, 169
Davis, J.C., 275, 279
Davis, M.I., 228, 236
Davis, R., 179, 180
Dawson, A.G., 179, 180
de Swaan, A., 167, 169
Deans, H.A., 175, 181
Deeds, C.T., 188, 190, 199
Deming, D., 82, 83, 85
Dempsey, J.R., 217, 220
Denbina, E.S., 188, 197
Derocco, M., 188, 189, 198
Des Brisay, e.L., 139, 144
Dew, J.N., 346
Dietz, D.N., 138, 140, 144
Dillabough, lA., 189, 197
Dolton, G.L., 279
Dore, T.L., 195, 198
Doscher, T.M., 188, 197
Dranchuk, P.M., 92, 95
Drew, L.J., 268, 278, 279
Duerkson, J.H., 188, 189, 198
Dugdale, P.I., 194, 197
Duggan, J.O., 148, 153
Dullien, F.A.L., 345
Durrant, A.I., 187, 197
Dyes, A.B., 168, 170, 176, 181, 185
Dykstra, H., 188, 197
Edmunds, N.R., 347
Elenbass,r.a., 146, 153
Elfrink, E.B., 137, 144
349
Ellis, H.E., 137, 144
Enderlin, M.B., 345
Energy Resources Conservation Board, 82,
85,102,105,152,153,161,170,237,
240,241,249,253,345,346
Energy, MinesandResources Canada, 290,
291,296
Enger, S.R., 179, 181
Erikson, R.A., 176, 181, 185
Ershagi, 1., 234, 235
Espiritu, R., 208, 212
Fabes, L., 194, 197
Farouq Ali, S.M., 187, 188, 197
Farquharson, R.G., 194, 197
Fatt, 1., 345 '
Fetkovich, MJ., 230, 235
Flach, P.O., 209, 212, 213
Fang, O.K., 179, 181
Fontanilla, J.P., 187, 197
Freeborn, R., 207, 212
Frydl, P.M., 179, 180
Garb, FA, 266, 269, 277, 279
Gardner, A.a., Jr., 347
GasProcessors Suppliers Association, 91,
95,151,153
Gates, C.F., 194, 197
Gatlin, C., 345
Geffen, T.M., 185
Gentry, R.W., 224, 225, 227, 235
Geoghegan, J.G., 179, 180
Geotechnical Resources Ltd., 56, 64
Gilman, J.R., 215, 221
Gontijo, J.E., 188, 192, 197
Goodrich, J.H., 152, 153
Gould, T.L., 160, 170
Griffith, J.D., 179, 181
Guerrero, E.T., 150, 153,238,249
Habermann, B., 176, 181
Hamblin, A.P., 232, 236, 243, 246, 250,
278,280
Hamp, T., 345
Hamilton, J.M., 62, 64
Hankinson, R.W., 92, 95
Hanna, M., 194, 198
Hanson, O.K.T., 345
Haun, J.D., 278, 279
Havlena, D., 126. 127
Hawkins, M.F., 97,100,125,127,147,
153,345
Henderson, J.H., 217,220
Henley, D., 138, 144
Hensel, W.M., Jr., 345
Henson, W.L., 139, 144
Hermanrud, C., 85
Herring, T.R., 207, 212
Heseldin, G.M., 68, 74
Heyse1, M., 208, 212
Higgins, R.V., 164, 170
350
Hitchon, B., 345
Hahn, M.E., 275, 279
Holander, D.P., 345
Holm, L.W., 204, 346
Honarpour, M.M., 345
Home, A.L., 179, 181
Home, J.S., 195, 198
Homer, D.R., 87, 90
Houghton, J.e., 279
Howe, G.R., 176, 181
Hoyt, B.P., 345
Hurst, W., 125, 127, 138, 144
Hutchinson, C.A., 124, 127
Hutchinson, T.S. 138, 144
International Human Resource
Development Corp., 345
Isaaks, E.H., 275, 279
Ivory, J., 188, 189, 198
Jack, H.H., 215, 221
Jackson, D.D., 179, 180
James, S.G., 345
Jeanson, B., 139, 144
Jenkins, G.R., 194, 196, 198
Jenkins, M.K., 176, 181
Jessop, A.M., 346
Johnson, W.M., 188, 198
Jones, F.W., 82-85, 346
Joshi, S.D., 206-209, 212
Jung, K.D., 194, 197
Kadane, K.B., 274, 279
Kahneman, D., 266, 280
Katz, D.L., 96, 100, 146, 153
Kazemi, H., 215, 221
Keefer, D.L., 108, 119
Keelan, D.K., 48, 52, 345
Kemp, C.E., 138, 144, 168, 170
Kennedy,P., 179, 180
Kenny, J., 346
Kersey, D.G., 48, 52
Khallad, A., 188, 194, 197, 199
Khan, A.M., 188, 196
Khan, A.R. 138, 144
Kimbler, O.K., 176, 181
Kirkpatrick, J.W., 194, 196, 198
Klins, M.A., 204, 346
Kobayashi, R., 146, 153
Koval, EJ., 176, 181,347
Krukowski, J.V., 261, 265
Kuhme, A., 179, 180
Kular, G. 188-190, 198
Kuo, M.C.T., 139, 144, 161, 170,208,212
Kyte,J.R., 167,170
Lai, F.S.Y., 179, 181
Lake, J.W., 214, 221
La1, F.S., 179, 182
Lam, H.L., 82-85, 346
Langenheim, R.W., 191, 198
Lantz, R.B., 188, 197
Laurie, R.A., 179, 180
Lee, P.J., 232, 236, 243, 246, 250, 278, 279
280 '
Leighton, AJ., 164, 170
Lerche, I., 85
Leverett, M.C., 69, 74
Lewis, D., 179, 180
Lindley, D.C., 346
Link, P.K., 346
La, H.Y., 188, 191, 194, 197, 198
Loder, W.R., 179, 180
Lohec, R.E., 234, 236
Long, D.R., 228,236
Longstaff, WJ., 178, 182,214,221
Lowe, K., 188-190, 198
Lusztig, P.A., 264, 265
Ma, T.D., 179, 181
MacDonald, A.J., 207, 212
Mahaffey, J.L., 176, 181
Maier, L.F., 346
Mainland, G.G., 188, 198
Majoros,S., 175, 181
Majorowicz, J.A., 82, 83, 85, 346
Mallimes, R.M., 179, 181
Marschall, D.M., 48, 52
Marshal, D., 138, 144
Martinsen, R., 207, 212
Marx, J.W., 191, 198
Masse, L., 167-169
Mast, R.F., 279, 280
Masters, C., 278, 279
Mathews, C.W., 176, 181
Mattax, c.c., 167, 170,214,215,221
Mayder, A., 345
McCord, D.R., 96, 100
McCray, AW., 266, 274-278, 280
McCrossan, R.G., 239, 249
Mcintyre, FJ., 171, 180, 181
McKibbon, J.H., 126, 127, 194, 196, 198
McNab, G.S., 188, 191, 194, 197
Mead, N.H., 224, 235
Megill, R.E., 275, 278, 280
Mehra, R.K., 194, 198
Meisingset, K.K., 85
Meldau, R.F., 190, 196, 198
Merrick, RJ., 153
Metwally, M., 194, 198
Miller, B.M., 278, 280
Miller, C., 257, 265
Mitchel-Tapping, HJ., 346
Mollins, L.D., 137, 144
Moore, C.H., 346
Moore, D.W., 185
Morse, RA, 185
Mosteller, F., 274, 280
Mukherjee, D., 180, 181
Mungan, N., 204, 346
Murphy, R.P., 346
AUTHORINDEX
Muskat, M., 137, 139, 144
Mutalik, P., 206, 207, 213
Myhill, N.A., 190, 191, 198
Nagel, R.G., 179, 181
Natanson, S.G., 167-169
National Energy Board, 289, 290, 294-296
National Energy Board Act, 290, 296
Newendorp, P., 266, 274-278, 280
Ng, M.C., 227, 235
Nieman, R.E., 179, 181
Noble, M.D., 139, 144
Nolen, J.S., 214, 221
Odeh, A.S., 126, 127,207,212
Oglesby, KD.,,188, 198
Okazawa, T., 176, 179, 181
Olynyk, J., 178, 180
Osadetz, KG., 232, 236, 243, 246, 250,
278,280
Owens, W.W., 138, 144,346
O'Dell, S., 257, 265
PanCanadian Petroleum Ltd., 59, 60, 68, 70
Papatzcos, P., 207, 212
Papst, W., 178, 180
Parker, J.R., 278, 280
Parson, R.L., 188, 197
Patel, R.S., 179, 181
Patzek, T.W., 189, 198
Paxman, D.S., 126, 127
Pearse, J., 257, 265
Peggs, J.K., 179, 181
Perry, G.E., 152, 153
Petroleum Communication Foundation,
287,296
Petroleum Monitoring AgencyCanada, 346
Phillips, K.A., 92, 95
Pirson, S.J., 137, 144, 185
Pittman, G.M., 190, 197
Pizzi, G., 139, 144
Ploeg,J.F., 188, 189, 198
Podruski, J.A., 232, 236, 243, 246, 250,
278,280
Poettman,F.H., 146, 153
Poon, D.C., 207, 212
Pope, J.A., 178, 180
Porter, KE., 212, 213
Pow, M., 179, 180
Powell, J.D., 48,52
Pozzi, A.L., 347
Prats, M.A., 188, 189, 193, 197, 198
Pritchard, D.W.L., 179, 181
Procter, R.M., 232, 236, 243, 246, 250, 278,
280
Province of Alberta, 257, 258, 265
Pursley, S.A., 188, 198
Purvis, R.A., 92, 95, 229, 231, 236
Rachford, H.H., Jr., 347
Railroad Commission of Texas, 152, 153
Ramey, H.J., 188, 199
Rawlins, E.L., 151, 153
Rayna, J.R., 346
Reed, P.W., 346
Reinbold, E.W., 179, 181
Reisz, M.R., 211, 212
Renke, S.M., 179, 181
Rice, D.D., 278, 280
Rice, T.D., 139, 144
Richardson, J.G., 235, 236
Roberts, T.G., 137, 144
Robertson, S., 228, 236
Robinson, D.B., 92, 95
Robinson, J.G., 266, 280
Rock, N.M.S., 275, 280
Roebuck, LF., 185
Rogers, E.E., 188, 198
Romney, G.A., 194, 196, 198
Root, D.H., 279, 280
Root, P.J., 214, 221
Rotter, M.B., 188, 197
Rubin, 8., 215, 220
Russell, B., 207, 208, 213
Russell, D.G., 152, 153
Ruth, D.W., 346
Rutherford, W.M., 176, 181
Saizew, H., 194, 197
Sander, P.R., 189, 190, 198
Sanderlin,J.L., 185
Sarern, A.M.S., 160, 170
Saskatchewan Energy and Mines, 257, 265
Scheidegger, A.E., 346
Schellhardt, M.A., 151, 153
Schilthuis, R.J., 125, 127, 137, 138, 144
Schlumberger of Canada, 44, 52
Schlumberger, 64, 67, 72, 74, 346
Schoemaker, R.P., 225, 226, 235
Schoeppel, R.I., 165, 170
Scholle, P.A., 346
Schowalter, T.T., 346
Schuenemeyer, J.H., 279
Schwab, B., 264, 265
Scientific Software, 346
Scott, G.C., 212, 213
Scott, G.R., 292, 296
Scott, K., 188, 189, 198
See,D.L., 179, 181
Sepehrnoori, K., 214, 221
Seto, A.C., 176, 181
Settari, A., 214, 215, 220
Shaw, J., 345
Shell Development Company, 51, 52, 71, 74
Shepherd, D.W., 188, 198
Shelton, J.L., 347
Shipley, R.G., 188, 198
Shreve, D.R., 185, 186
Silberberg, LH., 138, 144
Singhal, A.K., 178, 180,206,213
Skjaeveland, S.M., 207, 212
Slider, H.C., 158, 160, 170, 226, 236
Sluijk, D., 278, 280
Smith, L.B., 195, 198
Smith, L.R., 152, 153
Smith, O.J.E., 215, 221
Smits, L.J.M., 72, 74
Sobocinski, D.P., 139, 144
Sorensen, L.E., 179, 181
Spencer, G.B., 96,100
Spetzeler, c.,269, 280
Springer, S.J., 178, 180,206,209,213
Sprinkle, T.L., 153
Sprunt, E.S., 345
Srivastava, R.M., 275, 279
Stael von Holstein, c., 269, 280
Stalkup, F.L, 175, 181,204,346
Standing, M.B., 92, 93, 95, 96, 100
Statistics Canada. 346
Stegeimeier, G.L., 190, 191, 198
Stegun, LA., 193, 196
Stewart, J.M., 62, 64
Stiff, H.A., 79, 80
Stiles, W.E., 186
Stoian, E., 247, 250
Stokes, D.D., 190, 198
Stone, H,L., 176, 181,216,221
Suffridge, F.E., 189, 196
Suprunowicz, R., 208, 212
Surface, R.A., 194, 197
Tarvydas, R., 257, 265
Taylor, o.c, 232, 236, 243, 246, 250, 278,
280
Taylor, H.G., 179, 182
Telford, A.S., 247, 250
Thambynayagam, C., 187, 197
Thele, K.J., 214, 221
Thomas, H.K., 92, 95
Thornton, R. W., 194, 197
Tiffin, D.L., 178, 181
Todd, M.R., 177, 178, 180, 182,214,220,
221
Towson, D., 186, 199
Tracy, G.W., 125, 127, 137, 144
Trimble, A.E., 190, 197
Tsang, P.W., 179, 181
Tversky, A., 266, 280
University of Calgary and Canadian
Petroleum Tax Society, 262, 265
Valencia, L.E., 48, 52
Van Dijk, c., 190, 199
Van Everdingen, A. F., 125, 127
Van Regan, N., 179, 180
Vary, J.A., 146, 153
Vinsome, P.K.W., 215, 220
Vogel, J.V., 190, 191, 199
Vokey, G., 345
Wahl, W.L., 137, 144
351
Walker, R,G" 346
Wall, T., 346
Wang, P.C.C., 278, 279
Warren, A., 248, 250
Warren, I.E., 107, 116, 119,214,221
Wattenburger, R.A., 207, 208, 213
Waxman, M.H., 72, 74,188,190,199
Weinaug, C.F., 146, 153
Weinmeister, M., 42, 43
Welch, L.W., 185, 186
Welge, H,J., 138, 140, 144, 185, 186
Whiting, R.L., 96, 100, 345
Wichert, E., 92, 95
Willhite, G.P., ISS, 158, 170, 187, 199
Williams, R.L., 188, 199
Witte, M.D., 164, 169
Wong, A., 194, 196, 198
Wong, F.Y., 179, 181
Wong, T., 178, 180
Wood, K.N., 179, 182
Woodford, R.B., 179, 182
Worthington, P.F., 346
Wuckoff, R.D., 139, 144
Yang, W., 207, 208, 213
Yarborough, L., 152, 153,347
York, C.E., 345
Youngren, G.K., 214, 221
Youtz, c, 274, 280
c
abandonment, 264
abandonmentpressure, 148, 247
absolute minimum/maximum value
approach, 107
absolnteopen flowtest, 77
absolutepermeability, 216
acceleration project, 310
accounting
full-cost, 316
successful-efforts, 317
accounting requirements, 316
acoustic log, 57
acquisition
of data, 46, 55, 96
acquisition of data, 35
actual value, 268
additives, 189
adjustedattributedCanadianroyalties
and taxes, 260
age, 258
aggregators, 297
Albertaagencies, 281
Albertaroyaltytax credit, 260
allocationfactors, 223
analogous
fields, 36
pool, 249
pools, 163
reservoir, 22
analogous reservoirs, 17
analogy, 132, 244
geologic, 278
analysis
compositional, 77. 80
decline, 132, 136, 137, 139, 162
Homer, 88
of data, 36, 82, 96
pressure transient, 36
PVT, 77
statistical, 107
volumetric, 158
Warren's probability, 107
analytical
methods, 137, 138, 140, 156
performance predictions, 164
transient typecurves, 230
water influx models, 124
apparatus
Dean Stark, 65, 66
risingbubble, 174
SUBJECTINDEX
approach
absolute minimum/maximum
value, 107
single-value, 106
aquifers, 124
Archieequation, 66, 69
area-weighted average, 90
areal extent, 112
areal sweep efficiencies, 167-168
areal yieldmethods, 278
arithmeticaverage, 90
arithmeticmethod, 8
asphaltenes incarbon dioxide
flooding, 203
associated gas, 29, 145
associated gas reserves, 150
assumptions, 120
constant reservoir volume, 121
constant temperature, 121
material balance, 121
pressure equilibrium, 121
reliableproduction data, 121
representative PVTdata, 121
attributedCanadianroyaltyincome, 259
auditing evaluations, 314
average
Albertamarketprice, 257
area-weighted, 90
arithmetic, 90
porosity, 216
recovery factors, 240
reservoir pressure, 89
volume-weighted, 90
backpressure testing, 152
balancesheet, 263
barrelsof oil equivalent, 318
best estimate, 11
bias, 268
central, 269
cognitive, 271
displacement, 269
motivational, 269
variability, 269
bitumen, 46, 72, 103, 187
blackoil
simulation, 177
simulators, 214
borehole environments, 49
borrowing, 314
bottom water, 190
bottom-hole
pressure, 49
temperature, 49, 81
bottom-water drive, 239
break-through
carbondioxideflooding, 203
ratio, 177
bubblepoint, 97
Butler model, 194
by-product. See relatedproduct.
calculation
of initial solution gas inplace, 29
of oil inplace, 28
calendar-day rate
definition of, 223
caliper method, 57
call option, 295
Canadian
crude oil exports, 291
development expense, 261
exploration anddevelopment overhead
expense, 263
exploration expense, 261
oil andgas property expense, 261
refining, 290
capillaryeffects, 37
capillarypressure, 27, 67
data, 216
capital cost allowance, 263
capital costs, 256
carbon dioxide
availability and cost, 202
flooding, 200, 202
carbonate
plugging incarbon dioxide
flooding, 203
pools, 242
carried interest, 254
cash flow, 253, 255
causesof failure
in situcombustion process, 196
ceilingtests, 316
central tendency, 240
characteristics
flow, 75
hydrocarbon, 131
of natural gas, 145
reservoir, 131
chasegas slugsize, 178
chemical method, 65-66
353
classification
empirical, 273
of cumulative production, 7
of miscible hydrocarbon reserves,
of reserves, 4
of resources, 4
clastic pools, 242
clay
Dual Water Model, 72
presence of, 72
swelling, 54
closed-chamberdrillstemtests, 75
combination
drive, 134, 135, 140
of forward combustion and
waterflooding, 195
combined
methods, 278
thermal drive, 195
combustion process
enriched air, 195
in situ, 194
commoditypricing, 253
compaction drive, 134
company
grossremaining reserves. 7
netremaining reserves, 7
compositional
analysis, 77, 80
simulator, 177, 214
compressibilityfactor, 28
fornatural gases. 93
computer mapping, 42
computer simulation
Monte Carlo, 107, 206
computer solutions, 127
conditions
in situ, 63
confidence level. 9
conformance efficiency, 160, 163
conical steam zonemodel, 191
coningand cresting, 207
connate water saturation, 65
conservation controls, 283
Conservation of Mass
Lawof, 149
Conservation of Matter
Lawof, 120
constant
reservoir volume. 121
temperature, 121
constant andvariable rate test, 77
contacts
fluid, 48
tilted oil-water, 38
conventional crude oil, 287
core, 45, 47. 50
analysis. 55
markets, 297
oil-base, 102
354
permeabilityfrom, 101
porosity data. 58
porosity from. 101
179 saturations from, 102
coring
oil-base, 65
correlation of log and coreporosity, 62
corrosion
incarbon dioxide flooding, 203
costs
capital, 256
facilityoperating, 256
field, 256
finding, 317
general andadministrative, 256
intangible, 263
operating. 256
replacement, 317
sunk. 309
tangible, 263
well abandonment. 256
Craig-Geffen-Morse Method, 164
cresting
coning and, 207
loss, 207
cross-contouring, 39
cross-plot
neutron-density. 58
Crown
interest, 254
royalty, 7-8
crude oil
conventional, 287
density of conventional, 241
exports
Canadian, 291
light, 287
markets, 253, 287
nonconventional, 288
oxidation of, 195
prices, 255
production, 288
royalty, 258
cumulative production. 7
curve
relative frequency, 30
curves
analytical transient type, 230
empirical depletiontype, 230
cutcurves
definition of, 223
cutoff values, 28
cutoffs
permeability, 46
porosity, 45
cutoffs, 102
cyclic steam stimulation, 187
cycling
of gas condensate reservoirs, 152
daily rates, 222
D' Arcy's Law, 53
data
acquisition of. 35, 46
analysis of, 36, 58, 82
capillary pressure. 216
coreporosity, 58
interpretation of, 48
pressurebuildup, 86
productionand well, 216-217
PVT, 120
qualityof, 85
reliabilityof, 31, 63, 101, 121,
136, 157, 237
rock compressibility, 216
seismic, 35
source of, 31, 81
data acquisition. 58
database, 57, 168, 237
Energy Resources Conservation
Board, 58
Dean Stark
apparatus, 56, 65, 66
technique, 65
decision matrices, 276
decision trees, 277
decline
analysis, 136, 137, 139, 162
exponential, 20, 225-226
harmonic, 20, 229
hyperbolic, 226-229
declinecurve
analysis, 18, 132
definition of, 223
methods for a groupof wells, 231
methods for a single well, 224
source of data for, 222
deficiencies, 308
definingnet pay, 45
degree of uncertainty, 266
Delphi Method, 274, 278
density
log, 57
of conventional crude oil. 241
depletion
calculations, 317
immature, 157
mechanism, 206
depletionstrategy, 131
planning, 132
purpose, 131
depositional environments, 36, 242
deregulation, 291, 298
Canadian, 299
United States, 299
deterministicprocedure, 8, J(}-II, 30
developed
nonproducing reserves, 6
producing reserves, 6
reserves, 6
167-168
167, 201
167-168
SUBJECT INDEX
dew-point reservoirs, 146
diagenesis, 37
diagram
multi-contact ternary, 174
P-X, 173
ternary, 173
Dietz Method, 138, 140
differentialliberation, 97
process, 97
test, 79
dimensionless solutions, 230
dippingfaults, 39
discount
rate, 264
discounted
net profit before investment
distribution, 116
return on investment, 308
discovered resources, 5
displacement
efficiency, 167, 175, 201
process, 154
domestic needs, 284
drainagevolume, 72
drawdowntest, 77
drilling
incentives, 285
rotary, 75
drillstemtest, 75, 104
closed-chamber, 75
open-hole, 72
drive
bottom-water, 239
combination, 134, 135, 140
combinedthermal, 195
compaction, 134
dissolvedgas, 201
edge water, 239
expansion, 239
gas cap, 134, 140, 239
gravitysegregation, 238
solutiongas, 133, 207, 238
steam, 195
water, 134, 137
drivemechanism, 147
natural, 247
drive mechanisms
natural, 238
primary, 238
dry gas, 152
reservoirs, 145
Dual Water Model, 72
dual-porosity formulation, 214
dynamic implicit method, 215
earneddepletion, 263
economic
development, 282
evaluations, 119
limit, 142
sensitivity cases, 8
uncertainty, 266
economic conditions, 8
economically recoverable reserves, 253
economics, 206
edge water drive, 239
effect
Forcheimer, 53
K1inkenberg, 53
effective
net pay, 102
permeability, 53
porous zone, 102
porous zones, 103
efficiencies
areal sweep,
displacement,
vertical sweep,
efficiency
areal sweep, 202
conformance, 160, 163
displacement, 175, 201
recovery, 203
vertical sweep, 202
volumetric sweep, 177, 202
electrical
conductivity, 27
method, 65-66
electromagnetic heating, 196
empiricalclassification, 273
empiricaldepletion type curves, 230
energy equivalence, 9
energyequivalent, 318
Energy Resources Conservation
Board, 58, 281
coreand cuttings storage, 58
reserve database, 237
engineering uncertainty, 266
enhanced
gas recovery, 153
oil recovery, 131, 171
oil recovery simulators, 214
enriched aircombustion process, 195
environment
regulatory, 253
environments
borehole, 49
depositional, 36, 242
equation
Archie, 66, 69
material balance, 17, 120, 122
of state, 178
volumetric, 108, 158, 175
WylieTime-Average, 58
equivalent
barrels of oil, 318
energy, 318
gas, 9
oil, 9
errors
in logs andcoreanalysis, 64
in material balance method, 123
sources of, 123, 268
estimate
best, 11
single, 11
single-value, 107
volumetric, 106
estimated value, 268
estimates
material balance, 30
refinement of volumetric, 43
uses of resource, 31
volumetric 27
estimation of uncertainties, 178
evaluation
of explorationwells, 313
of undeveloped lands, 278
of unexploredlands, 313
evaluators, 11, 31, 34, 315
expansion drive, 239
expectation, 266
experimental methods
miscibility, 173
exponential decline, 20, 225-226
exports
to the USA, 286
extraction, 201
facility
operating costs, 256
sizing, 142
factor
average recovery, 240
compressibility, 28
formation, 66
formation volume, 28, 105, 122
gas compressibility, 28, 91, 105
gas deviation, 91, 113
gas formation volume, 91, 94
oil formation volume, 96
oil recovery, 239
recovery, 17, 31, 168, 210
shrinkage, 96
failure
cyclic steam stimulation andsteam flood
process, 190, 196
fair market value, 312
faults
dipping, 39
FederalCompetition Act, 285
federal government, 281
fence option, 295
field
costs, 256
examples, 188
fieldperformance
of miscible floods, 179
financial statements, 263
355
finding costs, 317
fines migration, 53
finite-difference method, 215
first-contact miscible process, 172
fiscal policies, 285
flash liberation process, 97
flash liberation test, 79
flood
oil saturation at thestart of, 160
flooding
carbondioxide, 200, 202
hydrocarbon miscible, 171
micellar, 154, 168
polyroer, 154, 168
floods
horizontal, 162
horizontal miscible, 172
vertical miscible, 171
flow
characteristics, 75
distribution, 206
regimes, 72
tests, 36, 46, 70
fluid
contacts, 48
expansion, 133
interface, 37
invasion, 247
properties, 216
saturation, 27
fluid expansion,
gas pools, 247
Forcheimer effect, 53
forecasting
gas de1iverability, 151
models, 191
reserves and production, 132
reservoir performance, 219
formation
factor, 66
fluid saturation, 216
heterogeneity, 50
resistivity index, 67
thin, 190
volumefactor, 28, 105
volume factors, 122
water resistivities, 79, 103 -
forward combustion andwaterflooding
combination of, 195
fractional flow, 155
fracturepermeability, 63
fractured reservoirs, 63
fractures, 55
FreeTrade Agreement, 286
freehold
interest, 254
royalty, 7-8, 260
frontal displacement model, 191
frontieroil, 288
fully implicitmethod, 215
356
future
initial volumes in place, 5
unrecoverable volumes, 5
future initial reserves, 5
futures, 294-295
gas
analyses, 78
associated, 29, 145
compressibility factor, 28, 91, 105
cost allowance, 258
cresting, 208
deliverability forecasting, 151
deviation factor, 91, 113
dry, 145, 152
equivalent, 9
expansion method, 57
flowrate, 151
formationvolume factor, 91, 94
marketers, 306, 307
new, 257
nonassociated, 29, 145
old, 257
permeabilities, 53
permeability, 53
prices, 255
recovery, 147
reserves, 148
reservoirs, 123
samples, 78
saturation, 113
secondary recovery of, 153
solution, 28, 145
sour, 92, 145
sweet, 145
wet, 145
gas cap, 124, 145, 190
drive, 134, 140, 239
secondary, 145
gas drive
dissolved, 201
gas in place
calculation of initial solution, 29
gas in place, 113
gas-oil contact, 38
gas-oil interface, 37
gas-water injection
alternate, 202
gas-water interface, 37
gauge
electronic, 86
mechanical, 86
general and administrativecosts, 256
geochemical material balance
methods, 278
geologicanalogy, 278
geological
mapping, 39
model, 177
period, 243
play, 243
uncertainty, 266
Geological Surveyof Canada, 282
geophysical log method, 65
glaze, 101
going concern value, 311
government agencies, 32
governments, 306
federal, 281
" provincial, 281
gravity, 258, 287
gravityoverride, 195
gravity segregation drive, 238
grid
block orientation, 166
block sizing, 166
design, 217
gross
overridingroyalty, 254
pay, 44
remaining reserves, 7
reservoir, 44
swept volume, 160
half-life
reserves, 314
harmonicdecline, 20, 229
heavy oil, 187, 287
heterogeneous reservoir, 209
Higgins-Leighton Method, 164
historical performance, 278
historymatch, 166
history matching, 219
history-matched simulation, 22
horizontal floods schemes, 162
horizontal misciblefloods, 172
horizontal sweep efficiency, 159
horizontal waterflood schemes, 156, 159
horizontal wells, 205
critical rates for, 207
performance projection, 206
producibility, 206
uses of, 205
yield from, 205
Horner analysis, 88
HumbleMethod, 137
hydrocarbon
characteristics, 131
miscible flooding, 171
pore volume maps, 39
hydrocarbons
in place, 28, 118
presence of, 14
hydrodynamic flowtrapping, 38
hydrodynamics, 84
hyperbolicdecline, 226-229
Ideal Gas Law, 28, 91
imbibition, 167
immature depletion, 157
a
SUBJECT INDEX
immiscible
carbon dioxide flooding, 200
gas injection, 183
Implicit Pressure Explicit Saturation
Method, 215
in situ combustion process, 194
in situconditions, 63
income tax, 261
incremental economics, 310
industry databases, 57, 168, 237
initial
reserves, 5
solution gas in place, 29
volumes in place, 5
injection
alternate gas-water, 202
rates, 189
injection schemes
dispersed gas, 183, 185
external, 183, 185
injectivity
lackof, 190
intangible costs, 263
interest
carried, 254
Crown, 254
expense, 256
freehold, 254
net profits, 255
overriding royalty, 254
production payment, 254
royalty, 254
working, 254
interface
fluid, 37
gas-oil, 37
gas-water, 37
oil-water, 37, 39
interfacial tension, 69, 154
reduction in. 201
interference test, 77
internal rate of return, 264
International EnergyProgram, 286
inventory. 7
isnpach maps, 13, 38
J function, 69
Klinkenberg effect, 53
laboratory analysis
of fluidproperties, 96
landcompensation, 285
LatinHypercube Method, 277
Law
D' Arcy's, 53
Ideal Gas, 28, 91
of Conservationof Mass, 149
of Conservation of Malter, 120
leasing, 282
lending, 314
lessor royalty. 7
light crude, 287
liquidpermeability, 53
liquids
naturalgas, 22, 29
lithology, 242
log
acoustic, 57
density, 57
neutron, 57
resistivity, 63
log analysis, 57
logs, 46
petrophysical well, 16
resistivity, 69
wireline, 45
loss
sandwich, 161
low productivityallowance, 257
mapping, 38
computer, 42
geological, 39
volumetric, 35
maps
hydrocarbon pore volume, 39
isopach, 13, 38
mechanically contoured, 39
porosity-thickness, 38
structure, 38
thermal gradient, 81
market
demand forces, 297, 302
mechanisms, 300
value, 312
marketing options, 301
markets, 290
core, 297, 300
crudeoil, 287
crudeoil, 253
naturalgas, 297
naturalgas, 253
noncore, 300
noncore, 300
typesof, 300
Marshal Method, 138
MarxandLangenheim model, 191
material halance, 35, 105, 126,136,
139, 140
assumptions, 121
determination of hydrocarbons
in place, 120
equation, 17, 120, 122
estimates, 30
method, 17, 149
material balance equation
special cases of, 122
material halance method, 121, 123
mathematical functions, 215
marrix permeability, 63
maturewaterflood, 158
maximum royalty, 257
mean, 11
mechanisms
recovery, 188
median, 11
medium oil, 287
MercuryArchimedes Method, 57
Method
Craig-Geffen-Morse, 164
Delphi, 274, 278
Dietz, 138, 140
Higgins-Leighton, 164
Humble, 137
Latin Hypercube, 277
Marshal, 138
MercuryArchimedes, 57
ModifiedHurst, 138
MonteCarlo, 11, 30, 212
Musknt, 137
Pirson, 137
Robertsand Ellis, 137
Schilthuis, 138
Tracy or Tamer, 137
VVarren, 107, 118
VVedge, 138
VVelge, 140
method. Seeprocedure.
arithmetic, 8
caliper, 57
chemical, 65-66
dynamic implicit, 215
electrical, 65-66
finite-difference, 215
fullyimplicit, 215
gas expansion, 57
geophysical log, 65
historical performance, 278
implicit pressure explicit
saturation, 215
material balance, 17, 121, 123, 149
reservoir simulation, 22
semi-implicit, 215
statistical, 9, 231-233
straight-line, 126, 127, 136
summation-of-fluids, 57
volumerric, 12, 148, 163, 175,
205, 209
methods
analytical, 137
areal yield, 278
combined, 278
experimental, 173
geochemical material balance, 278
of achieving miscibility, 172
of analysis, 275
theoretical, 234-235
volumetric yield, 278
waterflood prediction, 165
micellar flooding, 154, 168
mineral rights
357
ownershipof, 254, 282
subsurface, 254
mineral tax, 260
minimumroyalty, 257
miscibility
methodsof achieving, 172
vapourizing multiple-contact, 173
miscible flooding
carbon dioxide, 200
residual oil saturation after, 175
miscible floods
areal sweepefficiency for
horizontal, 175
field performanceof, 179
vertical sweepefficiency for
horizontal, 176
miscibleprocess
first-contact, 172
multiple-contact, 172
mobility ratio, 154, 175
mode, 11, 240
model
Butler, 194
conical steamzone, 191
dimensions, 166
frontal displacement, 191
geological, 177
Marx andLangenheim, 191
Myhill and Stegeimeier, 193
phases, 166
sensitivityanalysis, 218
steamoverlay, 191
uncertainty, 268
Vogel, 194
models
!D, 217
2D areal, 217
2D radial, 217
2D vertical, 217
3D, 218
forecasting, 191
ModifiedHurst Method, 138
Monte Carlo
computer simulation, 30,107, 206,
212, 277
multi-well pools, 13
multiple-contact miscible process, 172
Muskat Method, 137
Myhill and Stegeimeiermodel, 193
National Energy Board, 281
natural depletionmechanisms, 131, 133
natural drive mechanisms, 238, 247
natural gas, 28
characteristics of, 145
liquids, 22, 29, 151, 255
markets, 253, 297
royalty, 257
naturally fracturedreservoirs, 167
358
fracture system, 214
matrix system, 214
near-miscible
carbondioxide flooding, 200
negotiatingtool, 305
net
overridingroyalty, 254
pay, 44, 103, 112
effective, 102
present value, 264, 309
profits interest, 255
reservoir, 44
net-back calculation, 320
neutron log, 57
neutron-density cross-plot, 58
newgas, 257
new oil, 258
NewYorkMercantile Exchange, 292
nonassociatedgas, 29, 145
nonassociated gas reserves, 148
nonconventional crude, 288
North American Free Trade
Agreement, 286
numerical simulation, 132, 137, 166
NYMEX, 292, 294
oil
age, 258
equivalent, 9
formation volume factor, 96
frontier, 288
heavy, 287
medium, 287
new, 258
old, 258
quality, 141
rate, 206
recovery factors, 239
samples, 79
synthetic, 288
third tier, 258
viscosity, 141
oil inplace
calculationof, 28
oil recovery
factors affecting, 140
primary, 237
oil sands
deposits, 189
royalty, 260
oil saturation
at the start of flood, 160
oil-base
cores, 102
coring, 65
oil-steamratio, 193
oil-water interface, 37, 39
oil-wet, 74
old gas, 257
old oil, 258
Ontario Securities Commission. 315
open-holedrillstemtest, 72
open-hole wirelinetools, 86
operated-dayrate
definition of, 223
operating costs, 256
Operator, 259
options, 295
call, 295
fence, 295
put, 295
over-pressured reservoirs, 148
overhead fee, 256
overriding
royalty, 7-8
royalty interest, 254
ownership
mineral rights, 254
of reserves. 7
oxidationof crude, 195
P-X diagram, 173
par price, 258
parameter uncertainty. 268
parameters
reservoir, 16
pay
defining net, 45
gross, 44
net, 44
payout period, 307
pentanes plus royalty, 258
performance prediction 184
analytical, 164
performance prediction, 183
permeability, 27, 53, 72
absolute, 216
effective, 53
fracture, 63
from core, 53
gas, 53
horizontal, 101
liquid, 53
low, 190
matrix, 63
relative, 53, 54, 216
specific, 53
permeabilitycutoffs, 46
permeability from cores, 101
permeameter. 54
petrophysicalwell logs, 16
phase
behaviour, 148, 201
diagrams, 146
pipeline
companies, 306
gas reserves, 150
major interprovincial systems, 288
pipelines
feeder, 288
c
SUBJECTINDEX
PirsonMethod, 137
political uncertainty, 266
polymer flooding, 154, 168
pool
area, 12
discovery, 157
parameter, 112
size, 240
pooling, 255
pools
analogous, 163
carbonate, 242
clastic, 242
multi-well, 13
single-well, 12
porevolume compressibility tests, 63
porosity, 27, 48, 55, 72, 113, 159
average, 216
correlation of log andcore, 62
cutoffs, 45
from cores, 101
fromwell logs, 103
low, 190
primary, 37, 55
secondary, 55
porosity-thickness maps, 38
porpoising, 210
possible
developedreserves, 6
reserves, 5, 17, 179
undeveloped reserves, 6
post-injection startup, 158
post-waterflood response, 158
presence of hydrocarbons, 14
pressure, 75, 113
abandonment, 148
average reservoir, 89
bottom-hole, 49
buildupdata, 86
builduptest, 77
capillary, 67
equilibrium, 121
gradients, 86
pseudo-critical, 91-92
recorders, 75, 86
reservoir, 86, 104
stabilizedbottom-hole, 86
threshold, 67
transient analysis, 36
pressure-depth plots, 37,38
pressure-volume test, 79
price
averageAlbertamarket, 257
select, 257
wellhead, 255
pricedifferentials
for light and heavy crude, 294
price risk, 294
prices
crude oil, 255
gas, 255
outlookfor world oil, 295
pricing, 291
primary
depletion, 131
drive mechanisms, 238
oil recovery, 237
porosity, 37, 55
probabilistic
procedure, 8, 11, 30
simulation, 277
probability, 11, 17
analysis, 166
degree of, 10
increase, 11
probable
developed reserves, 5
reserves, 5, 17, 180
undeveloped reserves, 5
procedure. See method.
deterministic, 8, 10-11, 30
probabilistic, 8, II, 30
stochastic, 11
process
differential liberation, 97
displacement, 154
enriched air combustion, 195
flash liberation, 97
steamflood, 189
thermal wave, 195
variations, 195
processes
insitucombustion, 194
thermal recovery, 187
processing fees, 255
producers, 306
production
cumulative, 7
data, 216
forecasting, 132, 304
payment interest, 254
rate, 140
revenue, 255
royalty, 260
tests, 75, 104
production performance charts
definition of, 223
production rates
carbondioxideflooding, 203
productivity allowance, 257
products
related, 29
profitability indices, 307
properties
reservoir rock, 101
rock and fluid, 27
proved reserves, 17, 180
provincial governments, 281
pseudo-critical
pressure, 91
properties, 91-92
temperature, 91
put option, 295
PVT
analysis, 77
data, 120
samples, 79
pyrobitumen, 72, 103
quantitative estimation, 274
ranges, 108
rate of return, 308
rate-cumulative graphs, 223
rate-timegraphs, 223
ratio
break-through, 177
mobility, 154, 175
oil-steam, 193
viscous-gravity, 176
ratio curves
definition of, 223
ratioyardstick
reserves-to-production, 305
recombination sampling, 77
recover, 189
recoverable gas, 148
recovery
carbon dioxide floodingefficiency, 203
estimates, 135
factor, 17, 31, 168, 210
carbon dioxide flooding, 203
distributions, 249
for large pools, 238
statistics, 237
mechanisms, 188, 195
parameters, 247
secondary, 171
tertiary, 154, 171
refinement of volumetricestimates, 43
refineries, 290
refining
Canadian, 290
regulations, 283,284
regulatory approvals
changes to, 298
regulatory constraints, 143
regulatory environment, 253
related products, 22-23,29, 151
relative frequency curve, 30
relative permeability, 53, 54, 216
measurement of, 54
reliabilityof data, 31, 63, 101, 121,
136, 157, 237
reliabilityof results, 162, 163, 164, 166
remaining
proveddevelopedreserves. 5
proved reserves, 5
provedundeveloped reserves. 5
reserves, 5
replacement costs, 317
reserve
359
distribution, 116
gas losses, 150
parameters, 211
reserves, 3, 253
associated gas, 150
company grossremaining, 7
companynet remaining, 7
9
determinations,
stepsinvolvedin, 211
developed, 6
developed nonproducing, 6
developed producing, 6
economically recoverable, 253
forecasting, 132
from improved recovery projects, 22
future initial, 5
gas, 148
grossremaining, 7
half-life, 314
initial, 5
nonassociated gas, 148
ownership, 7
company gross remaining
reserves, 7
pipelinegas, 150
possible,S, 17
possible developed, 6
possible undeveloped, 6
probable,S, 17
probabledeveloped, 5
probable undeveloped, 5
proved, 17
remaining, 5
remaining proved. 5
remaining proved developed, 5
remaining proved undeveloped, 5
risk-weighting of estimates, 8
role of, 304
solutiongas, 150
sulphur, 23
undeveloped, 6
users of volumes, 306
uses of estimates, 311
uses of evaluations, 253
working interest share of, 7
reserves-to-production ratio, 305
reservoir
analogous, 22
area and volume, 35
characteristics. 131
continuity, 37
deep, 190
expansion terms, 122
fluidsamples, 104
fluids, 77
forecasts of performance, 220
geometry, 141, 216
gross, 44
heterogeneities, 141
360
heterogeneity, 63, 74
limits, 39
modelgrid design, 217
model initialization, 218
net, 44
parameters, 16, 247
performance charts
definition of, 223
performance forecasting, 219
poor, 190
pressure, 86, 104
quality, 238
rock properties, 101
saturated oil, 123
shallow, 190
simulation, 137, 140
simulation datarequirements, 216
simulation method, 22
simulators, 214
single-phase gas, 146
temperature, 81, 104
two-phase, 146
undersaturated, 80
undersaturated oil, 122, 133
voidage terms, 121
volume, 27
reservoirs
analogous, 17
cycling of gas condensate. 152
dew-point, 146
dry gas, 145
fractured, 63
gas, 123
naturally fractured, 167, 214
over-pressured, 148
retrograde gas condensate, 146
residual
gas saturation, 148
oil saturation, 161, 175
resistivities
formation water, 79, 103
resistivity logs, 63, 69
resource
allowance, 261
assessments, 281
properties, 312
royalty, 260
uses of estimates, 31
resources, 3, 4, 253
discovered, 5
undiscovered, 5
results
reliability of, 162, 163, 164, 166
retrograde gas condensate reservoirs, 146
return on investment, 308
revenue, 255
production, 255
right-of-entry, 285
risingbubbleapparatus, 174
risk, 266
risk premium, 264
risk-weighting of reserves estimates
aggregation, 8
Robertsand Ellis Method, 137
rock compressibility, 63
data, 216
rock properties, 216
rotarydrilling, 75
royalties
levelsof, 282
royalty
Crown, 7-8
crude oil, 258
factor, 259
freehold, 7-8, 260
gross overriding, 254
intent, 259
interest, 254
lessor, 7
maximum, 257
minimum, 257
natural gas, 257
net ovetriding, 254
oil sands, 260
overriding, 7-8
pentanes plus, 258
production, 260
rate, 259
resource, 260
sulphur, 258
tax deduction, 259
rugosity, 49
sales, 7
samples
oil, 79
PVT, 79
reservoir fluid, 104
surface, 79
surface crude oil, 79
water, 78
sampling, 77
subsurface, 77
surface recombination, 78
sandwicheffect, 135
sandwichloss, 161, 207
saturatedoil reservoir, 123
saturation, 65
connate water, 65
formation fluid, 216
gas, 113
residual oil, 161,175
water, 69
saturations from cores, 102
schemes
dispersedgas injection, 183, 185
external injection, 183, 185
horizontal waterllood, 156, 159
vertical waterllood, 156, 161, 163
SchilthuisMethod, 138
SUBJECT INDEX
screening and feasibility studies, 174
screening guidelines, 188
secondary
gas cap, 145
porosity, 55
recovery, 171
recovery of gas, 153
securities commissions, 8
securities reporting, 315
security, 305
seismic
3-D, 36
data, 35
select price, 257,258
semi-implicit method, 215
sensitivity cases, 8
separator tests, 79
shale, 190
content. 63
presenceof, 72
shalysand interpretation process, 73
shrinkage factor, 96
shut-in period, 104
simulation
blackoil, 177
history-matched, 22
Monte Carlo, 277
numerical, 137, 166
probabilistic, 277
reservoir, 137, 140
studies, 177
simulators
blackoil, 214
compositional, 214
enhanced oil recovery. 214
reservoir, 214
types of, 178
singleestimate, 11
single-phase gas reservoir, 146
single-value
approach, 106
estimate, 107
single-well pools, 12
siterestoration and reclamation, 256
slimtubetest, 174
slug size
chasegas, 178
solvent, 178
slugsizing, 202
solution gas, 28, 145
drive, 133, 207, 238
reserves, 150
solvent slug size, 178
sour gas, 92, 145
sourceof data, 31, 81
sources of errors, 64, 123, 268
sparecapacity, 256
specific permeability, 53
stabilized bottom-hole pressure, 86
stand-off, 207
standardconditions, 30
Standing Committee on Reserves
Definitions, 3, 10
startup
post-injection, 158
state
steady, 54, 125
unsteady, 54, 125
statement
of changes incashposition, 263
of income, 263
statistical analysis, 107
statistical method, 9, 231-233
statistical techniques, 58
statistics
recovery factor, 237
steadystate, 54, 125
steady-state conditions, 206
steam
distillation, 195
drive, 195
floodprocess, 189
overlaymodel, 191
steam confinement
lackof, 190
steam stimulation
followed by wet combustion, 195
Stiff diagram, 79
stochastic evaluation, 275
stochastic procedure, 11
stocktank cubicmetre, 96
straight-line method, 126, 127, 136
stratigraphic traps, 39
structure maps, 38
subjective estimate, 274
subsurface sampling, 77
successorrules, 263
sulphur, 23, 29, 151
royalty, 258
summation-of-fluids method, 57
sunkcosts, 309
superposition theorem, 125
supplemental calculations
aquifers, 124
gas caps, 124
water influx, 124
supplyindicator, 305
surface crude oil samples, 79
surface recombination sampling, 78
surface samples, 79
surfactants, 189
sweepefficiency, 162
areal, 202
horizontal, 159
total, 159
vertical, 160,202
volumetric, 202
sweet gas, 145
swelling, 201
synthetic oil, 288
tangible costs, 263
tariffs, 285, 290
tax credit, 285
taxationlevels, 285
technical assistance, 286
technical uncertainty, 266
techniques
statistical, 58
temperature, 113
bottom-hole, 49, 81
pseudo-critical, 91
reservoir, 81, 104
temperature gradient, 82, 85
ternarydiagram, 173
multi-contact, 174
tertiaryrecovery, 154, 171
test
absolute openflow, 77
constant andvariable rate, 77
differential liberation, 79
drawdown, 77
drillstem, 75, 104
flashliberation, 79
interference, 77
pressure buildup, 77
pressure-volume, 79
production, 75, 104
separator, 79
slimtube, 174
vapourization, 79
testing
backpressure, 152
theoretical methods, 234,235
thermal
conductivity, 84
cracking, 195
efficiency term, 193
expansion, 195
gradient maps, 81
recovery processes, 187
wave process, 195
thirdtier oil, 258
threshold pressure, 67
tiltedoil-water contacts, 38
timestep sizing, 166
tolls, 285, 290
tool resolution, 63
topgas, 256-257
Tracy orTamerMethod, 137
transition zones, 48
trap, 37
trapping
hydrodynamic flow, 38
traps
stratigraphic, 39
two-phase reservoir, 146
type-curve matching, 230
uncertainties, 206, 212
estimation of, 178
361
-I
2Q
uncertainty, 10, 30, 253, 266
causesof, 268
degreeof, 266
economic, 266
engineering, 266
estimation of, 273
geological, 266
magnitude of, 271
model, 268
parameter, 268
political, 266
technical, 266
use of, 271
undersaturated oil reservoir, 80, 122, 133
undevelopedreserves, 6
undiscovered
hydrocarbon volumes, 278
resources, 5
unitization, 255
unrecoverablevolumes, 5
currently uneconomic volumes, 5
residual unrecoverablevolumes, 5
unsteadystate, 54, 125
unswept volumes, 161
US Securities and Exchange
Commission, 315
useage fees, 285
uses of resource estimates, 31
valuing oil andgas companies, 311
vapourization, 201
test, 79
vapourizing multiple-contact
miscibility, 173
vertical
miscible floods, 171
resolution, 64
sweepefficiencies, 167-168
sweepefficiency, 160
waterflood schemes, 156, 161, 163
viscosity. 79
oil, 141
reduction, 195, 20I
viscous-gravity ratio, 176
Vogel model, 194
volume
drainage, 72
362
gross swept, 160
volume-weighted average, 90
volumes
currently uneconomic, 5
future unrecoverable, 5
residual unrecoverable, 5
unrecoverable, 5
unswept, 161
volumes in place
future initial, 5
initial, 5
volumetric
analysis, 158
calculation, 28
eqnation, 108, 158, 175
estimate, 106
estimates, 27
mapping, 35
method, 12, 148, 163, 175, 205, 209
sweepefficiency, 177, 202
yieldmethods, 278
vugs, 55
WarrenMethod, 107, 118
theory, 107
nse of, 118
water, 190
analyses, 79
channelling, 209
drive, 134, 137
influx, 121, 124
samples, 78
saturation, 48, 69
saturations fromwell logs, 103
water-wet, 74
waterflood
horizontal schemes, 156
mature, 158
prediction methods, 165
reserves drainedfrom, 208
verticalschemes, 156, 163
waterflooding, 154
combination of forward combustion
and, 195
wedge zones, 39
weightedaverage cost of capital, 264
weighted-mean, 240
WelgeMethod, 138, 140
well
abandonment costs, 256
conditioning, 78
data, 216
horizontal, 205
patterns, 188, 195-196
porosity fromlogs, 103
spacing, 142, 152, 196
test analysis, 70
testing, 48
tests, 222
water saturations from logs, 103
wellhead price, 255
wet combustion
steamstimulation followed by, 195
wet gas, 145
wettability, 69, 74, 102
wireline logs, 45
wireline tools
open-hole, 86
working capital, 257
working interest, 254
working interest share, 7
Wylie Time-Average Equation, 58
zones
transition, 48
-I
I
I

Determination of Oil and Gas Reserves

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Determination of Oil and Gas Reserves

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Determination of Oil and Gas Reserves

Petroleum Society Monograph No.1

Lessor Royalty Interests

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ESTIMATIONOFVOLUMES OFHYDROCARBONS INPLACE

ESTIMATION OFVOLUMES OFHYDROCARBONS INPLACE

DETERMINATION OF OIL AND GASRESERVES

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DETERMINATION OF OIL AND GAS RESERVES

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RESERVES ESTIMATION FOR HORIZONTAL WELLS

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DETERMINATION OF OIL AND GASRESERVES

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CASH FLOW ANALYSIS

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UNCERTAINTY ANDRISK INRESERVES EVALUATION

THE REGULATORY ENVIRONMENT

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