PETROLEUM EXPLORATION AND DEVELOPMENT

Volume 48, Issue 4, August 2021

Online English edition of the Chinese language journal

Cite this article as: PETROL. EXPLOR. DEVELOP., 2021, 48(4): 1007–1018. RESEARCH PAPER

Low cost development strategy for oilfields in China

under low oil prices
SONG Xinmin, QU Debin*, ZOU Cunyou
Research Institute of Petroleum Exploration & Development, PetroChina, Beijing 100083, China

Abstract: By reviewing the challenges in the development of oilfields in China under low oil prices, this study analyzes the
root causes of cost rising, put forwards the low cost oilfield development strategy and specific paths to realize the strategy, and
predicts the development potential and prospect of oilfields in China. In addition to the low grade of the reservoir and high
development maturation, the fundamental reasons of development full cost rising of oilfields in China are as follows: (1) Facing
the problem of resources turning poorer in quality, we have built production capacity at a pace too fast before making enough
technical and experimental preparation; (2) technical engineering service model leads to high service cost; (3) team of oil de-
velopment expertise and matched engineering system cannot satisfy the technical requirements of stabilizing oil production,
controlling water cut and fine development. To realize development at low cost, the core is to increase economic recoverable
reserves. The concrete paths include: (1) to explore the “Daqing oilfield development culture”, improve the ability of leaders in
charge of development, and inspire potential of staff; (2) to improve the ability of reservoir dynamics control, and implement
precise development by following scientific principles; (3) to speed up integration of water flooding and enhanced oil recovery
(EOR) and technological upgrading in order to enhance oil recovery; (4) to innovate key techniques in gas flooding and accel-
erate the industrial popularization of gas flooding; (5) to break the related transaction barriers and create new management
models; and (6) to collaboratively optimize strategic layout and cultivate key oil bases. Although oilfield development in
China faces huge challenges in cost, the low-cost development strategy will succeed as long as strategic development of mature
and new oil fields is well planned. The cores to lower cost are to control decline rate and enhance oil recovery in mature oil
fields, and increase single well productivity through technical innovation and improve engineering service efficiency through
management innovation in new oil fields.

Key words: low oil price; oilfield development; low cost strategy; economically recoverable reserves; leadership of develop-
ment; development culture

Introduction rose back to 1.95×108 t in 2020[1]. In fact, repeated low oil

The oilfield development in China has experienced dif-
ficult start-up and glorious growth. Several generations of
petroleum workers have worked hard and tried best to
ensure the steady development of China's oil and gas
industry and national energy security. For the past dec-
ade, repeated oil price fluctuations, especially the two
times of oil price plunge in the second half of 2014 and at
the beginning of 2020 blew badly the upstream busi-
nesses of China’s oil companies. The oil production of
China reached the all-time high of 2.15×108 t in 2015, then
influenced by the oil price fluctuations, workload of new
production capacity construction greatly reduced. The oil
production of China fell to 1.89×108 t in 2018 and then
prices sounded the alarm to the oil field development of
China, from technologies to the business operating and
management modes. In general, the economic develop-
ment of China’s oilfields depends heavily on oil price, and
China’s crude oil business has low competitiveness and
risk resistance. During the period of high oil price, crude
oil business greatly uplifted the overall profits of the oil
companies, while at the stage of low oil price, it backfired
on the economic returns of the companies. Now at the
very moment of making overall planning for development
during the 14th Five-Year Plan for China’s oil & gas indus-
try, how to achieve low cost development of oilfields has
become a major strategic issue related to the sustainable
high-quality development of China’s oil companies. Based

Received date: 25 Apr. 2021; Revised date: 01 Jul. 2021.

* Corresponding author. E-mail: qdb@petrochina.com.cn
https://doi.org/10.1016/S1876-3804(21)60085-X
Copyright © 2021, Research Institute of Petroleum Exploration & Development, PetroChina. Publishing Services provided by Elsevier B.V. on behalf of KeAi
Communications Co., Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
 SONG Xinmin et al. / Petroleum Exploration and Development, 2021, 48(4): 1007–1018

on the history, technical progress and innovative prac-

tices of China’s oilfield development since PetroChina
Company Limited (PetroChina hereafter) went public, we
mainly analyze the root causes of and key factors affect-
ing the rising cost of crude oil business, explore the
low-cost development strategy and effective ways to re-
duce the cost, put forward measures to achieve low cost
oilfield development, and discuss the potential and
prospects of China’s oilfield development, in the hope to
provide reference for the improving quality and efficiency
of the upstream business of China’s oil & gas production
enterprises.
Fig. 1. Actual dimensionless production decline curve of
1. Challenges in oilfield development and root pure old wells in China’s oilfields. Q—dimensionless an-
causes nual oil production (the ratio of the annual oil production to
the 1st year oil production); t—time of production, a; R—
1.1. Challenges correlation coefficient.
While seeing gradual output rise to 2×108 t, China’s oil-
field development is facing great challenges: (1) After
restructuring and listed on the stock market, especially
since the 11th Five-Year Plan, China’s oil companies have
met with rapid growth of total cost of onshore crude oil
development and more difficult cost control. The total
cost of crude oil development (excluding the premium
and depreciation) and assets have both risen by more
than 1.7 times, in which the production cost such as op-
erating cost and depreciation rose by more than 2.3 times.
(2) Mature oilfields have witnessed rapid decrease in
production, while massive production construction have
not yet brought substantial output growth. Since the 11th Fig. 2. Curves of newly built production capacity and
Five-Year Plan, China’s oil companies constructed new comprehensive decline rate.
production capacity of over 2 500×104 t annually on av-
production, composite decline lags 1 year behind new
erage, but the oil production of China has been kept only
production capacity construction, so the new production
about 2×108 t annually. This means the vast majority of
capacity would be replenished into the old well output,
new production capacity has been used to make up for
and then natural decline and composite decline would be
the production drop of mature oilfields. At an annual
underestimated to create an illusion covering the real
decline rate of nearly 10% (Fig. 1), the production drop of
decline rate. Although multiple factors such as down-
the mature oilfields is equivalent to two major oilfields of
grading of developed objects, sophisticated processes and
10 million ton production. Due to the rapid production
techniques, and increased well depth made contributions
decline of mature oilfields, massive scale construction of
to the rapid increase of investment and rapid growth of
production hasn’t brought about substantial growth.
assets, the major driving force is the massive-scale pro-
Thus, in order to ensure the production scale, new pro-
duction capacity construction. With rapid growth of wells,
duction capacities have to be built to make up for the loss
operating cost, such as recovery operation expenses, goes
from production drop, resulting in a vicious cycle of
up fast. With the massive-scale production capacity con-
“constructing massive-scale production – making up for
struction, superimposed stimulation operations and fluid
the production drop – building new production capacity”.
production would increase considerably, therefore, oper-
Besides bringing about rapid increase of assets and cor-
ating cost is bound to rise sharply.
responding depreciations, with investment converted
into cost to create further burden, massive-scale con- 1.2. Root causes
struction of production also reflects the core conflict of
1.2.1. Poor returns due to inadequate technological
rapid production decline in mature oilfields. The analysis
research and preparation and too rapid construction of
shows that composite production decline has a signifi-
production capacity in the face of down grade resource
cant negative correlation with newly built production
capacity (Fig. 2). After a new well is put into production, Since China’s oil companies went public in 2000 after
in the next year it will counted as an old well for reformation and restructuring, the petroleum develop-
 1008 
 SONG Xinmin et al. / Petroleum Exploration and Development, 2021, 48(4): 1007–1018
ment in China faced the predicament of difficult resource
and production capacity replacement. In the past 20
years, major breakthroughs have been in unconventional
oil & gas exploration by vigorously implementing the
strategy of integrated exploration and development, ad-
dressing the difficulty of resource replacement in the long
run. The average annually oil reserves discovered in
China were (8-10)×108 t in the 12th Five-Year Plan period,
and rose to (10-12)×108 t during the 13th Five-Year Plan.
But during this period, the downgrading of resources
turned obvious, while the technical research and pilot
tests to improve the production capacity of the resources
didn’t mature and form a complete set. In the meantime,
massive scale of rapid production construction didn’t
keep the right pace and have schemes optimized, result-
ing in substantial poor-performing assets with increase
scale of assets and productivity drop under the joint im-
pact of inadequate preparation before development and
rapid production capacity construction. The production
construction of considerable low-grade resources didn’t
live up to the expectations. The effect tracking of new
production capacities constructed in 2013–2018 shows
that the investments on new wells were large in recent
years, but the investments of the new wells had little
contribution to production, but increased the deprecia-
tion. In this 5-year period, the new wells contributed only
25%-35% to the cumulative production but more than
60% to depreciation (Fig. 3).
1.2.2. Serious restriction to the effectiveness of
production capacity construction, and high investment
cost by the current model of engineering and technical
services
In recent years, the effect of production construction of
China’s onshore oil companies has been deeply restricted
by the project quota of connected transactions. Though
the oilfield company and engineering company belong to
the same oil company, the integrated edge in the system
hasn’t yet been given full play, and coordinated innova-
tive solutions to reduce the cost in line with the down-
Fig. 3. The contribution rates of new wells in different
oilfields to output and depreciation from 2013–2018.
 1009 
grading resources haven’t been worked out, resulting in
sharp rise of the scale of assets of oil companies. As sub-
stantial production decline and depreciation were in-
cluded in the total cost, forcing the oil companies to work
under high cost for a long time. Operating cost had to be
cut greatly in the follow-up production, resulting in in-
sufficient investment on the most fundamental monitor-
ing equipment and proper maintenance of oil and water
wells, and sharp drop of oilfield production. On the other
hand, pay zones could be tapped just by conventional
perforation back in the 1970s and 1980s, but now pay
zones must be fractured for production at present,
bringing about higher production decline and asset de-
preciation, and to some extent, faster velocity of water
flooding of oil wells. The distribution pattern of remaining
oil and water flooding layers changes with the waterflood-
ing of wells, making it difficult to tap the remaining oil.
1.2.3. Current technical expertise and matched
engineering systems unable to meet the demand of
stabilizing oil production & controlling water cut and
refined development
As the oilfield development enters the middle- late
stage, the oil-water distribution underground gets more
complex. At the beginning of infill drilling, high output
can be obtained at relatively low water cut. Due to strong
heterogeneity of continental reservoirs, the producing
degree of reservoir on the profile strongly depends on
technical expertise, separated-layer control, and sup-
porting ground facilities, making it difficult to regulate
dynamics on the profile precisely, so the effect of refined
potential tapping has fallen short of expectations. In fact,
the technical personnel at the development front in some
oilfields can’t meet the demand of stabilizing oil produc-
tion and controlling water cut, and refined development.
Some oilfields are still rudimentary and inefficient in
management, and thus enter the stage of high water cut
(with water cut of more than 60%) and high-cost operat-
ing and development at the recovered degree of crude oil
of less than 10%. Meanwhile, for the oil reservoirs at the
stage of high water cut, the layer series of development
and well patterns aren’t adaptable anymore, and can’t
regulate injection and production dynamically, so the oil
reservoirs can only be developed under the adverse con-
ditions of extra-high water cut (95%–97%) and extra-low
oil recovery rate, resulting in significant loss of recover-
able reserves and rapid decline of production. In addition,
some oil reservoirs well developed in the past have been
shut down or operating at low efficiency restricted by
well conditions, techniques and human resources. More-
over, as production has been long taken as the major
assessment criterion of oil companies, China’s oil pro-
duction companies have stuck in the rudimentary and
inefficient management model of production first, and
 SONG Xinmin et al. / Petroleum Exploration and Development, 2021, 48(4): 1007–1018
“more wells, more oil”, neglecting the principles of re-
fined operation and full life cycle systematic optimization
of oilfield development. Some mature oilfields increase
production only by drilling new wells to enhance capacity,
rather than by systematically optimizing the injec-
tion-production relationship to increase economically
recoverable reserves and keep stable production for long
term. The development practices of highly heterogeneous
continental oil reservoirs in China show that oil devel-
opment is a technology-intensive business which requires
full life cycle refined operation and systematic manage-
ment, as well as refined dynamic regulation on production.
2. Low-cost oil development strategy and its
paths
The benefits of oilfield development involve income,
impairment of assets and total cost; and can be subdi-
vided into more than 20 indexes such as price, output,
operating cost, and depreciation. Among these indexes,
about 50% are relative controllable (Fig. 4). Through
comprehensive analysis of the relevance of the indexes
and the target-driven demands of low cost strategy, it is
found the core of cost reduction is to increase economi-
cally recoverable reserves. To this end, first, the human
resources at every level shall be inspired and motivated to
create benefits by tapping their potential and creativities
to the maximum; more importantly, leadership of devel-
opment business should be reinforced, and “Daqing oil-
field development culture”, the foundation of low cost
strategy, should be drawn on. Second, economically re-
coverable reserves shall be increased through a litany of
technical innovations centering on stabilizing production
in mature oilfields and cost-effective production in new
oilfields to improve the productivity. Only by motivating
human resources, making technical innovations, in-
Fig. 4. Factors affecting development benefits and cost.
 1010 
creasing economically recoverable reserves jointly, can
the cost be reduced and efficiency be improved finally to
improve the quality and efficiency of oil development of
China’s oil companies.
To implement the low-cost development strategy, in-
creasing economically recoverable reserves is the core. The
economically recoverable reserves are related to oil reser-
voir grade, development technology level, international
oil price, and management capability. Increasing econo-
mically recoverable reserves is the foundation of low-cost
development. On one hand, increasing economically re-
coverable reserves can ensure high and stable production
and good economic returns, on the other hand, it can add
PD reserves (proved developed reserves), reduce the rate
and pressure of depreciation in operation. Calculated by
current technical and cost level, when international oil
price stays in the low range of 45–50 USD/bbl, only about
half of remaining onshore recoverable reserves in China
can be transformed into economically recoverable reserves.
If the oil price is lower than 45 USD/bbl, the economically
recoverable reserves able to be transformed from techni-
cally recoverable reserves would drop sharply. It’s clear
that the economically recoverable reserves are more sen-
sitive to oil price fluctuations. As time goes by, the down-
grading of resources, aging of oilfields, low oil price will
exacerbate further. Only by improving development
technology and management level, can single well produc-
tion be increased, the oil production decline be slowed
down, and the recovery rate be enhanced, to increase the
economically recoverable reserves considerably and im-
prove the scale and economic returns of oil production.
2.1. Delving into “Daqing oilfield development
culture” to inspire human resources to create benefits
Looking back at the development history of Daqing
 SONG Xinmin et al. / Petroleum Exploration and Development, 2021, 48(4): 1007–1018
Fig. 5. General guideline and technical roadmap of
low-cost strategy for oilfield development.
Oilfield, we came to this understanding: at the initial
stage of development, in light of the unclear layer sepa-
ration, and prominent conflict between water channeling
and uneven pressure distribution, a creative oilfield de-
velopment guidelines of “six by-layers” and “four defi-
nites” and well management mode by mass were put
forward. The development guidelines and the manage-
ment mode have since then been well established and
kept, laying a solid foundation of the refined develop-
ment pattern of Daqing Oilfield unique all over the
world[2]. At the stage of high water cut, based on the un-
derstanding of classification of strong heterogeneous
continental reservoirs, a number of intensified produc-
tion measures such as areal well pattern, refined division
of development strata, multiple infill drillings, liquid
extraction under controlled water cut have been adopted
to guarantee the long-term stable high production of
5000×104 t in Daqing Oilfield. In the 21st century, facing
the predicaments of extra-high water cut and no new
replacement resources, the integrated management mode
of “four refined” (refined heterogeneous understanding,
refined adjustment of injection-production well pattern,
refined adjustment of injection-production structure,
refined production management) has been implemented
to control production decline and water cut. To tap the
remaining oil, “five not equal to” philosophies (high wa-
ter cut in oilfield is not equal to high water cut in every
single well; high water cut in an oil well is not equal to
high water cut in every layer; high water cut in a single
layer/stratum is not equal to high water cut in every sec-
tion and every direction; refined geological work is not
equal to good understanding of all the underground po-
tential; refined development adjustment is not equal to
 1011 
adequate adjustment of every block, every single well and
every layer) have been promoted in refined development
to reach the goal of developing high water cut oilfield at
low cost. Following these principles, Daqing oilfield has
kept a stable production of 4000×104 t annually. The re-
fined development philosophy of Daqing oilfield has been
gradually shaped. During China’s 12th Five-Year Plan pe-
riod, a refined waterflooding demonstration zone has
been established in Changyuan block of Daqing oilfield.
At the water cut of 93%, and with no new wells drilled in
five consecutive years, the block had production kept
stable, water cut kept basically constant, and the cost
dropping by 10%, which are considered remarkable.
During the 13th Five-Year Plan period, this block entered
overall extra high water cut stage, with no new wells
drilled and limited measures, in the face of low oil price,
the development of this block has achieved good techni-
cal and economic results: the main part of Changyuan
block still has kept a slow production decline rate of less
than 10% at the oil recovery rate of 15%–20% for the re-
maining recoverable reserves. The demonstration zone
has kept a production decline rate of just 5%–6%. This
can’t be explained by conventional theories or develop-
ment models. It’s just the embodiment of the unique and
profound development culture of Daqing oilfield[3–5].
The core of “Daqing oilfield development culture” is
the principal guidance of business leadership. The intan-
gible and immensely strong business leadership have
driven the development of oilfield at all stages, and led
the business forward. The leadership is inter-connected
with the technical teams to endeavor under adverse con-
ditions, to strive for better, to push the envelope. The
leadership is the embodiment of the spirit of the workers
in Daqing Oilfield. That’s why all oil production plants
have adopted the same principles, the same procedures,
the same standards on the techniques and management
of oilfield development. A complete set of culture system
of continental oil reservoir development integrating the
mentality, philosophy, technology, management and
practice has been worked out to adapt to the objective
geological conditions of oil reservoirs, follow the funda-
mental patterns and principles of scientific development,
to push the oilfield development forward in an orderly
way[3–5].
In face of the difficulty of stabilizing oil production and
controlling water cut in the oilfield development at high
water cut, first, drawing on the “Daqing oilfield devel-
opment culture”, standardized management and refined
potential tapping have been implemented. If the “Daqing
oilfield development culture” is promoted to all the ma-
ture oilfields in China, recoverable reserves are bound to
rise sharply with reduced cost. In view of the current
situation of China’s oilfield development, on one hand,
the leadership of oilfield development business needs to
 SONG Xinmin et al. / Petroleum Exploration and Development, 2021, 48(4): 1007–1018
be elevated urgently to improve the development tech-
nology and management level. This can start from de-
velopment management guidelines, the preparation, re-
view, implementation and assessment, and adjustment of
development plan should be supervised and confirmed,
and a system of accountability, rewards and punishment
should be set up to optimize development deployment
and overall plan. On the other hand, a system of technical
experts shall be established to provide expertise, ade-
quate technical support and hands-on experience to the
oil production plants at the primary level, so as to im-
prove the quality of the technical teams to ensure the
oilfield development implemented in strict compliance
with the guidelines, principles and plans.
Based on the development culture above to strive for
better returns and potential tapping, human resources
shall be inspired and motivated in three aspects: (1) Fur-
ther expand the scope of internal mining ownership
transfer among China’s oil companies, covering mature
oilfields hard to develop but still with great potential.
Some blocks used to be premium resources. But at the
late stage of development, current expertise can’t control
the development trend of these oilfields, resulting in
negative impact on economic benefits. These resources
can be included in the transfer, a team with the expertise
and hands-on experience with mature oilfield develop-
ment can be enlisted from across the country. The edges
of “Daqing oilfield development culture” and the exper-
tise and experience of senior experts can be given full
play to rejuvenate the assets of mature oilfields and im-
prove the benefits. Through demonstration and guidance,
the promotion of “Daqing oilfield development culture”
can be more effective. (2) Motivation measures shall be
worked out to guide the targeted flow of technical experts
from mature oilfields to those with inadequate personnel
and poor techniques. (3) External cooperation can be
introduced: employment mode, incentive policies, model
and experience of investment reduction of private com-
panies can be drawn on to achieve effective management
of high-cost blocks.
2.2. Improving the command of dynamic regulation
of oil reservoirs and propelling precise development
according to scientific principles
All the expenses incurred in the whole waterflood de-
velopment system of oilfield have to do with water. The
increase of water injection rate and water cut, or decrease
of daily oil production of a single well would lead to
sharp rise of operating cost. Especially for the high water
cut oilfields, 40% of the operation cost is related to water
cut. An oilfield in China has water cut of over 95% at
present. On the current basis, every 0.4% rise of water cut
will result in an increase volume of injected water of
6122×10 4 m 3 , increase volume of fluid produced of
 1012 
Fig. 6. Relationship curve between operation cost and
water cut of an oilfield.
4753×104 t, and increase water cycling expenses of 6.5×108
yuan (RMB). With the increase of water cut, the water-oil
ratio and cost would increase sharply. When the water
cut is 94%, the operating cost is 597.4 yuan/t; when the
water cut rises to 95%–97%, the operating cost would
increase by 21%–53%[3] (Fig. 6). Controlling water cut rise
will slow down the production decline, thus reduce the
pressure on production capacity construction, and reduce
the investment and depreciation. Take PetroChina as an
example, if the production decline rate drops by 2%–3%,
the production capacity of (400–500)×104 t and in turn
the investment of (200–300)×108 yuan be saved. Clearly,
controlling the rise of water cut and production decline is
the top priority of cost reduction.
Rapid water cut rise and substantial production de-
cline have been the bottleneck restricting the sound de-
velopment of crude oil business for a long time. The five
major problems must be solved to break the bottleneck:
(1) Heterogeneity of reservoir stratum is the most
prominent and key factor affecting oilfield water cut and
conflicts between injection and production. Thus the core
of stabilizing oil production and controlling water cut is
the scientific understanding and characterization of the
heterogeneity of reservoir. (2) Long-term practices of
oilfield development have proven that proper ratio of
injection and production wells is the critical condition of
water cut control during production at the stage of ex-
tra-high water cut. Thus the key of stabilizing oil produc-
tion and controlling water cut is how to keep wells in
good condition and keep well-organized well pattern and
keep a proper ratio of injection and production wells, to
make production wells receive water stimulation in mul-
tiple direction. (3) Proper and precise description of res-
ervoir is the foundation of refined stratum division and
optimizing separated-lay water flooding. Only when the
stratum division is precise enough, and separated-layer
water flooding rational enough, can the reserve control
and producing degrees be maximized. (4) At high water
cut, only by analyzing injection and production dynamics
and adjusting injection-production structure well, can
 SONG Xinmin et al. / Petroleum Exploration and Development, 2021, 48(4): 1007–1018
injection and production dynamics be regulated timely to
keep oil production stable and water cut low. (5) Injec-
tion and production processes shall be improved to en-
hance the treatment capacity of injected water to reduce
the blocking of oil layers due to excessive suspended sol-
ids and oil in the produced water for reinjection and en-
sure stratum energy replenishment in a timely and bal-
anced way. The problem of high cost in mature oilfield
development can only be settled by addressing these
technical issues scientifically and further developing a
series of techniques for continental reservoirs. In the
meantime, these are the fundamental principles of scien-
tific development, also the only way to realize refined
development by implementing precise dynamic regula-
tions[1, 3, 6–7].
2.3. Promoting development strategy combining
secondary and tertiary recovery (CSTR) and technical
upgrading to greatly enhance recovery rate
The major causes of the current high development and
operating cost and high depreciation are the rapid rise of
water cut, rapid oil production decline, and significant
decrease of economically recoverable reserves. To make
up for the production decline, the conventional measures
are to increase water injection volume (steam flooding
for heavy oil reservoir) to replenish reservoir energy or
construct new production capacity. Both of them would
greatly enhance the production cost. Therefore, to finally
reduce the cost, water cut and the volume of injected
water (steam) must be kept low, and effective measures
shall be taken to slow down production decline and re-
duce the pressure of production capacity construction.
Fig. 7. A three-dimensional well pattern diagram of CSTR for a conglomerate oil reservoir in Xinjiang Uygur autonomous
region, China.
 1013 
The on-going programs of secondary recovery and
CSTR by PetroChina have prepared strategic replacement
technologies for sustainable economic development of
mature oilfields at the stage of high water cut, extra-high
water cut after the conventional infill drilling[8–10].
The core of secondary recovery is refined division of
development units on the basis of deep understanding on
reservoir heterogeneity. With development units divided
accurately, the overall injection and production dynamics
can be regulated and controlled precisely in single sand
body unit to keep oil production stable and water cut
low[11–12]. The secondary recovery program of mature oil-
fields begun in 2007 by PetroChina has covered a total
geological reserve of 16.7×108 t, and had an annual output
of 1042×104 t in the peak, annual oil production of over
1000×104 t in 7 consecutive years, a total of 12 381×104 t
new recoverable reserves, and a water-flooding recovery
rate increment of 7.8%.
The CSTR is a total new upgrading of secondary re-
covery. The development units and three-dimensional
well patterns of secondary recovery and tertiary oil re-
covery shall be established in uniform manner (Fig. 7), so
an underground flow field conducive to tertiary oil re-
covery can be formed to achieve the seamless connection
between refined waterflooding and tertiary oil recovery
on the basis of tapping remaining oil by waterflooding.
This way, the well pattern construction investment can be
saved to maximize total recovery rate and economic re-
turn. The polit tests of CSTR have achieved good effects
in both the “double extra-high” (namely, composite water
cut higher or equal to 90%, and the recovered rate of
recoverable reserves higher or equal to 80%) western
 SONG Xinmin et al. / Petroleum Exploration and Development, 2021, 48(4): 1007–1018
sandy conglomerate reservoirs and the eastern sandstone
reservoirs, providing technical support for controlling
water cut, injected water (steam) volume, and production
decline.
Since the beginning of China’s 13th Five-Year Plan, CSTR
has been implemented in the “double extra-high” Xinji-
ang conglomerate oilfield and complex fault block Liaohe
and Dagang oilfields, covering a geological reserve of
1.2×108 t. At the stage of refined waterflooding, they had
output doubled, all the drilling investment returned be-
fore the implementation of tertiary oil recovery, and have
a recovery factor increment of 20% or so. Compared with
independent tertiary oil recovery, the CSTR can increase
recovery factor by 4%–5% and internal rate of return by
2%–3%, confirming its synergetic technical advantages in
enhancing recovery. Especially in Xinjiang oilfield with
shrinking construction of production capacity under the
original pattern of development, by implementing CSTR,
a total increase of 466×104 t oil has been produced, and
1.6×108 t recoverable reserves have been confirmed.
On the basis of CSTR work, three major revolutionary
techniques have achieved strategic breakthroughs to
promote the ultimate recovery of crude oil: (1) Final re-
covery can exceed 90% by regulating the oil/water phase
state with neutral phase micro-emulsion of negative sa-
linity gradient. (2) Current steam assisted gravity drain-
age (SAGD), steam flooding and high-temperature fire
flooding can be combined to achieve underground in-situ
modification of crude oil, with final recovery reaching
70%-80%. This technique can greatly reduce the cost of
thermal recovery to comparable with thin oil develop-
ment. (3) High-pressure air flooding can achieve the ef-
fect of thermal miscible displacement to greatly improve
the recovery in light of the features of China’s continental
crude oil with high wax content and viscosity, and misci-
ble difficulty[1,7].
By implementing CSTR and technical upgrading, not
only the water cut, injected water (steam) volume and
production decline can be controlled, but also the value
of assets can be upgraded fundamentally, especially the
benefit-making capability of low-productive and invalid
assets can be elevated. The low-productive and invalid
assets can be divided into two categories: (1) extra-low
permeability oil reservoirs mainly located in the west of
China and low and extra low permeability oil reservoirs
in the east and west of China, where the low-grade re-
sources have slow recovery rate and low recovery, high
asset depreciation, high operating cost due to down-
grading of resources and no mature supporting devel-
opment theories and techniques; (2) relatively premium
resources entering the development stage of “double
highs” (composite water cut higher or equal to 80%, and
recovery rate of recoverable reserves higher or equal to
60%), with very low production of single well and oil
 1014 
recovery rate, these resources drop into a sensitive
cost-effective range under medium or low oil prices.
These two types of assets account for an increasingly high
proportion. The new generation of recovery enhancing
techniques can greatly improve the recovery rate, reduce
the costs, and increase the economically recoverable re-
serves of these resources. Therefore, these resources will
increase in value significantly and have great potential.
2.4. To innovate key technologies of gas flooding and
expedite the popularization of industrial gas flooding
After more than 60 years of development, gas flooding
has become the first choice to enhancing oil recovery
(EOR) of thin oil in the world. Statistics show that global
EOR production was 1.17×108 t in 2016, in which 3671×104
t was from gas flooding, accounting for 31%[7]. China’s
research and experiments on gas flooding dated back to
the 1960s. After nearly 10 years of endeavors, PetroChina
has made breakthroughs in hydrocarbon gas miscible
flooding, CO2 miscible flooding, nitrogen oxygen-depleted
air (foam) flooding, etc. In particular, gas flooding has
special edges in replenishing energy and enhancing re-
covery of low permeability and special lithologic reser-
voirs. Oil production from gas flooding of PetroChina was
105×104 t in 2020, indicating gas flooding has funda-
mental conditions for industrial popularization. At pre-
sent, gas flooding has become the next new economic
growth point with a production scale of more than 10
million tons after chemical flooding and thermal recov-
ery.
Gas flooding mainly follows the principle of “multiple
kinds of gas and gas selection according to specific res-
ervoir”. Gas flooding shall be promoted with greater ef-
forts in mature oilfields, while gas flooding pilot tests
shall be expedited in new oilfields. Oil companies should
attach equal importance to pilot and industrial tests, and
industrial test and promotion, and push commercial
massive-scale application of gas flooding in orderly
manner, to ensure the target of producing 10-million tons
of oil by gas flooding[1, 6–7]. The specific solutions are
mainly as follows: (1) Plan the strategic layout of carbon
capture and storage (CCS) and carbon capture, utilization
and storage (CCUS) as a whole. CO2 source and sink shall
be matched within enterprises and a low-priced, stable
and diversified CO2 supply system shall be established. (2)
Promote the coordinated linkage model of hydrocarbon
gas gravity drive and strategic gas storage, gas-liquid
interface regulating and monitoring technique shall be
researched first to expedite the industrial application of
hydrocarbon gas flooding. (3) Oxygen-depleted air flood-
ing/high-pressure air flooding shall be promoted in the
block, high-temperature oil reservoirs with high inclina-
tions in Changqing and Xinjiang oilfields etc. Foam-as-
sisted gas flooding and intelligent QHSE (Quality, Health,
 SONG Xinmin et al. / Petroleum Exploration and Development, 2021, 48(4): 1007–1018
Safety and Environment) techniques shall be developed
first.
2.5. To break connected transaction barrier and
innovate management model
Unconventional oil resource development and techni-
cal service in north America have been market-oriented
completely. During 2014–2016, single well investment
dropped more than 30%, which is a successful practice
Chinese oil companies can draw on. For the production
capacity construction of new oil fields in China centering
on unconventional resources to reach benchmark returns,
oil companies and engineering service companies must
work together to innovate management model to greatly
reduce the investment on production capacity construc-
tion. After 10 years of research and practice, China’s de-
velopment technologies for unconventional oil resource
have gradually matured. For example, the volumetric
fracturing through long horizontal well section to gener-
ate sophisticated fracture network becomes mature; the
factory-like operation of cluster wells on large well pad
works well in practice; the preparation and optimization
of full life cycle development plan, integrated geological
engineering research and customized design, have grad-
ually become clear from concept to implementation on
site. As long as the current production construction
system is changed and the connected transaction barrier
is broken, the cost of engineering and technical services
will be reduced, and unconventional oil resources will
surely be developed in large scale economically.
2.6. To optimize strategic layout and establish oil
industry bases
Before and during China’s 12th Five-Year Plan period,
Daqing Oilfield had kept a stable annual production of
(4000-5000)104 t for many years, making great contri-
bution to China’s stable oil production and economic
benefits of the oil industry. Since the start of China’s 13th
Five-Year Plan period, Daqing Oilfield had a sharp drop of
oil production due to long-term intensified recovery and
the impact of low oil price from 2014, marring the energy
safety of China to some extent. Therefore, at the national
level, the four major national oil companies – PetroChina,
Sinopec, CNOOC, Shaanxi Yanchang Petroleum (Group)
Table 1. Development indexes of oilfields at different levels of water cut (updated by the end of 2019)[13].
Producing Recovery
Stage of water cut Water cut/%
reserve/108 t rate/%
Low water cut fw<20 9.0 17.3
Medium water cut 20fw<60 78.8 17.2
High water cut
60fw<80 78.5 21.2
(earlier stage)
High water cut
80fw<90 65.8 25.7
(late stage)
Extra water cut fw90 111.3 41.1
High water cut total fw60 255.7 31.0
Note: fw—water cut, %.
 1015 
Co. Ltd, should all strive to establish oil production bases
with decisive influence on the production scale and
benefit prospects out of forward-looking perspective, in
the hope to form a strategic pattern with major oilfields
as driving force and coordinated optimization. In
PetroChina, Ordos Basin and Xinjiang Region have been
built into oil production bases with “double edges” of
largest production scale and low costs first. Meanwhile,
the Song-Liao Basin has given priority to the
transformation and upgrading of development patterns.
In the Bohai Bay Basin, CSTR and transformation of
development pattern in low permeability oil reservoirs
have been carried out to keep stable production and
reduce cost effectively. By adopting different measures,
the oilfield companies have endeavored to control pro-
duction costs in rational range and promote the imple-
mentation of low cost strategy on the whole.
3. Analysis of development potential of
oilfields in China
3.1. Potential of mature oilfields
By the end of 2019, the four major national oil compa-
nies had 255.7×108 t reserves produced in high water cut
oilfields (Table 1), accounting for 74.5% of the total pro-
ducing reserves. The annual oil production from these
reserves accounted for 71.8% of the total output. The oil-
fields with water cut higher or equal to 90% had pro-
ducing reserves of 111.3×108 t, accounting for 32.4% of the
total producing reserves, and annual oil production ac-
counting for 27% of the total output. Among them, the
mature oil regions (Daqing oilfield, Shengli oilfield) have
57.8% of reserves entering the stage of extra-high water
cut. Although having generally entered the stage of “dou-
ble-high”, China’s oilfields are generally low in recovery
degree. To date, the oilfields with high water cut have an
average recovery degree of geological reserves of 25.6%,
that is to say nearly 3/4 of oil is left underground still.
The CSTR tests in oil regions such as Xinjiang have
achieved success, effective controlling production decline
and increasing economically recoverable reserves of these
oilfields. If popularized across the country, the develop-
ment pattern will make economically recoverable re-
serves increase noticeably. Preliminary assessment shows
Annual oil Composite Degree of Oil recovery
output/104 t water cut/% recovery/% velocity/%
688 6.2 5.4 0.39
4 699 49.1 7.8 0.60
4 383 71.8 14.0 0.56
4 181 85.4 20.5 0.64
5 163 95.6 36.9 0.46
13 727 91.4 25.6 0.54
 SONG Xinmin et al. / Petroleum Exploration and Development, 2021, 48(4): 1007–1018
Fig. 8. Evaluation methodology of economically recov-
erable reserves.
that CSTR can be adopted in mature oilfields in China
with high water cut with geological reserves of 212.9×108 t,
and is expected to enhance recovery by 14.4% and in-
crease recoverable reserves of 30.62×108 t.
To further evaluate and tap the potential of economi-
cally recoverable reserves, based on the cost-effective
production assessment method of developed oilfield and
the cash-flow economic assessment method[14] of oil & gas
development project, aiming at the remaining and newly
increased recoverable reserves, the assessment methods
of economically recoverable reserves have been estab-
lished respectively (Fig. 8). Systematic assessment of
PetroChina oilfields shows that by controlling production
decline with waterflooding, enhancing recovery and sin-
gle well production, and making management innova-
tions, the recovery can increase by 12.03%, the technically
recoverable reserves can increase by 1.79 time on the
current base, and the economically recoverable reserves
can increase by 2.39 times on the current base at the oil
price of 45 USD/bbl, providing resource guarantee for the
low-cost development strategy [1].
3.2. Potential of new oilfields
According to the 4th round of national oil & gas re-
source assessment in China in 2016, China’s conventional
oil and unconventional oil have geological resources of
1080×108 t and 672×108 t, respectively[15]. The principal
resources discovered in China at present are unconven-
tional. The new round of resource assessment in 2019
shows that the shale oil and tight oil have resources of
238×108 t and 138×108 t, respectively. Mainly concentrated
in the Ordos, Songliao, Junggar, Bohai Bay and Sichuan
basins, these resources are the major targets for future
unconventional oil exploration. In recent years, Petro-
China has made successive breakthroughs in the tight oil
exploration in extra-low permeability sandstone of Ordos
Basin, and extra-low permeability conglomerate in
 1016 
Junggar Basin. Significant progress has also been made
in the shale oil exploration in the Jimsar sag of Junggar
Basin, Chang7 Member of Yanchang Formation in Ordos
Basin, Qingshankou Formation in Songliao Basin, and
some sags in Bohai Bay Basin, indicating tremendous
potential of shale oil.
4. Planning of low-cost strategy in oilfield
development
4.1. Planning in mature oilfields
The program to keep production stable coring on con-
trolling decline rate and enhancing recovery shall be
pushed forward in mature oilfields: (1) The production
decline in old fields must be controlled to increase eco-
nomically recoverable reserves while reduce natural
production decline, and the oil recovery rate and decline
rate of remaining recoverable reserves should be in good
match. (2) The program shall be promoted first in
Changqing and Xinjiang oilfields, and then Bohai Bay
Basin, to implement step by step. (3) Industrialization of
the new generation of chemical flooding, SAGD, com-
bined steam flooding and high temperature fire flooding,
miscible flooding, gravity-stable displacement, and
high-pressure air flooding shall be promoted substan-
tively. Chemical flooding shall be carried out mainly in
Xinjiang oilfield and oilfields in eastern China; gas
flooding mainly in Xinjiang, Ordos Basin and some oil-
fields in eastern China; separated-layer steam flooding
and fire flooding, SAGD, combined steam flooding and
high temperature fire flooding shall be promoted in
Liaohe and Xinjiang oilfields vigorously.
4.2. Planning in new oilfields
Cost-effective production capacity construction shall be
achieved in new oilfields by improving single well pro-
duction through technical progress and improving bene-
fits through management innovations. (1) The full life
cycle development plan shall be prepared, and the overall
benefit shall be maximized by refining geologic model,
standardizing plan preparation, managing risk according
to codes, and implementing plan strictly. (2) Integrated
geological and engineering research and customized de-
sign shall be strengthened to reduce the cost of well con-
struction and enhance the single well production further.
(3) The research and test of EOR technologies shall be
reinforced to make breakthroughs in technologies such as
early gas injection to replenish energy, gas huff and puff,
and gas injection displacement”. Three EOR demonstra-
tion zones of 10×108t of Changqing shale oil, Xinjiang
Jimsar shale oil, and Xinjiang extra-low permeability
conglomerate tight oil shall be established to address the
rapid production decline, low single-well utilization, and
low recovery, and enhance the recovery by 5%-10%. (4) A
new model of engineering and technical service led by oil
 SONG Xinmin et al. / Petroleum Exploration and Development, 2021, 48(4): 1007–1018
companies shall be set up to improve the marketing level
of engineering services.
4.3. Prospects of the low-cost strategy
According to the low-cost strategy and development
road map, it was predicted that during the 14th Five-Year
Plan period, China would have 10×108 t oil reserves
proved and producing reserves of 2.25×108 t annually on
average; and annual crude oil production going up back
to 2×108 t; during 15th Five-Year Plan period, China’s crude
oil production may rise to 2.1×108 t, back to the all-time
high[1]. In terms of the development of unconventional oil
& gas, it’s expected that average annually proved uncon-
ventional oil (shale oil, tight oil) reserves would reach
(2.7-2.9)×108 t from 2021 to 2035. Massive scale produc-
tion capacity of shale oil and tight oil are expected to be
built in Mahu, Jimsar and east Junggar basin in Xinjiang,
Changqing Longdong and northern Shaanxi Province,
Qingshankou Formation of Gulong-Changling fault de-
pression and peripheral placanticline in Song-Liao Basin,
through overall coordinated planning and optimizing
engineering and technical service system. It’s expected
the unconventional oil will rise to the production of
1300×104 t by 2025 (285×104 t in 2019), and 2300×104t by
2035, and become an important supplement of China’s
conventional oil. China’s annual crude oil production is
expected to increase by (1500-2000)×104 t to further di-
lute the fixed cost on the basis of implementing the
low-cost strategy, by optimizing investment structure of
both old and new oil fields, taking advantage of prefer-
ential policies on shale oil and tailing resources, and in-
creasing production of oil companies. At the end of
China’s 14th Five-Year Plan, the total cost of crude oil is
expected to drop by 5–10 USD/bbl[1, 16].
5. Conclusions
The plunges of low oil price in recent years were heavy
blows to the profit of oilfield development in China. Be-
sides downgrading and aging of development objects, the
reasons of oil development cost rising in China since the
“Eleventh Five-Year Plan” period include: (1) too fast
production capacity construction under the lack of
enough technical and test preparation, (2) high technical
engineering service cost in oil companies, (3) oil devel-
opment expertise and matched engineering system unable
to satisfy the challenge of stabilizing oil production and
controlling water cut and refined oil development.
To realize the low-cost strategy, increasing economic
recoverable reserves is the core. From the oil develop-
ment philosophy, the oil development mode relying
heavily on large-scale new well drilling with high cost to
make up the significant production decline in China can
hardly sustain the survival and development. It is urgent
to analyze and inspect the concept of oil development,
 1017 
development management efficiency, technological pro-
gress and development culture system, to push forward
the refined and dynamic oil development management
over the whole life cycle of oilfield, to fundamentally
solve the problems restricting the economic development
of oilfield. It is necessary to enhance the leadership of oil
development business, strengthen the building of tech-
nical expert system in oil development, popularize scien-
tific development principles and oil development culture
comprehensively, and inspire human potential to create
benefit. From the perspectives of oil development tech-
nology and management, mature oilfields should focus
on controlling production decline rate and enhancing oil
recovery, while new oilfields should focus on increasing
single well productivity through technology innovation
and improving engineering service efficiency through
management innovation. Oil companies should draw on
the essence of continental reservoir development, and
improve the ability to control reservoir dynamics, push
forward technological updating and industrialization of
CSTR, accelerate the transformation of development
mode, and solve the problems accumulated in the engi-
neering market system to increase asset value and eco-
nomically recoverable reserves.
Although oilfield development in China faces a number
of challenges, such as high oil development cost, irre-
versible trend of resource downgrading, technical staff
not good enough to handle the complicated oil develop-
ment, and high technical engineering service cost be-
cause of the engineering market system, the low-cost
development strategy will be bound to succeed as long as
strategic development of mature and new oil fields is well
planned, the technological innovation is closely combined
with the development culture building, the two major
tasks of stabilizing oil production in mature oilfields and
building economic production capacity in new oil fields
are done well, competitive technologies enhancing oil
recovery are explored actively, and the transformation
and upgrading of oil development and refined reservoir
managements are pushed forward fully.
References
[1] SONG Xinmin. The potential and suggestion of oil de-
velopment in PetroChina. Beijing: The PetroChina Annual
Meeting of Oil & Gas Development, 2020.
[2] WANG Fenglan, SHA Zonglun, LUO Qing, et al. Progress
and prospects of the developing techniques in ultra-high
water-cut period of Daqing Oilfield. Petroleum Geology &
Oilfield Development in Daqing, 2019, 38(5): 51–58.
[3] SONG Xinmin. The strategy of stable oil production
maintaining 100 million tons in PetroChina. Beijing: The
PetroChina Annual Meeting of Oil & Gas Development, 2017.
[4] SONG Xinmin. Trying to create new situation of oil de-
 SONG Xinmin et al. / Petroleum Exploration and Development, 2021, 48(4): 1007–1018
velopment in PetroChina through inheriting the past and
striving for new future, and positively facing the chal-
lenge. Beijing: The PetroChina Annual Meeting of Oil &
Gas Development, 2009.
[5] SONG Xinmin. Seizing on the principal contradiction,
highlighting fundamentals and innovation, and support-
ing the stable enhancing of oil well production. Daqing:
The PetroChina Conference on Enhancing Oil Well Pro-
duction, 2009.
[6] SONG Xinmin. Study on the strategy of oil development
in PetroChina under low oil prices. Beijing: The Petro-
China Annual Meeting of Oil & Gas Development, 2016.
[7] SONG Xinmin. The situation of oil development technol-
ogy and suggestion on the oil development strategy in
PetroChina. Beijing: The PetroChina Annual Meeting of
Oil & Gas Development, 2018.
[8] HU Wenrui. Necessity and feasibility of PetroChina ma-
ture field redevelopment. Petroleum Exploration and de-
velopment, 2008, 35(1): 1–5.
[9] SONG Xinmin, PAN Zhijian. Petroleum reservoir engi-
neering. Beijing: Petroleum Industry Press, 2019.
[10] SONG Xinmin, WANG Fenglan, GAO Xingjun, et al.
Techniques for improved oil recovery by water flooding in
mature oilfield at super-high water-cut stage. Beijing: Pe-
 1018 
troleum Industry Press, 2019.
[11] GAO Xingjun, SONG Xinmin, ZHOU Xinmao, et al. Detail
characterization and application of fluvial reservoir at
re-development stage of mature oil field. Beijing: Petro-
leum Industry Press, 2012.
[12] ZHAO Pingqi, CAI Mingjun, WU Xi, et al. The “2+3 com-
bination” oil extraction mode in complex fault block oil
reservoirs. International Petroleum Economics, 2019,
27(5): 79–84.
[13] SONG Xinmin, GAO Xingjun, ZOU Cunyou, et al. The oil
resource potential in mature oilfield at high water-cut
stage in China. Daqing: The Annual Meeting of the key con-
sulting project of Chinese Academy of Engineering, 2020.
[14] QU Debin, WANG Xiaolin, LAN Lifeng, et al. Resource
optimization of oil & gas upstream: Theory and applica-
tion. Beijing: Petroleum Industry Press, 2018.
[15] ZHENG Min, LI Jianzhong, WU Xiaozhi, et al. The con-
ventional and unconventional oil resource potential and
key exploration fields in China. Marine Origin Petroleum
Geology, 2019, 24(2): 1–13.
[16] SONG Xinmin, QU Debin. The effect of COVID-19 on the
upstream business of PetroChina and the strategy of oil
development. Beijing: PetroChina Research Institute of
Petroleum Exploration & Development, 2020.