ACKNOWLEDGEMENT

I would like to express deep sense of gratitude to Mr. K.V. Mohan Rao (Centre Director-UPES), Mr. G.M. Rao (Dean-COMES) for providing me the opportunity to do the project work in O.N.G.C. Rajahmundry. I would like express my gratitude to Mr. J.A. Kumar (General Manager-HR), S.K. Panigrhy (HeadSTI) for allowing me to pursue my project work at the O.N.G.C. (Rajahmundry Assets). It is a matter of great pleasure for me to express my sincere gratitude to Mr. M.S. Gauma (GGMReservoir, Subsurface Manager Rajahmundry Assets) for allowing me to pursue my project work in his department. I would also like to take the opportunity to thank my mentor Mr. P. Bharadwaj-CG (External Guide) as he has spared his time and imparted his valuable knowledge to me along with Mr. M. Karthik (Internal Guide) for his valuable guidance throughout the course of my project. Last but not the least, I would also like to thank Mr. P.S. Goswami & Mr. Shashi Shekhar for their valuable support during the training period. I convey my heartiest gratitude to them for sharing their vast knowledge and expertise acquired through long years of experience in O.N.G.C. which has helped me in gaining insight into the subject. In the end thanks to all that directly or indirectly helped in the course of this project.

(PUNEET MAHAJAN)

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INDEX

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INDEX
S.No. Acknowledgement List of Tables List of Figures Company Profile Abstract Objectives of the Project Research Methodology used in the Project Limitations of the Project Chapter 1 INTRODUCTION 1.0 Introduction Chapter 2 RESERVES ESTIMATION METHODS
2.0 Introduction

Page No. (i) (vii viii) (ix) (x xvi) (xvii xviii) (xix xx) (xxi xxii) (xxiii-xxiv) (1 3) (2 3) (4 13) 5 6 (6 11) 8 (8 11) 9 (9 11) 11 (11 12) (12 13) (14 17) 15 (15 16)

2.1 Data Used in making Reserve Estimates 2.2 Reserve Estimation Techniques 2.2.1 Analogy Method 2.2.2 Volumetric Method 2.2.2.1 Benefits of Using Volumetric Method 2.2.2.2 Calculation of the Reserves by Using the Volumetric Method 2.2.3 Decline Curve Analysis 2.2.4 Material Balance Method 2.2.5 Reservoir Simulation Chapter 3 FACTORS EFFECTING RESERVES ESTIMATION 3.0 Judgmental Factors in Reserve Estimation 3.1 Economic Considerations

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S.No. 3.1.1 Developed Gas Fields 3.1.2 Developed Oil Fields 3.1.3 Successful Exploration Efforts 3.2 Effect of Operating Conditions 3.3 Reservoir Limits 15

Page No.

(15 16) 16 16 (16 17)

Chapter 4 ERRORS IN DECLINE CURVE TECHNIQUE OF RESERVES ESTIMATION 4.0 Errors in Decline Curve Technique of Reserves Estimation 4.1 Data Readings used for the Econometric Model Case 1 4.2 Using six Initial Production and Pressure Data for Developing of the Econometric Model for Decline Curve Estimation Method Case 2 4.3 Using Eight Initial Production and Pressure Data for Developing of the Econometric Model for Decline Curve Estimation Method 4.4 Comparison of % Error in Prediction for the Two Cases (23 25) (25 -26) (20 22) (23 25) (18 26) 19 19 (20 22)

Chapter 5 ECONOMIC BENEFIT OF EARLY OGIP ESTIMATION 5.0 Economic Benefit of Early OGIP Estimation

(27 41) 28

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S.No. Case 1 5.1 General Assumptions 5.2 Capital Expenses Assumptions 5.3 Operational Expenses Assumptions 5.4 Tax Law Assumptions 5.5 Scenario 1 - The Appraisal Well Is Drilled 6 Months after the Exploration Well 5.6 Cash Flow after Taxes & Net Present Value of the Scenario 1 5.7 Scenario 2 The Appraisal Well Is Drilled 1 Year after the Exploration Well 5.8 Cash Flow after Taxes & Net Present Value of the Scenario 2 5.9 Comparison of the NPV of the Scenario 1 & 2 Case 2 5.10 General Assumptions 5.11 Capital Expenses Assumptions 5.12 Operational Expenses Assumptions 5.13 Tax Law Assumptions 5.14 Scenario 1 - The Appraisal Well Is Drilled 6 Months after the Exploration Well 5.15 Cash Flow after Taxes & Net Present Value of the Scenario 1 5.16 Scenario 2 The Appraisal Well Is Drilled 1 Year after the Exploration Well 5.17 Cash Flow after Taxes & Net Present Value of the Scenario 2 5.18 Comparison of the NPV of the Scenario 1 & 2

Page No.

29 29 29 29 30 (31 32)

32 33 34

35 35 (35 36) 36 36 37

38 39 40

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S.No. Chapter 6 CONCLUSIONS & RECOMMENDATIONS 6.0 Conclusions and Recommendations

Page No. (42 44) (43 44)

Chapter 7 REFERENCES 7.0 References Annexure 1 Annexure 2 Annexure 3

(45 46) 46 (47 53) (54 65) (66 82)

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LIST OF TABLES S.No. Table 1:- Comments on Estimation Methods Table 2:- Formulas for the Estimation of Reserves by Volumetric Method Table 3:- Model Parameters for Reserves Calculation by Volumetric Method of Estimation Table 4:- Calculation of the Reserves by Volumetric Method of Estimation Table 5:- Data Readings Used for the Econometric Model Table 6:- Econometric Model for Six Production and Pressure Readings Table 7:- Predicted Production and Error in the Predicted Production Table 8:- Econometric Model for Eight Production and Pressure Readings Table 9:- Predicted Production and Error in the Predicted Production for Eight Readings Table 10:- Comparison of % Error in Prediction for the Two Cases Table 11:- CFAT & NPV of the Scenario 1 Table 12:- CFAT & NPV of the Scenario 2 Table 13:- CFAT & NPV of the Scenario 1 Table 14:- CFAT & NPV of the Scenario 2 Table (A-1.1):- Decline Curve Data of well number (XXX) of K.G Basin (O.N.G.C) Table (A-2.1):- Capital Expenditure for the scenario 1 & 2 (48 53) 55 10 10 19 20 20 23 23 23 25 31 33 37 39 Page No. 7 9

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GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGS.No. Page No. Table (A-2.2):- Depreciation on the Capital Expenditure for the Scenario 1 & 2 Table (A-2.3):- Revenues & Revenues after the Royalty and Payment of Profit Oil for Scenario 1 Table (A-2.4):- Operational Expenses for Scenario 1 Table (A-2.5):- Operating Profits for Scenario 1 Table (A-2.6):- Revenues & Revenues after the Royalty and Payment of Profit Oil for Scenario 2 Table (A-2.7):- Operational Expenses for Scenario 2 Table (A-2.8):- Operating Profits for Scenario 2 Table (A-3.1):- Capital Expenditure for the scenario 1 & 2 Table (A-3.2):- Depreciation on the Capital Expenditure for the Scenario 1 Table (A-3.3):- Revenues & Revenues after the Royalty and Payment of Profit Oil for Scenario 1 Table (A-3.4):- Operational Expenses for Scenario 1 Table (A-3.5):- Operating Profits for Scenario 1 Table (A-3.6):- Depreciation on the Capital Expenditure for the Scenario 2 Table (A-3.7):- Revenues & Revenues after the Royalty and Payment of Profit Oil for Scenario 2 Table (A-3.8):- Operational Expenses for Scenario 2 80 81 73 74 (75 79) 63 64 65 67 (67 - 71) 72 60 61 62 (55 59)

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Table (A-3.9):- Operating Profits for Scenario 2 LIST OF FIGURES S.No. Figure 1: Magnitude of uncertainty in reserves estimates Figure 2: Measures of central tendency Figure 3: Percentiles Figure 4 Actual v/s Predicted Production Figure 5 Percentage Error in Prediction Figure 6 Actual v/s Predicted Production Figure 7 Percentage Error in Prediction Figure 8 Comparison of Percentage Error in Prediction Case 1 v/s Case2 Figure 9 Comparison of NPV of Scenario 1 & 2 Figure 10 Comparison of NPV of Scenario 1 & 2

82

Page No. 5 12 13 21 22 24 24 25 34 40

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COMPANY PROFILE

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COMPANY PROFILE

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VISION

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To be a world class Oil & Gas Company integrated in Energy Business with dominant Indian Leadership and Global Presence.

MISSION WORLD CLASS 1. Dedicated to excellence by leveraging competitive advantages in R&D and technology with invovled people. 2. Imbibe high standards in business ethics and organizational values. 3. Abiding commitment to health, safety and environment to enrich quality of community life. 4. Foster a culture of trust openness and mutual concern to make working a stimulating and challenging experience for our people. 5. Strive for customer delight through quality products and services. INTEGRATED IN ENERGY BUSINESS 1. Focus on domestic and international oil and gas exploration and production business opportunities. 2. Provide value linkage in other sectors of energy business. 3. Create growth opportunities and maximise share holders value. DOMINANT INDIAN LEADERSHIP 1. Retain dominant position in Indian Petroleum sector and enhance Indias energy availability.

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BOARD OF DIRECTORS CHAIRMAN & MANAGING DIRECTOR

R S Sharma Chairman & Managing Director FUNCTIONAL DIRECTORS

Dr. A K Balyan Director (HR)

A K Hazarika Director (Onshore)

D K Pande Director (Exploration)

U N Bose Director (Technology & Field Services) SPECIAL INVITEE

D K Sarraf Director (Finance)

Sudhir Vasudeva Director (Offshore)

GOVERNMENT NOMINEES

R S Butola Managing Director, OVL

S Sundareshan Addl.Secy. MOP&NG Govt. of India

L M Vas Addl. Secy. DEA Ministry of Finance, Govt. of India

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ORGANIZATIONAL STRUCTURE OF ONGC

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OIL AND NATURAL GAS CORPORATION LIMITED The story of oil exploration in India is the history of ONGC itself. India is endowed with 26 sedimentary basins, spread over a geography of 3.13 million square kilometres; offshore basins comprise of 0.39 million square kilometres, Onshore 1.39 & Deepwater 1.35. ONGC has discovered all the producing basins in independent India. Only one old basin discovered before independence existed when ONGC was formed in 1956. Commissioned on 14th august 1956, as a statutory body, ONGC was converted into a public limited company from 1st February 1994, reinventing the potential of the Company in a progressive economic regime. Today, ONGC is Indias most valuable company, leading all Indian companies in terms of market capitalization (over 41 billion US Dollars), Net Worth (11 billion US Dollars) and Net Profit (3 billion US Dollars). Currently recognized as Asias Best Oil & Gas Company, ONGC also leads to all Indian companies in Forbes 2000 list of global mega-corporations. ONGC is a Fortune-Global-500 corporate, and ranks 15th among global integrated oil and gas companies. To achieve organizational growth with stability, ONGC is pursuing business growth options by entering into Joint Ventures and partnerships with companies having niche strength.

ACHIEVEMENTS OF ONGC ONGC is in the select league of Global Oil Majors, producing over 1 million barrels of Oil Equivalent per day contributes around 80% of domestic production. ONGC also produces 3.2 million tonnes of Value Added Products (VAP) including LPG, C2, C3, Naphtha, HSD, Jet fuel and SKO.

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100% QHSE (quality, Health, Safety and Environmental Management) certifications of operational installations, considered unique in world.

10 world-class institutes, as knowledge centre for innovation and technology.

CORPORATE RECOGNITIONS AND AWARDS GLOBAL

Ranked no.1 E&P company in Asia (3rd in the world) as per Platts 250 Global Energy Companies list for 2007.

The only Indian company to feature in the Worlds Most Admired Companies 2007 list by Fortune Magazine(May 2007), securing 9th position in the Mining, Crude Oil Production industry.

Received Golden Peacock Award for Excellence in Corporate Governance in 2007, a 3rd time.

NATIONAL

Biggest Wealth Creator for the period 2001-2006, instituted by M/s Motilal Oswal Securities Ltd., 3rd time in a row.

Ranked as the Most Respected PSU in 2007 Business World IMRB Survey (October 2007) for the 2nd consecutive time.

Received Amity Excellence Award, instituted by Amity International Business School, for excellence in Corporate Governance.

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ABSTRACT

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ABSTRACT Tight gas reservoirs present unique challenges to a reservoir engineer. Due to the low permeability, these reservoirs require a significant amount of time to reach pseudo-steady state flow, making it difficult for the reservoir engineer to predict the original amount of reserves present. If the amount of reserves is unknown, the real viability of projects cannot be assessed or, in the best case, will be evaluated pessimistically. This may result in the assignment of capital to projects other than tight gas projects, or in the development of projects that might not be as lucrative. For several years, engineers around the world have tried to predict the original gas in place (OGIP) for tight gas reservoirs. Decline curves and material balance methods were found to have serious drawbacks when applied to scenarios where permeability is low. In the project work, the data used for the analysis of the declining curve was procured from the O.N.G.C. and is the data of the wells of gas in the K.G. Basin. Regression method was used for the analysis of the errors in the prediction of the reserves by the decline curve technique. The data of the K.G Basin was also used for the analysis of the economic benefits of the early OGIP estimation. Two cases are taken for the analysis of the economic benefits of the early OGIP, in both of the cases two scenarios were built and NPV of both of the scenarios were calculated and compared. This work also shows the impact that an incorrect estimation of initial reservoir characteristics may have on the estimation of OGIP and on the estimation of the NPV of the projects. The results show the drainage area estimation; permeability and porosity are key factors for better estimates.

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OBJECTIVES OF THE PROJECT

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OBJECTIVES OF THE PROJECT Objectives of the project at hand can be divided into:1. Primary Objectives 2. Secondary Objectives.

PRIMARY OBJECTIVE To study the Early Prediction of Reserves in Tight Gas Reservoirs

SECONDARY OBJECTIVES Along with the primary objective, the project also achieved several other {secondary} objectives. 1. Reserves Estimation Techniques for Gas Reservoirs. 2. Identification of the Errors in the Reserves Estimation Techniques. 3. Economic Benefits of the Early Estimation of OGIP.

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RESEARCH METHODOLOGY USED IN THE PROJECT

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RESEARCH METHODOLOGY USED IN THE PROJECT RESEARCH DESIGN It is the plan, structure and strategy of investigation conceived so as to obtain answers to research questions. It is the overall scheme or program of research that guides the investigator in the process of data collection, analysis and interpretation. It helps the researcher to understand the whole picture before he embarks on the actual study. It gives the chance to the researcher to revise and improve on his intended procedure before he actually undertakes the study. DATA Primary data was collected through face-to-face interaction while the secondary data was collected through various sources viz. internet, literature, reports, etc Primary data: - Primary data is one which is collected by the researcher him/herself for the purpose of a specific inquiry or study. Such data is original in character and is generated by surveys conducted by individual or research institutions. In this particular survey the Primary data collected is by the use of the Interviews technique / interaction sessions with the executives of the geology department from Oil and Natural Gas Corporation, Rajahmundry. Printouts of the necessary data for the project were provided by the O.N.G.C personnels. Secondary Data: - Secondary data can be defined as data that has been collected earlier for some purpose other than the purpose of the present study. Any data available to the researcher prior to the commencement of the research project is secondary data. For this project secondary data was procured from O.N.G.C Limited, Rajahmundry and from the internet. Importance of data: - Data constitutes the subject matter for analysis. One cannot draw inferences without analyzing the data. The relevance, adequacy and reliability of the data determine the quality of the study. In the above case the primary data has been taken from the Oil and Natural Gas Corporation

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Limited executives. The secondary data been taken from the Oil and Natural Gas Corporation Limited and from the internet which ensures adequacy and reliability of the data used in the project.

LIMITATIONS OF THE PROJECT

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LIMITATIONS OF THE PROJECT

1. Several assumptions were taken into consideration to calculate the economic benefits of

Early Prediction of Reserves in Tight Gas Reservoirs. Such as the assumed market price of the gas; if the price of the gas changes then it will affect the NPV of the project.

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