On Estimating Oil Reserves

Guesses and Estimates It is not hard to believe that there is, and that there always will be, some ambiguity as to the amount of oil reserves in a given oil field, oil-producing province, or even a nation. Lifting oil out of the ground is a tricky business, and it has been so ever since Col. Drake drove down that oil well at Titusville, Penn., in 1859, and inaugurated the world's age of oil. (At least for a while.) The best of petroleum engineers will have different opinions about the volumes of oil reserves, even based on looking at identical data sets from the same oil wells. Most reserve estimates for oil in the ground are given in terms of "probabilities." There is a 10% probability (P10) of a big number. There is a 50% probability (P50) of a lower number. And there is a 90% probability (P90) of a relatively modest number of barrels of reserves in the ground. It might, and probably will, take many years to figure it all out. At root, your reserves are controlled by your geology. What is the nature of the source rocks in which the oil originated? What is the fundamental chemistry of the oil itself? What is the nature of the rock formations that presently hold the oil? Are the formations composed of sandstone? Are they limestone? Are they something else? What is the porosity of the oil-bearing formation? What is the permeability of the oil-bearing formation? What is the pressure and temperature regime down in the hole, whence the oil is flowing (you hope) to the well bore? And what is the source of reservoir energy that drives the oil to a well bore? (Is it a natural gas cap? Dissolved gas? Water drive? Gravity? Some combination of these?) Are there other important factors that control things deep down in the ground? Are there geologic faults that cut the formation rocks and form barriers to continuous flow? (Or do the fault lines act as channels?) Are there permeability "pinch-outs," where the rock matrix changes such that the reservoir energy is just insufficient to push the oil through the microscopic pores of the rock and toward the well bore? Are there certain "sweet spots" or "channels" or zones of "super permeability" in the oil-bearing formation that enable the oil to drain faster at one level than at other levels, or in one direction as opposed to another? And what happens when you start to produce the oil from a well? Production changes the dynamic relationships of the environment down the hole. How does producing the first barrel of oil affect the production of the remaining barrels? (Hint, you are lowering your reservoir pressure.) What are the dynamic variables? When you remove the oil and associated water and gas, will the formation rock and surrounding rocks begin to subside? Will subsidence affect, and most likely lower, the porosity and permeability? (Whoops, there is a problem.) Do you have to supplement the reservoir energy by injecting natural gas, or pumping water down another well? These are just the first sets of many complex questions you have to ask, and you have to ask them about pretty much every oil well you will ever drill. It gets kind of complicated, huh? So if you are in the oil business, you ask the questions. And you get some answers. And you and your engineers do that magic engineering stuff, with the

slide rules (I am dating myself here) if not with the fancy software programs. And you make a lot of assumptions about things that are just plain out of sight, beneath thousands of feet of solid rock, down where even Superman's X-ray vision cannot penetrate. And you make your estimates, based on best engineering practices. And how much oil is there? you must want to ask. And how can Kuwait have a discrepancy of 47 billion barrels? Can You Handle the Truth? Do you want to know the truth? Let me paraphrase the famous line that Jack Nicholson's character, a colonel of the U.S. Marines, spoke in the movie A Few Good Men. "You want answersYou can't handle the truth.." OK, I will tell you the truth. When it comes to estimating oil reserves, you do the best engineering that you can. You look at all of your samples from down in the hole. You gather all the data available. You spend as much money as you can afford to do things right. You crank all the numbers. You fit all the numbers to the very best curves that you can draw. And then you take a guess. A guess? OK, an educated guess. Because there is a lot of educated guesswork involved. And remember that when it comes to estimating oil reserves, first and foremost you have to be educated. Estimating oil reserves is not for amateurs, so do not try this at home. When you estimate oil reserves, you are making a lot of assumptions about things that you do not know, and cannot know, and probably will never know. Some educated people are very conservative and careful, and hence reluctant to overstate what they think the numbers show. And some educated people are ambitious, and tend to err on the side of what is known as "thinking big." There is a lot of science involved. But at the end of the day, estimating the volume of oil reserves in a rock formation is not really a science so much as an art. And within that art form, some people are Rembrandts. And some people are just throwing stuff against the wall, to see if it sticks. Hey, it worked for Pablo Picasso and Mark Rothko. So the conservative, educated PIW people say that Kuwait has about 48 billion barrels of reserves. (Is that a P-85 or a P-95?) And the KOC director, who is well educated but who also serves at the pleasure of another master, says that Kuwait has 95 billion barrels of reserves. (Is that a P-05, or maybe a P-01, or maybe a P0.01?) And how will we ever know? It Is All About Barrels In the end, it is all about the number of barrels that you can lift out of the ground. It was all about barrels when Col. Drake lifted 25 of them out of the ground on Aug. 27, 1859. And it is all about barrels today, when the entire world oil industry collectively lifts about 84 million barrels per day out of the ground. At the end of each day, you know what you have if you can run the numbers. But how much oil is left? There is no escaping the fact of nature that there are fewer barrels in the ground today than there were yesterday, and there will be fewer barrels tomorrow than there are today. If you want an exact number, you take an educated guess. Meanwhile, you pump your well, and while the motor is

running, you get down on your rug and pray. There are many hundreds of working oil wells near Titusville, Penn., birthplace of the world's oil industry. Not a few of these oil wells were drilled over 100 years ago. These Titusville wells are still producing oil, just not very much. The operators might run the pumps for an hour or so each day, or just run the pumps every few days. This drains the hole of water and oil. Then the downtime, when the pumps are shut off, allows the hole to replenish with more water and oil from the surrounding rock formations. These old wells strip out a few barrels of oil per day, week, or month. Again, welcome to the future. The world's oldest continuously operated oil well, located south of Titusville and known as the McClintock No. 1, was drilled in 1861. When the original operators kicked it down, the records are that this well produced about 50 barrels of oil per day. That was not a lot of oil by comparison even back then, when some Titusville wells produced upward of 5,000 barrels in a day. But after 145 years, the McClintock No. 1 still produces a small amount of light green, Pennsylvania-grade crude oil, in the range of about one valuable barrel per day. (When it comes out of the well, it feels soft and smooth like hand lotion. Don't try this with the high-sulfur gunk that comes from a lot of other oil wells, however. That stuff will burn the skin off your bones.) Back in 1861, and even assuming that anyone understood anything about petroleum engineering (which nobody did back then), who could have predicted the ultimate recovery of oil from the McClintock No. 1? But engineering or no, the old well has benefited seven generations of mankind, with the current proceeds going to the Drake Well Museum in Titusville. Hubbert Linearization In my previous article, I mentioned the method called Hubbert linearization, used for predicting the amount of ultimate recoverable reserves. This is a method that is designed to look forward into the future, but at root involves looking backward at historical production data and fitting that production data to a decline curve. The idea behind this kind of mathematical modeling is that total oil production tends to follow what is known in mathematics as a logistic curve. The logistic curve is a well-regarded means to model for exponential growth or decline in finite systems. This kind of technique had been used widely in the fields of modeling human populations, ecological systems, epidemiology, economics and econometrics, and no doubt many other fields. This method of modeling for ultimate recoverable reserves is of little use in regions where oil development and production is immature. But it seems to work well in areas that have long histories and good statistics on oil production. It works just great for showing U.S. oil production numbers over the past few decades. And it appears that the numbers in most oil-producing nations of the Middle East are starting to fit the Hubbert logistic curve as well. As I noted in my previous article, Hubbert linearization gives Kuwait a volume of oil reserves in the range of 40-48 billion barrels, far below the figures offered by the director of the KOC. I do have to wonder, however, what will happen to oil production on the

backside of Hubbert's Peak. Will political instability interfere with the relatively free, commercially driven operations of the world's oil markets? After all, the oil age has occurred during a relatively stable time in global trade, and was not even severely disrupted by such epochal events as World Wars I and II or the Cold War. But when the world begins to encounter an absolute decline in oil supplies, will what we consider today the "normal" state of political and commercial affairs transition into regional empires? Will we be dealing with military blocs and tightly controlled economic spheres, each with some manner of internal selfsufficiency? Will the strategic calculus of the future be to deny strategic resources like oil to one's competitors? If so, even the best of resource estimates will lose the advantage of being cross-checked with reliable production data. Sure, dear readers, in oil wells as in cards, or in love and life itself, you take your good luck as it comes your way. You live with your probabilities and you play the hand you are dealt. But then again, as your father may have told you, you really need to go out and make your own good luck as well. And as we never tire of pointing out in Whiskey & Gunpowder, over the long haul things in this world tend to regress to the mean. And often as not, you have to work very hard just to get what you deserve. Until we meet again Byron W. King Date: 2006-02-05 | Viewed: 2767