Mature conventional oil fields with high production costs are exactly where you don’t want to be. Least of all when they carry nasty decommissioning liabilities and logistical headaches.
There is already too much crude in the bunkers and now it is about low cost production fields and, consequently, a bias toward large reservoirs. Investment capital is understandably concentrated on those fields where the scale and costs of production produce highest returns.
On the face of it, a sensible approach. However what about the impact of unanticipated disruptive technology? Looking back, in a few short years the fracking revolution and the enormous shale reserves they uncorked are largely responsible for the present drastically altered oil landscape. How much of the present global oil environmental can anyone truly state they anticipated before the full details of fracking and scale of suitable shale oil & gas reserves were realised?
Surely mature conventional small oil fields have had their day, especially given:
- the vast quantities of shale oil being quoted;
- the large middle east reserves contained in huge fields with low production costs;
- environmental targets creating a situation where much of existing oil reserves may never be produced; and
- mature small conventional oil fields and heavy oil fields tend to have among the highest production costs pushing them to the front of the queue for oil reserves to remain in the ground.
So mature conventional oil fields, especially smaller ones, have had their day. Get out the welders, cut up the rigs and stop bleating about the decommissioning. At least you can get some scrap value.
Changing the rules
Let’s examine this from a disruptive perspective. Tight oil requires a lot of wells, the oil can only travel in sufficient quantity a limited distance to reach the production wells. Engineering advances in fracking and similar technologies can improve this flow and supply chain efficiencies bring economies to such repetitive injection and production well drilling. However this does not and will not alter the reality that tight oil has high ratio of wells to the oil produced. This puts a glass floor on how low the cost of production for such reserves can driven.
Conventional oil resides in rock with larger pores, with sufficient driving force the ratio of wells to oil produced is significantly less than conventional oil. There are obviously many more considerations that impact on production costs such as permeability, sweet or sour oil, location and infrastructure according to the geography (flat desert or mountainous seas, proximity to export infrastructure), and much more.
What happens if new disruptive technologies return mature conventional oil reservoir pressures to their former glories? Or such technologies pressurise local areas of reservoirs to extract pockets of residual oil cheaply?
The Power of Synergy
Reducing the interfacial tension between the pore and the oil it contains means the same increase in pressure increase should have a greater impact on production rates and volumes. Improved fracking or fracking alternatives increase effective pore width, aiding oil flow. What if it is possible to lower oil viscosity inside the reservoir? This may dramatically improve oil flow to the production well for the same driving force. Used in tandem with a renewed pressure generating technology the synergies of these approaches could be transformational.
Technology disrupts but the repercussions require careful scrutiny to fully appreciate (see fracking). Technology development and implementation is a unpredictable journey with unseen bumps and bends but will early adopters become a generation of Getty’s for the new century.
Bottom line, on a level playing field, small conventional oil fields can reach economic sweet spots that shale oil can never tread. Small mature conventional oil fields are common, unwanted and often occupy the negative side of the balance sheet.
Maybe this is where they belong or maybe the next tidal wave of disruption is brewing. Will you surf it or will it swamp you?