Exploration Process
The exploration process in the oil and gas industry encompasses various scientific methods aimed at discovering mineral deposits. These steps require significant investment in both time and resources, and detailed geoscience data is essential throughout the phases of exploration.
Preliminary Surveys
Preliminary surveys involve a broad range of activities, including the analysis of existing geological data and the collection of new information. Geoscientists utilize various methods to assess the geological formations and the environment of deposition. These methods may include:
- Geological mapping: To thoroughly understand the surface characteristics of the area of interest.
- Aerial photography and satellite imagery: For a comprehensive view of the area that aids in identifying geological structures from a macro perspective.
Identifying Prospects
The next critical step is to identify specific prospects where the likelihood of discovering hydrocarbons is high. Geological and geophysical (G&G) costs represent a significant portion of exploration expenses in this phase. They relate to more targeted surveys, such as:
- Seismic surveys: These delineate the subsurface geological structures and are pivotal in deciding where to drill.
- Resource assessments: Combining geological data with information on rock and fluid properties to evaluate the potential volume of hydrocarbons.
- Other geophysical tests: Including magnetic and gravity surveys, further narrowing down the prospects for drilling.
The exploration costs associated with the preliminary surveys and identifying prospects phases are substantial, reflecting the comprehensive nature of data gathering and analysis required to reduce risk and pinpoint the most promising drilling locations.
Drilling and Evaluation
Before an exploration company can confirm the presence of oil or gas, extensive drilling and evaluation must be conducted. Drilling operations break the ground to reach subsurface formations, while the evaluation process involves interpreting geoscience and engineering data to determine the economic viability of the prospect.
Drilling Operations
Drilling for oil and gas begins with the construction of an exploratory well. These wells are drilled in areas that geological studies suggest may contain hydrocarbons. Two types of exploratory wells are common: exploratory-type stratigraphic test wells, which are used to gather information about the layers of rock and their content, and development wells, which are drilled in a proven field to produce oil or gas. When a new field is discovered, it is often through drilling an extension well, expanding the known boundary of the field.
- Drilled: Drilling involves penetrating the earth’s surface to reach the target formation.
- Known Reservoir: Wells are often drilled into known reservoirs to assess the size and extractability of the deposit.
- Stratigraphic Condition: Drillers must understand the stratigraphic conditions to choose proper drilling techniques.
Assessing Exploration Sites
Assessment follows the completion of drilling operations. This phase involves analyzing the gathered geoscience and engineering data to determine whether a site has the potential to become a commercially viable source of oil and gas.
- Natural Reservoirs: Evaluation identifies if the formation can serve as a reservoir with adequate pressure and if the rock is sufficiently permeable to allow oil and gas to flow.
- Economic Data: Companies must also consider economic data, balancing the cost of development against potential returns.
- Formation Samples: Collected samples from formations are studied to estimate the volume of hydrocarbons present.
The extraction of natural gas, crude oil, or condensate is contingent upon not just the existence of these resources but also their recoverability under current technological and market conditions. Therefore, the drilling and evaluation phase is a critical step in unlocking new energy resources while ensuring economic feasibility.
Costs and Rights Acquisition
Securing the rights to explore for and produce valuable minerals, notably oil and gas, involves various costs and legal formalities. These expenses are crucial for an entity’s ability to assess and utilize potential resources.
Lease and Property Acquisition
Entities incur significant costs when acquiring leases or properties with potential mineral deposits. Lease bonuses—payments made to secure a lease—are a substantial expense. Additionally, entities commonly cover brokers’ fees, which are the costs paid to intermediaries who facilitate the lease arrangements. The acquisition of properties may involve a competitive bidding process, requiring substantial upfront capital to secure the rights to explore and develop a given area.
- Lease Bonuses: Upfront payments for securing leases.
- Brokers’ Fees: Payments for intermediary services in property acquisition.
Mineral Rights and Lease Expenses
Mineral rights provide an entity the permission to extract minerals from a land. The acquisition of these rights is encompassed under property rights and requires careful negotiation over the value of the potential minerals, such as oil and gas, natural gas liquids, natural bitumen with specific viscosity and sulfur content, as well as different metals. Following the acquisition, lease expenses may be incurred for the maintenance of the property rights. These costs ensure the entity’s legal standing and ability to proceed with development and exploration activities, to eventually produce and sell the extracted resources.
- Property Rights: Legal permissions acquired for mineral extraction.
- Lease Expenses: Ongoing costs for the maintenance of acquired mineral rights.
Infrastructure and Development
The installation and continuous improvement of infrastructure are critical components in the development of oil and gas reserves. These efforts ensure the efficient extraction and processing of resources from proven fields.
Construction of Facilities
Construction of facilities is the cornerstone of any development project aimed at developed oil and gas reserves. Builders must equip development wells with the necessary well equipment, including improved recovery systems that optimize the extraction process. Production facilities are also constructed to handle the field processing of the resources. Each facility is designed to support the operational demands of the field, ensuring that the gathering, treating, and field storage systems adhere to the highest standards of safety and efficiency.
Installation and Maintenance
Once facilities are constructed, the installation of infrastructure is essential to connect developed oil and gas reserves with processing equipment. Field gathering systems and storage systems are put in place to facilitate the movement and temporary storage of extracted resources. Existing equipment must be meticulously maintained to avoid disruptions in operation, extending from the development wells to the end-point storage systems. Regular maintenance checks are critical to sustaining the longevity and effectiveness of the oil and gas infrastructure and facilities.
Reservoir Management and Economics
Reservoir management and economics involve meticulous assessment of geological formations to determine their potential yield of resources and the viability of extraction in economic terms. Accurate classification and financial assessment play crucial roles in resource development and investment decisions.
Resource Classification
Proved reserves are those quantities of petroleum which, by analysis of geologic and engineering data, can be estimated with a high degree of confidence to be economically producible from a given date forward. The classification system also includes unproved reserves, which are less certain to be recovered than proved reserves. Effective reservoir management relies on a deterministic estimate which quantifies the estimated ultimate recovery (EUR) and cumulative production through meticulous assessments.
Classifying resources requires a holistic understanding of the reservoir characteristics, which includes analyses of existing wells, the volume of cumulative production, and trends in dry hole contributions. These assessments are important for determining the development plan, which may encompass both exploratory and development activities.
Financial Assessment
Financial accounting for oil and gas exploration and production activities follows specific standards, in which Regulation S-X under federal securities laws plays a pivotal role. Financial assessment involves forecasting net revenue and future net revenue from production activities, which are essential for determining the economic feasibility of a project.
Investment and economic analysis of oil and gas fields frequently include calculating the net present value (NPV) of future cash flows from proved reserves. Companies account for direct costs in exploratory efforts, such as geological and geophysical expenses, and development costs associated with making the resources ready for extraction, including the costs for drilling and equipping wells. The presence of natural gas liquids (NGL) in the reserves adds value and is assessed when calculating revenue.
Moreover, advanced methods like resources assessments use deterministic or probabilistic models to predict the economically recoverable portion of discovered and undiscovered accumulations. The goal is to quantify the reservoir’s economic value, ensuring all figures align with accumulated data and compliance with the pertinent financial accounting standards and regulations.