‘RESERVES GROWTH’ - the myth in the Peak Oil debate

1. ‘RESERVES GROWTH’- the myth in the Peak Oil debate Jeremy Gilbert Barrelmore Ltd.

2. Status of the ‘Peak Oil’ message • Concept of a future gap between oil supply and demand now widely accepted • Timing of the supply peak is still uncertain – but if within next 5 - 10 years it’s probably too late to make smooth transition to adding alternative energy sources • Further studies should concentrate on shape of supply curve after peak is reached

3. Status of the ‘Peak Oil’ message Not everyone seems aware that problems for consumers will begin BEFORE we reach a supply peak

4. Deriving the Supply curve The shape of the supply v. time curve will be determined by: • The performance of fields now on production as they mature and go into decline • The pace of development of new fields, and their performance

5. Supply Forecast Background Acceptance that production from existing fields is declining at about 5%/year …. but a wide gap in views of how new discoveries and new technology might slow – or even reverse – this decline Huge disparities in estimates of potential for additional discoveries of conventional oil. Range includes Campbell / ASPO level of ~130 b bbls and USGS mean level of 724 b bbls

6. Supply Forecast Background

7. Supply Forecast Background Even if higher end of yet-to-find range achieved, time needed to discover and develop new remote, deepwater and complex reservoirs will be long (many have no IOC project management input) Most of any new production will come after a supply peak – but should reduce post-peak decline rate

8. Supply Forecast Background Supply levels can only be maintained, and perhaps increased slightly, if ‘reserves growth’ is achieved very quickly and is very substantial

9. Reserves Growth This is name given to effect seen when successive estimates of field reserves increase with time May arise because new data or production method increases likely recovery Usually arises because initial reserve reporting has been unnecessarily conservative, ensuring that as new data obtained reserves can never decrease US SEC rules, mandatory for many IOCs, encourage ‘reserves growth’

10. Potential for ‘Reserves Growth’ Is there agreement on how much of this ‘Reserves Growth’ we may expect to achieve? ! NO !

11. Let’s consider why successive estimates of reserves for any reservoir should grow – if indeed they really do!! USGS Estimate 612 billion stb (F50, 1995-2025) cp. discoveries: 649 b stb! ASPO Estimate 0 stb ‘Truth’: Somewhere between! Differences in RG estimates

12. Impact of Reserve Growth Uncertainty Increases in previously estimated of reserves equal discovery predictions! An overestimate in recovery efficiency will require large compensating increases in already lagging discovery rates

13. Declining Exploration Success

14. In fact ….Reserves DON’T always increase !!

15. How Reserves are estimated The basic equation is Reserve = Resource * (Recovery Factor) ‘Resource’ is the oil-in-place volume. Recovery Factors vary from 5% to 70% Procedures for estimating reserves may vary from company to company and from country to country

16. Recovery Efficiency Range Recovery Efficiencies in oil reservoirs can be as low as 5% or as high as 70% Highest recoveries are from reservoirs where geometry, rock and fluid properties lead to very efficient sweep of oil by gas or water Lowest recoveries are where gas and water drive are absent and only expansion of oil and rock aids production

17. Why might RESOURCE estimates change? 1. Revisions to previous data … but these are as likely to cause a decrease as an increase!! 2. Additional data, describing previously unappraised parts of the reservoir In fields where US SEC reserves rules used: New data will increase reported estimates … but these are now only ~20% of world production! In all other fields: New data as likely to cause decrease as increase

18. Why might RECOVERY FACTOR estimates change? Better ‘Housekeeping’ Infill drilling Cut water production (>25 b bbl/yr. in US alone; >$15 b/yr.) Stop gas flaring/venting (5 tcf/yr. worldwide, 25% of US demand!) Improve current technologies Identify/contact unswept reservoir zones Optimize gas/water floods Optimize miscible gas/CO2 flooding Develop and apply new techniques Chemical – for fluid mobility, rock wettability Thermal – for fluid viscosity Microbial – to improve on existing chemical applications

19. An aside: CO2 and EOR Must distinguish between CO2 injection projects intended to: (a) dispose of surplus CO2, “sequestration” or (b) increase recovery from an oilfield, “EOR” Note that: World CO2 production: 26 billion ton/year World CO2 injection: 30 million ton/year

20. CO2 Injection for EOR Objective: Mobilize viscous oil left by earlier recovery operations Main application in near-depleted fields. May increase recovery efficiency by 10-15% Technique most efficient in limited range of pressures and temperatures Candidate fields need easy access to CO2 resources

21. CO2 Injection for Sequestration Hydrocarbon industry is well-placed to take the lead in developing disposal facilities: • geological database and skills, to ensure pore space and adequate seal • well drilling and completion technology • gas pipelining and compression experience • saturation tracking technology

22. Potential for Reserves Growth In fields not yet developed, where reserves are not yet proved, new state-of-art techniques may increase early estimates. With high future oil prices: scope for significant increases Similarly, in fields under development it may be possible to modify planned design so at to utilize new techniques; again, with high oil price projections, scope for significant increases

23. Potential for Reserves Growth Offshore Producers: Difficult to add new facilities post-installation, field life usually short; logistics and economics limit scope for changes in depletion plan. Significant growth unlikely Onshore Producers: More flexibility but many EOR techniques inefficient if not allowed for early in depletion. Changes in approach difficult to implement if equipment old. Some scope for increases

24. Reserves Growth: Impact of New Technology Instead of adding to early reserves estimates, much new technology used to overcome unanticipated problems: coping with unanticipated reservoir heterogeneity overcoming well damage modifying oil or water mobility avoiding / dealing with hydrates identifying / recovering from unswept areas New technology needed to achieve the recovery factor initially expected

25. Reserves Growth: Impact of New Technology Development / application of new technology will continue to add to recovery efficiency of field developments. BUT As physical limits for displacement efficiency approached, effect on reserves will be much less than extrapolating from past

27. Incremental Production due to Reserves Growth Most reserves growth techniques will deliver production late in field life – target is to produce immobile oil not recovered by other techniques Hence, any incremental production will occur post-plateau, late in field life

28. Effect on Future Supply Assume 180 billion bbls potential Reserves Growth can be ‘booked’ (NOT produced!) over 20 years. This addition of 9 billion bbls/year means added production of ~ 2 million bbls/day each year Putting this in context: Average annual production rate: ~ 25 billion bbls Average annual discovery rate: ~ 6 billion bbls Average annual decline in production from existing fields is about 4 million bbls/day

29. Future Supply – even with Reserves Growth Even with an aggressive estimate of reserves growth we can’t fill the gap. We face declining post-peak production

30. Reserves Growth - the take-home message With improved prediction methods, and with only 20% field control by IOCs (v. 93% in 1972), reserves growth will only occur through recovery efficiency improvements Of course recovery efficiency is growing. It will continue to do so - but increased field complexity and rock physics will act as a brake Most growth in previous reserves estimates has occurred because of initial caution encouraged by US SEC procedures Pace and magnitude of reserves growth in the past is not a guide for the future

31. “OK, it’s agreed – we announce that to do nothing is not an option and then we wait and see how things pan out”from ‘Private Eye’

32. The End! Thank you for listening!

34. Can Recovery Efficiency ever reach 100%? Of the various possible types of drive in a reservoir, the most efficient is usually waterflooding. For this case: Recovery Efficiency = DE (area) *DE (vertical) *DE (pore) *Δ(FVF) Although DE (area) can be close to 100%, physics ensures DE (vertical) and DE (pore) will always be <100% Hence: Recovery Efficiency will always be < 100%

35. Can Recovery Efficiency ever reach 100%? DE (vertical) can never be 100% because water level in the reservoir can never reach right to the top DE (pore) can never be 100% because DE (pore) = 1 - (final oil saturation) (initial oil saturation) and final oil saturation is never as low as 0%