Lecture 1

1. Refining Marketing Lecture 1 The Focus of Industry Exploration Production Courtesy of ExxonMobil

2. A Fully-Integrated Oil Company http://www.npl.co.uk/upload/img_400/oilrig.gif Getting Raw Oil & Gas to the Refinery Getting Refined Products to the Consumers Refinery Upstream Downstream Courtesy of ExxonMobil

3. Components of the Upstream • Find Oil & Gas ‘Pools’ • which regions and basins? • which blocks? • where on the block? Exploration • How to Get It Out • where, in detail, are the reserves? • what to build (facilities)? • will it be profitable? Development • From the Ground, to the Refinery • how to manage the field? • how to deliver the ‘crude’? Production Courtesy of ExxonMobil

4. Oil Company Targets To maintain a healthy petroleum company, one would want to: • Replace production (what you take out of the ground) with new reserves Exploration Finds  Volumes Produced • Keep finding costs below $1 per barrel  Exploration Costs  New Barrels • < $1/barrel Courtesy of ExxonMobil

5. We Need to Drill Wisely • Wells can be very expensive, some > $200 million, a lot even for a major oil company • Well placement and well path can be critical to success • So ….. How can we determine where to drill and predict what we will find BEFORE we start drilling? This leads to the need for geologists, geophysicists, and other specialists focused on imaging and interpreting the subsurface Courtesy of ExxonMobil

6. G&G in Exploration Geoscientists are needed to answer questions such as: • Which basins throughout the world offer the most promise? • Which blocks in those basins should we bid for? • Where on the block should we drill? • What should we expect from a particular well? • What type of HC: oil, gas, or condensate? • What amount of HC will we recover: # barrels? • What sort of flow rates can we expect? • How risky is this well? • etc. Courtesy of ExxonMobil

7. Capture Prime Areas Acquire Seismic Data Drill Wildcats Process Seismic Data Interpret Seismic Data Assess Prospects Exploration’s Task Identify Opportunities Failure Success Confirmation Well Uneconomic Success To Development Or Production Drop Prospect Courtesy of ExxonMobil

8. Bonanza Basin Block 5 Block 7 Block 6 Block 8 Block 3 Block 2 Block 1 Block 4 Somewhereia An Exploration Success The Bonanza Basin, offshore Somewhereia, was deemed to have high potential. Courtesy of ExxonMobil

9. Bonanza Basin Block 5 Block 7 Block 6 Block 8 Block 3 Block 2 Block 1 Block 4 Somewhereia An Exploration Success The Bonanza Basin, offshore Somewhereia, was deemed to have high potential. We leased the two highest- ranked blocks in the last licensing round. Courtesy of ExxonMobil

10. An Exploration Success The Bonanza Basin, offshore Somewhereia, was deemed to have high potential. We leased the two highest- ranked blocks in the last licensing round. 8 leads were identified, 3 passed economic screening and were matured into prospects. Bonanza Basin Lead C Lead A Lead B Block 7 Block 8 Alpha Prospect Block 7 Block 8 Courtesy of ExxonMobil

11. Block 7 Salt Diapir Discovery Well Block 8 Bonanza Basin An Exploration Success • The Bonanza Basin, offshore • Somewhereia, was deemed • to have high potential. • We leased the two highest- • ranked blocks in the last • licensing round. • 8 leads were identified, 3 • passed economic screening • and were matured into • prospects. • We drilled a wildcat at the • Alpha Prospect & found oil. Alpha Prospect Courtesy of ExxonMobil

12. Confirmation Well Block 7 Salt Diapir Discovery Well Block 8 Bonanza Basin An Exploration Success The Bonanza Basin, offshore Somewhereia, was deemed to have high potential. We leased the two highest- ranked blocks in the last licensing round. 8 leads were identified, 3 passed economic screening and were matured into prospects. We drilled a wildcat at the Alpha Prospect & found oil. A confirmation well proved that there are significant volumes of oil. Alpha FIELD EUR = 200 MBO .95 TCF Our estimate of ultimate recovery is 200 MBO. Courtesy of ExxonMobil

13. G&G in Development • Exploration has drilled a discovery and a confirmation well. • The ultimate recover for Alpha is estimated to be 200 MBO, • which greatly exceeds the economic threshold of 100 MBO • Can we refine our picture of the distribution of oil at Alpha? • Is the reservoir a single unit, or is it segmented (separate regions to drain)? • How many wells/where should they be drilled? • What sort of facilities (platform?) will we need? • How can we speed-up time to first oil? • What uncertainties remain? Questions: Courtesy of ExxonMobil

14. We Need More Detail Reservoir Map at the end of Exploration Reservoir Map at the end of Development Courtesy of ExxonMobil

15. Data Reprocessed or Reshot for Development And Production We May Need Better Data Data Used for Exploration Courtesy of ExxonMobil

16. G&G in Production • Production has begun at Alpha. • The initial production rates are as expected. • How should we manage the field so as to maximize our investments? • Can we monitor how oil is being swept out of the reservoir? • What about injection wells and enhanced recovery? • Is there more oil in the vicinity – either at deeper depths or in nearby traps? • Can we build a computer model of the field that matches existing production data? If so, we can test future recovery with different drilling scenarios. Questions: Courtesy of ExxonMobil

17. FEEDBACK HISTORY MATCH Oil Production Time Reservoir Simulation Geologic Model INPUT Reservoir Simulation Courtesy of ExxonMobil

18. The Value of G&G to an Oil Company • G&G work is done to add HC reserves (volumes) • New discoveries • More from discovered producing zones • Additional producing zones • Get the most reserves at the lowest cost • Invest in the right basins • Drill in the optimum locations • Correctly assess what can be recovered • Avoid unnecessary wells Courtesy of ExxonMobil