The Economics of 4D Reservoir Management

Abstract The oil industry is still staggering from the recent price collapse, with management energy focused on cutting costs and improving return on capital employed (ROCE). The major fiscal problem of the energy business is that it is not competitive as an investment vehicle when compared to other growth industries such as computing, the internet, and biomedicine, because our ROCE is so poor. While new exploration hotspots like offshore west Africa and the ultra deepwater Gulf of Mexico offer the promise to return >30% ROCE, refining and marketing is a drag at <5%. The industry's hope to return from its current "contrarian" financial position to become a sound fiscal industry rests in the delivery on promise from the high return offshore areas around the globe. It is not enough to discover and prove out large reserve numbers anymore in these giant and super giant oil fields. As often as not, survival of the oil company owners rests on delivering to market at a 60% or higher recovery rate. When the economics of 4D Reservoir Management are considered in a stochastic portfolio model of future cash flow, various price scenarios can be considered quantitatively in terms of the relative contributions of each large field to the company's overall success. It becomes clear that high recovery rates are required to balance risk and reward sufficiently. However, if cost cutting models are used that exclude 4D Reservoir Management from future development scenarios for these fields, cash flow shortfalls result in all but the most optimistic future price scenarios. Thus, reservoir development plans that deliver cash when it is needed for a company are required, and in all-important fields, 4D Reservoir Management becomes essential. The costs of repeated acquisition of 3D seismic surveys and continuous downhole instrumentation and monitoring become cost effective near term investments when considered in this long-term cash flow framework. There are several examples from key fields in prime offshore areas where it has already been demonstrated that 4D Reservoir Management is a key to economic success of the basin. We will review a Gulf of Mexico field where 4D seismic monitoring produced significantly different drainage patterns from those expected, and early on in the life of the field, as well. Extraction of as much of the discovered oil and gas in known reservoirs is a critical capability that will be required to balance supply/demand in the 21st century. 4D Reservoir Management returns substantial capital versus that invested, and therefore is an essential component of responsible Business Unit management in the modern age. Introduction to Portfolio Management (PM) Oil and gas production companies make money based upon on their skills in identifying a portfolio of properties and utilizing technologies to discover, produce, and sell oil and gas produced from those properties in an optimal manner. The key ingredient to improved business performance is portfolio management, which allows a company to present the performance of all its producing properties and exploration targets in a normalized way.