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Hydrocarbon exploration (or oil and gas exploration) is the search by petroleum geologists and geophysicists for hydrocarbon deposits beneath the Earth's surface, such as oil and natural gas. Oil and gas exploration are grouped under the science of petroleum geology.
Visible surface features such as oil seeps, natural gas seeps, pockmarks (underwater craters caused by escaping gas) provide basic evidence of hydrocarbon generation (be it shallow or deep in the Earth). However, most exploration depends on highly sophisticated technology to detect and determine the extent of these deposits using exploration geophysics. Areas thought to contain hydrocarbons are initially subjected to a gravity survey, magnetic survey, passive seismic or regional seismic reflection surveys to detect large scale features of the sub-surface geology. Features of interest (known as leads) are subjected to more detailed seismic surveys which work on the principle of the time it takes for reflected sound waves to travel through matter (rock) of varying densities and using the process of depth conversion to create a profile of the substructure. Finally, when a prospect has been identified and evaluated and passes the oil company's selection criteria, an exploration well is drilled in an attempt to conclusively determine the presence or absence of oil or gas.
Oil exploration is an expensive, high-risk operation. Offshore and remote area exploration is generally only undertaken by very large corporations or national governments. Typical shallow shelf oil wells (e.g. North Sea) cost US$10 – 30 million, while deep water wells can cost up to US$100 million plus. Hundreds of smaller companies search for onshore hydrocarbon deposits worldwide, with some wells costing as little as US$100,000.
Elements of a petroleum prospect
A prospect is a potential trap which geologists believe may contain hydrocarbons. A significant amount of geological, structural and seismic investigation must first be completed to redefine the potential hydrocarbon drill location from a lead to a prospect. Five geological factors have to be present for a prospect to work and if any of them fail neither oil nor gas will be present.
- A source rock - When organic-rich rock such as oil shale or coal is subjected to high pressure and temperature over an extended period of time, hydrocarbons form.
- Migration - The hydrocarbons are expelled from source rock by three density-related mechanisms: the newly-matured hydrocarbons are less dense than their precursors, which causes overpressure; the hydrocarbons are lighter medium, and so migrate upwards due to buoyancy, and the fluids expand as further burial causes increased heating. Most hydrocarbons migrate to the surface as oil seeps, but some will get trapped.
- Trap - The hydrocarbons are buoyant and have to be trapped within a structural (e.g. Anticline, fault block) or stratigraphic trap
- Seal or cap rock - The hydrocarbon trap has to be covered by an impermeable rock known as a seal or cap-rock in order to prevent hydrocarbons escaping to the surface
- Reservoir - The hydrocarbons are contained in a reservoir rock. This is a porous sandstone or limestone. The oil collects in the pores within the rock. The reservoir must also be permeable so that the hydrocarbons will flow to surface during production.
Hydrocarbon exploration is a high risk investment and risk assessment is paramount for successful exploration portfolio management. Exploration risk is a difficult concept and is usually defined by assigning confidence to the presence of five imperative geological factors, as discussed above. This confidence is based on data and/or models and is usually mapped on Common Risk Segment Maps (CRS Maps). High confidence in the presence of imperative geological factors is usually colored green and low confidence colored red. Therefore these maps are also called Traffic Light Maps, while the full procedure is often referred to as Play Fairway Analysis. The aim of such procedures is to force the geologist to objectively assess all different geological factors. Furthermore it results in simple maps that can be understood by non-geologists and managers to base exploration decisions on.
Terms used in petroleum evaluation
- Bright spot - On a seismic section, coda that have high amplitudes due to a formation containing hydrocarbons.
- Chance of success - An estimate of the chance of all the elements (see above) within a prospect working, described as a probability. High risk prospects have a less than 10% chance of working, medium risk prospects 10-20%, low risk prospects over 20%. Typically about 40% of wells recently drilled find commercial hydrocarbons.
- Dry hole - A formation that contains brine instead of oil.
- Flat spot - An oil-water contact on a seismic section; flat due to gravity.
- Hydrocarbon in place - amount of hydrocarbon likely to be contained in the prospect. This is calculated using the volumetric equation - GRV x N/G x Porosity x Sh x FVF
- GRV - Gross rock volume - amount of rock in the trap above the hydrocarbon water contact
- N/G - net/gross ratio - proportion of the GRV formed by the reservoir rock ( range is 0 to 1)
- Porosity - percentage of the net reservoir rock occupied by pores (typically 5-35%)
- Sh - hydrocarbon saturation - some of the pore space is filled with water - this must be discounted
- FVF - formation volume factor - oil shrinks and gas expands when brought to the surface. The FVF converts volumes at reservoir conditions (high pressure and high temperature) to storage and sale conditions
- Lead - a structure which may contain hydrocarbons
- Play - A particular combination of reservoir, seal, source and trap associated with proven hydrocarbon accumulations
- Prospect - a lead which has been fully evaluated and is ready to drill
- Recoverable hydrocarbons - amount of hydrocarbon likely to be recovered during production. This is typically 10-50% in an oil field and 50-80% in a gas field.
Petroleum resources are typically owned by the government of the host country. In the USA most onshore (land) oil and gas rights (OGM) are owned by private individuals. Sometimes this is not the same person who owns the surface rights. In this case oil companies must negotiate terms for a lease of these rights with the individual who owns the OGM. In most nations the government issues licences to explore, develop and produce its oil and gas resources, which are typically administered by the oil ministry. There are several different types of licence. Typically oil companies operate in joint ventures to spread the risk, one of the companies in the partnership is designated the operator who actually supervises the work.
- Tax and Royalty - Companies would pay a royalty on any oil produced, together with a profits tax (which can have expenditure offset against it). In some cases there are also various bonuses and ground rents (license fees) payable to the government - for example a signature bonus payable at the start of the licence. Licences are awarded in competitive bid rounds on the basis of either the size of the work programme (number of wells, seismic etc.) or size of the signature bonus.
- Production Sharing contract (PSA) - A PSA is more complex than a Tax/Royalty system - The companies bid on the percentage of the production that the host government receives (this may be variable with the oil price), There is often also participation by the Government owned National Oil Company (NOC). There are also various bonuses to be paid. Development expenditure is offset against production revenue.
- Service contract - This is when an oil company acts as a contractor for the host government, being paid to produce the hydrocarbons.
Reserves and resources
Resources are hydrocarbons which may or may not be produced in the future. A resource number may be assigned to an undrilled prospect or an unappraised discovery. Appraisal by drilling additional delineation wells or acquiring extra seismic data will confirm the size of the field and lead to project sanction. At this point the relevant government body gives the oil company a production licence which enables the field to be developed. This is also the point at which oil reserves can be formally booked.
Definition of oil reserves
Oil reserves are primarily a measure of geological risk - of the probability of oil existing and being producible under current economic conditions using current technology. The three categories of reserves generally used are proven, probable, and possible reserves.
- Proven reserves - defined as oil and gas "Reasonably Certain" to be producible using current technology at current prices, with current commercial terms and government consent- also known in the industry as 1P. Some Industry specialists refer to this as P90 - i.e. having a 90% certainty of being produced.
- Probable reserves - defined as oil and gas "Reasonably Probable" of being produced using current or likely technology at current prices, with current commercial terms and government consent - Some Industry specialists refer to this as P50 - i.e. having a 50% certainty of being produced. - This is also known in the industry as 2P or Proven plus probable.
- Possible reserves - i.e. "having a chance of being developed under favourable circumstances" - Some industry specialists refer to this as P10 - i.e. having a 10% certainty of being produced. - This is also known in the industry as 3P or Proven plus probable plus possible
Oil and gas reserves are the main asset of an oil company - booking is the process by which they are added to the Balance sheet. This is done according to a set of rules developed by the Society of Petroleum Engineers (SPE). The Reserves of any company listed on the New York Stock Exchange have to be stated to the U.S. Securities and Exchange Commission. In many cases these reported reserves are audited by external geologists, although this is not a legal requirement. The U.S. Securities and Exchange Commission rejects the probability concept and prohibits companies from mentioning probable and possible reserves in their filings. Thus, official estimates of proven reserves will always be understated compared to what oil companies think actually exists. For practical purposes companies will use proven plus probable estimate (2P), and for long term planning they will be looking primarily at possible reserves.
Other countries also have their national hydrocarbon reserves authorities for example, Russia’s State Commission on Mineral Reserves (GKZ), to which companies operating in these countries have to report.
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- Exploration Risk on E&P Geology http://www.epgeology.com/general-discussion-f28/assigning-exploration-risks-t157.html
- CRS Mapping and Play Fairway Analysis http://www.ccop.or.th/projects/PPM/Case_Study_Phillipines_files/Second%20workshop/presentations%5CP12%20PhilPRA%20Play%20Analysis%20presentation%202nd%20workshop.pdf
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