Fundamentals - Oil Business Flashcards
What are the 4 ‘Rs’ in the oli business?
Risk of exploration success Uncertainty of resource size Rate of production Return
What are the seven stages in the exploration and production life cycle?
- New venture - regional evaluation, assess acreage 2. Exploration – Success or Fail 3. Appraise 4. Develop – Yes or No 5. Production – first oil 6. Infrastructure – Lead, exploration, developments 7. Decommission
Explain this diagram
Loss is made in exploration and appraisal phase, after development expected to make cash surplus. Will peak at plateau then decline. When production is no longer financially viable then decomissioned.
Business risk tolerance decreases dramatically with reduction in technical risk.
Rate of production mirrors cash flow. When production begins to fall then decomissioning takes place.
What is meant by the term ‘peak oil’?
The maximum rate of production in any area under consideration, recognising it as a finite resource subject to depletion
What are the two key drivers for growth in energy demand?
- Poulation growth - world population = 8.3 bn by 2030
- Low and medium economies account for over 90% growth - Wold income - doubled by 2030
- Rapid industrialisation, urbanisation and motorisation will contribute 70% GDP growth and over 90% global enregy demand growth
What is the expected growth in primary energy consumption by 2030?
30%
Describe oil consumption in terms of production per day now and 2030, proven conventional reserves and how long will oil last at current consumption rate?
90 MMBOPD produced currently, 120 MMBOPD by 2030
Proved conventional reserves: 1400 Gb
At current rate of consumption will last 50 years
How long will gas last at the current rate of consumption? Why is it less of an issue than in oil?
60-100+ years
Less of an issue as continued reserve growth
What is the dominant fuel in:
Asia Pacific?
Europe/Eurasia?
All other regions?
Asia Pacific - Coal
Europe/Eurasia - Natural Gas
Rest of World - Oil
What is meant by the terms conventional and unconventional oil and gas? What percentage of world oil to date is conventional?
Conventional: hydrocarbons that flow freely, are in accessible locations and do not require complex and expensive technology to produce
Unconventional: everything else. e.g. ultra deep water, tar sands, tight oil, coal bed methane, oil shale
95% of world oil to date is conventional
What is the average factor for oil and for gas?
Give two influenes on recovery factor
Average RF in Oil - 20-40%
Average RF in Gas - 80-90%
Dependent on reservoir complexity (more complex = lower recovery) and on production rate and filed management
Give an advantage and disadvantage of secondary oil recovery
+ Can add 5-10% recovery
- Increases costs
Name 5 difficulties in estimating world resources
Difficulties in:
- Reliability of published figures
- Uncertainty (geological and political)
- Changing technology with time
- Increased recovery: reserve growth
- Politics: accessible resources
What are ‘proved reserves’?
Quantities that with reasonable certainty can be recovered in the future from known reservoirs under existing economic and operating conditions
Briefly describe the ‘Hubbert Peak.’ Why was he wrong?
Hubbert predicted peak production in US to occur in 1956 but occurred in 1970
He did not account for new discoveries (e.g. Alaska)
What is the name of the typical pattern of field discoveries for a basin? Describe it?
Fractal pattern: few very large fields, many smaller fields
What influences production peaks? Why was there a second peak in the mid 1990s?
Production peaks influenced by economics, geology and technology
Second production peak due to new 3D seismic technology
How many unconventional resources are there?
Why have they benefitted recently?
Why are they financially less profitable than conventional oil?
Equal resources to conventional
Benefitting from improving technology
Reduced profitability due to higher production costs and lower rates of production, needs high oil price as huge investment
What are the four major challenges of producing shale gas in the US? (not environmental)
Production rate and economic viability
Many plays now looking for shale oil
Locating ‘sweetspots’
Gas price
UK currently imports gas. What would be the benefits of shale gas to the UK? (5 things)
Boosts economy - jobs, taxation revenue
Security of surplus
Potential for lower energy costs
Emissions neutral (replacing gas that would be imported)
Increases speed of use of renewable: boosts economy and GDP, reduces energy costs => allows subsidies for renewables
What are the risks to the UK of shale exploration? What can be done/why minimal?
Earthquakes: UK very stable, low risk and intensity
Water contamination: minimal risk when well regulated
Environmental damage
- Traffic pollution (temporary can be minimised)
- Drill site (temporary, reduced surface footprint with improved tech)
What are the key issues of shale gas in the UK? (6 things)
Shale distribution in basin, organic content, lithology
Mechanical properties of lithology (silica or carbon rich matrix)
Maturity and maturation history
Sweet spot identification
Technology and fracking proceedure
Fracking fluids
Explain the Funnel Theory
As oil becomes more difficult to find costs increase, at high prices alternative fuels become economic to produce, but need time to bring other resources on stream
Why is oil price important to governments? Why is it less of a concern to UK, US + Norway?
Many governments dependent on oil revenues for GDP (middle east), low oil proces eats into their cash reserves and failing economies
Oil revenue is only small proportion of GDP in UK, US + Norway
Give 4 benefits of a lower oil price
- Fall in competition for new licenses
- Cheaper seismic
- Deep water rates halved
- Exploration costs down a thrid
