Vol. 58 No. 12

December 2006

SPE's Annual Technical Conference and Exhibition

Heavy Oil, Reserves, Industry Challenges Highlight ATCE

Panel discussions on heavy oil technology, reserves classification, and changing industry demographics highlighted the 2006 SPE Annual Technical Conference and Exhibition (ATCE) in San Antonio. More than 500 technical papers on innovative technologies, case studies, and best practices, along with an exhibition showcasing more than 400 companies, rounded out the event, which attracted approximately 9,300 industry professionals.

The exhibit showcased technology and products from more than 400 companies.

The opening general session featured a wide-ranging discussion on a topic that high oil prices and rising global demand have pushed into the spotlight. “Heavy Oil—From Rock Face to Fuel Pumps” featured Vikram Rao, Vice President of Technology for Halliburton Energy Services; Robert Skinner, former Director of the Oxford Inst. for Energy Studies; Murray Smith, Minister-Counselor of the Government of Alberta, Canada; Sylvestre Calmon, Manager of Refining Technology at Brazil state oil company Petrobras; and Don Paul, Vice President and Chief Technology Officer for Chevron.

Vikram Rao, moderator of the heavy oil panel session, offers an overview of the technical challenges.

Participants on the heavy oil panel were, from left, Robert Skinner, Murray Smith, Vikram Rao, Sylvestre Calmon, and Don Paul.

Although heavy oil shows great promise to help satisfy growing global demand, its development is not without significant technical, financial, and environmental challenges, the panelists agreed. Panel moderator Rao noted that, unlike conventional oil production, heavy oil has closer links with lifting, transporting, and refining, which makes its development more complicated. Heavy oil is difficult to move, requires sophisticated refinery configurations for processing into consumer end products, and produces CO2 emissions.

Skinner said that companies are putting more money into heavy oil development, especially in western Canada, because there is little geological risk, there are long-term predictable growth rates, there is a technology upside, and the projects are winning approval from financial markets. “But it’s not all a rosy picture” in the Canadian oil sands, he said, because of the shortage of both technical and general labor, the high capital expenditure involved, and the operational risks of working in a northern environment. Venezuela’s Orinoco belt actually offers better economics for heavy-oil production, but political risk deters investment there, he said.

Offering a resource owner’s point of view, Smith said he believes Canadian oil production may grow faster than OPEC output in the near future and will play an increasingly important role in meeting U.S. energy consumption. “Alberta will contribute significantly to U.S. imports over the next 20 years,” he said. Oil-sands reserves total 174 billion bbl, of which approximately 20% are recoverable by mining and 80% by steam-assisted gravity drainage, he added. Western Canada is definitely experiencing the strain of increased activity and needs pipeline expansion, new refineries, retrofitting of existing refineries, and a larger labor pool. “We are really feeling the pinch of not training enough professionals” from the mid-1980s on, he said of the oil and gas industry.

From a refiner’s perspective, Calmon said Brazilian crude oil poses unique challenges to its domestic refineries because of its high viscosity, density, and acidity. Delayed-coking capacity offers one potential solution. Brazil currently is building a new refinery with a 2010-slated startup that will contain only a crude unit and coke-processing capability and will produce no gasoline, just diesel, he said. Petrobras plans to outfit other refineries to improve fuel quality more in line with international standards, he added.

Paul noted that what makes heavy oil unique is its connection to the downstream and how its production connects a feedstock directly to the end product. Heavy-oil projects “have resources that last a century,” which means development requires a different technology strategy from that of conventional oil projects. That length of time means that heavy-oil projects will benefit from technological breakthroughs and that opportunities will be created by advances in nanotechnology and “molecular manipulation,” he said.

Heavy-oil development in a sense creates an oil field downstream and introduces the notion of the “oil field as a factory.” It also integrates engineering disciplines and brings a need to involve chemical engineering more closely into the upstream sector, he said. Heavy oil’s financial structure has much in common with the downstream, he said, including a financial configuration that requires lots of money up front, long-term cash flows, modest rates of return, and a long-term development cycle. All of that means that heavy oil requires a different way of thinking, he said.

Managing carbon emissions from such projects will require technical expertise and energy efficiencies and will be affected by policy decisions, panelists agreed. Paul said that the enormous investment for heavy oil requires that companies have a strategy for CO2. “Otherwise, you are putting capital at risk,” he said.

Reserves Classification

A second major panel session focused on the classification of reserves, which has sweeping technical, financial, corporate, and public implications for the global oil and gas industry. Several industry experts active in the field of oil and gas reserves matters discussed current and evolving reserves classifications and definitions at the panel session titled “Reserves: To Be (Proved), or Not To Be (Proved): That Is the Question.” Panelists included John Ritter, Senior Director of Worldwide Reserves and Reservoir Engineering, Occidental Petroleum; Kjell Agnar Dragvik, an economist with the Norwegian Petroleum Directorate; David C. Elliott, Chief Petroleum Adviser with the Alberta Securities Commission; John Richels, President of Devon Energy Corp.; and John A. Weinzierl, Managing Director of Natural Gas Partners.

A “major oil and gas discovery in the shallow waters offshore Utopia” was the mythical example that provided a springboard for the discussion. Panelists took turns examining the various technical, financial, and corporate issues that would arise in such a discovery.

Richels laid out some of the “fundamental operating decisions” a company, particularly an independent, considers when it makes what may be a potentially significant discovery. The international landscape has changed, he said, which has affected operating decisions. Technical talent is in short supply, and competition in the industry among independents, international oil companies (IOCs), and national oil companies (NOCs) is often intense. “The NOCs are no longer just exploring in their own backyard. Those days are over,” Richels said.

Other corporate questions revolve around the ability to finance a project, the availability of equipment, the role of the partner or host country in the discovery’s development, and the market volatility for small-cap companies. “At any one time, it may not be easy to obtain financing,” Richels said. Larger-cap companies are able to obtain financing and often negotiate with host countries more easily, he added. Small companies that make potentially significant discoveries also may become vulnerable to a takeover.

Weinzierl examined the hypothetical Utopia discovery from the point of view of a financier, who ideally wants a low-risk project that offers an easy way to get his money back. When deciding whether to get involved in such a project, a financial institution looks at the asset quality of the company and its management experience in addition to the potential value of the discovery, he said. When looking at reserves estimates, the potential financial partner would want to know who made the estimates and what their expertise and experience is, and what the reserves estimate is actually based on. Geological and political risk also enter into the equation, he added, as do such issues as the general market for oil and gas, capital costs for infrastructure, and the host country’s tax regime. The possibility of environmental complaint also must be considered. “What’s the Wall Street Journal test?” he asked, referring to the damage a project incurs when negative news about it appears prominently in a major media outlet.

Elliott, of the Alberta Securities Commission, said the ideal resources reporting system should flow through the steps of measurement, classification, disclosure, and audit. But, in practice, the audit step is often given short shrift. “I think sometimes we need to take a step back and look at the measurement process before we make disclosure,” he said. The industry needs to examine several issues regarding reserves classification, he said, including how to evaluate unconventional resources, the frequent use of nonstandard terminology in reserves discussions, and “reserves creep,” in which “possible” reserves are gradually counted as “probable” reserves. Dragvik gave an overview of Norway’s classification system, which he said was similar in many ways to SPE’s current definitions.

State of the Industry Address

On the first day of the conference, Clarence P. Cazalot, ATCE General Chairperson and President and Chief Executive Officer of Marathon Oil Corp., shared his insight into the challenges and opportunities facing the oil and gas industry as it strives to replenish its reserves. Far from sounding a death knell, Cazalot expressed an optimistic outlook for an industry that still has a great deal of untapped potential. This optimism was tempered with a realistic view of the many challenges facing the oil and gas community.

Four major challenges need to be addressed by the industry if it is to keep growing production, Cazalot said.

Clarence Cazalot, President and
CEO of Marathon, was General
Chairperson of this year’s
conference.

Access to economically viable sources of oil and gas. High petroleum prices over the past 2 years have created a challenge, and several opportunities, for IOCs to work closely with NOCs in major oil-producing countries. “In order to grow our viable production reserves, IOCs must have access to NOC reserves,” he said.
Ensuring increasing access to oilfield services. “High commodity prices have spurred demand for oilfield services across the board, and the demand has currently outstripped the capacity of the service sector to accommodate everyone,” Cazalot said.
Continued need for breakthrough technologies. To keep breaching technological barriers and advancing production, true step-change technologies will be needed on various fronts.
Lack of manpower in the industry. “We as an industry need not only to retain our baby boomers, but we must also give them time and incentives to mentor and train younger employees,” he said.

Technical Highlights

Technical sessions at ATCE examined diverse technologies and practices. In a reservoir-monitoring session, participants agreed that reservoirs of the future will be produced far more efficiently than anyone imagined just a few years ago. Although real-time, or near-real-time, monitoring of surface production data and downhole-pressure data has been available for more than 2 decades, methods of obtaining data, transmitting data to the user, and making use of those data have advanced along with electronic and communication technologies. The “Emerging Technologies in Reservoir Monitoring” session featured papers that demonstrate how reservoir-monitoring technology has improved reservoir-production efficiency and enhanced field development. The first papers showed how distributed-temperature sensing could improve recovery efficiency in complex completions. Other papers covered gravity surveying of water injection into a gas cap, allocating production from multiple-zone intelligent wells, and use of time-lapse 3D-seismic data with production data to locate faults in the reservoir.

Two sessions focused on CO2 sequestration. Not only are the mechanics ranked as a priority, but the means to ensure that sequestration does not alter the underground geologic integrity and that storage is secure and environmentally acceptable is crucial. “Site operators, environmental regulators, and the public want to be assured that CO2 sequestration is safe,” said Sally Benson, Carbon Sequestration Program Leader of the Lawrence Berkeley Natl. Laboratory. Benson gave the keynote address on “Monitoring Carbon Dioxide Sequestration in Deep Geological Formations for Inventory Verification and Carbon Credits.” The industry began storing CO2 in geologic formations in 1996 as a way to avoid atmospheric emissions on the Sleipner project in Norway. According to Benson, there is now more than 3 million tonnes of CO2 injected annually for the purpose of sequestration. Another 30 million tonnes is injected for CO2 enhanced oil recovery.

Understanding the behavior of CO2, such as the extent to which the CO2 moves within the geologic formation and what physical and chemical changes occur to the formation upon injection and over time, is the focus of studies being conducted by government and industry. The accelerated pace of deployment of CO2 capture and storage requires industry and government to select cost-effective monitoring protocols and speak to two of the most important purposes of monitoring—inventory verification and carbon credit trading.

Touching on the industry’s experience with the three existing geological sequestration projects—Sleipner, Weyburn, and In Salah, each of which uses a different combination of monitoring techniques—Benson says that these and smaller-scale pilot-test sites and theoretical studies inspire confidence in the industry’s capacity for the geologic-reservoir form of CO2 storage.

Papers at the sessions looked at the unstable dynamics of vertical displacement, how magnetic-resonance imaging was used to monitor formation and growth of methane hydrates in porous sandstone, parameterization of reservoir models for CO2 injection, the interfacial tension and correlations of brine and CO2 systems under reservoir conditions, exact solutions in a model of vertical gas migration, and limitations to storage pressure in finite saline aquifers and the effect of CO2 solubility.

New R&D, IT Technical Sections Hold First Meetings

Two new SPE sections conducted inaugural meetings at this year’s ATCE. The Research and Development Technical Section meeting drew an enthusiastic crowd of more than 80 people from a range of companies, countries, universities, and technical backgrounds. The first meeting communicated the section’s major goals to the greater SPE membership, initiated discussion on topics the section will address, and recruited members for positions on the section’s board.

Don Green, one of the architects of the technical section, explained that the section was developed as an initiative of the SPE R&D Advisory Committee. The goals of the section are

Promoting R&D and technology development.
Providing a means of communication among the R&D community in the petroleum industry.
Facilitating R&D efforts that meet the needs of industry, government, research companies, and institutes and academia.
Identifying major issues/technology areas on which to focus interaction and discussion.

Chris Buckingham, Section Chairperson and Manager of Multiphase Flow at Southwest Research Inst., discussed the activities the section will support in the year ahead, including the SPE 2007 Research & Development Conference to be held 26–27 April 2007 in San Antonio. “The conference will focus on identifying and discussing the R&D needed to find and produce the third trillion barrels of petroleum, and will center on research needs rather than specific solutions,” Buckingham said.

Buckingham then opened the meeting to ideas for discussion, and members suggested several activities that the section could focus on, ranging from how to present R&D’s value credibly to the industry to ideas for new methods of funding. Discussion will continue online on the section’s threaded discussion forum at [link]http://communities.spe.org. Buckingham encouraged interested SPE members to join the section. More information is available at technicalsections@spe.org.

The new Information Technology (IT) Technical Section also held its first meeting during ATCE. “The IT Technical Section is about the digital oil field, connecting subsurface to field operations, and determining how best to enable a new kind of business and new breed of professionals,” said Mehrzad Mahdavi, Chairperson of the section and Vice President of Global Security for Schlumberger.

The meeting drew a standing-room-only crowd from all sectors of the oil and gas E&P community. Mahdavi led a lively discussion, which started with a description of the section’s mission and guiding principles. The IT Technical Section’s overall mission of facilitating the implementation of the digital oil field by integrating technology, people, and processes will be guided by four principles:

Systems integration, in which the technical section will identify and share industry best practices for the integration of IT between subsurface and field operations.
Professional development, in which the technical section will promote curricula and training for petroleum professionals who need to obtain the IT and business-process knowledge necessary for future oilfield operations.
Information security, in which the technical section will establish work groups that will identify and share cyber-security best practices in the industry.
Industry forums, in which the technical section will sponsor meetings and industry conferences designed to promote knowledge sharing, training, and best practices.

The section has created four subcommittees to develop a more specific vision, a strategy, and detailed topics for discussion. The Steering Committee for the section will meet in December to review the proposals, at which time projects and activities based on these recommendations will be implemented.

SPE members interested in joining the IT Technical Section should contact speitts@spe.org.

Young Professionals, Women Share Views of Industry

Panelists on the Young Professionals session included, from left, Husameddin Al-Madani, John L. Daniels, and Gillian King.

Two important demographic groups—young professionals and women—shared their observations about the oil and gas industry during special panel sessions at ATCE.

Three young professionals shared advice for career and personal advancement, as well as information about their involvement and growth through SPE and other activities, in a special panel session titled “Young Professionals: Tips, Advice, and Networking.”

Moderated by Josh Etkind, Reservoir Engineer–Surveillance for Shell E&P, the panel also included Gillian King, Product Line Champion, Sand Control Systems for Weatherford Intl.; John L. Daniels, OFS DESC Engineer–Devon Energy for Schlumberger Oilfield Services; and Husameddin Al-Madani, Exploration Systems Analyst for Saudi Aramco.

Discussing the help of mentors in his career, Daniels said that he “jumped into the deep end” early in his career and was glad there was a lifeguard on duty. “Young people have a responsibility to seek out people to learn as much as they can,” he said. “Older people also have a responsibility to seek out young people to share their knowledge.”

Daniels said his first mentor was with him on a fracturing crew in Saudi Arabia. He later transferred to Elk City, Oklahoma, where his second mentor was an equipment operator. Daniels then became a mentor himself for three people in the Schlumberger organization while in Oklahoma. His advice for young professionals is to be positive, work and network with people, be productive, be patient, and be proactive. “Plan short-term, long-term, and very-long-term goals,” he emphasized. “A mentor can help.”

Daniels noted that professionals, particularly in their early years with a company, should be willing to go where the job takes you. “Relocation is important in being exposed to different types of information and learning,” he said.

King agreed. “Develop a career plan and have a goal,” she said. “Know what you like doing and research your options. Above all, start making it happen. Don’t wait for opportunities to happen to you.”

Al-Madani said that young professionals in the oil and gas industry are an asset ready to be tapped. Areas of improvement young professionals need to address in their career development include communication, negotiation, and determination. “Accepting the challenge will require a commitment to integrity. Winning the challenge will take professionalism,” Al-Madani said.

In a second session, 10 women in key petroleum technical and business positions assessed and compared career management issues. Panelists were Kadreya Abou-Sayed of BP, Jennifer Bell of Chevron, Cheryl Collarini of Collarini Engineering, Ellen Coopersmith of Decision Framework, Stephanie Cox of Schlumberger, Deanna Jones of Schlumberger, Gennifer Kelly of Anadarko, Anelise Quintao Lara of Petrobras, Starlee Waligura of BP, and Patricia Vega of Baker Hughes.

Abou-Sayed served as moderator. The purpose of the panel session was to explore learning, planning, mentorship, and attraction and retention of women in today’s industry workforce. According to Quintao Lara, diversity is a business “must have” today. She noted that many engineering graduates are women. “Ideally this should be reflected in the talent pool, but it is not,” she said.

According to Coopersmith, the industry is evolving on workplace attitudes. In the past, one of the careers in a two-career marriage suffered, particularly when the two careers existed within the same company. “Now the industry has tried to accommodate equal careers,” she said. “But transfers remain the hardest decision as there is much strife surrounding them.”

Each panelist shared personal career turning points and commented on the need for balance between work and home life. “Balance is a continual issue,” Bell said. Offering advice in this area, Waligura said, “Balance will continue to be a struggle, but one must deal with logistics and not feel guilty about it; be deliberate about happenings in your life rather than feeling that something is happening to you—it is not.”

Jones agreed. “Don’t take away from your personal and individual life; it helps to ground you,” she said. “Define what balance looks like to you. Know how to draw lines. It’s not a race; enjoy the journey and live in the moment.”

SPE’s Accomplishments, 2007 Goals Outlined at Traditional Event

A tradition at each ATCE is the President’s Luncheon and Annual Meeting of Members. During this year’s event, 2006 SPE President Eve Sprunt delivered the “State of the Society” address and passed the presidential gavel to 2007 SPE President Abdul-Jaleel Al-Khalifa.

Sprunt noted some of the achievements of the past year, adding that she has put particular focus on what SPE and its members can do to improve the industry’s image and how the industry should handle critical manpower issues. “My message to SPE members this past year has been, ‘stand tall, and speak up’,” she said. “We can change minds one person at a time. Each member can become a champion for our industry, providing facts to friends, neighbors, and their own families about the positive contributions that our industry makes to our everyday lives. You can be a powerful spokesperson just by talking to one person.”

SPE’s Energy Information Committee, led by former SPE President DeAnn Craig, has been working on getting members the right information and materials that they can use to dispel common misperceptions about the industry. For example, the committee is updating the energy education data on the SPE website, adding energy information presentations for members to use, and updating the Magic Suitcase kit for schools.

SPE is working to improve the industry’s image by promoting greater public understanding of petroleum reserves and resources. SPE’s Oil and Gas Reserves Committee, chaired by John Ritter, has been working to create a universal language for reserves and resources based on definitions and classifications established by SPE in collaboration with a wide range of stakeholders. Major progress toward a common language for describing reserves and resources has been made this year, Sprunt said. And the SPE Reserves Education Committee, chaired by Mike Black, was formed in October to create educational programs on reserves issues. The committee is planning a series of workshops next year, as well as a special reserves session at the SPE Hydrocarbon Economics and Evaluation Symposium.

Sprunt also noted the Society’s financial health, which is providing the Board of Directors with resources to expand member programs. “With more than half of our members located outside of the United States, we continue to improve our ability to serve our members 24 hours a day, 7 days a week,” she said. The new online LookUpstream.com allows members to simultaneously search SPE, American Assn. of Petroleum Geologists, and Soc. of Exploration Geophysicists technical paper libraries, and the online resource called One Petro will allow users to download papers from several industry organizations. New conferences also have been created, including the Russian Oil and Gas Conference and the International Petroleum Technology Conference, which was held last November in Doha, Qatar.

New SPE President Abdul-Jaleel
Al-Khalifa explains his vision
for the Society.

After accepting the gavel as SPE’s new president, Al-Khalifa outlined his vision for the coming year. The dramatic changes in the industry the past few years have put strains on human resources and increased demand for new technology, he said. “Isn’t this the time that SPE reacts to this challenge and develops with the industry new quantum leaps in people and technology?” he said, adding that his message for 2007 will be “Quantum Leaps: People and Technology Shaping the Future.”

A survey in December 2005 questioned SPE members about job satisfaction and their enjoyment and engagement in the industry. While most respondents said they are happy in their current jobs, 55% felt their job was not realizing their potential. And 95% of respondents said that they want SPE to tackle more “people issues,” such as mentoring, recruiting, leadership, ethics, values, and career planning. “One thing that stands out in the survey, which was not explicit, but I think it was implicit in each one of those members who responded, is that they really want a grand strategy for the industry, a grand strategy when it comes to people, a grand strategy when it comes to technology,” he said.

Al-Khalifa said he plans to organize a summit of industry leaders to create a grand strategy on people and technology to help guide the industry for the coming 15 years. Another initiative for 2007 is the publication of a new quarterly magazine, Talent and Technology.

“If we manage to make quantum leaps in people and technology, what comes naturally is more reserves at lower cost,” he said. “Isn’t this in the interest of the industry? The base of the pyramid will change. The height of the resources may be limited, but the base has created abundant resources. They are the same, but the people and technology are so expandable. We can move into new horizons in people and technology, and we can increase the size of the pyramid, increase the reserves, and lower the cost. If we do that, then we go back and tell our friends who talk about peaking oil, ‘Sorry, I think you’re wrong.’ Our industry is not going to sunset. It’s going to sunrise again and again and again.”

Al-Khalifa said that his aim is that, by the end of 2007, people working in the industry will be more inspired and engaged and working more collaboratively, which will lead to the development of more innovative technologies. “I know I’m just scratching a huge mountain here. But I have faith in you, I have faith in SPE, I have strong confidence in the industry. If you’re interested in this, roll up your sleeves, work with me, and I can assure you, we’re going to make it happen,” he said.