The Role of IOCs and NOCs in Developing Unconventional Oil and Gas Reservoirs
The focus of this edition of The Way Ahead is to compare the role of national oil companies (NOCs) with international oil companies (IOCs), with an implication that there will be a new landscape ahead for the industry. My view of this premise is ‘not so fast there, my friend’—it all depends on what you are talking about. If you want to talk about who owns the reserves or who contracts with the service companies or who controls the investments in some of the largest oil and gas producing areas, then there could be a new or changing landscape. However, if you are talking about the SPE members who do the work, the difference between IOCs and NOCs might not be so profound. The SPE members to whom I refer are the petroleum engineers, geologists, geophysicists, computer scientists, and others who are involved in technology development, deployment, and training.
There are several concepts that have not changed for more than 100 years. First, Darcy’s law still works and it must be applied carefully to evaluate reservoirs properly and produce oil and gas. Second, we still have to turn a bit to the right to drill holes to allow us to produce the oil and gas that we turn into money to pay all the bills. It is important to realize and remember that all the salaries, all the buildings, all the trucks, all the meetings, yes—everything—has to be paid for by producing and selling oil and gas. As such, we in the industry should always maintain our focus on the reservoir. We should all go to work each day and try to do the best we can to produce more oil and gas in an economical fashion. As such, regardless of whether a young professional (YP) works for an IOC or an NOC, the YP should go to work each day focusing on the reservoir. Keep with the basics and work hard every day for your employer.
As such, it does not matter whether the IOCs or the NOCs are in charge; the bottom line is that the oil and gas industry will need to drill a lot more wells in the coming decades, and we will need a lot more geoscientists and engineers to plan and drill the wells. As can be seen in Fig. 1, which is the forecast of energy production by fuel type for the next 20 years, we will need to produce more oil and more natural gas to supply the energy required by the global community. This forecast is no big surprise. Virtually everyone who has been able to count the number of people on Planet Earth and estimate the amount of energy per capita one needs to have a reasonable standard of living, and factor in the remarkable growth of energy use in China and India, has come to the same conclusion: we need a lot more energy, and oil, gas, and coal will be the dominant sources of energy in the decades to come.
Another important factor is the kind of oil and gas reservoirs that we will be finding and developing. Fig. 2 is the resource triangle. This illustrates the fact that all natural resources, including oil and gas, are distributed log-normally in nature. As you go deeper into the resource triangle to find and produce oil and gas, we need to apply better technology and we need higher product prices. In most of the world, where the NOCs have the controlling interest generally, the industry is still producing oil and gas from the upper portion of the resource triangle—the conventional reservoirs. The NOCs have very little experience in producing unconventional oil and gas reservoirs. In the coming decades, the oil and gas industry, and the NOCs, will have to begin producing more of the oil and gas from the lower quality, unconventional reservoirs.
In North America, the oil and gas industry, dominated by IOCs and independents, already produce approximately 40% of our natural gas from unconventional gas reservoirs. We also produce a large volume of oil from heavy oil fields in California and Canada. The IOCs and independents have amassed a great deal of expertise in finding and developing unconventional oil and gas reservoirs. The service companies have also helped to develop the technology needed for drilling and completing the wells in unconventional reservoirs. The IOCs and service companies will be part of the technology transfer to the NOCs in the coming decades as more unconventional reservoirs are brought on production worldwide.
Combining the forecasts in Fig. 1 with the resource distribution concepts in Fig. 2, there are several implications for YPs—regardless of whether you work for an IOC or an NOC. First, it means we will be producing a lot more of our oil and gas in the coming decades from unconventional reservoirs around the world, represented by the middle and lower portions of the resource triangle. To do so, we have to develop new technologies and apply best practices developed in North America to every unconventional oil and gas project worldwide. We will need bright YPs to recognize problems and develop new technologies to solve those problems.
Another issue is the capture of knowledge and the subsequent transfer of that knowledge to the next generation of engineers and geoscientists. With many of the professionals in the oil and gas business retiring during the next decade, we need to capture their knowledge in SPE papers, databases, reports, and expert systems for further use by our industry. We also will need a lot of training, both in the traditional form and more innovative ways. We need to do research on how to do training better and faster. I am not talking about basic university education. I am talking about competency assessment, industry short courses, and Internet-based training options that can help YPs with 1 to 5 years’ experience solve the problems and fill the roles of engineers who have had 10, 15, or more years of experience in the current system.
The industry will have to dip deeper into the resource triangle around the globe as production from conventional reservoirs continues to decline. The unconventional reservoirs—heavy oil, tight gas sands, coalbed methane (CBM), and gas shales—do not produce much hydrocarbon per well over a typical well life of 20 to 40 years. Wells in conventional gas reservoirs may drain 640 to 1,280 acres and produce tens of Bcf of gas in the first 5 to 10 years. As such, you can drain a large volume of gas with few wells. The Groningen gas field in The Netherlands has 100 Tcf in place and will produce more than 90 Tcf from less than 300 wells. Typical tight-reservoir gas wells might average 1 to 2 Bcf per well, and tens of thousands of wells need to be drilled to develop large accumulations.
One trait of developing unconventional reservoirs is that thousands or tens of thousands of wells must be drilled, usually over 10 to 20 years, to develop a large unconventional oil or gas field. To drill so many wells, we will need a lot more drilling rigs, logging trucks, fracture-treatment spreads, and engineers. Even at our current level of employment, the oil and gas industry does not have enough geoscientists or engineers to undertake a widespread development of unconventional accumulations.
The oil and gas industry needs to be hiring every geoscience and petroleum engineering graduate our universities are educating and graduating. Instead, the industry (at least the IOC segment) appears to be slumping in its hiring quotas for 2009–10. Those of us in academics hope the recent slowdown in hiring of our students is only a brief bout of amnesia by the IOCs (and independents) and that they will wake up soon.
The IOCs, for the most part, have the expertise and experience to develop unconventional oil and gas reservoirs. Given their experience in Venezuela, California, and Canada in heavy oil, and the research they have conducted in oil shales, the IOCs are well-positioned to offer their expertise to NOCs in heavy oil. In addition, the large up-front capital costs for these projects is an overwhelming reason that IOCs should remain active in heavy oil.
For unconventional gas reservoirs, like tight gas, shale gas, and CBM, the true industry leaders are independents and service companies. However, in the last 10 years, many IOCs have begun investing in tight-gas plays in the US Rockies and in some of the gas-shale plays. For unconventional gas plays, the NOCs may very well team up with either IOCs or service companies, when it comes time for technology deployment.
In summary, during the next few decades, the oil and gas industry will be transitioning from producing oil and gas primarily from conventional reservoirs to the development of more of the unconventional reservoirs. To do so, tens of thousands of wells will need to be drilled to develop these large unconventional fields. To drill these wells, the industry will need many more YPs. There will be a role for IOCs, NOCs, and service companies as the industry meets the critical challenges of developing these reservoirs, including access to the resources, expertise, technology, and the capital requirements.
The two main points that I wish to leave you with are (1) we are not running out of oil and gas and (2) now is one of the best times in the last 50 years to be a YP in the oil and gas industry—especially if you want to be part of a growing, high-technology industry that gives you the opportunity to see the world. It is truly the global business.
Stephen A. Holditch has been the head of the Harold Vance Department of Petroleum Engineering at Texas A&M University since January 2004. He joined the university faculty in 1976 and has taught most of the undergraduate and graduate courses. In supervising more than 100 MS and PhD students, Holditch has focused his research on gas reservoirs, well completions, and well stimulation. He was SPE president in 2002, previously serving as vice president of finance, and was a member of the SPE Board of Directors from 1998 to 2003. In addition, Holditch was a trustee of the American Institute of Mining, Metallurgical, and Petroleum Engineers (AIME) during 1997–98. He has received numerous awards in recognition of his technical achievements and leadership. Holditch was elected to the National Academy of Engineering in 1995, the Russian Academy of Natural Sciences in 1997, and the Petroleum Engineering Academy of Distinguished Graduates the following year. In 2006, he was elected as an SPE and AIME Honorary Member.
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