|Photo Credit: Susan Nash|
We need a way to identify marginal wells in danger of being plugged and abandoned (euthanized), quickly diagnose what’s keeping their production low, and match-make them with the appropriate services. Ideally, one can revitalize for less than the cost of plugging and abandoning.
For example, in certain situations, you may be able to obtain the wells for $100 / well (for example) with the agreement that you will assume the liability for plugging, abandoning, and whatever environmental cleanup is needed.
Ideally, for $10,000 - $25,000 per well, you may able to revitalize it so that it produces 8 – 10 bbls/day, with little or no water. The price may be low now ($28 or even lower), but by the time you've done all the revitalizing, the price may have recovered to at least $60 per barrel. Even at a net of $20/bbl, there are candidates that can be revitalized for a cost that can be recovered within 8 - 12 months.
It's a matter of accurately identifying the reason for the production decline, updating the reservoir model and characterization, obtaining a negotiated price (or even creative partnering) for services, and finding clusters of wells to optimize infrastructure.
You’ve saved the dog from being euthanized, and have restored it to, if not scampering and frisking about level, at least to the level of being able to walk on its own legs.
The Current Situation:
The price of oil has dropped from $125 to $30 per barrel in a year and a half. Even at $125 per barrel, some wells were not economic, but new technologies are game-changers.
Here’s the key issue: what happens to the marginal wells? The lifting costs are higher than the revenue the operator is receiving. So, it costs money to produce oil and gas, and they’re running at a loss.
But, once you plug a well, it’s usually plugged once and for all. That seems to be a shame because even after secondary recovery (usually a waterflood), there’s still around 70 percent oil in place that’s left behind. How much of that is recoverable? It really depends on the reservoir and your technology.
It's a shame to plug and abandon these wells, and thus lose them forever (potentially). It’s expensive to go back in and reenter the well, and it’s often very complicated and expensive to institute a water or CO2 flood. And, if you go out and plug all the wells on the lease, you’re going to lose the lease because it will no longer be held by production.
If there’s a cost-effective way to revitalize the wells and boost the production from, say, 1 bopd to 10 or 11, and if a service company is willing to do it for less than the cost of plugging and abandoning, or for a piece of the working interest, what would you think?
I am excited about the possibilities, but there are a lot of wells to be evaluated, and it has to be done quickly. We can’t sit on our heels. Rust waits for no one.
And, the return is potentially very positive. If we can increase the net oil produced (and not have too many problems with water disposal), from say, 1 bopd to 12, that’s a net increase of 11 bopd, and the gross production per month would be 330 bo. 330 barrels at $60 / bbl would be $19,800 per month. Granted, that’s gross, and does not reflect all the expenses, royalty burdens, etc.
But, even looking at these very gross numbers, that’s $237,600 per year, gross. If you have ten similar wells, suddenly you have an attractive business proposition.
Identify Candidates: A Workflow
* Producing less than 30 bbls / month in June 2015
* At least 3 wells in the same field
* Less than 8,000 ft
* Well logs and production information available
* Producing interval is clearly identified
* Operator is discoverable
* Operator is in a stable enough financial condition to be able to see out the experiment (no sudden changes of owners or foreclosures)
* May offer hypotheses about why production has declined
low pressure (that would apply to most, but let's get specific)
asphalt and low viscosity residue in the production string
diagenesis / calcite precipitate and overgrowths
Step 1. Find the producing marginal wells. Which ones have dropped to almost zero.
Step 2. Sort them by depth and producing formation or zone.
Step 3. Sort them by operator. The third step involves looking at where the operators have more than one well that has lost their productive capabilities.
Step 4. Determine why they are not producing. Add to list and matrix
Step 5. Build spreadsheet that is easily mined.
Step 6. Low pressure? Paraffin? Paraffin? Corrosion? Needs heater treater? Nice compression? Need downhole pump? Needs slime inhibitor? Needs to remove scale?
Step 7. List of companies that provide services. Revitalization services. Match-make.
Step 8. Identify the approximate cost for revitalization service.
Step 9. Prioritize. Identify clusters (5 - 10 wells?) Start ideal clusters to revitalize.
Quick-Look Decision-Making Tool for Ranking & Planning Interventions / Revitalization:
How do we quickly, qualitatively put together a decision-making tool that allows us to rank opportunities?
Here are a few guidelines:
1. Look at properties (leases, units, individual wells).
2. Assign each property a number. In the description of the property, you’ll list the API numbers, etc.
3. Provide information that will not be part of the ranking process. The information will be numeric in order to allow for sorting and comparison later.
* Overall condition (4-point Likert Scale: bad, fair, good, excellent)
* Condition of infrastructure (4-point Likert Scale: bad, fair, good, excellent)
* Cost to plug and abandon (dollars)
* Monthly lifting costs (per barrel, average)
* Type of reservoir (limestone, sand, shale, dolomite, etc.)
4. Select categories that lend themselves to a 10-point Likert Scale, 10 being high, and 1 being low. There are ten categories and the highest possible score would be 100, although unlikely, since not all wells are going to have the same types of revitalization potential or strategies. We can sort by the categories as well. For example, we may want to pull out the ones that have waterflood potential, and do it quickly. This approach will allow us sort, analyze, and identify interesting candidates quite quickly. Here are the categories, in no particular order.
* Effectiveness of environmental solutions
* Probable net daily production increase
* Effectiveness of new processes
* Effectiveness of implementing a solution with new chemical treatments
* Effectiveness of implementing a solution with new equipment
* Effectiveness of implementing a solution with new water flood or chemical flood
* Potential for new infield drilling (relatively inexpensive, with good results)
* Relative attractiveness of existing purchase contracts
* Potential for service provider discounts
* Low ORRI or working interest burdens
Putting everything together in an Excel spreadsheet creates a very simple and flexible approach. Once identified, each well can be evaluated in terms of its unique attributes and factors.
This approach is a broad-reaching, big-brush tool. Later, more detailed analyses, with relational analyses of attributes, esp. if some are dependent variables, or “key indicator” attributes.
I like the tool because it can be adapted for other purposes as well.
We can also set it up so that anomalous values pop out – with the understanding that anomalous values can be sweet spots or deal-killers.
Case Studies: This article focuses on concepts and a simplified workflow for identifying candidates. I have not gone into detail about examples or case studies. However, that will be the next step. I will put together profiles and case studies of successful (and not so successful) implementation of the "Old Well Rescue" (aka "DogCatchers") plan.
Entrepreneurial Opportunities: This is a great moment in time to partner with technical experts. You can connect with geologists, engineers, and landmen via LinkedIn or other social media and start to identify candidates for revitalization.
Not a geologist or engineer? Do not worry. Your role could be to a) source the technology; b) match-make with service providers; c) work with an investment banking firm or venture capital firm to fund the acquisition of properties that have been targeted as good candidates.