Drilling success rate much higher than 10%Some people are bashing the stock by saying that there is only a 10% success rate in finding oil. They're a little behind times. That was the success rate in the 1800's.
Exploration and Production
Natural petroleum crude oil has been known since ancient times at places where it naturally seeps out from the Earth’s surface, e.g. the famous Brea Tar Pits. The modern extraction of petroleum dates from 1859, started by Col. Edwin Drake in Titusville, Pennsylvania. In the days of Col. Drake, drilling was attempted by guess work based on surface seeps and often resulted in producing wells from as poor as 1 in 40 attempts to 1 out of 10 times at best. This form of near random drilling is truly “wildcatting.”
The interest in petroleum crude oil in the second half of the nineteenth century was mainly to replace coal oil in kerosene lamps introduced in 1854. The gasoline fraction was burned off, as it was too volatile for safe use in technology of the day. What this points out is that technology advances play a powerful role on the demand side of the economic equation as well as the supply side. Toward the end of the nineteenth century, the spark ignition internal combustion engine became practical and the demand for the gasoline fraction of crude oil to fuel it started to grow even as the electric light was displacing oil lamps. The twentieth century saw continuous growth in the demand for gasoline to fuel automobiles and the near complete dominance of electric lighting.
An oil well success ratio of 1 in 10 was unacceptable and geologists began to recognize that certain types of geologic sedimentary basins overlay potential oil-bearing strata. They also began to realize that natural petroleum was apparently forming (biogenic or otherwise) in what are called source rocks containing trapped decomposing carbonaceous matter. Mobile liquids then migrated to nearby porous reservoir rock, where it stayed only if it was capped by impervious strata that formed a trap. It is very expensive and slow to map a promising formation with numerous core drillings as is used for mining surveys. The outcome was the development of seismic surveying technology, begun around 1930. It is a crude form of what we today recognize as high-tech medical ultrasound imaging. Geologists would place a string of evenly spaced geophones (like microphones) in straight lines over the strata of interest and then set off a dynamite charge to create a low-frequency sound pulse. The geophones would receive the reflected sound pulses and the signals from each phone were recorded either on paper strip charts, or magnetic media in recent years. The plotted result was a “2D” two-dimensional slice image of the underlying strata. The resolution was poor by today’s standards and there is a current effort to re-examine old seismic surveys with modern interpretation tools and see if reservoirs were missed. As technology improvements provided better quality data acquisition and faster computers, it became practical to run parallel 2D slices and construct a “3D” three-dimensional image of the strata. An array of thousands of geophones is used in modern surveys. Some of the most powerful super-computers are now used to process seismic data and Exxon has what they call “4D” imaging, which even shows the movement of oil in the reservoir strata by repeating “3D” seismic surveys spaced over time. Petroleum geologists and reservoir engineers employ very sophisticated and highly proprietary software to model the life of a producing reservoir so they can optimize initial well placement, production and depletion rates, and plan eventual rework and maintenance of the reservoir. The incentive, of course, is to maximize the recovery and profits long term.
A final note on high-tech instruments in the exploration phase: Gravity and magnetic anomaly maps are made from aerial surveys with gravity meters and magnetometers and are used to help decide where to begin seismic surveys. Sniffing instruments are also in use at or near the surface to sense telltale gases often found above oil and gas deposits. Portable gas chromatographs with various detectors can be used for this purpose.
Earlier drilling difficult
In the 1970s, drilling more than 500 feet below sea level was difficult and expensive. Now, it's possible to drill in water up to 10,000 feet, and engineers are working on robotic techniques that will make it possible to drill 15,000 feet below the surface.
Offshore drilling has also been revolutionized by seismic imaging. Finding deposits of oil and gas is routinely accelerated by sophisticated remote sensing techniques.
What's more, horizontal and directional drilling allows companies to drill multiple underwater wells from a single location, sometimes reaching sites as far away as 10 miles. This technique has greatly reduced the environmental impact of oil and gas development.
This steady improvement in drilling technology is allowing oil companies to reach new undersea resources off the coasts of South America, Africa, Asia and other regions of the world such as Nigeria which is one of the dominant countries in Africa, with a long history as an oil exporting country, including significant offshore, deep water experience. While Nigeria has suffered from a variety of difficulties, ranging from corruption and mismanagement of the energy sector, to environmental damage and human rights abuses, it has been producing oil and gas for many years. Its energy sector is mature compared to most of its African neighbors. With the increasing global demand for oil and natural gas putting mounting pressure on energy companies, there is no way that the energy demand can be met without the ability to drill beneath deep waters.
Consider what's happening in the United States as a direct result of advances in drilling technology. In recent years, oil-and-gas production from deepwater areas in the Gulf of Mexico has leap frogged, partly offsetting continuing declines in oil production from older, shallower offshore wells.
According to the U.S. Minerals Management Service, deepwater production of oil rose 535 percent between 1995 and 2002, and it now accounts for two-thirds of the total oil output from the Gulf of Mexico. During this same period, deepwater production of natural gas rose 620 percent.
Advances in seismic technology have not only improved the industry’s results in exploration, but also have increased productivity and lowered costs per unit output. The improved information provided by the new seismic techniques lead to improved well placement, which increases well flow and ultimate recovery. Further, the fewer dry holes incurred in project development enhance project profitability by avoiding additional costs and the time lost drilling dry holes.
In addition to creating drilling rigs that can operate at great water depths, new drilling techniques have evolved, which increase productivity and lower unit costs. The evolution of directional and horizontal drilling to penetrate multiple diverse pay targets is a prime example of technological advancement applied in the offshore. The industry now has the ability to reduce costs by using fewer wells to penetrate producing reservoirs at their optimum locations. Horizontal completions within the formation also extend the reach of
each well through hydrocarbon-bearing rock, thus increasing the flow rates compared with those from simple vertical completions.
The advantages of adopting improved technology in deep water projects are seen in a number of ways. For example well flow rates for the Ursa project are 150 percent more than those for the Auger project just a few years earlier. The unit capital costs were almost halved between the two projects. The incidence of dry holes incurred in exploration also has declined with direct reduction in project costs. The number of successful wells as a fraction of total wells has increased dramatically, which reflects the benefits of improvements in 3-D seismic and other techniques. The incidence of dry holes incurred in exploration also has declined with direct reduction in project costs. The number of successful wells as a fraction of total wells has increased dramatically, which reflects the benefits of improvements in 3-D seismic and other techniques.
Over the last 20 years, the offshore exploratory success rate has more than doubled for a group of large producers which includes Exxon, Shell, Mobil, and Texaco, according to the U.S. Energy Information Administration. The offshore exploratory success rate for this group of producers more than doubled from 27 percent in 1978 to 55 percent in 1995.
The success rate of many offshore drilling companies since 1995 have shown even greater success rates. Australian-Canadian Oil Royalties Ltd. ACOR and partners have invested approximately 5 years and several million dollars in PELs 112, 108, & 109. As stated in previous ACOR press releases, 12 new wells adjoining PEL 112 to the North, East & West have been slated for drilling. Seven wells of the planned twelve wells have been drilled so far and Six wells out of those seven wells have struck oil. This is, by industry standards, an exceptional 86% success ratio. In addition to ACOR's success rate, Mariner has been successful in 13 of 16 offshore wells drilled from January 1, 2007 through June 30, 2007 for an 81% suyccess rate. Magnum Hunter company's offshore drilling success rate since entering the Gulf of Mexico in 1999 through the present date is 82%.