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The Essential Guide to Oil and Gas

Gain an overview of the oil and gas industry Understand the energy value chain from prospect to the burner tip Evaluate the major costs, risks and uncertainties in oil and gas activities

Produced by

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Introducing Mr M. A. Mian
Mr M. A. Mian (BSc Mechanical Engineering, MSc Petroleum Engineering, MSc Mineral Economics) is a Petroleum Engineering Consultant at Saudi Aramco and best-selling author. He has over 30 years of experience in petroleum engineering, project economics and decision analysis and has been involved in evaluating multibillion dollar projects in the oil, gas, LNG, GTL and petrochemicals industries. Mr Mian is also the author of four books, two on Petroleum Engineering and two best sellers on Project Economics and Decision Analysis. Mr Mian says Oil and gas industry operations involve diverse activities and require personnel with diverse academic backgrounds and experience. It is a highly capital intensive industry with highly risky operations but the rewards are also high if successful. There are many industry specific jargons used in day to day communications, meetings, and presentations etc. Besides the technical personnel many other non-technical personnel such as lawyers, human resources, accounting, marketing, environmental and safety, bankers, transportation, stock brokers, security, insurance and so on are involved. The irony is that most personnel either directly working in the oil and gas companies or providing services to them are not familiar with the overall operations, magnitude of investments required and associated risks. This e-book, the 12 Hour MBA in Oil and Gas and the 3 day MBA in Oil and Gas are all specifically designed to help the non-technical personnel working in the oil and gas industry. It is also designed to help those who are dealing or wish to deal with the industry, to become familiar with the overall operations of the industry. The e-book and courses are designed and presented in simple language to make the concepts easy to understand and remember. It will help you understand the overall operations, speak the industry jargon, identify the financial and risk aspects of the business and evaluate business opportunities. Click here to find out more.

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The essential guide to Oil and Gas

In this essential guide to oil and gas you will: 1. Learn about the diverse activities of the oil and gas industry 2. Understand the meaning of petroleum and the typical objectives and activities of the industry 3. Look at the importance of reserves replacement ratio 4. Discover how oil and gas was formed 5. Take a look at the different types of hydrocarbons 6. Discover how we find the oil and gas prospects 7. Explore the stages of drilling 8. Understand how to evaluate and complete a well for production 9. Review expected oil recovery from different types of reservoirs 10. Gain an understanding of what we do with oil and gas when it comes to the surface 11. Discover how to calculate the amount of oil and gas in the ground and recoverable 12. Get to grips with the types of refinery configurations 13. Evaluate the benefits of international agreements 14. Explore the different types of investment decisions

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Contents
Module 1: Oil and Gas Overview Module 2: Industry Activities Module 3: Global Reserves Situation Module 4: Formation of Oil and Gas Module 5: Classification of Oil and Gas Module 6: Exploration of Oil and Gas Module 7: Drilling of Oil and Gas Wells Module 8: Well Evaluation and Completion Module 9: Reservoir Drive Mechanisms Module 10: Surface Facilities Module 11: Reserves Evaluation Module 12: Crude Oil Refining Module 13: International Agreements Module 14: Project Economics

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Module One: Oil and Gas Overview

Diverse value chains High rewards Highly capital intensive

Diverse activities of the oil and gas industry

Complex operations

Workforce Diversity

Risky operations & investments

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Financial institutions

Marketing companies

The oil and gas industry deals with many other business sectors

Legal firms

Stock traders

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Module Two: Industry Activities

The meaning of petroleum The word petroleum comes from the Latin word Petra meaning rock and the Greek word Oleum meaning oil. So petroleum means rock oil or oil from the rocks, i.e. oil and gas comes from rocks. What is oil and gas largely composed of? Oil and gas is made up of two main elements - Hydrogen and Carbon, otherwise known as hydrocarbons. Crude oil is made up of roughly 84% Hydrogen and 14% Carbon and some impurities. "Crude oil is made up of roughly 84% hydrogen and 14% Carbon"

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Industry activities Industry activities include: 1. Exploration 2. Drilling 3. Field activities 4. Recovery 3 stages (primary, secondary and enhanced oil recovery). The three stages of recovery may take 30 to 40 years to complete 5. Water disposal 6. Refining and marketing 7. Transportation 8. Expansion and contraction of plants, buildings and equipment 9. Preventive maintenance and safety 10. Major renovations, upgrading and replacement of facilities

"The three stages of recovery may take 30 to 40 years to complete"

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Industry Streams There are three stages in the process of making oil and gas a consumable commodity. These are known as streams: Upstream - exploration and production Midstream - processing, storage and transportation Downstream - refining, petrochemical industries, LNG and marketing

Did you know...Petroleum provides nearly half the worlds energy!

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Module Three: Global Reserves Situation

Oil reserves are oil and gas quantities that can be technically and economically produced if they cannot be produced economically then they are classified as resources. At the end of 2010, 67% of the 1.383 trillion barrels of oil reserves were in the OPEC countries. At the end of 2010, 65% of the 6.609 TSCF of gas reserves were in the Middle East and Russian Federation. A Key Performance Indicator (KPI) in the oil and gas industry is the reserves replacement ratio. This shows whether the amount of oil/gas produced per year is matched by the amount of new oil/gas we find to replace this. If the reserves replacement ratio is equal to one this means whatever is produced in the given year has been replaced by finding new reserves.

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Module Four: Formation of Oil and Gas

Oil and gas was formed millions of years ago

Most of the land we now live on was water. There were animals and plants living on this water that subsequently died and were deposited under the water. Clay, rocks and mud transported from rivers and canals were deposited on top

Organisms under the clay and mud decayed due to oxygen in the water, temperature and pressure

The decay transformed them from animals and plants into oil and gas. This is why it is also known as fossil fuels

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Module Five: Classification of Oil and Gas

Crude Oil

Condensate

Types of Hydrocarbons

Natural Gas (Conventional (Unconventional)

Retrograde Condensate

Natural Gas

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Module Six: Exploration of Oil and Gas

Geological prospecting this is how we find the location of oil and gas and is conducted by geologists. There are several steps: Surface geology topography Aerial geography pictures of the surface Field geological assessment Surveys "There is no tool available today that tells us whether there is oil and gas under the ground. The only way to tell is to drill a well."

There is no tool available today that tells us whether there is oil and gas under the ground. The only way to tell is to drill a well. The geologist provides the science they will identify a large area of possible oil and gas traps The geophysicists will then enhance this science to find the traps The drilling engineers will then come in to confirm whether there is oil and gas in the traps identified by geophysicists

Did you know... a British Thermal Unit (BTU) is the amount of heat energy needed to raise the temperature of one pound of water by one degree F. BTU is the standard measurement used to state the amount of energy that a fuel has, as well as the amount of output of any heat generating device.

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Module Seven: Drilling of Oil and Gas Wells

What are the stages of drilling? Exploration drilling this verifies the presence/absence of oil and gas Appraisal drilling this identifies how big the discovery is Development plan and drilling this is the number of wells to be drilled straight away to arrive at a certain production rate Maintain potential and infill drilling maintaining the plateau rate for as long as possible by drilling more wells over time Delineation and/or step-out drilling drilling will continue until you find the oil-water or gas-water contact. Once you have found oil and water contact there will be no more oil and gas beyond this point in this particular reservoir

What are the routine drilling operations? Prepare the well site Rigging up and rigging down Spudding the well this is an important date in the drilling of wells. It is the first time the drill bit touches the ground to start drilling. All operations beyond this point are referred to the spud date Drilling the surface hole Running and cementing surface casing Continue drilling "Spudding the well is an important date Running and cementing intermediate casing in the drilling of wells...All operations Drilling to Target Depth (TD) beyond this point are referred to the spud Running and cementing production casing date" Trip or Running-in Hole (RIH) Well evaluation Non-routine Operations such as fishing, stuck pipe or killing a well

The cost of drilling varies depending on the type of well, the depth and orientation

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Module Eight: Well Evaluation and Completion

Well evaluation While drilling is taking place there needs to be constant evaluation of the well to identify whether there are any hydrocarbon shows in the well or not. This is done using logs such as sample or mud logs, open hole logs, drill stem tests and coring etc. Well Completions Once the well is ready to produce it must be completed for production. Factors to consider in completion design include the type of reservoir and drive mechanism, rock and fluid properties, the need for artificial lift and future needs such as Enhanced Oil Recovery (EOR) methods.

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Module Nine: Reservoir Drive Mechanisms

Different types of reservoir Type of reservoir Solution gas drive reservoir Description of reservoir This is the most common. Gas is dissolved in solution Expected oil recovery 5 30% of original oil in place

Gas cap drive reservoir

Gas formation on top of the oil formation and both are 20 40% of original oil in place in communication Water aquifer underneath the oil and both are in communication

Water drive reservoir

35 75% of original oil in place

There are also combination drive (gas cap at the top and water drive at the bottom) reservoirs but these are very rare.

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Module Ten: Surface Facilities

What do we do with the oil and gas when it comes to the surface? Firstly the oil and gas will undergo processing in the field this means the oil, gas and water are separated (to make the oil safe for handling and storage and because gas is a valuable resource), salt and water is removed and the gas is compressed, refrigerated and transported. Natural gas is also processed in the field to separate condensate and water from it. The water goes to water disposal and condensate to refinery. The remaining gas goes through gas processing plant to remove any impurities and then through NGL (natural gas liquids) recovery plant if economical. Artificial lift systems are installed to pull oil/water out of the well to the surface when the reservoir does not have enough energy to push the oil/water to the surface. Different methods of artificial lift methods have to be technical and economically evaluated before one is installed.

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Module Eleven: Reserves Evaluation

Key terminology explained Well servicing and workover whenever a well is visited for any type of maintenance it is called workover. Maintenance could include part replacement, cleanout and sand control, tubing and packer leak repair, re-stimulation and remedial cementing. Reserves estimating methods and classification this is how we calculate how much oil and gas there is in the ground and how much of this can be produced. We are unable to produce 100% of the oil and gas in the ground. As discussed earlier in the e-book, reserves are only those quantities of oil and gas that can be economically produced. Anything else is classified as resources. Rate-time decline curve analysis this is where you plot actual production rate of the well vs. time. This gives a trend which is used to forecast reserves and periodic production rates. Reserves Replacement Ratio this is an important measure of upstream performance. For every barrel produced this must be matched by what is found in the ground...otherwise we will run out! The reserves replacement ratio has to be maintained at 1 or above.

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Module Twelve: Crude Oil Refining

Crude oil refinery is one large production unit. It is referred to as a refinery and it alters the state of crude oil. The greater the number of processes, the more sophisticated the refinery. There are three types of refinery configurations: Skimming refinery - the most basic and cheapest form of refinery Catalytic cracking refinery - the products that come out of the skinning refinery process are fed into this refinery to be further refined Thermal cracking refinery - thermal cracking of the heavy crude cuts that come from skimming refinery

The lighter the crude oil, the more expensive the products you will get from the refinery. The heavier the crude oil, the lower in value it will be.

Did you know...in the USA refineries are predominantly catalytic cracking because they produce the most gasoline and there is a high demand for this in the USA. However, in Europe the refineries are predominately thermal cracking as there is a high demand for diesel.

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Module Thirteen: International Agreements

Technological expertise, which the NOC might lack Manpower to execute a project

Availability of financing

What are the benefits of International Agreements?

Sharing of risk

Opportunities to expand into new markets

Use of patented technology

The agreements are between two parties the host government (represented by the Ministry of Petroleum or Gas from that country) and the International Oil Company/a group of IOCs (the contractor). The National Oil Companies will oversee the contractual obligations. There are two main types of contractual agreements. These are the concessionary system and the production sharing system. The bottom line of the agreements is how much the government and the contractors get. Government take is the amount of money received by the government over the life of the project and it is typically a percent of the total net cash-flow or percent of the total NPV.

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Module Fourteen: Project Economics

The following data is required for project economics: Product forecast Costs Product prices and pricing assumptions Project implementation schedule Appropriate discount rate and rate of interest on loan (if project is financed) Profitability criteria This data has to be transformed into cash flow projections. There are five decision yardsticks to be calculated for every project Discounted Payback Period Net Present Value (NPV) Internal Rate of Return (IRR) Profitability Index (PI) or Present Value Ratio Long-Run Marginal Cost (LRMC) or Unit Technical Cost (UTC) There are two main types of investment - service producing investments and revenue producing investments. There are three types of investment decisions - screening economics, mutually exclusive alternatives and non-mutually exclusive alternatives.

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Wondering if you know all there is to know about Oil and Gas?
Why not try our 12 Hour MBA in Oil and Gas. The 12 Hour MBA in Oil and Gas will take you through the 14 modules covered in this E-Book in much more depth. Mr Mian will walk you through the fundamentals of oil and gas in an easy to manage online training course. For more information contact Evon Wong on: +44 (0) 207 608 7028 Or visit: http://www.terrapinntraining.com/training/12-Hour-MBA-in-Oil-&-Gas

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Wed love to meet you too...

We also run a 3 day MBA in Oil and Gas in various locations across the globe. Alternatively, we can come to you. We can tailor the course to your needs and deliver the course for you and your team. For more information contact Evon Wong on: +44 (0) 207 608 7028 Or visit: http://www.terrapinntraining.com/training/3-Day-MBA-in-Oil-&-Gas/