should i stay, page-30

WHAT IT MEANS

Overview

Exploration drilling for hydrocarbons aims to identify if oil and gas are present in a prospect and if there is any there, to then try and figure out how much of it there is.

This is essentially a four step process, and things can either go badly or get better at each step. It is important that as many evalution steps as possible are carried out and that any further investment decisions are based on the results of each step.

Step 1 - Hydrocarbon Shows While Drilling

This step refers to the recovery of rock and fluid samples as part of the drilling process and the evaluation of these samples to see if they contain traces of oil or gas.

The rock samples are examined under a microscope for traces of visible oil and to see if they are porous.

They are also looked at under an ultraviolet light, as oil is strongly fluorescent. This is usually reported in the sample description in the daily report, with strong fluorescence being indicative of possible oil with weak fluorescence being more ambiguous.

The drilling fluid (mud) is also sampled for any gas and/or volatile hydrocarbons which come back up to the surface with the mud as it is circulated. These are known as gas shows and are usually reported in "units". They are also broken down by their constituents. C1 being methane (natural gas), up to C5 and C6 which are more oily.

Even though there might be a good gas show with strong fluorescence in the cuttings there is no guarantee the oil or gas can be produced. It could be "residual" i.e. only traces left from where oil and gas has moved through the rocks or the rocks could be tight, i.e. they do not have sufficient porosity and permeability to let the oil or gas flow out. To find out if the shows are significant it is necessary to go to the next step.

Step 2 - Logging

If oil and gas is present in the pores in the rock it affects the physical properties of the rock in subtle ways. These changes can be identified and quantified by measuring devices called logging tools. These are lowered into the well on a "wireline" and measure various rock properties as they are slowly pulled back up to surface. The resulting readouts are called logs and these are interpreted to attempt to quantify how thick the layers of oil and gas are, whether the shows are residual and what the porosity and permeability might be.

The interpretations are usually fairly accurate at the two ends of the scale i.e. if it is a very good reservoir with good oil or gas saturations or if it is poor and essentially non producable. In between there is often some uncertainty so to resolve any uncertainty and also, in the case of a good reservoir, to see how much the flow rate might be, it is necessary to obtain fluid samples or test the well.

Step 3 - Well Testing

If the results of Step 2 are clear, it may only be necessary to obtain a fluid sample by lowering a sampling device into the hole on wireline and recovering a fluid sample and briging it to surface. These tools are variously known as RFT's, MDT's etc. If oil or gas is recovered by these samples this is very encouraging and may lead directly to Step 4.

If the results of these wireline samples are ambiguous or if it is not considered appropriate to recover a fluid sample, a bigger and more definitive test may be made by lowering the drill pipe back into the hole and allowing any fluid to flow to surface. This test is known as a drill stem test (DST) and can give very definitive results if no mechanical problems are encoutered. However, DST's are generally short in duration because of their cost and for safety reasons so they may not give a definitive result on the size of the reserves.

Even if Step 3 is positive, it will still not necessarily be clear if there is enough oil and gas to justify further development. This requires Step 4.

Step 4 - Production Testing

If results from Step 3 are positive, the well will be completed for production and put on production test. In the case of oil, this would involve producing the well into temporary production facilities and selling the resulting production. For a gas well it may mean flaring the well or if it is close to flowlines (as at Dongara), producing it for sale.

The reason for production testing is to confirm the size of the reserves before a decision is made to spend further money on development or to enter into long term sales contracts.

Just because a good flow rate is obtained in a DST in Step 3 does not necessarily mean that there will be sufficient reserves, however, production testing will normally be definitive.