For those who have no experience in oil production we have put together a brief summary of how a company begins the process of finding oil all the way to when a well is no longer profitable and it is abandoned.
For our purposes we are going to use an example for a horizontal well in the Illinois Basin.
Finding a prospect: We have certain criteria in order to identify a good place to drill a well.
- In order to avoid dry holes we prefer to drill in existing oil fields. The field must have sufficient oil reserves still in place to achieve a superior rate of return. This is determined by identifying the amount of oil that originally was in place and then subtracting the amount of oil that has been produced.
- The reservoir needs to have characteristics that are conducive to the use of new technology.
- The data derived from existing wells in the field must enable us to determine with some degree of certainty where to place the horizontal section of the well.
- The prospect must be large enough to support multiple wells thereby creating a production unit that is the most economical.
Acquiring the Prospect: This is done by either new leases if the wells in the prospect area have been abandoned or by purchasing the existing wells. Many prospects require a combination of the two.
- The first step is to identify the owner of the oil and gas rights. This is done by running title on the prospect lands.
- Once ownership is determined, a landman is engaged to negotiate and obtain the leases within the range of a predetermined budget. Things to be negotiated are; the length of the lease (called the term), the cash paid to obtain the lease, the amount of overriding royalty (if any) to be assigned in addition to the royalty. The royalty is generally a minimum of 1/8 of the gross production. Other items in the lease deal with crop damages, use of the surface and other concerns of the mineral owner.
Obtaining Permits: All necessary permits to drill and operate a well must be obtained.
Drilling the Well: The following steps need to be done.
- Earth moving equipment prepares the land for the drilling rig and digs necessary pits.
- Contracts must be made with the drilling rig, the directional drilling company, drilling fluid providers, cementing contractors, bit suppliers, and other professionals.
- A geologist monitors drill cuttings, and logs the drilling times.
- The operator supervises the entire operation.
Completing the Well: A general description of what is done.
- Cementing the production casing to the entry point of the horizontal section.
- Moving a completion rig onto the location.
- If necessary the horizontal portion of the well needs to be stimulated. There are various methods that are used and different equipment configurations all based upon the information derived from the drilling process, historical results, operator experience and other factors.
- Testing the flow of the well both before and after the stimulus to determine what production equipment is to be used.
- A tank battery needs to be erected to separate water from the oil and to store each in there own tanks.
Operating the Well: Again every well is different to some extent, but here are the basics
- The well runs off of either electric, natural gas or propane.
- The operator provides a pumper to monitor the well, pumping unit and tank battery on a daily basis.
- When a tank is full the oil is sold to a purchasing company. In the Illinois Basin there are three primary buyers; Plains All-American, Country Mark, and Bi-Petro.
The above descriptions are not intended to be an in depth, all-inclusive discussion. All wells and reservoirs are different an provide there own set of challenges.