In the broadest sense, the oil and gas industry is all about getting retail petroleum products to the customer as economically as possible. While each step in this process adds a varying amount of cost to the end product, getting the oil or gas out of the ground is by far the most costly and risky.
No matter the size of the operator (i.e., oil and gas company), every upstream company with a stake in any type of well is interested in cutting costs, increasing production and getting hydrocarbons out of the ground as quickly as possible.
Oil and gas recovery involves far more than buying a lease, blindly punching holes in the ground and hoping to get lucky. Successful operators take the painstaking steps involved in performing the due diligence for every play where they invest their money.
One of the most important steps in planning and optimizing a well is simulation modeling.
What Is Simulation Modeling?
Oil and gas simulation modeling is the process of optimizing the recovery of hydrocarbons while maximizing the financial performance of a well or field.
Based on down-hole conditions (or geology of a well), expert geoscientists use sophisticated computer modeling software to select the optimal recovery method that will yield the most oil or gas.
Oil and gas simulation modeling can be used in new field development by building a detailed profile of the play being evaluated. But simulation modeling can also be used in developed fields with declining production curves to help stimulate wells in that field.
Every new play will eventually become a developed field. Once a well reaches a specific point on its decline curve, the original operator will either invest additional capital to try to stimulate the well in hopes of increasing its production, or divest the asset and move on to their next project.
That is not to say that a well on the tail end of its decline curve can’t be economically viable. Many a profitable oil and gas company has made its living buying wells in developed fields and increased the well’s production to levels that once again reach profitability.
Why Is Simulation Modeling Important?
The recoverable hydrocarbons in any well are well below 100%, and depending on the methods used to recover those hydrocarbons, those recoverable assets could be as low as 5%.
Understanding the well is paramount to an operator’s ability to maximize recoverable assets and allow the organization to budget appropriately.
Methods to Recover Oil and Gas
Recovery methods for oil and gas wells fall into three categories –primary recovery, secondary recovery and enhanced oil recovery (EOR).
The primary recovery method is the simplest and most intuitive. This process involves allowing the hydrocarbons to flow from the well under the natural pressure that exists in the formation once drilling operations have reached the pay-zone.
Primary recovery can also use the iconic pump-jack, or another artificial lift method, to bring the hydrocarbons to the surface.
Unfortunately, this recovery only extracts between 5% and 20% of the total reserves in the formation.
While primary recovery methods only extract a maximum of 20%, secondary recovery methods can pull an additional 30% out of the formation.
These recovery methods use gas or water injection to lower the viscosity of the hydrocarbons while increasing the pressure of the formation. The combined effects of these secondary recovery methods allow an existing oil well to increase its production.
Enhanced Oil Recovery (EOR)
Also known as tertiary recovery, EOR involves three main methods for oil recovery:
- Thermal recovery: While this can be achieved in a number of ways, the primary purpose is to increase the temperature and thus reduce the viscosity of the oil trapped in the formation.
- Gas injection: Carbon dioxide, natural gas or nitrogen injection helps improves oil displacement in the reservoir.
- Chemical injection: Alters the surface tension and increases the efficiency of waterflooding.
While the economic benefits of each recovery method vary by well geology, regional regulations, the cost of well stimulation products/services and other factors, the best way to determine the most profitable recovery method is with accurate simulation modeling.
Do I Really Need Simulation Modeling?
Any oilman worth his salt understands that with each advancement in oilfield technology comes increased efficiencies, and therefore increased profits.
It’s all too easy to overlook or ignore the aspects of oil and gas drilling and extraction that we don’t thoroughly understand. A lack of understanding, in the information age, is no excuse to overlook required due diligence to get the most out of an oil play.
Regardless of where your well sits on its decline curve, or where you are in the operation of that well, planning for the future of your asset is an absolute necessity if you want to survive when oil is $40/bbl and take advantage of the market when oil is $100/bbl.
Whether buying or selling a lease, you need to know with a high degree of accuracy how much is recoverable from the play you plan to acquire or unload. With the current market conditions in the oil and gas industry, the chance to sell high are few and far between. The better move is to buy low and make money on the front end.