Addressing the margin while preparing for tomorrow

World Oil, June, 1999 by E. Lance Cole

By the time this is published, the Petroleum Technology Transfer Council (PTTC) will have organized nearly 20 survival-oriented workshops around the country since its Industry Crisis Action Plan was launched in December. Operators attending these workshops are aware that no magical technology solutions exist for today's crisis. But they have been interested in hearing practical, low-cost information like that summarized below.

The cost side. It is important to know "true" costs. In large multiwell projects, knowing when to rework wells is critical. By knowing true well-operating costs and the cost of fixing various field problems, some companies can decide within a matter of minutes whether to fix wells that go down or leave them shut down. These costs should be broken down into meaningful categories for individual wells, which include both direct lifting costs and total costs. This level of analysis allows operators to prioritize which cost-reduction efforts have the most impact.

Reducing power costs. Improving efficiencies, such as matching electric motor size and pumping cycle to the volume of fluid to be pumped, can reduce the basic energy charge. Additional savings are possible when demand charges are 50% or more of the total bill. Power factor--the ratio of real power needed to get the job done to total power supplied--is another consideration. If the power factor is less than 95%, operations may be more cost effective with line capacitors. Switching to interruptible service is one option for lowering electricity cost.

Controlling when power is used is another factor, e.g., consider both off-peak and seasonal discounts. Using timers and pumping during off-peak periods, an Illinois basin operator reduced power consumption by 25%, and average production was not affected. Timers paid out within a month.

Negotiating the royalty rate. It may be worth a try to amend the lease terms. High royalty rates hurt both royalty owner and operator, since they have the same net effect as higher operating costs. A royalty rate that slides with the price of oil reduces the likelihood of negative cash flow. When oil prices are down, the lease remains profitable longer, avoiding premature abandonment. When oil prices are up, royalty rates are higher, but the operator can generally afford to pay more royalties in this case, and still maintain profitability.

The revenue side. Look for ways to reduce wellbore damage. There have been encouraging results from a treatment program focusing on removing skin damage caused by near-wellbore organic damage (wax buildup). These successful results depend on thoroughly analyzing the well history and selecting wells that have experienced a production decline that cannot be explained solely by reservoir depletion.

If wax buildup is the problem, wells can be treated with solvent/dispersant combinations, followed by a 12-hr shut-in period. Experience from 70 treatments shows that, if candidate wells are properly identified, the economics are attractive for increasing production and cash flow.

The well shut-in decision. There are a number of questions a producer should consider regarding reservoir conditions when wells or leases become uneconomic: 1) should individual wells or the entire lease be shut in; 2) what factors affect whether production can be recovered when the wells are brought back on line, 3) what are the risks for formation damage due to wellbore effects; 4) for injection projects, what are the long-term effects on reservoir pressurization and sweep efficiency, and 5) how can one prevent excessive damage to downhole and surface equipment? Since each situation is unique, the prioritization of these questions will differ.

Protecting equipment. In some areas, the most critical concern for long-term integrity of shut-in wells is minimizing sulfate-reducing and acid-producing bacteria, and associated corrosion. One should use both corrosion inhibitor and biocide treatments, regardless of known bacteria evidence. The strategy is to distribute the proper chemicals throughout the water phase where corrosion takes place. If tubing is in the hole, it is important for the chemically treated water to contact the internal tubing surface, as well as the exterior surface and casing. Any well returned to production for a short period of time should be retreated before another shut-in.

When shutting in surface equipment, the most important actions deal with flushing the system, excluding oxygen, and wrapping critical electrical and instrumentation equipment. Before reactivating, electrical systems and instrumentation should be examined, and equipment should be visually inspected. It is also important to pay attention to purging/start-up procedures.

Many steps must be taken to ensure that a facility can be temporarily abandoned and quickly restarted. When facilities are shut in, the duration is uncertain, but producers must balance cost/time commitments of protective actions against potential damage.

Maintaining the lease. It is important to know the actual lease terms, including the difference between state regulations and lease requirements. "Producing" oil, in a legal sense, means taking oil out of the ground, not just selling it from a storage tank. Even if a lease has been shut in, operators can take action to show intent for continued operations.