Professor: Ernest Smith For Oil and Gas Class
Semester: Fall 2015
Course about:
· US law only;
· focus on upstream issues, ownership, conveyance, leases, regulations of drilling and production, oil and gas together in upstream.
Factors affecting the course:
· Price drop:
– Gas—result of success of horizontal drilling/fracing;
– Oil—since late September 2014,
– Doesn’t affect the oil & gas law, but affect the application
· Horizontal drilling:
– Law presumes O/G produced by vertical well
– Referred to “unconventional reservoir”
– “Fracing”: high pressured fluids periodically injected underground
– Controversy: water pollution; minor earthquake
– Common practice, but typical O/G lease or other agreements are not really called up for this. O/G law is developed under traditional reservoir.
– We’ll concentrate on cases of vertical drilling.
Distinguish Oil and Gas:
· physical characteristics: storage facilities
– Oil: tank near well, drive out in truck
– Gas: can’t do that; has to be put in pipe line
· Requisite infrastructure: Transportation
– Complicated for gas than oil; gas needs pipelineàneeds easement; with gas price much lower than oil, not economical to construct the pipelines, so they inflame them.
– TX: Railroad Commission regulates O/G production
– mcf: 1000 cubic feet
· Processing
· Marketing
· Use
I. Introduction: Basic Petroleum Geology
i. Reservoir:
· Conventional Reservoir:
– Most are still producing after 50/60 years
– Most O/G law/regs are designed to deal with conventional reservoirs
ii. Origin of Petroleum
· Traditional theory: Death of organism, decay, pressure à hydrocarbon squeezed out à migrated à into conventional reservoir
– Organic theory of oil and natural gas- hundreds of millions of years ago plant and animal life died and this organic debris slowly settled like silt in a lagoon to the bottom. Eons later this organic mush is covered by some harder rock. It slowly sinks deeper beneath the surface. Pressure, heat, chemical reaction transforms this into oil and as a result of geological disturbance or pressure it migrates into an oil reservoir. Vastly oversimplified.
· Minority theory: methane exist in universe where no life exist à transformed by bacteria into petroleum
– The simplest hydrocarbon is methane. Found everywhere in the universe. Even in places where it is inconceivable that there was ever life. Methane one of the fundamental building blocks of solar system and universe.
– There are huge quantities of methane over the center of the earth as a result of heat pressure and chemical reactions. This was then transformed into more complex hydrocarbons. I.e. butane.
– As pressure built up, the hydrocarbons were sent up through the earth where they mixed with bacteria and particles. This mixture allowed them to transform into common oil and gas with an organic trace.
iii. Conventional Reservoir
· Geological features/Requirements of conventional commercially productive reservoirs
– (1) Zone of porous and permeable rock;
o Porosity means that there are spaces between the strata where oil can accumulate.
o Permeability means that the spaces are connected.
o Not in a “pool” though, there’s never a “lake of oil”, all absorbed in rock instead.
o Mostly sedimentary rocks, e.g. sandstone, limestone, and dolomite; now shale.
– (2) Overlying impervious bed of rock (“cap rock”): prevents dissipation (prevents oil and gas from moving upward)
– (3) Underlying seal, such as water layer: prevents pressure from sipping o/g downward
– (4) Structural features providing “trap” for O/G: Has to have some type of surrounding structure that keeps the oil and gas in place. See below.
· Two Structural Trap Categories
– Stratigraphic reservoirs are formed by change of porosity and permeability within the sedimentary formation itself; while Structural reservoirs are formed by geological movement.
– Stratigraphic reservoirs (p 13): some sort of permeable and porous rock that has been overlain by an impervious rock.
o Major type: Unconformity.
§ Theory is many years ago had a wide ancient river, as river flowed deposited sand. Sand deposits were uneven. Later overlain by some type of impervious rock. After that oil migrates into sand and pockets of sand.
§ Example: “Bossier Sands” in Texas
o Alternative: land of limestone- geologic disturbance- thrust on side. Erosion cuts off top. Have rock on top of that so have a trap- something with top sides and bottom to keep everything in place
– Structural reservoirs caused by geological change through millennium; Reservoirs formed by bending or breaking of strata
o Dome/Anticline (p 10): anticline more elongated, but mostly similar; shape provides trap
§ Anticline- easiest to visualize. Idea is that originally have flat sandstone layer, shale, then through some geological disturbance intrusion of igneous that bends overlying layers. Domed structure- creates trapped reservoir.
§ Syncline: reverse dome. Bending of stratum because of geological disturbance. Layer of oil in middle gas on the sides. Reverse of anticline
o Fault (p 11): originally have layer of limestone. Geologic disturbances and have a fault. Result is have layer of limestone which is now pushed up against impervious rock. Have reservoirs or traps that result.
§ Historically wanted dome because easier
§ If have a faulted reservoir know where fault line is and know reservoirs along fault line but harder to find. If found one didn’t necessarily mean that you would find another one
o Salt dome (p 12): e.g. Austin chalk
§ Idea is that long ago have ancient salty seas that dries up. Big layer of salt. Starts sinking beneath other layers- deeper. Pressure on salt gets more and more intense. Idea is what happened is what would happen if took tube of toothpaste and pressed hard on both sides. Will burst through the middle at some point. When it does that it bends the top strata and breaks the lower strata. Historically was a great thing to discover. Dome on top and faulted reservoirs on sides. Historically meant hit it big.
§ Almost impermeable matter but heavily fractured. Oil can form in fissures or fractures. Have very small pockets of oil. Tough to find. If drill traditional vertical well. No matter how good geology is reasonable chance will miss it. enormous production for a few months then nothing. This is the Austin chalk
· Content: From the top: gas à oil à water
– Natural gas : two forms
o Free gas/gas cap: on top of the reservoir.
§ Gas cap that prevents oil from rising. Part of the corona bottle between the cap and the beer
o Solution gas (dissolved in oil): bubbles out when pressure is released, think about a can of coke or a bottle of Corona
§ Liquids under pressure. The bubbles that rise to the top of the beer when the cap is popped.
– Oil
– Water: two forms
o Connate water (Produced water): This represents the water mixed in with the oil and gas.
§ byproduct of o/g production. water that adheres to grains of sand that make of strata. One issue is what to do with the water. Heavily salty and has sulfur content. Increasing problem for oil companies and environment
o Underlying Water Layer – As the substances or themselves out, water typically lies on the bottom
§ Also frequently have underlying layer of water. At bottom of reservoir
ic – Makes more sense to mine up structure as the well will last longer using this method. This well will become unproductive pretty soon. Still will make a profit but drilling at the tip is better way to invest capital. Well will last longer than if drill down structure. If want to maximize capital investment- want to drill at the right place
o Combination Drive
– When internal pressure is not strong enough, oil company establish pump jack.
o Usually there is enough internal reservoir pressure to move oil to well bore but not enough to get it to the surface. That is why you have pumps. That is still the primary stage of recovery.
– When cost of continued operation exceeds value of production, oil company abandon well. But significant amount left underground, 65%-90% à leading to secondary recovery operation.
· Secondary recovery operation: Inject some substance (water, gas, mixture) in the reservoir that starts restoring reservoir pressure
– Expensive: requiring consent of landowner
– Difficulty: hard to put in agreement what percentage of royalty to give to lessor/LO.
o Have to have unitization. Most states have compulsory unitization that kicks in at that point. TX does not
– Method:
o Water flood
o “Steamed assisted gravity drainage” (“SAG D”): can recover 60% oil left
§ Use hot steam to reduce viscosity of oil, separate it from formation
§ Two parallel well, one above the other. Upper one gives out steam, lower one collects combination of oil and water, then separate them.
o CO2 injection: like dishwasher soap, mixed with oil, causing it to be released from grain of sand, producing combination of oil and CO2, then you separate them. Expensive.
v. Unconventional Reservoir
· Horizontal Drilling
– Started early 1990, Austin Chalk Impermeable land
– Horizontal drilling, not cemented or cased. Every time you hit the fracture, oil will flow into the tunnel.
– Perforation
– Proppant
· Coal-bit methane gas (B 496-99): controversy—does coal lessee have right to the byproduct methane gas
· “Core sand”?: clay, sand, water, and bitumen.
vi. Recoverable Reserves:
· Definition- known reserves of oil or gas that can be economically produced at current prices using current technology
· determined by the following factors
– Known reservoirs
– Technology (see below)
– Price: when P goes up, it becomes economically feasible to produce; if well becomes marginal, no longer profitable, O/G company may decide to shut it down.
– Legal system: diversity of ownership under land; what prevents drilling?
o What is unique about the American oil industry is the legal system that surrounds it. In most countries-oil is owned by the sovereign. True in Mexico, middle east, Nigeria, and Britain. Just the US and Canada where private persons can own the oil and gas in the ground. In most countries wouldn’t be any reason to have any separate course of oil and gas law-would be in public land law
