The Middle East may be known for its abundant oil reserves, but as some of the leading producers reach half a century of production, extraction is becoming increasingly difficult. As such, markets like Qatar are becoming centres for new technologies that are pushing the boundaries of what is possible and helping the industry tap previously uneconomical reserves.
PRODUCTION: Qatar has been rightly lauded for its liquefied natural gas (LNG) revolution, taking it to the forefront of the global natural gas trade. However, this success, capped in 2010 by reaching production of 77m tonnes per year, has overshadowed the giant steps forward in oil production. The country may be only a medium-sized producer, with an annual production level of 1.72m barrels per day (bpd) in 2011, according to BP’s “Statistical Review of World Energy”, but under the authority of Qatar Petroleum, it has managed to maximise the potential of its 24.7bn barrels of reserves. Production increased by 8.2% in 2011, part of a broader trend that has seen production increase from 754,000 bpd in 2001 to the current figure of 1.72m bpd. While part of this decade-long upward curve is the result of improved extraction of natural gas liquids from the North Field (which BP includes in its production figures), advanced extraction technologies in Qatar’s complex oilfields are a major contributor to the step forward in production. The main symbol of this breakthrough is the Al Shaheen Field. Operated by Denmark’s Maersk Oil, production at the field has reached a stable 300,000 bpd, around a third of the country’s crude production and a significant feat considering few operators were prepared to touch the reservoir in the early 1990s when Maersk Oil came on board. Indeed, for many years, the field was considered economically unviable, too complex to extract from at profit. Lewis Affleck, the managing director of Maersk Oil Qatar, told OBG, “The main challenge in recovery is in the sub-surface of Al Shaheen, which is very complex. Even though we drilled 169 new wells in our last field development plan and more than 100 previously, with a total of 300 wells, we have only touched the surface of the reservoir, so there is still a lot of the reservoir we haven’t appraised yet. Therefore, we still see massive potential but it’s about understanding the field and being able to develop it economically.”
Al Shaheen has long been known as a complex field. Located 80 km north-east of Qatar, at a water depth of 50-70 metres, the enormous 2214-sq-km field lies above the Khuff formation. A tight, thin reservoir with low permeability, Al Shaheen has tested the limits of innovation in drilling and extraction. One of the greatest difficulties facing Maersk has been the thinness of the oil pay zone, which narrows to a matter of metres in parts. As such, conventional vertical wells would have been unable to maximise flow rates and would have proven economically unviable, given the number of wells and platforms that would be required to extract significant volumes from the reservoir.
HORIZONTAL DRILLING: Therefore, over the course of two decades, and a number of field development plans (FDPs), Maersk has got to know the reservoir and developed techniques to maximise recovery from the field. The $6bn FDP 2005, completed in March 2010, has increased production to 300,000 bpd and won the company many plaudits for the use of cutting-edge techniques, the most famous of which was a record-breaking 12.3-km horizontal well. The company has honed its horizontal drilling techniques, first used in the North Sea, to become one of the pre-eminent global companies in the drilling technique.
Horizontal drilling has not only allowed the company to use fewer rigs, but also, more importantly, to create improved oil flows from the reservoir. According to the US Department of Energy, horizontal drilling can increase reserves in place by around 2%, while the Natural Gas Supply Association estimates that in carbonate reservoirs where 90% of horizontal drilling takes place, the productivity of horizontal wells is approximately 400% greater than from vertical wells.
OTHER TECHNIQUES: It is not only horizontal drilling that has bolstered the country’s oil production figures. Maersk Oil has also used other techniques such as water flooding to sweep oil towards production wells (operating one of the largest oil floods in the world) and enhanced oil recovery (EOR) using carbon dioxide, natural gas and “smart” water.
“Right now we are running a pilot scheme under which we are injecting gas into the ground, and in 2012 we are initiating a water alternating gas pilot, which improves sweep efficiency,” said Affleck.
Maersk’s dedication and patience has paid off, as the field is now a key component of its global production total. While full details of Maersk’s production-sharing agreement with Qatar Petroleum are not available, the company received 114,000 bpd of Al Shaheen oil in the second quarter of 2012, 38% of gross production. This was down 28% on the same quarter of 2011, as the number of barrels Maersk could claim back under the contract’s cost recovery mechanism declined. Nonetheless, Maersk’s move into the world of unconventional oil at Al Shaheen is bearing fruit.
TREND: The cutting-edge techniques being applied at Al Shaheen are part of a broader trend that is placing the Gulf region at the forefront of extracting from marginal and complex reserves. Oman was one of the first countries in the region to turn to EOR, for example – it was facing a pronounced decline in oil production until EOR techniques arrested the trend. Now, such technology accounts for around a third of the country’s production, providing Muscat with $30m per day in revenues, according to Senergy.
EOR can improve recovery by 5-20% over conventional extraction and the industry is now worth $126bn globally, more than doubling since 2007, according to SBI Energy, a publisher of industrial and energy reports. This is likely to increase over the coming decade, with the Middle East at the forefront of demand for EOR and other advanced extraction technologies. According to GreatPoint Energy, a low-cost natural gas producer, there is the potential to extract 750bn barrels of oil with EOR recovery globally, of which 450bn barrels can be extracted in the Middle East.
Indeed, the region accounts for the biggest share of stranded and heavy oil globally, and is therefore likely to become the centre of efforts to develop new technologies for complex and marginal fields. In Qatar, Maersk has stated that the full potential of the heavy oil Al Shaheen field is yet to become clear. Nonetheless, the company is discussing a new FDP with Qatar Petroleum in a bid to maintain a stable plateau and a long-term production level from the field.
Maersk is also investing heavily in research and development (R&D), committing some $100m over the next decade to applied research at the Maersk Oil Research and Technology Centre, in Qatar Science and Technology Park. Studies will focus on improved recovery, EOR and environmental research that can be applied to the Al Shaheen field.
THE IMPACT OF OIL PRICES: The success of these ventures aimed at maximising field recovery is likely to be determined, to some degree, by the global oil price. Maersk Oil’s breakthrough in the Al Shaheen field, as well as other global developments, such as the huge uptake in deepwater exploration and production, have been facilitated by an oil price that has regularly broken the $100 barrier. Indeed, the cost of extracting these unconventional resources comes at a significant premium. According to the North Dakota Department of Mineral Resources, an area that has seen fevered activity in unconventional extraction, the cost of a horizontal well can be 300% more than a vertical well directed to the same target. However, the improved flow rate can make horizontal drilling a more financially attractive option in the long term.
It is clear, nonetheless, that international oil companies (IOCs) have to direct more capital into finding and extracting oil-based products, a trend emphasised in Qatar with Royal Dutch Shell’s $20bn investment in the Pearl gas-to-liquids plant. The US market, which has been transformed by shale reserves, is a good indication of the impact on oil majors, with the profit margin per barrel for Shell falling to $1 in August 2012. The margins for BP and Statoil were higher, at $11 and $13, respectively. However, for all these companies, the profit margin per barrel had dropped significantly on the previous quarter, as crude prices have averaged 7% less than in the same quarter of 2011. This squeeze on margins was the result, to some extent, of a lag in oilfield services prices responding to a softer crude price, but it is clear that oil majors will need the continued safety net of a high oil price, touching three figures per barrel, to continue exploring and developing unconventional sources.
However, the biggest beneficiaries of the move to more marginal and unconventional reserves are likely to be services companies. Not only have fees risen in parallel with the crude price over the past decade, bolstering margins, but such firms have emerged as leaders in R&D for recovery technologies.
SERVICES: While Maersk is looking to position itself as a leading drilling contractor, via its Maersk Drilling division, independent oilfield services companies were instrumental in bolstering production levels in the Al Shaheen field. Both Transocean, which provided its GSF 127 jack up and Schlumberger, which provided additional technologies, were crucial in the successful execution of BD-04A, the world record 12.3-km well.
The latter, the world’s largest oilfield services firm, is likely to play a vital role in further efforts to bring previously marginal reserves into production.
Schlumberger has increased its market capitalisation fourfold to $91bn over the past decade, making it bigger than many IOCs, according to The Economist.
Indeed, its profits and revenues continue to increase on the back of deepwater drilling and fracking technologies. The Middle East, including Qatar, is likely to remain a key market for large-cap oilfield services firms such as Schlumberger. According to Baker Hughes, another services firm, the Middle East onshore rig count was up by 40% in the 12 months to June 2012, while the offshore rig count was up 20%.
PROSPECTS: While the spike in onshore activity was dominated by Iraq, the whole of the Gulf region is likely to continue to provide opportunities for drilling and the use of advanced technologies for unconventional recovery. Maersk Oil Qatar’s plans to drill more wells in the Al Shaheen field in a bid to ensure plateau stabilisation are testament to this. Activity in the country is also ongoing in other blocks, with PetroChina acquiring a 40% stake in the exploration and production rights of Block 4 from GDF Suez Qatar in July 2012. Block 4, close to the North Field, extends more than 2500 sq km at water depths of up to 75 metres.
GDF Suez, which retains a 60% stake in the block, and PetroChina are expecting to begin drilling soon.
Such developments illustrate that, while gas continues to dominate the headlines in Qatar, the prospects for further oil discoveries and production increases are strong. Therefore, while the complex geology of the area is challenging for IOCs and oilfield service providers, the rewards for those willing to look to the long term are potentially substantial.