Petroleum technology advances through applied research by independent oil producers

"Petroleum Technology Advances Through Applied Research by Independent Oil Producers" is a program of the National Oil Research Program, U.S. Department of Energy. Between 1995 and 1998, the program competitively selected and costs shared twenty-two projects with small producers. The purpose was to involve small independent producers in testing technologies of interest to them that would advance (directly or indirectly) one or more of four national program objectives: 1-Extend the productive life of reservoirs; 2- Increase production and/or reserves; 3- Improve environmental performance; and 4- Broaden the exchange of technology information. The twenty-two projects addressed nine diverse technology areas in twelve states. The total cost of the projects was $3.5 million, with $1.0 million (29%) in Federal funds and $2.5 million (71%) from the operators. This report analyses the performance and results of these projects relative to their technological and economic success (Figure 1) and the benefit-cost of the program as a whole. Overall, the program's twenty-two projects met with remarkable success: - Fourteen projects (64%) met their technology objectives: Seven of these (32%) were profitable as stand-alone projects or demonstrated the viability of cost-saving new technologies. One (4%) was so successful in a laboratory demonstration that full scale-up is being planned. Three (14%) technologically successful projects had insufficient data to estimate economic results. Three (14%) technologically successful projects were not economically successful under then prevailing oil prices, but one of them would be profitable at present prices. Five projects (23%) were technologically promising but require additional monitoring or further testing to confirm technological success; all of these were in the very advanced but high-potential areas of horizontal drilling and very advanced reservoir characterization (3-D seismic and telluric surveys). Only three projects (14%) failed to meet their technological objectives and two of them generated scientifically useful information. Of the twenty-two projects, seven were judged as ready for technology transfer to other operators, twelve were sufficiently promising to justify additional monitoring or testing, and three had little or only limited future potential in oil reservoirs. Incremental recovery was reported on a project-specific basis for eight projects and was extrapolated for two more. Incremental production from the eight specific projects was 269 thousand barrels of oil equivalent (BOE). Almost 95'%0of this was from projects that were marginally profitable or better. The two extrapolated projects would add another 8 million BOE for a total of 8.3 million BOE. Ultimately, of course, additional incremental reserves and production would result from step-outs of these projects, from the projects that did not report specific incremental recovery, and -- most importantly -- from the potentially hundreds or even thousands of fields that could adopt these solutions due to technology transfer. Economic benefits of a research/demonstration program like this are difficult to assess because they depend on the extent to which operators of fields in addition to those directly participating in the program adopt and adapt the tested technologies over an extended period of time. A lower bound on the benefits, however, can be estimated directly from the projects yielding detailed project economic data. Of the eight projects for which detailed economic evaluations could be performed at the project level, four were clearly profitable, one was marginal, and three were not profitable at the then prevailing economic conditions (one of which would be economic at present oil prices). In the absence of universally accepted benefits criteria for programs like this, one simple way to examine costs and benefits is to assume that the Federal outlays represent the costs to the economy and the incremental economic gains net of all costs (excepts transfer payments) represent the benefits to the economy. The left side of Figure 2 shows the Federal outlays at three levels: in total ($1,014M); for the eight projects that could be evaluated economically ($376M); and for the subset of five projects that were profitable ($234M). The right side of the figure represents the incremental economic gains from only they've economic projects. The total estimated incremental gain to the economy from the five projects is $1,919M, made up of $895M in after-tax cash flow to the independent operators, $586M in taxes (state, $299M, Federal, $287M), and $483M in royalties. This severe lower bound estimate, the% shows that returns to the public (taxes and royalties) from only the five evaluated, economic projects (excluding even step-ups of those) exceeded the Federal outlays for all twenty-two projects. Inclusion of net cash flows to operators would raise this to almost double. Considering only the benefits of the five economic projects but the full cost of the program, the benefit-cost ratio is 1.9 to 1. (The benefit-cost ratio for the five economic projects, relative to their Federal outlay, but still excluding any benefits from expanded use of the demonstrated technologies, is 8.2 to 1). Economic analysis was also conducted for two other projects on the basis of hypothetically reaching the project forecasted results or of scaling-up laboratory demonstrations to full commercial scale. The economic benefits of either of these projects would exceed the Federal cost of the full program--one by more than 100-fold. Expansion of the economic projects within the test fields, technology transfer to other fields, and benefits from projects that did not report detailed economics will all add to these benefits but not to the costs of the program. Clearly, it is safe to conclude that the program overall was both technically and economically successful. NPTO plans to continue the program by selecting and cost sharing with independents in field tests of other technologies with promise. Further, outreach and technology transfer efforts are continuing to ensure that all operators are aware of the results of these projects and how the tested technologies might be applied in their own fields.