Innovation overpowering reserves depletion in U.S.

U.S. RESERVE ADDITIONS-2

Richard Nehring
NRG Associates
Colorado Springs, Colo.

• Four Regions Analyzed In This Study [86,815 bytes]

The survey of aggregate U.S. upstream oil and gas opportunities, presented in the first part of this article and based on a comparative review of recent opportunities, presents a promising picture.

As promising as this picture may be, it is insufficient. Put bluntly, no one invests in aggregate opportunities, no matter how compelling their attractions. Petroleum industry investment is directed to specific opportunities: individual prospects, fields, and reservoirs. The number of specific opportunities available is thus a critical consideration for upstream planning.

The number of available opportunities is not, however, the only specific consideration. In the evaluation of individual opportunities, size counts. Part of the perception that upstream opportunities are diminishing in the U.S. is that few opportunities of substantial size remain to be discovered and/or developed.

Both the number of opportunities and their size distribution thus need to be considered.

Opportunities in the specific

To evaluate the specific opportunities that the industry perceived and realized, we conducted a field-by-field examination of reserve additions during 1990-96. For our field data, we used the Significant Oil and Gas Fields of the U.S. Database, which includes known recovery estimates from 1982-96 for nearly 15,000 fields.

For this article we limited our evaluation to those fields with substantial reserve additions on an international scale, which we defined as 5 million BOE or more per field.

Reserves added by field

Because the distribution of amounts added by field is important for strategic decisions, we further divided these fields into four groups, as defined by the range of reserve additions during 1990-96:

• 5-25 million BOE, internationally substantial additions.
• 25-100 million BOE, internationally major additions.
• 100-500 million BOE, national giant level additions.
• 500+ million BOE, international giant level additions.

Fields were analyzed both nationally and by four broad regions (Fig. 4): Gulf of Mexico, Gulf Coast Onshore, Interior (Permian, Midcontinent, Illinois-Michigan), and Western (Rocky Mountain and Pacific).

Table 4 [46,502 bytes] shows the number of fields with internationally substantial reserve additions in the U.S. from 1990-96. The number of fields with substantial reserve additions is stunningly high.

During this brief 7 year period there were more than 1,000 fields which individually had at least 5 million BOE in reserve additions. Few regions in the world even have that many oil and gas fields that size or greater.

At even higher levels of additions, there were 265 fields with 25 million BOE or more of reserve additions, 41 with 100 million BOE or more, and 7 with 500 million BOE or more of additions. There were also more than 1,750 fields with 1 million BOE to 5 million BOE of additions.

The fields with substantial reserve additions were spread across the field size spectrum. More than 280 had less than 5 million BOE ultimate recovery or no ultimate recovery at all as of yearend 1989. These fields accounted for most of the nearly 400 field increase (to about 4,950 fields) during this period in the total number of fields with 5 million BOE or more ultimate recovery.

At the high end of the field size spectrum, reserve additions increased the number of world-class giant (500 million BOE plus) fields in the U.S. to 103 from 94 and increased the number of national-class giant fields (100 million BOE plus) to 629 from 589.

Size was no guarantee of substantial additions. Of the 94 world-class giant fields as of yearend 1989, 26 did not have a substantial amount of reserve additions during 1990-96; 270 of the 589 national class giant fields had reserve additions less than this standard.

Geography of reserve additions

The fields with substantial reserve additions are geographically widespread; they are not limited to the Gulf of Mexico. Of the four broad regions used, the Gulf of Mexico is the single most prolific. The majority of fields with substantial additions was still onshore.

The likelihood of a field having substantial additions did, however, vary significantly by region. In the Gulf of Mexico, more than half (378 of 707) of all the fields with an ultimate recovery of 5 million BOE or more at the end of 1996 had at least 5 million BOE in reserve additions during the preceding 7 years. By comparison, only 17% of such fields in the Western region, 15% in the Gulf Onshore, and 14% in the Interior had such levels of additions. The extent to which this reflects a true distribution of industry opportunities as opposed to a reflection of the distribution of industry effort remains a most interesting question for future examination.

The fields with substantial reserve additions have provided the great majority of recent reserve additions. Table 5 [ 49,303 bytes] shows the amount of reserves added in fields with substantial reserve additions by range of reserve additions. Altogether these 1,006 fields accounted for at least 82.5% of 1990-96 reserve additions (31.55 billion out of 38.2 billion BOE). Because of minor underestimation of reserves, the actual total added in the fields with substantial reserve additions is probably 500 million to 1 billion BOE higher.

Reserve additions in these fields are geographically dispersed. Each of the four regions has 19-29% of the total added in fields with substantial additions. Surprisingly, the Gulf of Mexico may not be the most important region in this category. The Western Region, which had the fewest number of fields with substantial reserve additions, had five of the seven fields with international class giant levels of reserve additions, thereby having a minimal statistical edge in amounts added over the Gulf of Mexico.

Comparing the amounts added (Table 5) with the number of fields with substantial additions (Table 4) yields the average amount of additions per field. Across the four categories of ranges of additions, the average additions were, respectively, 10.6, 47.2, 143, and 1,036 million BOE/field. For all 1,006 fields, the average addition per field with substantial additions was 31.4 million BOE.

Exploration vs. field growth

Traditionally, reserve additions are separated into two broad categories: additions from new field discoveries and additions from "reserve growth" in previously discovered fields.

Reserve growth can be separated into two further categories: development-dominated growth (growth from more intensive development within the limits of known reservoirs) or exploration-dominated growth (growth from extensions to previously discovered reservoirs or from new reservoir discoveries in previously discovered fields). These distinctions help to identify the causes of reserve additions and thus provide a basis for determining where future efforts should be focused.

As part of an initial examination of the causes of recent reserve additions, we classified each of the 1,006 fields with substantial additions as to the predominant source of reserve additions in each. Those fields in which all of the ultimate recovery as of the end of 1996 was added to reserves during 1990-96 were classified as new field discoveries.

Because of development lag times, particularly offshore and in Alaska, the number of new field discoveries thus contains a substantial proportion (around 40%) of fields discovered prior to 1990. This bias is more than counterbalanced by an even greater number of fields discovered from 1990-96 with no booked reserves as of the end of 1996 that were excluded from the list.

Among the fields that had an estimate of ultimate recovery as of the end of 1989, those fields that had identifiable new pool discoveries and extensions from 1990-96 that provided the majority of their reserve additions were classified under exploration-dominated growth. All other fields were classified as having development-dominated growth.

Because we lacked complete information on recent new pool discoveries and extensions, this procedure created a bias in favor of development-dominated growth, particularly in the Gulf of Mexico and Gulf Coast Onshore. We estimated that 20-40% of the fields in these two regions listed as having development-dominated growth could have had exploration-dominated growth instead.

Importance of exploration

Table 6 [ 43,829 bytes] shows the distribution of the number of fields with substantial reserve additions by the dominant type of additions. As expected, new field discoveries are a relatively small proportion of the total. They account for slightly less than 20% of all the fields with substantial reserve additions.

This low proportion does not, however, entail the conclusion that exploration is becoming increasingly unimportant for U.S. reserve additions. Among the remaining 80% of fields with substantial additions, exploration-dominated growth predominates, with 45% of all fields versus 35% with development-dominated growth. Adjusting for the classification bias mentioned earlier, it is likely that 50% of all these fields had exploration-dominated growth and only 30% had development-dominated growth. Exploration efforts thus account for 65-70% of all the fields with recent substantial reserve additions.

The types of opportunities vary significantly by region. In the Gulf of Mexico new field discoveries accounted for 35% of the fields with substantial reserve additions. In the Interior and Western regions they accounted for less than 10%.

Except for the Interior region, with its large number of oil fields that have recently been undergoing more intensive development, exploration-driven reserve additions predominate across regions, providing anywhere from modest (55% in the Western region) to massive (75-80% in the Gulf of Mexico) majorities of all fields with substantial additions.

Because they comprise a smaller proportion of the fields in the two largest classes of reserve additions, new field discoveries provided only 15% of the amount of reserves added in the 1,000+ fields with substantial reserve additions. Fields with exploration-dominated growth contributed around 45% of the amount added, while fields with development-dominated growth contributed the remaining 40%.

The surprising fact from this classification is the predominant position of exploration-dominated activity in recent reserve growth. The literature on reserve growth, with its emphasis on additional oil recovery, better reservoir characterization, well architecture, and the like, has left a strong impression that development-dominated growth should predominate. Further reflection, however, confirms the importance of exploration-dominated growth. Natural gas and natural gas liquids reserve additions provide the majority of recent reserve additions. These additions are in turn predominantly from new field and new pool discoveries and extensions. The specific field data reflect the aggregate statistics.

Conclusion

This two part article began with the question: Is the U.S. running out of upstream opportunities?

The preceding review of recent opportunities realized suggests that this is the wrong question. A more appropriate one would be: Why did we think that the U.S. was running out of upstream opportunities? The late Parke Dickey's sage observation a few decades ago answers that question succinctly: "Several times in the past we have thought that we were running out of oil, whereas actually we were only running out of ideas."

As one surveys the impact that new techniques such as 3D and 4D seismic, horizontal and extended reach drilling, better reservoir characterization, improved completion techniques, advances in deepwater drilling and development, and the like are having on the upstream industry, it is not difficult to imagine opportunities sufficient to sustain a domestic upstream industry for at least another 10-20 years.

The abundance of opportunities does not mean that they can be realized without skill or effort. It does mean that our efforts should be focused on identifying and developing them, not on bewailing their imagined absence or chasing after every non-U.S. opportunity that crosses our path.

End Part 2 of 2

The literature on reserve growth, with its emphasis on additional oil recovery, better reservoir characterization, well architecture, and the like, has left a strong impression that development-dominated growth should predominate.

The Author