| About Us - Registration/Login - Contact Us - Message Board - Glossary - Features - B-School - Legal - Biz-End - Orange-GTM - WAP |
| STOCK MARKETS | COMPANIES | SECTORS | ECONOMY | MUTUAL FUNDS | ONLINE TRADING | INVESTOR POINTS |
| |
|
| 'This site is a must read for investors ..' Forbes magazine | |
| India Infoline Sector Reports | Wed, 18-Feb-2004 16:16:31 IST (GMT+5:30) | |
| Refining | ||
|
 |
Exploration AndProduction Backdrop The Exploration & Production (E&P)activity encompasses discovery and production of oil and gas, by undertaking geologicalsurveys, identifying hydrocarbon resources and commercially exploiting them. Oil and gas are primarily a mixture ofhydrogen and carbon in varying proportions. Organic matter collected beneath severalsedimentary layers, over millions of years, get converted into hydrocarbons due to intensepressure and heat. Hydrocarbons are found in sedimentary basins only and becomecommercially exploitable only when · the organic carbon in the source-rockhas been converted to hydrocarbon resources due to sufficient heat over a very long periodof time and · the source-rock is permeable beneath thesurface and impermeable at the top facilitating upward movement of oil & gas but yetsealing the reservoir, thus forming a "closed" or a "trapped"structure. Activities Involved In E&P The principal activities involved in anE&P activity are · Undertaking seismic surveys · Drilling an exploratory well · Economic evaluation of the project · Entering into agreements with the state · Formulation of field development &production plan · Develop production & evacuationinfrastructure and undertake drilling & production of oil & gas · Decommissioning of the well Seismic Surveys are undertaken to identifyand study the migration paths, geometry and size of the "trap" formation andenable the explorer to find out the existence of a hydrocarbon structure and decidewhether an exploratory well is to be drilled. Cost of seismic surveys would depend on theterrain that is explored and the technique adopted. Offshore seismic costs are generallymuch lower than onshore costs. However onshore exploration/ operations in remote andinaccessible places can be extremely expensive compared to, say a desert. Similarlytwo-dimensional (2D) surveys cost much less than the three-dimensional (3D) surveys.However, 3-D surveys provide more detailed and accurate information enabling the explorerto site the wells precisely. Typical Cost Of Seismic Surveys
To understand the geological structure ofan area oil geologists and geophysicists use a range of techniques from examination ofsurface rocks to remote sensing, from orbiting satellites to conducting gravimetric andmagnetic surveys to identify potential hydrocarbon structures. Exploratory well: An exploratory well isrequired to · confirm the existence of oil or gas inany structure · extract information on the geologicalhistory and the nature & properties of the reservoir Evaluation of project: If the results of anexploratory drilling are satisfactory then a notional field development plan is developed.An economic evaluation is made, based on the estimated investment required for drilling,processing & evacuation, expenditure on production, maintenance & decommissioning,contractual terms for mining oil & gas and the price realization during the life ofthe project. The impact of technical, commercial and political risks are factored on theviability of the project is worked out by discounting the estimated cash flows at suitablediscount rates. Agreements: Any commercial exploitation ofreservoirs can commence only after entering into contract(s) or after obtaining licensesfrom the Governments of the State. Typically agreements are in the form of either licensesor production sharing contracts. In the case of licenses, the state's interest isrestricted to royalties and taxes and the licensee will be free to produce and sell oil& gas without any limitations. In the case of production sharing contract(s), theState or the National Oil company is made a partner in the venture and initial explorationcosts would have to be borne by the contractor. Revenues earned on production of oil &gas shall first set-off the costs incurred by the contractor and the balance amount shallbe shared in a pre-determined ratio. Field development plan: Along with theeconomic evaluation of project, a comprehensive field development plan consisting ofrecovery techniques, design & layout of wells, drilling technology, productionprocessing & evacuation facilities, with a time-table for drilling of wells has to bedeveloped. This would ensure optimal recovery of the mineral resources. Commercial production: In accordance withthe plan, the production and distribution infrastructure is developed in a phased manner.Commercial exploitation commences in accordance with the available infrastructure.Initially the reservoir pressure would be adequate to push the oil & gas to thesurface but pressure decreases with increase in production. The natural drive mechanismcan be scientifically used to maintain the rate of production. However secondary recoverymethods, like injection of additional energy will be needed only if there is a fall inproduction with poor recovery rates. Enhanced oil recovery (EOR) techniques involvinginjection of hot water, steam or addition of solvents could also be used to increaseproduction though at current oil prices, use of EOR may not be commercially viable. De-Commissioning of wells: In order toensure that land is brought back to its original state, the wells have to bedecommissioned once the oil or gas field reaches the end of its economic life. In most ofthe countries, this is mandatory as per the extant laws in force. Types And Quality Of Crude The quality of crude is measured in termsof its "lightness" and "sweetness". Crude oil is generally categorizedas Light or Heavy and Sweet or Sour. The higher the specific gravity, thelighter is the crude and richer the product slate. Specific gravity is measured as perstandards laid down by American Petroleum Institute and typically ranges between 28º APIto 45º API. The lesser the impurities like Sulphur, the sweeter the crude and cheaper thecost to produce value-added products. The impurity is generally measured in terms of itssulphur content and varies between 0.01% to 2.0%. The price of a particular type of crude isa function of its quality and place of availability. Exploration And Production Costs The costs incurred for production of oil& gas can be grouped under three heads · Exploration/ finding Costs · Development costs · Operating costs Exploration/ finding costs#include the costof seismic surveys & exploratory drilling and varies between US$0.15/ bbl in MiddleEast to more than US$9/ bbl in Western Europe. The finding costs have reducedsignificantly over a period of time. In the last decade, it reduced from about US$10-12/bbl to US$4-6/ bbl due to the following reasons. · Developments of 3-D seismic surveys, whichprovide accurate geological and geophysical information thus, enable exact location ofwells. · Development of horizontal drilling andslimhole drilling techniques · Offshore production on floatingplatforms · Development of sub-sea infrastructuresystems · Reduction in lead time for start-up from4th year to 2nd year · Availability of consolidated seismicinformation and ability to analyze the increasing mass of data through interactivecomputer-based interpretation systems Development costs
include the cost ofproduction, processing & evacuation,
infrastructure & R&D and variesfromUS$1.0/ bbl in Middle
East to as high as Operating costs
include the cost ofmaintaining the reservoir, revenue expenditure
on production and evacuation of oil &gas. This varies from
about US$0.50/ bbl in Middle East (onshore) to US$10.0/ bbl
inIndonesia. The uncertainties involved in findingcommercial quantities of oil & gas and the intensive capital required for venturinginto the business make E&P prone to great business risk. Tens of millions of dollarsmay well have been spent without discovering a viable oil & gas field. Given thisinherent risk in business where inputs can be determined and outputs are probable, thesuccessful ventures have to generate sufficient profits for the unsuccessful ones to keepthe business going. An estimated US$50mn may have to be spent over a period of 3 to 6years, before one can realistically conclude whether the field is fit to be fullydeveloped for commercial exploitation. In order to counter this business risk,E&P companies are spreading both horizontally and vertically. Horizontal riskspreading envisages acquisition of large acreage in varied geological environmentsconsisting, various categories of sedimentary basins. Vertical risk spreadingenvisages farming-out participating interest to other oil companies in the oil fieldsowned by these companies and farming with such companies in the fields owned by the othercompanies. Risk is thus spread widely. E&P Sector In India Historical perspective Exploration activity started in India wayback in 1866 in the north eastern state of Assam, just seven years after drilling of thefirst oil well in Pennsylvania, USA. For about a century the E&P activity wasrestricted to the northeastern part of the country and till early 1960s the total crudeproduction in India was only about 10,000 bpd. Burmah oil was the only company engaged inE&P. With the demand growing, the government recognized the need to explorehydrocarbon resources and accordingly set up Oil & Natural Gas Commission (ONGC) in1956. Burmah oil was also merged with Oil India Ltd (OIL), this was however taken over byGOI in 1981. ONGC was converted into a public ltd company in 1993. ONGC and OIL enjoy thestatus of National Oil Companies (NOCs) and have a duopoly with about 90% and 10% sharerespectively. The NOCs market their produce directly except natural gas, which isdistributed through Gas Authority of India Ltd (GAIL).
|
|
|
| 5PAISA | PREMIUM CONTENT | ADVERTISE WITH US | FEEDBACK | DISCLAIMER | PRIVACY POLICY | JOBS | FAQS | SITE MAP | HELP |
